January 2018 Colorado Presence of Employee In-State Created Nexus The Colorado Department of Revenue has issued a private letter ruling stating that the presence of a taxpayer s employee in Colorado established sufficient nexus for sales and use tax purposes. The taxpayer was an online retailer of tangible personal property whose shipment originated out of state. The taxpayer had no office or inventory in Colorado but had an employee residing in the state who worked remotely and was engaged in research and contract negotiations. According to law, a retailer has an obligation to collect sales and use taxes if it is doing business (i.e., has a nexus) in the state. In this matter, since the taxpayer sold taxable goods at retail to Colorado customers, it was considered doing business in the state. Moreover, the presence of the taxpayer s employee in the state had established sufficient nexus requiring the taxpayer to collect and remit tax. Private Letter Ruling No. PLR-17-008, Colorado Department of Revenue, October 3, 2017, released December 2017 Illinois Rule Proposed on Subtraction Modification for Partnerships Illinois proposes new guidance for partnerships that modify their base income on their tax returns by subtracting: personal service income; or compensation paid to partners 1
The Department of Revenue s proposed rule clarifies which income qualifies as personal service income and defines what is reasonable compensation for services provided by a partner. The proposed rule includes numerous examples. 86 Ill. Adm. Code 100.2850, Illinois Register, December 26, 2017 Indiana Guidance Regarding Taxation of Nonresident Professional Athlete Team Members Updated The Indiana Department of Revenue has updated an information bulletin to reflect that, effective January 1, 2018, income for nonresident members of professional sports teams is subject to local income tax and to address withholding requirements for local income tax. Further, the guidance discusses applicable teams and team players; income that is subject to apportionment; definition of duty days; partial-year team member; calculation of Indiana income; local income tax; and simplified reporting for teams not located in Indiana. Information Bulletin #88, Indiana Department of Revenue, December 2017 Kentucky Kentucky and Federal Tax Reform FAQs Issued Kentucky issued guidance on how the federal Tax Cuts and Jobs Act of 2017 will impact state corporate income and personal income taxpayers. Taxpayers computing Kentucky income tax liability must currently follow IRC provisions in effect on December 31, 2015, except for differences specified under state law. It is not known at this time if the Kentucky General Assembly will update the IRC tie-in date. Major differences between Kentucky and federal law that may require adjustments by taxpayers for the 2017 tax year include: the 100% bonus depreciation deduction; the medical expense deduction threshold reduction; the IRC Sec. 179 expensing deduction for improvements to commercial heating and air-conditioning property; and certain tax relief for 2016 and 2017 natural disaster losses. The guidance also lists examples of "minor" differences between Kentucky and federal law that may require adjustments to 2017 state income tax returns. Kentucky and Federal Tax Reform FAQs, Kentucky Department of Revenue, January 12, 2018 2
Louisiana Remote Sellers Must Send Annual Notice to Online Shoppers Louisiana online and catalog shoppers who made purchases in 2017 for which sales tax was not collected will receive an annual use tax notification from the remote retailer. This annual notice must be sent by first class or certified mail before January 31 each year. Alternatively, the remote seller may send the notice electronically if authorized by the purchaser. The annual notice must provide the following: Total amount paid by purchaser for goods or services in preceding calendar year; listing of dates and amounts of purchases, if available; whether purchase is exempt from tax, if known by the retailer; name of retailer; statement that Louisiana use tax may be due; and instructions for paying use tax on purchaser s individual income tax return or on Consumer Use Tax Return (R-1035). Remote retailers must report the same information to the Louisiana Department of Revenue. Taxpayers who file taxes through a paid preparer should provide a copy of the notice to the preparer. The annual notice and reporting requirements by remote sellers are further covered in Revenue Information Bulletin 18-006. The complete release is available at http://www.rev.state.la.us/newsandpublications/newsreleasedetails/10457. News Release, Louisiana Department of Revenue, January 16, 2018 Michigan Schedule of Trade-in Values for Motor Vehicle Sales is Accelerated The Michigan legislature has voted to override Governor Snyder s veto in order to amend the trade-in provisions relating to motor vehicles and recreational vehicles. Beginning January 1, 2019, for sales and use tax purposes, the maximum agreed-upon value of a motor vehicle used as part payment is $5,000. Beginning January 1, 2020 and each following January, this amount increases by an additional $1,000. Once the amount exceeds $14,000, there is no longer a limit to the trade-in value. Furthermore, beginning January 1, 2018, the full amount of the agreed-upon value of a recreational vehicle used as part payment is excluded from the taxable price. It is not subject to the schedule outlined above. S.B. 94 and S.B. 95 Laws 2018, effective January 17, 2018 3
New Alternative Dispute Resolution Process Discussed The Michigan Department of Treasury has issued a notice discussing the new nonjudicial dispute resolution process enacted by Act 215 (H.B. 4976), Laws 2017). While previously the department was only authorized to enter negotiated settlements through use of the judicial process, the department may now settle tax disputes with taxpayers by accepting less than the full amount of tax in dispute, or increasing the amount of a taxpayer s refund, prior to the commencement of litigation. The new process is available to all taxpayers who have made a timely request for informal conference; however, a taxpayer may not request settlement consideration of its dispute more than 21 days after the date that the informal conference was held. The notice further discusses situations in which the department may request settlement, in addition to failed settlement offers. The department notes that it will soon post to its website a required settlement application form and written guidelines explaining the process that taxpayers will be required to follow in order to submit a valid settlement proposal in accordance with Act 215. Notice to Taxpayers Regarding Alternative Dispute Resolution, Michigan Department of Treasury, December 27, 2017 Unitary Business Group Not Disqualified from MBT Small Business Alternative Credit Reversing the Tax Tribunal, the Michigan Court of Appeals found that a unitary business group was not disqualified from claiming the Michigan Business Tax s (MBT) small business alternative credit. The Department of Treasury disallowed the credit arguing that no member of a unitary business group could violate the disqualification provision of the statute and claim the credit. The MBT statute for the credit grants the credit to any taxpayer which meets certain financial thresholds. However, this is then followed by two disqualification subdivisions that list certain entities with other financial thresholds. The Court of Appeals stated that a person who read the two disqualification subdivisions would reasonably conclude that the entities listed in the two subdivisions were those taxpayers, and only those taxpayers, that could be disqualified from claiming the credit. Nowhere did the plain language of the statue imply that a taxpayer that was not listed as disqualified should be unpacked until a disqualifying member of the unitary business group was discovered. Further, the fact that the Legislature explicitly added unitary business groups to the list of taxpayers that may be disqualified from claiming the Corporate Income Tax (CIT) small business alternative credit undercut the Treasury s reading of the MBT credit. If the Treasury s reading had been correct there would have been no need for the Legislature to add unitary business groups to the CIT s credit disqualification provision. D Agostini Land Company, LLC v. Department of Treasury, Michigan Court of Appeals, No. 336599, January 9, 2018 Minnesota Changes to 2017 UBIT Form Discussed The Minnesota Department of Revenue issued a bulletin announcing 2017 unrelated business income tax (UBIT) form changes. The bulletin notes that important changes to the 2017 Unrelated Business Income Tax return (Form M4NP) include: Line 1 of the form has been changed to Federal taxable income before Minnesota subtractions (from federal Form 990-T, line 34: 1120-C, line 27; 1120-H, line 19; 1120-POL, line 19) ; previously, line 1 stated Federal 4
taxable income before net operating loss and specific deduction (from federal forms 990-T, line 30; 1120-C, line 25a; 1120-H, line 17; 1120-POL, line 17c). Line 5 of the form has been changed to Federal taxable income before Minnesota subtractions (from federal Form 990-T, line 34: 1120-C, line 27; 1120-H, line 19; 1120-POL, line 19) ; previously, line 5 stated Minnesota net operating loss deduction (from NOL). Additionally, the bulletin discusses how these changes could affect a taxpayer. Depending upon which federal form a taxpayer files, the line from his/her federal form takes into account net operating loss, and special or specific deductions. Further, due to the changes, unrelated business income taxpayers are no longer required to maintain separate net operating loss (NOL) schedules for Minnesota purposes. Further, the state allows NOLs to be carried back two years and carried forward 20 years for UBIT. Taxpayers may waive the carryback period by filing a separate statement with their federal tax return, declining to use the carryback; however, taxpayers must note that the election is permanent and they must file the statement by the due date of the return. Bulletin, Minnesota Department of Revenue, December 19, 2017 New Jersey Bulk Sale Notification Requirement Exemptions Expanded New Jersey s bulk sales notification requirement for the sale, transfer, or assignment in bulk of any part or whole of a person s business assets has been amended. The notification requirement no longer applies to sale, transfer, or assignment of a grant, tax credit, or tax credit transfer certificate that has been awarded, issued, or otherwise made available to a person in connection with an authorized state or local business assistance or incentive program or activity. A state or local business assistance or incentive program or activity includes the corporation business tax credit and insurance premiums tax credit certificate transfer program, the Business Retention and Relocation Assistance Program, the Business Employment Incentive Program, the Urban Transit Hub Tax Credit Program, the Grow New Jersey Assistance Program, and the State or local Economic Redevelopment and Growth Grant program. Further, the exemption for the sale, transfer or assignment of either a simple dwelling house or a seasonal rental unit have been expanded so that the seller, transferrer or assignor, can be an individual, estate or trust or any combination thereof owning the simple dwelling house as joint tenants, tenants in common or tenancy by the entirety. Previously, the exemption only applied to sales, transfers or assignments by an individual, estate or trust. The exemption did not apply to sales from unmarried co-owners. Ch. 307 (S.B. 2839), Laws 2018, effective retroactively to sales, transfers and assignments on or after August 1, 2007 North Carolina Corporations Must File Annual Report With Secretary of State's Office The North Carolina Department of Revenue (department) has issued a press release informing corporate income taxpayers that effective January 1, 2018 all corporate annual reports must be filed directly with the Secretary of State's Office. Previously, corporations were allowed to file their state tax returns and annual reports together with the department. However, beginning 2018, corporations can no longer file annual reports with the department as part of their income tax filing. Press Release, North Carolina Department of Revenue, January 3, 2018 5
Ohio Pass Through Distributive Income Discussed Compensation and guaranteed payments paid by a pass-through entity (PTE), or a professional employer organization (PEO), to its owners legally constitute a distributive share of income. Ohio recently enacted this change retroactive to any tax year beginning after 2012. The owner of the PTE must still directly own at least 20% of the entity: making the payment; or utilizing a PEO to make the payment on its behalf. Taxpayers impacted by the change must file: an original or amended return to apply for a refund; an application for a refund if an erroneous payment was previously made; or a petition for reassessment if an assessment was previously issued by Ohio. Release, Ohio Department of Revenue, January 9, 2018 Pennsylvania Corporate Income Tax Depreciation Addback Required Pennsylvania is requiring taxpayers to addback 100% of the federal bonus depreciation deduction. The federal Tax Cuts and Jobs Act allows taxpayers to fully deduct the cost of certain property placed in service after September 27, 2017. The federal deduction is taken under IRC 168(k). Pennsylvania already required an addback for 50% bonus depreciation but there was a state subtraction approximating the federal deduction. Currently, Pennsylvania does not provide for an additional cost recovery mechanism for the property. Taxpayers can take an additional deduction when the qualified property is sold or disposed of. Corporation Tax Bulletin 2017-02, Pennsylvania Department of Revenue, December 22, 2017 South Dakota U.S. Supreme Court Agrees to Review Quill s Physical Presence Requirement The U.S. Supreme Court has agreed to review the sales tax physical presence requirement of Quill Corp. v. North Dakota, 504 U.S. 298 (1992). Specifically, the U.S. Supreme Court will review a decision of the South Dakota Supreme Court that struck down a law that requires out-of-state retailers to collect and remit sales tax on Internet purchases. The law applied to out-of-state retailers that had an annual gross revenue of more than $100,000 from sales in South Dakota, or completed more than 200 sales annually in South Dakota. 6
The state law directly conflicted with the U.S. Supreme Court ruling in Quill Corp., that held that retailers are not required to collect sales tax in states where they do not have a physical presence. Therefore, the state law was struck down. South Dakota v. Wayfair, Inc., U.S. Supreme Court, Dkt. 17-494, petition for certiorari granted January 12, 2018 If you have any questions, please contact your tax advisor or: Curtis Ruppal 877-622-2257, Ext. 34069 curtis.ruppal@plantemoran.com Mike Merkel 877-622-2257, Ext. 33264 michael.merkel@plantemoran.com Julie Corrigan 877-622-2257, Ext. 26509 julie.corrigan@plantemoran.com Ron Cook 877-622-2257, Ext. 03211 ron.cook@plantemoran.com The information provided in this alert is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC, is not rendering legal, tax, accounting, or other professional advice, position, or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use. 2017 CCH Incorporated and its affiliates. All rights reserved. 7