Mixed reception for bill requiring “physical presence” for state taxation.

Industry representatives had praise for a bill that would prevent states from taxing businesses with no in-state physical presence in Congressional hearings yesterday. State government representatives, not so much.

National Taxpayers Union representative Andrew Moylan testified for the Bill, H.R. 2887:

  1. First, it says that no state can tax or regulate the activity of a person or business in interstate commerce unless that person or business is physically present in the state.
  2. Next, it defines physical presence as including property, employees, and other markers of genuine connection to a state.
  3. Then it goes on to define what does not constitute physical presence, including things like tangential advertising relationships, presence in a state for less than 15 days, and other kinds of transitory connections that states have used as avenues of tax collection.
  4. It protects non-sellers, such as intermediaries that are neither the buyer or seller in the case of the sale of an item, from being ensnared in tax or regulatory schemes.
  5. Next, it places original jurisdiction in federal district courts to help ease some of the morass of state litigation.
  6. Finally, it defines the terms it uses in more specific fashion.

South Dakota state Senator Deb Peters, appearing on behalf of the National Conference of State Legislators, disagreed, testifying that the bill “is one of the most coercive, intrusive, and preemptive legislative measures ever introduced in Congress.”

Joseph Henchman of the Tax Foundation testified that while the bill addresses real problems with overreaching state taxation, it leaves the collection problem of internet sales to in-state residents unsolved. Also: “…the bill’s language of prohibiting state regulation of interstate activity even where ‘otherwise permissible under Federal law’ arguably might disrupt the enforceability of interstate compacts previously approved by Congress.”

Given the strong opposition of state legislatures to the bill, it has an uncertain future. It is certain that state taxation of out-of-state businesses remains a very real problem for taxpayers as states become more aggressive in pushing the unclear boundaries of their taxing authority.

If you have questions on how to deal with your state taxation issues, contact Eide Bailly’s State and Local Tax team.

Is your lawn mower considered an alternative fuel motor vehicle?

The Oklahoma Tax Commission recently ruled that a lawn mowed with a “propane mower conversion” fails to qualify for an income tax credit for “clean burning motor vehicle fuel property.” On the other hand, Oklahomans with lawn tractors may be relieved that they won’t have to get license plates.

Oklahoma’s Alternative Fuel Vehicle Income Tax Credit provides a state income tax credit of 10% of the cost of a new “alternative fuel vehicle,” with a maximum credit of $1,500. The credit also can apply to the costs of converting a standard vehicle to burn alternative fuels, which include compressed or liquefied natural gas or liquefied petroleum gas.

Oklahoma isn’t the only state with special tax incentives for alternate fuel vehicles. Contact our State and Local Tax team if you think you might qualify.

Cite: LR 17-004


Nevada Commerce Tax Return – Due August 14, 2017

As a reminder, the Nevada Commerce Tax Return reporting Nevada sourced receipts from July 1, 2016 – June 30, 2017 is due on August 14, 2017.

The State of Nevada, via Senate Bill 483, enacted the gross receipts tax, called the Commerce Tax in 2015. The annual tax applies to entities that are engaged in business in Nevada and have Nevada sourced gross revenue that exceeds $4 million in the fiscal year. The law requires taxpayers that are engaged in business in Nevada to file a Commerce Tax return regardless of the amount of their taxable gross receipts. However, taxpayer’s having less than $4 million of Nevada gross receipts can simply check a box on the return indicating they are below the $4 million threshold and send in the return. Taxpayers having more than $4 million of Nevada gross receipts must calculate their Commerce Tax liability.

Contact your Eide Bailly professional or a member of our State and Local Tax Team to learn more.


MN Income Tax Return – Federal Conformity

The Minnesota Department of Revenue (MN DOR) has started reviewing 2015 income tax returns for conformity with federal tax law. MN tax laws did not match the federal tax laws for the 2015 and 2016 calendar years. MN legislation in January, 2017 retroactively conformed MN tax law to federal tax law for 2015 and 2016. The MN DOR was able to correct the filing forms for the 2016 tax year based on the January, 2017 update of MN tax law prior to the filing of 2016 tax returns. As 2015 income tax returns are reviewed by MN DOR, the MN DOR will be contacting taxpayers directly with modifications, refunds or questions. Therefore, the MN DOR does not recommend filing amended returns for years 2015 or 2016, unless there is a reason other than the change in MN tax law. No additional tax will be owed to the MN DOR because of the conformity changes.

Review the MN Department of Revenue website related to federal conformity. Contact your Eide Bailly professional with questions or for additional information.


Does Seattle have an income tax?

The Seattle city council has enacted an individual income tax on Seattle “residents.” Residents is defined as someone with a “permanent place of abode” who spends 183 days or more there, or who “domicile” there. Whether anyone will have to pay the income tax is uncertain.

The 2.25% tax would apply on Gross income over $250,000 for single filers and $500,000 for married filers starting in 2018, with collection beginning in 2019.

Washington has no state income tax. It seeks to become the first municipality to impose an income tax in a state without one. The Tax Foundation says the Seattle tax faces an “uphill legal battle” because of doubts over its constitutionality and the authority of Seattle to pass such a tax.

The Seattle mayor is reported to be “eager” to be sued over the issue.

Given the likely legal challenges to a Seattle income tax, it may be premature to start planning for it. Still, it remains an issue to be watched closely by Seattle residents.

Illinois issues blended rates for tax years affected by income tax increase

The income tax increases recently enacted in Illinois took effect July 1, 2017, the middle of the taxable year for most taxpayers. The Illinois Department of Revenue published guidance for such taxpayers showing how to compute their tax for the year that includes July 1.

The flat individual tax rate increases from 3.5% to 4.5% resulting in a blended rate of about 4% for the 2017 calendar year filers, though the published guidance does not explicitly say so. Additional guidance will likely be provided in January 2018 for 2017 tax years, according to the state of Illinois. If they use the actual number of days before and after the rate increase in 2017, the rate would be 4.0041%.

For fiscal years beginning in 2016 for individuals, trusts and estates, Illinois provides a table:

The 1.5% “replacement tax” on top of the regular income tax for S corporations and fiduciaries is unchanged.

The corporate rate increases to 7%, from 5.25% resulting in a 6.125% rate for the 2017 calendar year C corporations, or 6.1322% using the actual number of days before and after the rate increase takes effect.

The blended rates for fiscal years beginning in 2016 are in the following table:

The 2.5% replacement tax that applies on top of these rates is unchanged.

Illinois also issued a Summary of Illinois Income Tax and Sales Tax Changes from P.A. 100-0022. The summary covers changes to the research credit, domestic production deduction, unitary taxation and other items affected by the changes. Watch for additional information related to these changes in future posts.

Contact your Eide Bailly professional or a member of our State and Local Tax Team to learn more.

Other coverage: Illinois increases income tax rates, restores research credit


Temporary Disguised-Sale Regulations Raise Concerns

The IRS issued temporary regulations under Sec. 707 (T.D. 9788) on Oct. 5, 2016 concerning how liabilities are allocated and when certain obligations are recognized for purposes of determining whether a liability is a recourse partnership liability. These regulations affect partnerships and their partners.

Under the temporary disguised-sale regulations, a partner’s economic risk of loss generally is not taken into account when determining the partner’s share of the partnership’s liabilities for purposes of applying the disguised-sale rules. Instead, liabilities generally are allocated in the same manner as excess nonrecourse liabilities, subject to certain restrictions (see Temp. Regs. Sec. 1.707-5T(a)(2)). This generally results in liabilities being allocated, for disguised-sale purposes, in accordance with each partner’s interest in partnership profits.

Adam Sweet, J.D., LL.M., Principal and Pass-through Entity Consulting Director at Eide Bailly co-authored “Temporary disguised-sale regulations raise concerns” recently published in The Tax Adviser for July, 2017 providing:

  • An overview of the temporary regulations,
  • Examples of how the regulations take effect, and
  • Recommendations for future regulations.

The article has items of specific interest for partners and partnerships entering into (or contemplating entering into) transactions that could be considered part of a disguised sale. Click here to read the entire article. Contact your Eide Bailly professional or Adam Sweet with questions.