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

 

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

 

Illinois increases income tax rates, restores research credit

Illinois increases income tax rates, restores research credit

Illinois lawmakers have ended a two-year long budget stalemate by enacting individual and corporate income tax rate increases over the Governor’s veto.

Key provisions of the bill include:

  • An increase in the individual flat income tax rate to 4.95 percent, from the former 3.75 percent rate.
  • An increase in the corporate income tax rate to a combined 9.5% rate (including the 2.5% “replacement tax” component). The rate had been 7.75%.
  • Limiting the Illinois domestic production deduction to manufacturing in Illinois.
  • Restoration of the state research credit until 2022.
  • An increase in the state earned income tax credit.

The changes are effective July 1, 2017. The bill is expected to increase Illinois tax revenues by $5 billion annually.

The bill was passed under the threat of a downgrade of Illinois debt to junk status. It is unclear how the rating agencies will react to the bill. Illinois currently has a $6.2 billion annual budget deficit and a backlog of $14.7 billion in unpaid bills.

Additional reading:

Chicago Tribune, Illinois House overrides Rauner vetoes of income tax increase, budget

Contact your Eide Bailly professional to learn more and to take advantage of the restoration of the R&D tax credit in Illinois.

New York, New York: Importance of 183 Day Rule

New York, New York: It’s up to you (to show you were somewhere else).

New York City is one of the most expensive cities in the world. It got more expensive still for a Florida magazine executive who lingered too long in Gotham.

New York, the State and the City, taxes all income of “statutory residents,” defined as taxpayers domiciled elsewhere who both maintain a “permanent place of abode” and have “physical presence” for more than 183 days.

The Florida magazine executive filed a non-resident New York State return for 2007 showing $2,980,887 adjusted gross income, with $10,316 sourced to New York, resulting in New York state tax of $615. No New York City tax was paid.

New York pulled the return and challenged the taxpayer’s status as a non-resident. The stakes were high. If the taxpayer spent 183 days in New York City, he would pay New York City and State income tax on nearly $3 million of income, rather than the reported $10,316.

The exam was thorough. The New York Tax Appeals Tribunal tells the story:

New York began examining the taxpayer’s return in April 2010. The auditor reviewed petitioner’s credit card statements, telephone bills and air travel records to determine whether petitioner was properly subject to tax as a “statutory resident” of New York State and New York City, i.e., that petitioner maintained a permanent place of abode and spent in the aggregate more than 183 days of the year in New York State and New York City during 2007.

The New York Tax Division’s review revealed credit card charges in a variety of places, including New York City, on days when petitioner claims to have been elsewhere. Similarly, the Division’s review of telephone records revealed calls being made from petitioner’s New York City premises on a variety of dates, including dates when petitioner claims to have been outside of New York. Petitioner had four different telephone numbers at his New York premises. The Division’s review indicated that calls were made to and from those numbers on over 200 days during the year 2007.

The taxpayer countered with affidavits from people in Florida – a hairdresser, concierge, a handyman, and a personal assistant—to show that he was in Florida on days that the examiner said he was in New York. He said that the phone calls must have been made by his “housekeeper, or his children, or other persons.” He said those people could have also used his credit cards.

The New York Tax Appeals Tribunal was unconvinced:

We agree with the Administrative Law Judge that the testimony provided by petitioner and the affiants speaks mainly in general terms and lacks specificity with regard to dates and events. We do not think the Administrative Law Judge erred when he concluded that such evidence was insufficient to establish petitioner’s whereabouts on each of the days in issue. The affidavits presented lacked the detail necessary to rise to the level of clearly convincing evidence. Even though the Administrative Law Judge found petitioner’s testimony forthright and honestly given, we agree that the evidence presented failed to provide the degree of specificity necessary to establish petitioner’s whereabouts with certainty so as to conclude that he was present outside of New York State and City on the disputed days.

The Tribunal upheld additional New York State and City tax liability of $986,220. As the taxpayer was otherwise a Florida resident, which does not have an individual income tax, there was no credit against taxes paid in Florida, so the tax was pure loss.

The case has lessons for taxpayers who spend significant time in New York.

  1. New York is serious about the 183-day rule. New York tax authorities have a reputation for aggressively investigating residency issues.
  2. It’s up to the taxpayer to prove absence from New York. The New York Department of Revenue examined a Midwest-based individual whose job required spending several weeks in New York City each year. The examiner refused to concede that the taxpayer was not in New York 183 days until enough credit card slips, grocery payments, and other physical evidence was presented to prove that the taxpayer really did spend most of his time elsewhere. It helped that the taxpayer’s personal assistant maintained a detailed record of the taxpayer’s calendar and travel.
  3.  Control your phone and credit cards. If somebody in New York City needs a phone or a credit card, it will probably be less costly to get them one, rather than share. If the Florida magazine executive really let his kids or housekeeper use his phones and credit cards, it cost $975,000 for the convenience, as it was that use, attributed to the taxpayer, that pushed him over the 183-day line.

Taxpayers who spend significant time in New York need to monitor their time throughout the year to see whether they are approaching the 183 day mark. As the executive in this case learned, you can pay a lot of air fare out of the city with the tax amount you might save by not being considered a New York statutory resident.

Cite: Matter of Ruderman; DTA No. 826242

OH School District Income Tax: Failure to File Notices

The Ohio Department of Taxation began sending Failure to File notices by regular mail on June 5, 2017 to taxpayers who:

  • Have not filed an Ohio School District Income Tax Return Form SD 100 for 2013, 2014 and/or 2015; and
  • Appear to have lived in a taxing school district based on the school district number and/or mailing address reported on the taxpayer’s Ohio Individual Income Tax Return (Ohio Form IT-1040) filed for 2013, 2014, and/or 2015.

To learn more about the Ohio School District Income Tax, read their Guide.

If you receive(d) a notice and need assistance, please contact a member of our State and Local Tax Team.