“Domestic Corporation” now includes partnerships, joint ventures, and LLCs electing to be taxed as C Corporations for federal income tax purposes.
Expansion of franchise tax nexus for out of state taxpayers – nexus for corporations that own interest in partnerships with Louisiana operations.
Net Operating Loss (NOL) Reduction – NOL deduction cannot exceed 72% of Louisiana taxable income.
NOL Carryover ordering – must use loss carryovers starting with the loss for the most recent taxable year. Older NOLs may expire since taxpayers would have to first use newer NOLs.
Modification of corporation income tax rate to flat rate of 6.5% (contingent).
Addback of intercompany interest, intangible expenses and management fees unless certain exceptions are met.
Modification of federal income tax deduction (contingent).
Sale/Use Tax Changes:
Effective 4/1/16 through 6/30/2018, the legislation increases the sales tax rate by 1% (bringing the rate to 5%). Referred to as the “Clean Penny” Legislation, the legislation includes its own set of exclusions and exemptions apart from the exclusions and exemptions that apply to the original 4% sales tax rate (referred to as “Old Penny”).
Old Pennies (the original 4% sales tax) – law modifies the list of exclusions and exemptions, specifically as they relate to the 2% basic rate (sub component of the 4% tax). It is important to note the inconsistencies between the exclusions and exemptions offered under the Clean Penny and Old Penny laws.
Affiliate Nexus provisions – the legislations drastically expands the definition of a “dealer.”
While the 2015 Texas Legislature gave taxpayers a significant franchise tax (margin tax) rate cut and repealed some smaller taxes (some of which had not been collected in years), it otherwise left much of the Texas tax code otherwise unchanged. Below, we’ll tell you about the changes the Texas Legislature made and provide links to the underlying bills.
The big tax cut. The franchise tax rate for most taxpayers is reduced from one percent to 0.75 percent. The franchise tax rate for retailers and wholesalers is reduced from 0.5 percent to 0.375 percent. The franchise tax rate for taxpayers using the E-Z Computation is reduced from 0.575 percent to 0.331 percent, and taxpayers with no more than $20 million in total revenue may pay using the E-Z Computation. Previously, only taxpayers with no more than $10 million in total revenue could pay using the E-Z Computation. (HB 32)
$200 professional fee for attorneys, CPAs, and certain other professionals. (HB 7)
Tax on alcoholic beverages served on trains and planes. (HB 1905)
The purchase of an aircraft qualifies for the sale for resale exemption if purchased for the purpose of leasing or renting the aircraft. Leasing or renting the aircraft includes the transfer of operational control under a written lease for consideration. Such a purchase would qualify for the sale for resale exemption regardless of whether the purchaser also used the aircraft, so long as more than 50 percent of the aircraft’s departures are made under the operational control of lessees other than the purchaser under a written lease.
A transaction between related entities is exempt from sales tax if the same transaction between unrelated entities would also be exempt.
Aircraft brought to Texas for the purpose of being completed, repaired, remodeled, or restored are not subject to use tax.
No presumption that an aircraft is subject to Texas use tax if brought into Texas by someone who did not acquire it directly from a seller by means of a purchase.
An aircraft brought into Texas from out of state is not subject to Texas sales and use tax if it made more than half of its departures from locations outside Texas for a year after either the acquisition of the aircraft or the aircraft’s first flight, whichever date is later.
Sales tax exemption for “certificated or licensed carriers,” is only available to those authorized under Parts 121, 125, 133, and 135 of the FAA regulations. (Overturns Cirrus Exploration Co. v. Combs, et al., which held that a carrier authorized under Part 91 qualified for the exemption).
Sales and Use Tax
Classifies certain sales of software to hosting providers as sales for resale. (SB 755)
Excludes services performed by public insurance adjusters from taxable insurance services. (HB 1841)
Exempts from sales and use tax telecommunications services used for the navigation of farm and ranch machinery and equipment. (SB 140)
Exempts digital transmission equipment purchased by radio stations from sales and use tax. (HB 2507)
Exempts vending machine sales by non-profits from sales and use tax if machine is stocked by individuals with special needs as part of a skills and education program that the nonprofit operates. (HB 2313)
Extends the temporary sales and use tax exemption for qualifying large data centers from 15 to 20 years. (HB 2712).
Creates a sales tax holiday for emergency preparation supplies. (SB 904)
“Clarifies” that sales of motor vehicles from manufacturers to dealers are not retail sales subject to motor vehicle sales and use tax. (HB 2400)
“Clarifies” that private school bus companies qualify for exemption from motor vehicle sales tax for school buses used to provide transportation services to school districts. (SB 724)
Allows municipalities to increase and decrease their local sales and use tax rates. (HB 157)
Allocates sales and use tax from sporting goods sales for parks and wildlife purposes only. (HB 158)
Franchise Tax (Margin Tax)
Apportions income from licensing or distributing programming or film programming as non-Texas sales unless the broadcaster’s customer is domiciled in Texas. (HB 2896)
Exempts new veteran-owned businesses from franchise tax for five years. (SB 1049)
Requires limited partnerships and professional associations to file a public information report with their franchise tax report, but eliminates the requirement that they file a report with the secretary of state. (HB 2891)
Allows electronic filing of a franchise tax public information report. (SB 1364)
State Office of Administrative Hearings changes – eliminates the Comptroller’s prior approval for tax judges to work on other cases, removes the Comptroller’s authority to evaluate judge performance, and ends the Comptroller’s obligation to provide input on Comptroller priorities to SOAH. (HB 2154)
Allows Comptroller to use estimates in annual report on the effectiveness of exemptions, exclusions, etc. if actual data isn’t available. (HB 1261)
If you think that any of these Legislative changes may affect your business, you may wish to seek the advice of a Texas tax professional, such as a Texas tax attorney, to determine how these laws may affect you.
By Stephen P. Kranz, Diann Smith, Mark Yopp and Lauren A. Ferrante on January 29, 2015
Actually, there are really only two issues, but they are big issues.
Arizona’s Transaction Privilege Tax has always been an anomaly in the traditional state sales tax system. Contrary to some commentators, however, the recent amendments do not, and could not, impose an origin tax on Arizona retailers for remote sales delivered out-of-state. That is not to say that these amendments are benign. Oddly, the amendments provide incentives for Arizona residents shipping items out-of-state to purchase these items over the internet rather than visit Arizona retailers in person. Furthermore, these amendments create complexities for Arizona vendors shipping to foreign jurisdictions. Finally, these amendments create additional administrative problems for retailers that are difficult to address with existing software and invite double taxation problems that should not exist in a transaction tax world.
Background: Arizona Transaction Privilege and Use Tax
For retail sales, Arizona, like most states, has two complementary transaction-based taxes, but each tax is imposed on a different entity. The first tax, the Transaction Privilege Tax (TPT), is imposed directly on the retailer. Ariz. Rev. Stat. § 42-5001.13. A retailer will be subject to the TPT on the gross proceeds from a sale if “the location where the sale is made” is Arizona. Ariz. Rev. Stat. § 42-5034.A.9. A retailer subject to the TPT is allowed but not required to collect the amount of TPT it owes from its customers. Ariz. Admin. Code §§ 15-5-2002, 15-5-2210.
Michigan Supreme Court denied use tax exemption without proof of sales tax payment
On June 23, 2014, the Michigan Supreme Court held that in order to be entitled to the use tax exemption, one must show that sales tax was both due and paid on the sale of tangible personal property. The burden of proving entitlement to the exemption is on the taxpayer. The taxpayer had to show it paid sales tax on the purchase of property before it could claim an exemption and since it did not submit evidence that sales tax was paid, the taxpayer was not entitled to the exemption. Andrie Inc., v. Department of Treasury, Michigan Supreme Court, No. 145557 (6/23/2014)
Based on the Court’s decision, taxpayers are not entitled to a presumption that sales tax has been paid when their Michigan invoices do not list sales tax as a separate item. Therefore, companies purchasing tangible personal property from Michigan vendors should identify whether sales tax is delineated on receipts in order to determine whether a use tax liability may be imposed. If Michigan sales tax is not separately stated, companies should consider contacting retailers to request new invoices or other evidence to support that sales tax was paid.
This article from Forbes, explores the amount of tax evasion that is occurring due to Cyber Monday. Cyber Monday follows Black Friday, and is typically the busiest day of the year for online shopping. States often look forward to Black Friday, because it generates a significant amount of sales tax revenue. Cyber Monday, however, is a day where states lose copious potential revenue. Out-of-state retailers are not required to collect and remit sales tax without a physical presence or substantial nexus within the state. Even if the tax is not collected by the seller, the buyer typically still owes the use tax on the product; however they rarely report this. The result is high profits for retailers, and little to no revenue for states.