State and local tax advisor: February 2021

The states covered in this issue of our monthly tax advisor include:

• Colorado
• Illinois
• Indiana
• Iowa
• Missouri
• New Jersey
• New York City
• North Carolina
• Ohio
• Pennsylvania
• Texas

Colorado

Corporate income tax: Rules on combined reporting and holding companies adopted

The Colorado Department of Revenue has adopted corporate income tax rules to explain the manner in which the statutory de minimis standard will be uniformly applied to taxpayers. The rules are adopted in response to legislative changes enacted under S.B. 233, Laws 2019, which provide that domestic holding companies are not excluded from a combined return due to lack of property and payroll.

Under the adopted rules, “de minimis” means less than $100,000 of property and payroll, combined. Property and payroll are determined by factoring pursuant to Sec. 24-60-1301, C.R.S. This statute also establishes the criteria for valuing the amounts of property and payroll counting toward the $100,000 de minimis threshold.

The rules also clarify that S.B. 233, Laws 2019, applies to tax periods beginning on and after Sept. 1, 2019. Additionally, Rule 39-22-303(12)(c) is repealed because it’s no longer consistent with the governing Colorado statute for tax years starting on or after Sept. 1, 2019.

Rules 39-22-303-1, 39-22-303(11)(f), and 39-22-303(12)(c) (repealed), Colorado Department of Revenue, effective March 2, 2021.

Corporate, personal income taxes: Subtraction enacted for certain decoupled CARES Act provisions; EITC expansion accelerated

Enacted Colorado legislation creates a deduction from corporate and personal income taxes related to the state’s decoupling with certain CARES Act provisions for:

• Net operating losses
• Excess business losses
• Business interest expenses
• Qualified improvement property

The enacted law also broadens taxpayer eligibility to claim the state-earned income tax credit (EITC) for tax year 2020.

State deduction for certain CARES Act provisions

The enacted law creates a state deduction for the amount of certain federal deductions that were expanded under the CARES Act and were allowed to be carried back, but which were not allowed by the state. For tax year 2021, the deduction is enacted that is equal to:

• The amount of the taxpayer’s federal taxable income calculated for any tax years ending before March 27, 2020, that exceeded the revised federal taxable income computed after the application of Sections 2303 (net operating losses), 2304 (excess business losses), 2306 (business interest income), and 2307 (qualified improvement property) under the CARES Act, plus;
• The amount of required additions for tax year 2020 for those CARES Act-related provisions enacted in H.B. 1420, Laws 2020.

The deduction is capped at $300,000 for tax year 2021, and at $150,000 for tax years 2022 through 2025. Any excess amount may be carried forward to future years until the entire deduction amount is exhausted.

Expansion of EITC eligibility

The expansion of the state’s EITC to taxpayers who would otherwise qualify for the federal credit, but who lack a valid Social Security number, is effective for tax years commencing on and after Jan. 1, 2020. The expansion was previously set to take effect in tax year 2021.

H.B. 1002, Laws 2021, effective Jan. 21, 2021.

Illinois

Sales and use tax: Guidance for out-of-state retailers issued

The Illinois Department of Revenue issued an updated guidance for out-of-state retailers regarding the state sales and use taxes. Effective Jan. 1, 2021, the Leveling the Playing Field for Illinois Retail Act implemented a series of structural changes to the Illinois sales tax laws that changed the liabilities of many types of retailers.

Specifically, these changes include the following: (1) remote retailers, or retailers with no physical presence in Illinois, who meet certain economic or transactional thresholds are required to remit Illinois Retailers’ Occupation Tax (ROT) and applicable local ROT based on the Illinois location to which the tangible personal property is shipped or delivered or at which possession is taken by the purchaser (destination rate); (2) marketplace facilitators meeting certain economic or transactional thresholds are required to remit Illinois ROT and applicable local ROT on all sales made through the marketplace on behalf of marketplace sellers, including Illinois brick-and-mortar retailers, selling through the marketplace, based on the destination rate; (3) marketplace facilitators meeting certain economic or transactional thresholds making sales on their own behalf incur Illinois ROT and applicable local ROT in effect at the location of either the Illinois inventory from which an order is fulfilled or the Illinois location where their selling activities otherwise occur (origin rate). If their sales are filled from inventory located outside Illinois and their selling activities do not otherwise occur in Illinois, marketplace facilitators incur Illinois ROT and applicable local ROT based on the destination rate; (4) out-of-state retailers with a physical presence in Illinois will continue to handle their tax liability as they did prior to Jan. 1, 2021; and (5) Illinois retailers, including brick-and-mortar retailers, making sales from an Illinois location will continue to handle their liability as they did prior to Jan. 1, 2021.

Further, the guidance includes a list of common transactions that explain whether certain items are taxable or exempt, the applicable tax rates, definition, and legal references.

PIO-101, Illinois Department of Revenue, Feb. 8, 2021.

Sales and use tax: City of Chicago provides information on nexus and safe harbor provision

The City of Chicago Department of Finance issued a sales and use tax bulletin that provides a summary of the City’s treatment of nexus. It also discusses a safe harbor provision that relates to the amusement tax and personal property lease transaction tax.

Nexus analysis

In determining nexus, the City considers whether an out-of-state entity meets the economic nexus thresholds that apply to the state use tax (i.e., sales of property to customers in Illinois of $100,000 or more; or enters into 200 or more sales transactions in Illinois). However, that factor will not necessarily be treated as determinative, unless the safe harbor provision discussed below applies.

If the safe harbor provision doesn’t apply, other factors that the City may consider include:

• Agreements that the entity has with other businesses in Chicago.
• Activities that the entity’s employees or other agents perform on the entity’s behalf in Chicago.
• Any physical presence that the entity has in Chicago.
• Advertising directed at Chicago customers.
• Any other facts that support or oppose the conclusion that the entity has purposefully availed itself of the privilege of carrying on business in Chicago.

Safe harbor provision

The City will employ a safe harbor provision. Specifically, an out-of-state entity that received under $100,000 in revenue from Chicago customers during the most recent consecutive four calendar quarters will not be expected to collect the following taxes from its Chicago customers during the current calendar quarter:

• Chicago’s amusement tax, as applied to amusements that are delivered electronically, such as video streaming, audio streaming, and online games.
• Chicago’s personal property lease transaction tax, as applied to nonpossessory computer leases.

This safe harbor is extended with the following conditions and qualifications:

• It will apply only to an entity that has no other significant contacts with Chicago, such as those listed in the nexus analysis section above.
• It will apply on a prospective basis, beginning July 1, 2021. No refunds or credits will be granted for taxes paid or remitted before that date.
• If an out-of-state business initially qualified for the safe harbor but no longer does, it must (i) register with the City’s Department of Finance within 60 days, (ii) begin collecting Chicago taxes within 90 days, and (iii) continue collecting Chicago taxes for at least 12 months.
• The safe harbor concerns only the issue of whether a provider has a duty to collect taxes from its customers; it doesn’t affect the issue of whether a customer has a duty to pay those taxes.

City of Chicago Information Bulletin—Nexus and Safe Harbor, City of Chicago Department of Finance, Jan. 21, 2021.

Indiana

Corporate, personal income taxes: IRC provisions not followed by Indiana clarified

Indiana has released guidance providing a list of the most significant corporate and personal income tax modifications necessary because the definition of Internal Revenue Code (IRC) is the version in effect on Jan. 1, 2020. The bulletin covers modifications required due nonconformity with the:

• CARES Act
• Consolidated Appropriations Act, 2021

Items not followed

Charitable contributions: If an individual made a qualified charitable contribution deducted under IRC Sec. 62(a)(22), the amount of that contribution must be added back in determining adjusted gross income. If an individual is a part-year resident, only the portion deducted for federal purposes and paid while the individual was an Indiana resident shall be required to be added back.

Student loan payments by an employer: If an employer makes student loan payments to an employee, whether to the employee or directly to the lender, the employee is required to add back the amount of such payments made by the employer and excluded from the employee’s gross income under IRC Sec. 127(c)(1)(B). However, if a payment is required to be added back, the deduction disallowance under IRC Sec. 127(c)(7) and IRC Sec. 221(e)(1) will not apply for Indiana purposes to the extent the amount added back otherwise would have been deductible for federal purposes.

Loss limitation suspension: Under the CARES Act, the loss limitation under IRC Sec. 461(l) was suspended for 2018, 2019, and 2020. Indiana doesn’t follow this treatment. Affected taxpayers will be required to:

• Add back the amount of any current year excess loss that would have been disallowed for federal purposes in determining Indiana adjusted gross income.
• Add the amount disallowed to the individual’s current year net operating loss available for carryover to future years.

Excess deduction upon termination of a trust: Indiana doesn’t recognize this allowance of above-the-line deductions, either prospectively or retroactively.

Special rules for retirement distributions: Indiana hasn’t adopted the CARES Act provision permitting an individual to elect inclusion of CARES Act distributions over a three-year period. Thus, Indiana will require full inclusion of any distribution in the year of distribution. However, future inclusions will be deductible in determining Indiana adjusted gross income.

Indiana also doesn’t follow the CARES Act provision allowing repayments of distributions from retirement plans to be treated as qualified rollovers under certain conditions and to be excluded from federal adjusted gross income. Thus, if a repayment is made to a qualified retirement plan, the amount repaid will be required to be added back in determining Indiana adjusted gross income. This rule also applies to recontributions of withdrawals for home purchases.

Depreciation on qualified improvement property: Indiana will continue to treat qualified improvement property as being subject to a 39-year life span. The definition of qualified improvement property for Indiana purposes will be the current definition under IRC Sec. 168(e) without the “made by the taxpayer” language added in the CARES Act.

Menstrual care products: Indiana will not follow IRC Sec. 106(f), which now states that reimbursements for menstrual care products can be excluded from gross income. Further, the pre-2020 limitation under IRC Sec. 106(f) will apply. This inclusion applies to distributions from an Archer medical savings account or health savings account as well.

Excess interest deductions: In 2018, Indiana decoupled from the provisions of IRC Sec. 163(j), allowing the full amount of the deduction. The allowance of the full deduction will continue to be allowed.

Net operating loss changes: Indiana’s overall treatment remains unchanged due to the Indiana specific addback for federal net operating loss deductions, Indiana conformity modifications, and other provisions.

COVID-19-related teacher supply expenses: Indiana will not allow this deduction when determining Indiana adjusted gross income and therefore will require the addback of any deduction unless the educator can establish other qualifying expenses to substitute for these expenses.

30-year depreciation of certain residential property: Indian does not follow the provisions allowing certain residential rental property to be treated as being depreciable over 30 years as opposed to the original 40 years.

Business meal deduction: Indiana doesn’t follow the provision allowing a full deduction for business meals for amounts paid in 2021 and 2022.

Earned income tax credit special income rule: The amount of earned income in 2020 alone must be used for purposes of determining the Indiana credit.

Extenders: Legislation was enacted to permit certain IRC provisions to be permanently enacted or extended for an additional period of time. For these provisions, Indiana recognizes the 2020 federal treatment unless there is an Indiana-specific provision requiring different treatment. However, Indiana will not recognize the tax treatment for 2021 and later. These provisions include:

• Energy-efficient buildings deduction under IRC Sec. 179D
• Benefits provided to volunteer firefighters and emergency medical responders and excluded under IRC Sec. 139B
• The extension of look-through treatment of payments between related controlled foreign corporations under foreign personal holding company rules under IRC Sec. 954
• The exclusion of discharge of indebtedness on qualified personal residences under IRC Sec. 108(a)(1)(E)
• The special seven-year depreciation for motor sports improvement property under IRC Sec. 168(i)
• Special expensing rules for certain productions under IRC Sec. 181
• Special tax incentives for empowerment zones under IRC Sec. 1391, et. seq.
• Three-year depreciation for racehorses under IRC Sec. 168(e)(3)(A)(i)
• The accelerated depreciation of property on Indian reservations under IRC Sec. 168(j)

In addition, because Indiana also adopts federal regulations in effect on Jan. 1, 2020, as Indiana regulations, Indiana has not conformed to any federal regulations adopted since Jan. 1, 2020.

Items followed

Indiana does follow certain federal tax treatment for various exemptions, deductions, and other rules incorporated into federal law outside the Internal Revenue Code. Most notably, Indiana follows the exclusion of Paycheck Protection Program (PPP) loan forgiveness from adjusted gross income.

Accordingly, Indiana follows the tax provisions of the CARES Act and the Consolidated Appropriations Act, 2021 as to the following items:

• PPP loans
• Qualified emergency financial aid grants
• U.S. Treasury Program Management Authority Loans
• Emergency EIDL grants and Targeted EIDL Advances

Indiana will not disqualify a retirement plan, retirement account, health savings account, or any deductions made to those accounts based on the plan or account taking an otherwise-allowable action for federal purposes.

Information Bulletin #119, Indiana Department of Revenue, February 2021.

Iowa

Corporate, personal income taxes: PPP loan and other conformity guidance issued

Iowa has released additional corporate and personal income tax guidance discussing conformity to changes made by the Consolidated Appropriations Act. Among the issues discussed are:

• Deductibility of business expenses related to the Paycheck Protection Program (PPP) loans
• Loan forgiveness and other business financial assistance
• Farming losses
• Federal residential energy efficient property tax credits
• Residential rental property depreciation
• Qualified disaster relief contributions

PPP loans

For any tax year beginning on or after Jan. 1, 2020, Iowa is conformed with the income exclusion for forgiven PPP loans including changes made by the Consolidated Appropriations Act. A taxpayer’s income tax treatment of PPP loans and related expenses should be the same on their Iowa tax return as it’s on their federal tax return.

For tax year 2019 (fiscal-year filers), Iowa conforms to the income exclusion for forgiven PPP loans, but is not conformed with the deductibility of qualifying expenses or other tax benefits provided for in the Consolidated Appropriations Act. Taxpayers who have their PPP loan forgiven and properly excluded from federal gross income in tax year 2019 will also qualify for the exclusion from income in tax year 2019 for Iowa tax purposes, but those taxpayers will not be eligible to deduct business expenses in tax year 2019 that were paid using forgiven (or expected to be forgiven) PPP loans or to otherwise rely on sections 276(a) and 278(a) of the Consolidated Appropriations Act.

Loan forgiveness

Under the Act, certain Economic Injury Disaster Loan (EIDL) grants and Targeted EIDL Advances under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act aren’t included in the recipient’s gross income. For any tax year beginning on or after Jan. 1, 2020, Iowa is conformed with the income exclusion for these EIDL grants and Targeted EIDL Advances. A taxpayer’s income tax treatment of EIDL grants and Targeted EIDL Advances and related expenses should be the same on their Iowa tax return as it is on their federal tax return.

Further, for any tax year beginning on or after Jan. 1, 2020, Iowa conforms to the income exclusion for subsidies received for certain covered loan payments under CARES Act section 1112(c) and the other provisions of the Consolidated Appropriation Act, 2021 under section 278(c) of Division N. A taxpayer’s income tax treatment of these subsidies and related expenses should be the same on their Iowa tax return as it is on their federal tax return.

For any tax year beginning on or after Jan. 1, 2020, Iowa conforms to the income exclusion shuttered venue operator grants. A taxpayer’s income tax treatment of subsidies received for shuttered venue operator grants provided under section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act and related expenses should be the same on their Iowa tax return as it is on their federal tax return.

Farming losses

Generally, Iowa taxpayers with a farming loss may waive their carryback period in tax years 2018 and 2019 if they elected to waive their carryback period for federal tax purposes by the appropriate due date. Taxpayers who chose to waive their federal farming loss carryback on an original and timely filed 2018 or 2019 return aren’t permitted to revoke that waiver for Iowa purposes, even if they’re permitted to for federal purposes under the Consolidated Appropriations Act. However, taxpayers can make an Iowa-only election to waive an Iowa net operating loss (NOL) carryback, independent of whether the taxpayer chose or was required to carryback an NOL at the federal level for tax years beginning after 2019.

Energy-efficient property tax credit and business energy credits

Iowa provides its own solar energy system tax credit, calculated in part using a percentage of the taxpayer’s allowable corresponding federal credits. However, Iowa’s solar energy system tax credit is based on the IRC in effect on Jan. 1, 2016, so Iowa is not conformed with any extension or modification to the corresponding federal credits after that date.

Depreciation of residential rental property

Iowa doesn’t conform with the change to the Alternative Depreciation System (ADS) for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2020. Therefore, affected taxpayers’ Iowa depreciation deductions for the rental property in those tax years should not be amended to reflect this change.

Qualified disaster relief contributions

If a corporation filing on a fiscal-year basis makes a “qualified disaster relief contribution” during their 2019 tax year, the taxpayer is subject to the regular corporate charitable contribution limit (10% of taxable income) without regard to the increased limitation and deduction allowed under the Consolidated Appropriations Act.

Iowa Nonconformity: The Federal Consolidated Appropriations Act of 2021, Iowa Department of Revenue, Feb. 4, 2021.

Missouri

Corporate income tax: Allocation and apportionment regulations adopted

Missouri has adopted new regulations governing the allocation and apportionment of income for tax purposes beginning Jan. 1, 2020. The regulations cover:

• General allocation and apportionment
• Allocation and apportionment for nonresident S corporation shareholders and partners
• Apportionment for broadcasters

General allocation and apportionment

The new general allocation and apportionment reflects the state’s move to a single sales (receipts) factor apportionment formula for tax years beginning after 2019. The regulation specifies that, generally, all gross receipts of a taxpayer that are received from transactions and activity in the regular course of the taxpayer’s trade or business are receipts for purposes of the receipts factor. If a taxpayer’s entire activity in the regular course of its trade or business is composed of hedging transactions or the disposition of cash or securities, such that the denominator of the receipts factor would be zero, the total receipts factor will be 100%; in these instances, taxpayers may apply for alternative apportionment. Exclusion of an item from the definition of “receipts” is not determinative of its character as apportionable or nonapportionable income. The regulation provides additional rules for determining receipts in situations involving:

• Manufacturing and selling or purchasing and reselling goods or products.
• Property shipped by a seller from the state of origin to a consignee in another state and diverted while en route to a purchaser in the state.
• Cost-plus fixed fee contracts.
• Providing services such as the performance of equipment service contracts or research and development contracts.
• The sale of equipment used in the taxpayer’s trade or business, where the taxpayer disposes of the equipment under a regular replacement program.

Nonresident S corporation shareholders and partners

For tax years beginning on or after Jan. 1, 2020, items of S corporation or partnership income, gain, loss, or deduction entering into a nonresident shareholder’s or partner’s federal adjusted gross income are specifically sourced to Missouri to the extent that:

• The S corporation or partner would include that item in its Missouri-apportioned income by applying the standard provisions.
• The S corporation or partner would include that item in its Missouri-allocated income by applying the standard provisions.

Broadcasters

A broadcaster that files an original income tax return on or after Jan. 1, 2020, must apportion its apportionable income to Missouri by a fraction where:

• The numerator is the sum of the taxpayer’s receipts from broadcast advertising services sourced to Missouri plus the taxpayer’s receipts from licenses of broadcast intangibles sourced to Missouri.
• The denominator is the sum of the taxpayer’s total receipts from broadcast advertising services from all sources plus the taxpayer’s total receipts from licenses of broadcast intangibles from all sources.

Receipts from a broadcaster’s sale of advertising services to a broadcast customer are sourced to Missouri if the commercial domicile of the broadcast customer is in Missouri. Where a broadcaster grants a license to a broadcast customer for the right to use film programming, the licensing fees paid by the licensee for the right are sourced to Missouri to the extent that the broadcast customer is located in Missouri. The broadcast customer’s location must be determined using the customer’s commercial domicile or, if an individual, the address listed in the broadcaster’s records.

The Department of Revenue adopted these regulations with no changes to the proposed text, except with respect to the definition of “broadcaster.” The change to the definition of “broadcaster” adds language stating that the term doesn’t include a television broadcast station.

Subscribers can view the text of the proposed regulations here.

Reg. Secs. 12 CSR 10-2.076, 12 CSR 10-2.255, and 12 CSR 10-2.260, Missouri Department of Revenue, effective March 30, 2021.

New Jersey

Corporate income tax: Guidance regarding treating a combined group as a taxpayer issued

New Jersey provides guidance regarding a combined group being considered a taxpayer for the corporation business tax.

Members with independent operations

For privilege periods ending on and after July 31, 2020, rather than compute the tax on an entity-by-entity basis, the tax liability is computed on the group level. For purposes of the surtax, the combined group is taxed as one taxpayer. However, a taxable member is also taxed on the portion of the tax attributable to the activities that are independent from the unitary business of the combined group.

Combined groups and P.L. 86-272

The activities of the members of the combined group in relation to the unitary business of the combined group determine whether the combined group exceeds P.L. 86-272. If one member of the combined group exceeds the protections of P.L. 86-272, the entire combined group exceeds P.L. 86-272.

Sharing tax credits

For privilege periods ending on and after July 31, 2020, tax credits can be applied against the group tax liability instead of being applied on an entity-by-entity basis unless a specific credit statute restricts sharing.

Dividend exclusions

For privilege periods ending on and after July 31, 2020, there is a further simplified group-level computation of the dividend exclusion.

International Banking Facility (IBF) deduction

Combined group including a taxable member that is a banking corporation with an IBF are eligible to deduct the income amounts that weren’t eliminated (so that the entire combined group is treated as one banking corporation). The income must have otherwise been eligible for the IBF deduction.

Minimum tax

For privilege periods ending on and after July 31, 2020, when computing the tax due for a combined group, the statutory minimum tax of the taxable members is added together.

Managerial member responsibilities

The managerial member is required to be the party that comes forward on behalf of the combined group and its members to address any inquiries into refunds, the procedures involving closing agreements, Section 8 relief requests, and other matters.

Technical Bulletin TB-100, New Jersey Division of Taxation, Jan. 25, 2021.

Corporate, personal income taxes: PPP loans exempt from tax

New Jersey announced that it will follow the federal government’s lead in allowing Paycheck Protection Program (PPP) loans:

• To be tax exempt from income tax at the state level.
• Enabling recipients to deduct business expenses that were paid with the tax-exempt loan proceeds.

New Jersey can follow the federal government’s treatment without enabling legislation under existing authority. As a result, for the 2020 tax season, related expenses paid for with PPP loans will be deductible for both gross income tax and corporation business tax purposes and forgiven loans will be excluded from being subject to either tax.

Press Release, New Jersey Department of the Treasury, Feb. 9, 2021.

New York City

Corporate income, miscellaneous taxes: Guidance on decoupling from certain CARES Act provisions updated

New York City has updated its memorandum that discusses the decoupling of its business corporation tax, general corporation tax, unincorporated business tax, and banking corporation tax from federal tax changes contained in the CARES Act regarding the business interest expense limitation under IRC Sec. 163(j), the NOL limitations under IRC Sec. 172, and the nonbusiness loss limitations under IRC Sec. 461(l). The memorandum previously provided instructions to taxpayers for completing their tax year 2018 and 2019 business tax returns. The new version includes instructions for completing tax year 2020 business tax returns.

Finance Memorandum 20-6, New York City Department of Finance, revised Jan. 27, 2021.

North Carolina

Corporate income tax: Change in evaluation of apportionable income discussed

For corporate income tax purposes, the North Carolina Department of Revenue (department) issued a notice on what constitutes apportionable income considering the 2017 amendment to the definition of “apportionable income.” On April 21, 2011, the department issued Final Agency Decision No. 09 REV 5669, in which it ruled that gain from the sale of an out-of-state taxpayer’s minority limited partnership interest was nonapportionable income allocable to the taxpayer’s state of commercial domicile and, therefore, wasn’t subject to the state’s corporate income tax. The ruling found that the taxpayer’s involvement with the partnership was passive. However, due to an amendment of N.C. Gen. Stat. Section 105-130.4 by 2017 legislation clarifying the definition of “apportionable income,” the department finds that the decision no longer correctly applies the statute. Accordingly, the department will cease following the decision for transactions occurring after Dec. 31, 2020. Instead, the department will apply the statute as amended in 2017 in evaluating what items constitute apportionable income.

Important Notice: Corporate Tax – Secretary Announces That New Statute Abrogated Prior Final Agency Decision, North Carolina Department of Revenue, Dec. 31, 2020.

Ohio

Corporate, personal income taxes: IRC conformity bill passes senate

The Ohio Senate passed legislation to update the state’s income tax Internal Revenue Code (IRC) conformity date. The bill incorporates federal tax law changes taking effect after March 27, 2020.

The legislation now goes to the Ohio House.

Income tax: Updates on pass-through entity & fiduciary income tax issued

Ohio Department of Taxation issued a release discussing updates on Pass-Through Entity & Fiduciary Income Tax. The release, among other issues, discusses:

• The Pass-Through Entity Tax forms (IT 4708, IT 1140, and IT 1041) for the tax year 2020 are available on the Ohio Department of Taxation.

New, expanded and repealed tax credits

• The Financial Institution Tax (FIT) Credit is repealed and will no longer be available on the IT 1041 and IT 4708.
• Lead Abatement Credit has been added as a new nonrefundable credit on Schedule E.
• The Campaign Contribution Credit has been reinstated for use on the IT 1041 and IT 4708.

Credit carried forward is available for tax year 2020

• The IT 1041, IT 1140, and IT 4708 allow an overpayment reported on the tax year 2020 return to be carried forward as a payment toward the 2021 return.

New and updated forms

• IT K-1: Formatting of this form was changed and the NAICS Code was added. The NAICS Code is a required field.
• Schedule E: Formatting of this form was changed, and instructions were updated.
• TBOR-1: Formatting of this form was changed.
• IT RCTE: A new form to calculate resident credit for trusts and estates.

Release, Ohio Department of Taxation, January 2021.

Pennsylvania

Corporate, personal income taxes: PPP loan taxability addressed

Pennsylvania enacted legislation clarifying the treatment of Paycheck Protection Plan (PPP) loans for personal and corporate net income tax purposes.

Personal income tax

For personal income tax purposes, PPP loans used to pay business expenses during the COVID-19 pandemic that are subsequently forgiven by the lender aren’t taxable income. Further, no deduction may be disallowed for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan.

Stimulus checks, otherwise known as economic impact payments, being distributed by the federal government are not subject to Pennsylvania personal income tax. The payments are considered a rebate that is nontaxable in Pennsylvania.

Corporate income tax

For corporate net income tax, Pennsylvania taxable income is based upon federal taxable income. Pennsylvania law doesn’t include an add back to or deduction from federal taxable income for forgiveness of a Paycheck Protection Plan loan.

Taxability of Paycheck Protection Plan Loans/Federal Stimulus Checks Not Subject to PA Taxes, Pennsylvania Department of Revenue, Feb.9, 2021.

Texas

Corporate income tax: Nexus rule amended

Texas amended its franchise tax rule on nexus to further implement the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., 139 S. Ct. 2080 (2018).

The amendments replace the phrase “is not doing business” with “does not have physical presence” in a provision of the rule relating to partners. This was necessary because Texas doesn’t consider a limited partner to have physical presence in Texas when its limited partnership is doing business in the state. But, the limited partner may be doing business in Texas under the state’s economic nexus provision.

The amendments also clarify when a foreign taxable entity begins doing business in Texas. The beginning date for nexus differs prior to Jan. 1, 2019, from that on or after Jan. 1, 2019.

In addition, the rule also now includes a definition of “gross receipts” that is derived from the applicable statute. For purposes of meeting the economic nexus threshold, “gross receipts” means all revenue reportable by a taxable entity on its federal tax return, without deduction for the cost of property sold, materials used, labor performed, or other costs incurred.

34 TAC §3.586, Texas Comptroller of Public Accounts, effective Feb. 10, 2021.