State and local tax advisor: June 2021

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

• Colorado
• Florida
• Idaho
• Illinois
• Iowa
• Maine
• Nebraska
• New Jersey
• Oklahoma
• South Carolina
• Virginia

Colorado

Income tax: Legislation that would make numerous tax changes passes senate

Editor’s note: On June 23, 2021, Colorado Governor Jared Polis signed three sweeping tax bills into law.  A summary of the key provisions of those tax bills can be found here.  

The Colorado Senate has passed legislation that, if enacted, would make multiple changes to corporate and personal income taxes, including:

• Extending through 2025 the addback requirement for certain business owners who claim a federal qualified business income deduction under IRC Section. 199A.
• Beginning in 2022, requiring an addition for a portion of federal itemized deductions for individual taxpayers with adjusted gross incomes of $400,000 or more.
• For tax year 2022, requiring an addition for the enhanced federal deduction for business meals.
• Repealing the cap on the deduction for pension and annuity income received for all Social Security income that’s included in federal taxable income.
• Limiting the deduction for 529 contributions to $20,000 per taxpayer per beneficiary for single filers, or $30,000 per taxpayer per beneficiary for joint filers.
• Increasing the earned income credit from 15 to 20% of the federal credit for tax year 2022 and tax years on or after 2026, and to 25% for tax years 2023 through 2025.
• Repealing the conditional availability of the state’s child tax credit and allowing the credit to qualifying taxpayers beginning in tax year 2022.
• Beginning in 2022, replacing the current combined reporting standard (Joyce) with the Finnigan standard, so that if one corporation in a combined group has a nexus to Colorado, all of the affiliated corporations are considered to have nexus to Colorado for tax liability apportionment purposes.
• Requiring that combined groups include within their combined return any affiliated corporation that’s incorporated in a specified foreign jurisdiction for the purpose of tax avoidance.
• Repealing the state income tax deduction for certain federally taxable capital gains after tax year 2021, except for qualified agricultural property.
• Creating a temporary income tax credit equal to 50% of the conversion costs for a business that converts to a worker-owned cooperative, an employee stock ownership plan, or an employee ownership trust.
• Subjecting disqualified insurance companies to the state income tax rather than the insurance premium tax.

H.B. 1311, as passed by the Colorado Senate on June 3, 2021.

Sales and use tax: COVID-19 relief expanded for bars, restaurants, hotels, and mobile food retailers

The temporary deduction from state net taxable sales for qualifying Colorado retailers in the bar, restaurant, catering, and the mobile food services industries has been extended.

How much may be deducted?

The law allows qualifying retailers to temporarily deduct up to $70,000 in net taxable sales from their monthly state sales tax return and retain the resulting sales tax revenue. One deduction is permitted per month for up to five licensed locations per retailer.

What is the new relief period?

The temporary tax deduction will be allowed for sales made in the following months:

• June 2021
• July 2021
• August 2021

Who qualifies for the deduction?

Qualifying retailers include businesses in the following industries:

• Alcoholic beverages drinking places industry
• Catering industry
• Food services contractor industry
• Restaurant and other eating places industry
• Mobile food services industry
• Businesses that operate a hotel-operated restaurant, bar, or catering service

H.B. 1265, Laws 2021, effective June 14, 2021.

Florida

Sales and use tax: Registration requirements for remote sellers and marketplace providers discussed

Effective July 1, 2021, Florida sales and use tax must be collected and remitted on remote sales and sales made through a marketplace to be transported into the state. Such persons are required to register with the Florida Department of Revenue and collect, report, and remit state sales and use tax and discretionary sales surtax.

Remote sales

Beginning July 1, 2021, persons not located in Florida who make a substantial number of remote sales for delivery in Florida are required to register with the Department and collect and remit tax.

A substantial number of remote sales is any number of taxable remote sales in the previous calendar year in which the sum of the total sales exceeds $100,000.

A remote sale is the retail sale of tangible personal property ordered by mail, telephone, the internet, or other communication from a person who receives the order outside Florida and causes the property to be transported into Florida.

Marketplace sales

Also beginning July 1, 2021, marketplace providers who have a physical presence in Florida or who make or facilitate a substantial number of remote sales through a marketplace are required to register with the Department and collect and remit tax.

A marketplace is any physical place or electronic medium through which tangible personal property is offered for sale.

A marketplace provider is a person who:

• Facilitates a retail sale by a marketplace seller by listing or advertising for sale by the marketplace seller tangible personal property in a marketplace.
• Directly or indirectly, through agreements or arrangements with third parties, collects payment from the customer and transmits all or part of the payment to the marketplace seller, regardless of whether the marketplace provider receives compensation or other consideration in exchange for its services.

Tax Information Publication, No. 21A01-03, Florida Department of Revenue, May 14, 2021.

Idaho

Income tax: Tax relief enacted

Idaho has enacted legislation to:

• Reduce the number of personal income tax brackets to five.
• Provide for a one-time tax rebate.
• Set the top individual and corporate tax bracket to 6.5% retroactive to Jan. 1, 2021.

Corporate tax rate

The corporate tax rate is 6.5%, previously 6.925%, retroactive to Jan. 1, 2021.

Personal income tax brackets

Retroactive to Jan. 1, 2021, the personal income tax brackets are:

• On income less than $1,000, 1%.
• On income $1,000 but less than $3,000, $10, plus 3.1% of the amount over $1,000.
• On income $3,000 but less than $4,000, $72, plus 4.5% of the amount over $3,000.
• On income $4,000 but less than $5,000, $117, plus 5.5% of the amount over $4,000.
• On income $5,000 and over, $172, plus 6.5% of the amount over $5,000.

One-time tax rebate

After filing a 2020 Idaho individual income tax return or Form 24, any full-year resident taxpayer who also filed for 2019 will receive a one-time, nontaxable income tax rebate check. The amount of the check will equal approximately 9% of the tax amount, if any, reported on 2019 Form 40, line 20, or for service members on 2019 Form 43, line 42, or $50.00 per taxpayer and each dependent, whichever is more. Ch. 342 (H.B. 380), Laws 2021, effective July 1, 2021, and as noted.

Illinois

Corporate, personal income taxes: NOL, bonus depreciation, and foreign dividend changes enacted

Illinois Governor J.B. Pritzker signed budget legislation that contains important tax changes, including:

• A cap on corporate income tax net operating loss (NOL) deductions
• Corporate and personal income tax adjustments for the 100% federal bonus depreciation deduction under IRC Sec. 168(k)
• Corporate income tax addition adjustments for foreign-source dividends and the IRC Sec. 250 deduction from global intangible low-taxed income (GILTI)
• Elimination of the scheduled franchise tax phaseout

P.A. 102-16 (S.B. 2017), Laws 2021, effective June 17, 2021, and as noted in the previous story on the budget legislation; Press Release, Office of Illinois Gov. Office of J.B. Pritzker, June 17, 2021.

More information on the newly enacted law and the tax legislation that awaits Gov. Pritzker’s signatures can be found here.

Sales and use tax: Tax treatment of interstate commerce that originate in Illinois discussed

For sales and use tax purposes, where tangible personal property is located in Illinois or subsequently produced in Illinois at the time of its sale, and then delivered to the purchaser in Illinois, the seller is taxable if the sale is at retail.

In a letter ruling, the Illinois Department of Revenue (department) discusses tax treatment of interstate commerce that originates in Illinois and clarified that:

• The place at which the contract of sale or contract to sell is negotiated and executed, the place at which title to the property passes to the purchaser, and the place at which the purchaser resides, all are immaterial to determining tax treatment of interstate commerce.
• If the purchases occur in Illinois, the purchasers must pay the use tax to the retailer at the time of purchase; the retailers are then allowed to reduce the amount of use tax they must remit by the amount of Retailers’ Occupation Tax liability, which they are required to and do pay to the department with respect to the same sales.
• Mere possession in Illinois is considered a use.
• A sale is taxable even though a purchaser that receives physical possession of the property in Illinois immediately transports the property out of this State for use outside Illinois.
• Illinois has no specific exemption for purchases by foreign or domestic travelers if the property is delivered and used in Illinois.

General Information Letter ST 21-0012-GIL, Illinois Department of Revenue, March 11, 2021, released June 2021.

Sales and use tax: Tax treatment of various services discussed

In a letter ruling, Illinois discusses applicability of sales and compensating use taxes to various services a taxpayer offers to its clients whom have physical locations in Illinois. The Illinois Department of Revenue clarified:

• The taxability of agreements for the repair or maintenance of tangible personal property depends upon whether charges for the agreements are included in the selling price of the tangible personal property.
• If maintenance charges are included in the selling price of the tangible personal property, those charges are part of the gross receipts of the retail transaction and are subject to tax.
• Delivery charges of transactions that don’t involve the transfer of any tangible personal property to the customer are not subject to retailers’ occupation tax, use tax, service occupation tax, or service use tax.
• The tax liabilities of warehousemen who hold themselves out to the public as being engaged in the business of moving, storing, packing, and shipping tangible personal property belonging to other persons are generally engaged in a service transaction.
• Generally, sales of “canned” computer software are taxable retail sales in Illinois. Computer software provided through a cloud-based delivery system — a system in which computer software is never downloaded onto a client’s computer and is only accessed remotely — is not subject to tax.
• Generally, persons who provide services and who do not, as part of that service, charge customers for the line or other transmission charges that are used to obtain these services aren’t considered to be telecommunications retailers from these activities.
• A cancellation fee typically doesn’t involve retail sales or the sale or transfer of tangible personal property incident to a sale of service. Such charges are not subject to tax.

General Information Letter ST 21-0013, Illinois Department of Revenue, March 11, 2021, released June 2021.

Iowa

Corporate, personal income taxes: Treatment of COVID-19 relief, bonus depreciation amended

Iowa has enacted income tax changes regarding:

• COVID-19-related grants
• Paycheck Protection Program (PPP)
• bonus depreciation
• the business interest expense deduction

COVID-19 grant exemption

Iowa exempts the proceeds of grants received by a taxpayer from COVID-19 assistance programs administered by the Economic Development Authority (EDA), the Iowa Finance Authority (IFA), and the Department of Agriculture and Land Stewardship (DALS) from the income tax. The income exclusion is repealed on Jan. 1, 2024, and doesn’t apply to tax years beginning on or after that date.

PPP taxation

The existing tax preference available for the income and deductions associated with a forgiven PPP loan is expanded to include taxpayers who received a PPP loan in the taxpayer’s 2019 tax year. Existing law provides an income tax exemption and associated expense deduction for forgiven PPP loans for tax years beginning on or after Jan. 1, 2020.

Bonus depreciation and interest deduction

Iowa will couple with federal bonus depreciation for qualified equipment and other capital assets purchased on or after Jan. 1, 2021. The change doesn’t allow bonus depreciation for purchases made prior to Jan. 1, 2021.

Currently, Iowa decouples from the federal provision limiting the amount of interest certain companies can claim as a business expense deduction. That provision is repealed.

The changes to bonus depreciation and the interest deduction combined will allow business taxpayers to begin to benefit from bonus depreciation (starting Jan. 1, 2021), while not being subject to the federal interest deduction limitation.

S.F. 619, Laws 2021, effective July 1, 2021, and as noted.

Corporate, personal income taxes: Pass-through entity composite returns required

Iowa enacted legislation requiring pass-through entities to file a composite return on behalf of all nonresident members to report and pay the income or franchise tax.

Rate

The tax will be paid at the maximum income or franchise tax rate applicable to the member on the nonresident members’ distributive shares of the income from the pass-through entity. The tax rate applicable to a tiered pass-through entity is the maximum state personal income tax rate.

Nonresident member

A “nonresident member” is a partner in a partnership, a shareholder of an S corporation, or a beneficiary of an estate or trust, who is any of the following:

• An individual who isn’t a resident of Iowa
• A partnership without a commercial domicile in Iowa
• A trust or estate without a situs in Iowa
• A C or S corporation without a commercial domicile in Iowa
• A financial institution without a commercial domicile in Iowa

S.F.608, Laws 2021, effective July 1, 2021, applicable to tax years beginning on or after Jan. 1, 2022.

Maine

Corporate, personal income taxes: Factor-based nexus standard adopted, credit for taxes paid another state clarified

Enacted legislation adopts a factor-based standard for purposes of determining corporate income tax nexus with Maine. Additionally, the law clarifies the personal income tax credit for taxes paid to another state with respect to telework during the COVID-19 pandemic.

Factor-based nexus standard

Applicable to tax years beginning on or after Jan. 1, 2022, a corporation has nexus with Maine for corporate income tax purposes if: (1) that corporation is organized or commercially domiciled in Maine, or (2) the corporation is organized or commercially domiciled outside of Maine, if the corporation’s property, payroll, or sales exceed any of the following thresholds for the taxable year:

• For property: $250,000
• For payroll: $250,000
• For sales: $500,00
• 25% of the corporation’s property, payroll, or sales

Credit for taxes paid to other state

For tax years beginning in 2021, when determining whether compensation for personal services performed as an employee working remotely from a location in Maine is derived from sources in another jurisdiction for the purposes of the credit for income tax paid to other taxing jurisdictions, the compensation is sourced to the other jurisdiction if:

• The employee was engaged in performing services from a location outside of Maine immediately prior to a state of emergency declared by the governor due to the COVID-19 pandemic or by the jurisdiction where the employee was engaged in performing those services.
• The employee commenced working remotely from Maine due to the COVID-19 pandemic and during either Maine’s or the other jurisdiction’s state of emergency related to the COVID- 19 pandemic.
• The services were performed prior to Jan. 1, 2022, and during either Maine’s or the other jurisdiction’s state of emergency.
• The compensation is sourced by that jurisdiction as derived from or connected with sources in that jurisdiction under the law of that jurisdiction.
• The employee doesn’t qualify for an income tax credit in that jurisdiction for Maine income taxes paid as a result of the compensation.

L.D. 1216 (H.P. 891), Laws 2021, effective as noted above.

Nebraska

Corporate income tax: Tax rates lowered on income over $100,000

Nebraska is lowering the tax rates on corporations with taxable income over $100,000 for tax years beginning after 2021.

2022 tax year

The tax rate for the 2022 tax year is 5.58% on taxable income up to $100,000. The rate on taxable income over $100,000 decreases from 7.81 to 7.50%.

2023 tax year

The tax rate for the 2023 tax year is 5.58% on taxable income up to $100,000. It is 7.25% on taxable income over $100,000.

Tax years after 2023

The Nebraska legislature plans to lower the tax rate on taxable income over $100,000 to:

• 7% for the 2024 tax year
• 6.84% for tax years beginning after 2024

L.B. 432, Laws 2021, Aug. 27, 2021, and as noted.

New Jersey

Corporate income tax: Combined reporting initiative announced

New Jersey is beginning to identify companies included as part of a corporate business income tax combined group filing and indicated that they have nexus with New Jersey but have not filed as a separate entity before 2019. Beginning June 15, 2021, and running through Oct. 15, 2021, companies that have had nexus with New Jersey prior to filing as part of combined return will have the opportunity to come forward and voluntarily comply with their Corporation Business Tax filing requirements.

Closing agreement

Companies are not eligible for a standard Voluntary Disclosure Agreement; however, New Jersey will consider entering into a Closing Agreement with approved companies based upon the factors:

• Companies must not have been incorporated in New Jersey, authorized to do business in New Jersey, or registered for Corporation Business Tax prior to being included as part of a 2019 or 2020 combined return.
• Taxpayers must provide the New Jersey registration number of the managerial member, which begins with NU.
• The look-back period will be limited to the periods ending after June 30, 2016, or the date nexus was established with New Jersey, whichever is later, returns for prior periods will not be required.
• The taxpayer must file all required returns and remit payment of the reported tax liability in full within 45 days of execution of the agreement.
• New Jersey will waive all penalties.
• Taxpayers will remit payment of interest within 30 days of assessment.
• All returns will be subject to routine audits.

Failure to take advantage of this initiative will result in the look-back period going beyond return periods ending after June 30, 2016, and all applicable penalties and interest being assessed.

Questions

Email questions and requests for disclosure to the Nexus Audit Group at nexusauditgroup.taxation@treas.nj.gov using “Combined Reporting Initiative” as the subject line.

Corporation Business Tax - Combined Reporting Initiative, New Jersey Division of Taxation, June 3, 2021.

Oklahoma

Corporate, personal income taxes: Rate reduction enacted

Oklahoma Governor Kevin Stitt has signed legislation to reduce income taxes and amend the earned income tax credit.

Corporate income tax

For all taxable years after 2021, the Oklahoma corporate income tax rate is now 4% (previously 6%).

Personal income tax

The tax, after 2021, for single individuals and married individuals filing separately is:

• 0.25% tax on first $1,000.00 or part thereof
• 0.75% tax on next $1,500.00 or part thereof
• 1.75% tax on next $1,250.00 or part thereof
• 2.75% tax on next $1,150.00 or part thereof
• 3.75% tax on next $2,300.00 or part thereof
• 4.75% tax on the remainder

The rate for married individual filing jointly and surviving spouses is now:

• 0.25% tax on first $2,000.00 or part thereof
• 0.75% tax on next $3,000.00 or part thereof
• 1.75% tax on next $2,500.00 or part thereof
• 2.75% tax on next $2,300.00 or part thereof
• 3.75% tax on next $2,400.00 or part thereof
• 4.75% tax on the remainder

Resident individuals or part-year residents are allowed a credit of 5% of the earned income tax credit allowed under IRC Sec. 31. The credit is computed using the same requirements, other than the 5% amount used to compute the credit, in effect for computation of the earned income tax credit for federal income tax purposes for the 2020 income tax year. (68 O.S. Sec. 2357.43)

Pass-through entity tax

For tax years after 2021, the tax on each member of an electing pass-through entity is:

• The highest Oklahoma marginal income tax rate levied on the taxable income of natural persons
• 4% (previously 6%) if the member is classified as a corporation
• 4% (previously 6%) if the member is a pass-through entity
• 4% (previously 6%) if the member is a financial institution
• The highest Oklahoma marginal income tax rate that would be applicable to any item of the electing pass-through entity's income or gain, for certain members

Banking associations

After 2021, every state banking association, national banking association, and credit union organized under the laws of this state, located, or doing business in Oklahoma is 4% (previously 6%) of the amount of the taxable income.

H.B. 2960, H.B. 2961, H.B. 2962, H.B. 2963, Laws 2020, effective Jan. 1, 2022.

South Carolina

Income tax: IRC conformity updated

South Carolina has updated its Internal Revenue Code conformity date from Dec. 31, 2019, to Dec. 31, 2020.

If there are IRC sections adopted by South Carolina that expired on Dec. 31, 2020, and are extended, but not amended, by congressional enactment during 2021, then those sections are also extended for South Carolina income tax purposes.

PPP loans

To the extent that loans are forgiven and excluded from gross income for federal income tax purposes under the paycheck protection program (PPP), or from any extension of the program, those loans are also excluded for South Carolina income tax purposes. In addition, to the extent that the federal government allows the deduction of expenses associated with the forgiven PPP loans, the expenses will also be allowed as a deduction for South Carolina income tax purposes.

Unemployment

For tax year 2020, South Carolina specifically adopts the amendment in the American Rescue Plan Act of 2021 relating to the exclusion from taxable income of $10,200 of unemployment compensation for a taxpayer with less than $150,000 in federal adjusted gross income.

Federal provisions not followed

Certain provisions of the CARES Act and the Consolidated Appropriations Act, 2021 are specifically not adopted by South Carolina, including: IRC Sec. 62(a)(22) relating to the $300 charitable deduction allowed in 2020 for persons who claim the standard deduction; IRC Sec. 172(a) relating to the modification of the income limitations allowed for the use of net operating losses in tax years 2018, 2019, and 2020; IRC Sec. 461(l) relating to the modification of the limitation on losses allowed for noncorporate taxpayers in tax years 2018, 2019, and 2020; and IRC Sec. 274(n) relating to the temporary allowance of the full business deduction for business meals that are paid or incurred after Dec. 30, 2020, and before Jan. 1, 2023.

H.B. 4017, Laws 2021, effective May 18, 2021.

Virginia

Corporate income tax: More guidance issued on informational combined reporting requirement

Virginia has released additional guidance for corporations needing to file a one-time report by July 1, 2021, showing the difference between the amount of tax the corporation would pay if it filed as part of a unitary combined group and the amount of tax based on the current filing requirements. The additional guidance includes a sample of the report and technical instructions, as well as a reference guide containing more detailed instructions. A web upload application is also provided for purposes of filing the report.

Notice, Virginia Department of Taxation, May 2021.