The states covered in this issue of our monthly tax advisor include:
California
Corporate, personal income taxes: Additional information provided on Los Angeles County fires relief
The California Franchise Tax Board (FTB) has released additional information on the emergency tax relief available for individuals and businesses affected by the Los Angeles County fires that began on Jan. 7, 2025. As previously reported, affected taxpayers qualify for a postponement until Oct. 15, 2025, to file returns and pay taxes. In addition, they may claim a disaster loss on either their 2024 or 2025 return and may receive free copies of their state returns to replace lost or damaged returns. Taxpayers should write the name of the disaster (for example, “Los Angeles Fire”) in blue or black ink at the top of their return to alert the FTB. If using tax software, they should follow the software’s instructions to indicate that the return qualifies for disaster relief.
Are taxpayers not in Los Angeles County eligible for tax relief?
Taxpayers with their principal residence or principal place of business located outside of Los Angeles County generally aren’t eligible for the tax relief and must file and pay by the normal due dates. However, a narrow exception applies. If a taxpayer isn’t in the covered disaster area, but the taxpayer’s tax records necessary to meet a filing or payment deadline are in Los Angeles County (for example, with a tax practitioner), the taxpayer will qualify for tax relief.
Do taxpayers need to demonstrate that they were affected by the fires?
Taxpayers with a principal residence or principal place of business in Los Angeles County are affected taxpayers and entitled to tax relief. No supporting documentation is required.
Are installment agreement payments suspended?
Installment agreement payments aren’t automatically suspended as part of the tax relief. Taxpayers may contact the FTB to request to skip a payment if they’re experiencing a hardship due to the disaster.
Does the postponement apply to the deadlines for IRC Sec. 1031 transactions?
Affected taxpayers who began an IRC Sec. 1031 transaction with either a 45-day identification period or 180-day exchange period that had not expired as of Jan. 7, 2025, may qualify for postponement of their deadline under certain circumstances.
Does the postponement apply to the deadlines for nonwage withholding?
The filing and payment deadlines for nonresident withholding information returns and payments (Form 592 series) and real estate withholding information returns and payments (Form 593 series) are included in the tax relief.
What should affected taxpayers do if they receive a late filing or payment penalty notice?
Affected taxpayers who receive a late filing or payment penalty notice relating to a due date that fell between Jan. 7 and Oct. 15, 2025, and who timely filed and paid by Oct. 15, 2025, should contact the FTB to have the penalty abated.
Where can taxpayers find more information?
The FTB has created a help page with answers to more questions about the Los Angeles County fires tax relief.
Los Angeles County Fires, California Franchise Tax Board, Jan. 13, 2025.
Illinois
Sales and use tax: Guide on determining physical presence in Illinois provided
Illinois issued a sales and use tax guide to help out-of-state retailers and marketplace facilitators determine if they have physical presence in the state. The guide explains:
- Origin and destination sourcing rules.
- The treatment of online sales.
- How to evaluate primary and secondary selling activities to determine where to source a sale.
It also provides examples for determining physical presence and sourcing a sale.
PIO-125, Illinois Department of Revenue, Jan. 2025.
Sales and use tax: Remote retailer resource page updated
Illinois updated a resource page that remote retailers can use to determine if they must begin to collect and pay sales tax. The updated resources include:
- An audio and visual presentation on changes to Illinois sales taxes beginning Jan. 1, 2025.
- A revised flowchart to help remote retailers determine if they are making sales to Illinois customers.
Leveling the Playing Field for Illinois Retail Act Resource Page, Illinois Department of Revenue, Dec. 31, 2024.
Iowa
Corporate, personal income taxes: Pass-through entity tax election deadline modified
The Iowa Department of Revenue has modified the pass-through entity tax (PTET) election deadline for tax year 2023 or later. For any tax year beginning on or after Jan. 1, 2023, the PTET election deadline is the date that is six months after the original due date of a pass-through entity’s IA 1065 or IA 1120S income tax return. For pass-through entities that already made a PTET election for tax year 2023 or later, the department is reviewing all PTET elections for tax year 2023 or later in light of the modified PTET election deadline. No new action is required by any pass-through entity that has already made a PTET election.
For pass-through entities that didn’t make PTET election for tax year 2023 (or short tax year 2024), the department is providing a limited period of time for a pass-through entity to make a PTET election after the deadline for tax year 2023 (or short tax year 2024) under certain circumstances. This modification of the PTET election deadline doesn’t change the application of penalties and interest. Under Iowa law for tax year 2023 or later, an electing pass-through entity’s IA 1065 or IA 1120S tax return and PTET liability must be filed and paid by the last day of the fourth month following the close of the entity’s tax year (the “original due date”).
Failure to file by the original due date subjects the electing pass-through entity to a 5% late file penalty. Failure to pay by the original due date subjects the electing pass-through entity to a 5% late pay penalty, plus interest. If the electing pass-through entity pays at least 90% of its tax liability by the original due date, the electing pass-through entity will be eligible for an automatic six-month extension to file its return without incurring a late filing penalty, and no late payment penalties will be imposed. Interest will accrue on any amount of PTET not paid by the original due date of the IA 1065 or IA 1120S tax return.
Additional detailed guidance is available on the department’s website at revenue.iowa.gov/pass-through-entity-tax.
Press Release, Iowa Department of Revenue, Dec. 23, 2024.
Louisiana
Multiple taxes: Department of revenue issues legislative summary for Third Extraordinary Session
The Louisiana Department of Revenue has issued legislative summaries for tax reform bills passed during the Third Extraordinary Session that adjourned on Nov. 22, 2024.
Legislative changes to the corporation and personal income tax rates, repeal of the corporation franchise tax, and taxation of digital products are summarized.
Special Session Legislative Summary, Louisiana Department of Revenue, Dec. 16, 2024.
Michigan
Corporate income tax: New research and development credits authorized
For tax years beginning Jan. 1, 2025, a credit against the Michigan corporate income tax and withholding tax is allowed for authorized businesses for qualified research and development (R&D) expenses incurred in the state.
Credit amount
All authorized businesses may receive a credit in the amount of 3% of their qualifying R&D expenses incurred during the calendar year up to the base amount. A business with 250 or more employees that incurs R&D expenses over the base amount may receive a credit of 10% of the expenses above the base amount (up to a total credit maximum of $2.0 million). A business with fewer than 250 employees may receive a credit of 15% of its R&D expenses above the base amount (up to a total maximum of $250,000).
An additional credit of 5% of its qualified R&D expenses may be claimed if the expenses are incurred in collaboration with a Michigan research university pursuant to a written agreement. The cap would be $200,000 per taxpayer.
“Base amount” means the average annual amount of qualifying R&D expenses incurred during the three calendar years immediately preceding the calendar year ending with or within the tax year for which a credit is claimed.
Claiming the credit
A taxpayer must submit a tentative claim to the department by Apr. 1, 2026, for claims made for qualifying R&D expenses incurred during the 2025 calendar year. Tentative claims made for qualifying expenses incurred in later years must be submitted by March 15 after the calendar year ending with or within the tax year for which the taxpayer plans to submit a claim on its annual return. A taxpayer must file a claim for a credit with the annual return for the same tax year for which a credit is claimed.
Act 186 (H.B. 5100), Act 187 (H.B. 5101), Act 118 (H.B. 4368) Laws 2024, effective April 1, 2025.
New Hampshire
Corporate income tax: BET, BPT filing threshold amounts for 2025 released
The New Hampshire Department of Revenue Administration has released the inflation-adjusted filing threshold figures for the business enterprise tax and business profits tax. For taxable periods beginning Jan. 1, 2025, the business enterprise tax filing threshold is gross business receipts or enterprise value tax base greater than $298,000. For taxable periods beginning Jan. 1, 2025, the business profits tax filing threshold is gross business receipts greater than $109,000.
Technical Information Release TIR #2024-004, New Hampshire Department of Revenue Administration, Dec. 17, 2024.
New Jersey
Personal income tax: Undistributed foreign earnings not deemed dividends
The New Jersey Tax Court held that income subjected to a one-time federal income transition/repatriation tax under IRC Sec. 965 wasn’t includable as dividends under the Gross Income Tax (GIT) Act.
The taxpayers, who were required to report this income on their federal returns, didn’t include it on their GIT returns. The taxpayers argued it didn’t meet the definition of dividends under New Jersey law. New Jersey argued that federally, the repatriation income is considered as deemed dividend income, therefore, it’s taxable under the GIT Act.
The court noted that New Jersey law requires a “distribution” in cash or kind to be considered a dividend. Because there was no actual distribution or payment made to the taxpayers in the tax year, the income couldn’t be included as a dividend. In reaching its decision, the court noted that New Jersey made amendments to the corporation business tax regarding IRC Sec. 965, while the GIT was left unchanged. The court reasoned the lack of change pointed to a legislative choice not to include this income under the GIT.
Archit & Mona Amin v. Director, Division of Taxation, Tax Court of New Jersey - NJTaxCt, No. 007430-2022, Dec. 31, 2024.
New York
Partnership income tax: Decision on allocation of deferred fees and appreciation upheld
In a New York personal income tax case involving nonresident partners, the Tax Appeals Tribunal has affirmed an ALJ determination that found deferred fees and appreciation should be allocated separately as New York income in its entirety using the business allocation percentage (BAP) for the years when the services were performed. On appeal, the taxpayers argued that the BAP from the year that the deferred fees and appreciation had to be recognized should be used. However, the language of the Tax Law, as explained by a TSB-M and a regulation, was clear that the deferred fees and appreciation had to be sourced to New York as ordinary income on the partnership’s return. Consequently, the only logical application of the Tax Law would be to look to the BAP in the year the income was earned. Various other arguments made by the taxpayers (e.g., that the TSB-M violated the New York Constitution) were also rejected. In addition, penalties were sustained.
Techar, New York Division of Tax Appeals, Tax Appeals Tribunal, DTA Nos. 830479 and 830481, Dec. 12, 2024.
Pennsylvania
Personal income tax, practice, and procedure: Appeals process revision discussed
Pennsylvania’s most recent tax update discusses recent changes to the appeals process. An update in tax law has changed the appeal time frame for all personal income tax, employer withholding, and pass-through entities from 60 to 90 days, with an additional 30-day extension available for good cause. Furthermore, the law now allows the Department of Revenue to enter into closing agreements over tax disputes and introduces a new settlement process at the Board of Finance and Revenue.
Tax Update number 234, Pennsylvania Department of Revenue, December 2024.
Tennessee
Corporate income, franchise taxes: End-user location determines sourcing for drop shipment sales
Tennessee issued a ruling that concluded receipts from drop shipment sales should be sourced for franchise and excise tax purposes based on the location of the end-user. The controlling factor is where the seller, at the direction of the purchaser, delivers or ships the merchandise to the purchaser’s customer. Drop shipments to end-users in Tennessee will be included in the numerator of the receipts factor, while drop shipments to end-users outside Tennessee won’t be included in the numerator.
Revenue Ruling 24-12, Tennessee Department of Revenue, Dec. 19, 2024.
Texas
Sales and use tax: Cloud services purchase not eligible for sale for resale exemption
A private letter ruling by the Texas Comptroller stated that a taxpayer who provides transportation logistics services via cloud-hosted web-based software modules couldn’t take the sale for resale exemption on its purchase of cloud computing services. The private letter ruling noted that the cloud computing services the taxpayer purchased were taxable data processing services. Furthermore, the taxpayer didn’t meet the conditions for the sale for resale exemption, as they couldn’t demonstrate that their purchase was specifically for reselling the services to their customers.
Comptroller Letter No. 202411010L, Texas Comptroller of Public Accounts, Nov. 24, 2024.
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