The states covered in this issue of our monthly tax advisor include:
California
Personal income tax: Nonresident liable for tax on income from writing computer codes for California company
A nonresident taxpayer who wrote computer codes for a California company and received income from the company for his services owed California tax on that income. The taxpayer argued that he was a nonresident employee of the corporation, so the income shouldn’t be sourced to California. However, the company issued a Form 1099-MISC for the tax year reporting that the taxpayer received nonemployee compensation. Also, the taxpayer self-reported this income on Schedule C of his federal return, suggesting that he received the income for services rendered as a sole proprietor. Further, even if he was never present in California during the tax year, he carried on a business within and without California. The income received for his services was California source income, because the company received the benefit of the services in California.
Markowski, California Office of Tax Appeals, 2024-OTA-139, Dec. 14, 2023, petition for rehearing denied, 2024-OTA-140, Jan. 9, 2025.
Colorado
Sales and use tax: Third-party shipping arrangement impacts sales tax sourcing
In a private letter ruling, the Colorado Department of Revenue indicated that a sale would be sourced for sales tax purposes to the known location of the purchaser when the purchaser arranges for and hires a third-party shipping company to take possession of property at the business location of the seller and deliver it to the purchaser. The transfer of title isn’t relevant in sourcing these types of sales. Instead, the crucial element is the location where the purchaser receives the purchased property. Thus, where the third-party shipping company receives the property at the seller’s Colorado facility, but the purchaser receives the property from the shipping company at a location outside of Colorado, the sale wouldn’t be sourced to Colorado.
PLR 24-008, Colorado Department of Revenue, Dec. 30, 2024.
Connecticut
Corporate income tax: Filing and payment initiative announced regarding new composite income tax and pass-through entity tax returns
Taxpayers and practitioners are notified of a settlement initiative regarding the filing and payment of liabilities associated with the 2024 Form CT-1065/CT-1120SI, Connecticut Composite Income Tax Return, and the 2024 Form CT-PET, Connecticut Pass-Through Entity Return, for corporation business tax purposes.
Penalty and interest waiver due to delay in making forms available to software companies
Because of the delay by the Connecticut Department of Revenue Services in making these forms available to software companies, the department agrees to forgo otherwise applicable penalty and interest provided taxpayers file the applicable return(s) and pay the associated liabilities in full by April 15, 2025. This initiative also includes extensions of time to file Form CT-1065/CT-1120SI and Form CT-PET.
The department has been coordinating with the various software companies regarding the status of the integration of both forms into their programs and platforms. Despite best efforts, it doesn’t appear that these forms will be widely supported by the various software companies reasonably in advance of their March 15, 2025, due date. As a result, the only available method to file these returns is through the department’s online portal (myconneCT). In recognition of the limited availability of these forms and to accommodate the preferred method of filing these forms through third-party software, the department developed this initiative.
Participation in filing and payment initiative
In order to participate in this initiative, taxpayers must:
- File a 2024 Form CT-1065/CT-1120SI and/or 2024 Form CT-PET by April 15, 2025.
- Pay any associated liabilities in full by April 15, 2025.
Receipt by the department of such form(s) and corresponding payment on or before April 15, 2025, will constitute the taxpayer’s written acceptance of the terms of the settlement initiative. In exchange for compliance with these terms, the department will agree to forgo the penalties and interest that accrued between March 15, 2025, and April 15, 2025, relative to said return(s). Any taxpayer who doesn’t file the applicable return or returns and make full payment of the associated liability is ineligible to participate in the initiative.
Filing and payment initiative with regard to extensions
Moreover, taxpayers may participate in this initiative with regard to extensions. To do so, taxpayers must:
- File an extension of time to file 2024 Form CT-1065/CT-1120SI and 2024 Form CT-PET by April 15, 2025.
- Pay the full amount of the tax reported on those forms by April 15, 2025.
Receipt by the department of an extension on or before April 15, 2025, will constitute the taxpayer’s written acceptance of the terms of the settlement initiative. In exchange for compliance with these terms, the department will agree to forgo the penalties and interest that accrued between March 15, 2025, and April 15, 2025. Any taxpayer who doesn’t file the extension and make full payment of the tax reported is ineligible to participate in the initiative.
The department advises that if a taxpayer files an extension of time to file a 2024 Form CT-1065/1120SI and/or 2024 Form CT-PET, the extended due date for said return(s) remains Sept. 15, 2025.
TSSB 2025-5, Connecticut Department of Revenue Services, Feb. 21, 2025.
Georgia
Corporate income tax, practice, and procedure: Consolidated returns regulations updated for clarity and uniformity
Georgia has updated regulations regarding the filing of consolidated corporate income tax returns to conform with current law and to provide additional clarity. The modifications, effective from Jan. 1, 2023, allow a Georgia affiliated group filing a consolidated income tax return for federal purposes, to file a consolidated return for state income tax purposes without requiring permission from the Commissioner. The election is irrevocable and binding for five years.
Corporations granted permission to file a consolidated return before 2023 have the option to file under the new regulation, continue under the previous grant, or cease and file separately. The document also explains how to elect to file a Georgia consolidated return, details on treatment of corporations and transitions for credit carryforward, and net operating loss carryforward.
Regulations, Georgia Department of Revenue, effective for tax years on or after Jan. 1, 2023.
Illinois
Sales and use tax: Credit card processing fees subject to sales tax
Illinois issued a general information letter discussing the taxation of fees charged by a credit card payment processing business for online transactions. These fees are part of the retailer’s costs of doing business and aren’t deductible from the gross receipts subject to tax. Retailers that use a credit card payment processing business to collect payments from their customers, minus a processing fee, must include those processing fees in their gross receipts in determining Illinois sales tax liability. The business provided insufficient facts to determine what, if any, sales tax liability it may have on the processing fees it received from retailers.
General Information Letter ST 24-0042-GIL, Illinois Department of Revenue, Dec. 11, 2024, released Feb. 2025.
Sales and use tax: Changes to taxation of sales from outside the state and leases addressed
Illinois issued a general information letter that addresses changes to sourcing rules for retailers previously obligated to collect and pay use tax on retail sales sourced outside of the state and made to customers in the state. Effective beginning Jan. 1, 2025, sales tax obligations apply to retailers maintaining a place of business in Illinois who make sales from outside of the state to customers in the state. Those retailers incur state and local sales tax liability at the Illinois location to which the retailer ships or delivers the tangible personal property or at which possession is taken by the purchaser (destination-based rate). Retailers making sales into Illinois who don’t meet the definition or criteria of a retailer maintaining a place of business in Illinois must redetermine, on a rolling quarterly basis, whether they must begin collecting and paying state and local sales tax. A retailer who meets the definition or criteria for a 12-month period must collect and pay state and local sales tax and must file all applicable returns for one year.
The letter also discusses changes to the taxation of leases. Effective beginning Jan. 1, 2025, businesses or individuals leasing tangible personal property at retail in Illinois are subject to sales tax on the gross receipts from the leases. The tax applies to lease receipts received for leases in effect, entered into, or renewed on or after on or after Jan. 1, 2025. There is no provision for a credit for use tax paid before Jan. 1, 2025, by lessors when they acquired property for leasing purposes. A lessor who incurs a tax liability on the sale of an item coming off lease can claim a credit for any use tax liability paid to a supplier when the lessor purchased that item.
Sales and use tax doesn’t apply to lease or rental receipts from titled or registered property, including motor vehicles, watercraft, aircraft, and semitrailers. The tax treatment of these registered items is the same as before Jan. 1, 2025. Dealers owe sales tax, lessors owe use tax, and lessees aren’t subject to sales or use tax. There are exceptions to this tax treatment for trailers other than semitrailers as defined in Section 1-187 of the Illinois Vehicle Code that are subject state registration requirements and items subject to state title, but not registration, requirements, including all-terrain vehicles (ATVs) and off-road motorcycles.
General Information Letter ST 24-0043-GIL, Illinois Department of Revenue, Dec. 13, 2024.
Sales and use tax: Sourcing rules for gross receipts from leases discussed
Illinois issued a general information letter discussing the sourcing rules for gross receipts from the leasing of tangible personal property. Effective Jan. 1, 2025, businesses and individuals leasing tangible personal property at retail in Illinois are subject to state and local sales tax on the gross receipts from the leases. The sourcing rules for periodic lease or rental payments in which the lessor delivers the item to the customer is the primary property location for each period covered by the payment. The primary property location is the address for the property provided by the lessee that’s available to the lessor from its business records, if use of that address doesn’t involve bad faith. The property location doesn’t change by occasional use at different locations, like use of business property that accompanies employees on business trips and service calls.
A lease requires recurring periodic payments if the lease agreement for the property provides for a fixed or indeterminate term and requires multiple payments due over the course of multiple return periods. If a lease agreement is fixed in duration and requires a single payment for the lease of a specified item or items, the lease doesn’t require recurring periodic payments. The sourcing rules for leases that don’t require periodic payments are the same as those that apply to retail sales based on the retailer’s primary and secondary selling activities. If a retailer can’t determine the locations of the sales based only on primary or secondary selling activities, the retailer must source the receipts to the location of its inventory or headquarters based on where more primary or secondary selling activities occur. If the retailer can’t determine the location of the sales based on that rule, the retailer must source the receipts to the location of its headquarters.
General Information Letter ST 24-0045-GIL, Illinois Department of Revenue, Dec. 19, 2024, released Feb. 2025.
Sales and use tax: Exemption for leases subject to local tax discussed
Illinois issued a general information letter discussing the sales tax exemption for gross receipts from the lease of property that’s subject to Chicago’s personal property lease transaction tax. Effective beginning Jan. 1, 2025, businesses or individuals leasing tangible personal property at retail in Illinois are subject to sales tax on the gross receipts from the leases. Illinois provides an exemption from sale tax on receipts from the lease of property that’s subject to Chicago’s personal property lease transaction tax. Sales of tangible personal property to a lessor for the purpose of leasing are treated as a sale for resale and exempt from sales tax.
General Information Letter ST 24-0046-GIL, Illinois Department of Revenue, Dec. 27, 2024, released Feb. 2025.
Indiana
Corporate income tax: New rule adopted that reflects legislation that enacted market-based sourcing for sales of services or intangibles for corporate income tax purposes
Indiana has adopted a new rule that implements market-based sourcing for sales of services or intangibles for corporate income tax purposes. The new rule implements legislation enacted in 2019, and made retroactively effective Jan. 1, 2019, that amended provisions for determining when sales, other than sales of tangible personal property, are derived from sources within Indiana for purposes of determining the state-adjusted gross income of corporations and nonresident persons. In addition, the rule regarding attribution of sales to the state is repealed.
Rule 45 IAC 3.1-1-55.5, adopted effective Feb. 28, 2025; Rule 45 IAC 3.1-1-55, repealed effective Feb. 28, 2025.
Nebraska
Corporate income tax: Pass-through entity tax FAQs updated
The Nebraska Department of Revenue has updated its guidance on the pass-through entity tax (PTET). Elections for any one of the tax years 2018 through 2022 must be filed on or before Dec. 30, 2025.
For tax years After 2022, the election Form PTETE may be made on the applicable Nebraska income tax return or submitted via the department’s secure file-sharing system. When a taxpayer makes the PTET election, Box 5 must be checked on the applicable PTE Nebraska income tax return, even if the PTET-E was previously submitted. The PTET election for tax years after 2022 must be received by the department on or before the due date of the return, including any granted extension.
Pass-Through Entity Tax (PTET) FAQs, Nebraska Department of Revenue, March 11, 2025.
New Jersey
Corporate income tax, practice, and procedure: S corporations and QSSS filing procedures updated
Starting in the 2024 tax year, S corporations and their Qualified Subchapter S Subsidiaries (QSSS) in New Jersey no longer have to file separate tax returns. The requirement now is for the S corporation parent and its QSSS to jointly file the CBT-100S form.
The Division of Taxation will aid in shifting tax payments when a QSSS possesses overpayments from previous returns or has made separate payments. The S corporation must request for the transfer of these funds before filing the tax return.
The taxpayer must provide a spreadsheet showing:
- The QSSS’s name and identification number.
- The amount of overpayment from the previously filed return to be applied to the combined account.
- Payments to be transferred.
Moving QSSS Payments to the S Corporation Parent’s Account, New Jersey Division of Taxation, March 2025.
New York
Corporate income tax: Treatment of banking group’s cash election, receipts factor, and credit claims determined
In a New York corporate franchise tax case involving a combined group operating as a global investment bank and institutional securities firm, the Tax Appeals Tribunal (TAT) agreed with the administrative law judge (ALJ) that it was valid for the group to elect to treat as investment capital: (1) cash collateral that it used in connection with its securities lending transactions; (2) cash collateral furnished in interest rate swap transactions; and (3) cash on deposit with a futures trading business.
With respect to the receipts factor, the TAT also agreed with the ALJ that the applicable provision didn’t permit the group to source its receipts based upon an approximation of the location of its underlying investors. Therefore, the Division of Taxation properly applied the provision in sourcing the group’s receipts from brokerage commissions, principal transactions, margin interest, management fees, and clearing fees to the mailing addresses associated by the group in its records with its receipts. However, it was incorrect for the ALJ to direct the division to exercise its discretionary authority and use U.S. Census data to source certain receipts.
The division’s disallowance of the investment tax credit (ITC) claimed for leasehold improvements and tangible property used by a subsidiary’s investment banking, prime brokerage, and research departments was improper. It was also improper to disallow the claimed ITC for items of property for which the subsidiary didn’t produce an invoice. Further, the disallowance of the claimed ITC for computer software was contrary to the plain language of the law. Finally, the division’s 10% recapture of the group’s claimed ITC and employment incentive credit for certain tax years was also rejected.
Jefferies Group LLC, New York Division of Tax Appeals, Tax Appeals Tribunal, DTA Nos. 829218 and 829219, Feb. 20, 2025.
Texas
Corporate income tax: COGS deduction, retailer/wholesaler rate denied for “printing as a service”
A Texas Comptroller decision denied the cost of goods sold subtraction and reduced retailer/wholesaler tax rate for a taxpayer who provided “printing as a service.” The taxpayer sold printers, scanners, copiers, supplies, and related printing services to business users. Approximately one-third of the taxpayer’s revenue came from a bundle it called “printing as a service.” The bundle included printers, multifunction devices, fax machines, and related supplies, as well as installation and maintenance services. The taxpayer charged a monthly rate for the bundle based on the number of pages printed and charged some customers an additional monthly rate by printer and scanner size.
The taxpayer argued that the portion of the monthly printing as a service charge should be treated as a charge for the sale or lease of tangible personal property. As a result, the taxpayer argued that it should be able to include equipment, supplies, and parts related to providing printing as a service in its cost of goods sold subtraction, and that it should be able to use the reduced tax rate for retailers and wholesalers as the majority of the taxpayer’s revenue would be from retail sales if the portion of the monthly charge attributable to printing as a service was included.
The Texas Comptroller rejected the taxpayer’s argument and held that all of the taxpayer’s revenue from printing as a service was revenue from services, not retail sales. Accordingly, the Texas Comptroller held that the taxpayer couldn’t include any costs related to printing as a service in its cost of goods sold subtraction and the taxpayer couldn’t use the reduced tax rate for retailers and wholesalers.
Comptroller Decision No. 119,652, Texas Comptroller of Public Accounts, Dec. 4, 2024, released March 12, 2025.
