"darkness is death"

Time change. Daylight savings time. Fall back. Spring ahead. However you describe it, most (if not all of us) changed our clocks recently. We either gained an hour or lost an hour (depending on how you look at it), but one thing I do know - I've lost daylight. So I'm not sure how this is "daylight savings" time. I don't like to complain, but I just do. So I'll just say that I really like sunlight and dislike darkness. As they said in a cartoon movie I can't remember the title of right now - "Darkness is Death."

Regardless of how you feel about changing your clocks or sunlight or darkness, one thing is certain, times continue to change. The way business is conducted continues to change. New technologies are created (whether that's good or bad; or will be used for good or bad is yet to be seen). And last but not least, state tax legislation continues to change; and court cases and rulings continue to be made which ultimately create certainty and uncertainty. Wait, what? What did you just say?

Yes, new legislation, court cases and rulings create just as much uncertainty as they do certainty.

Well, that's great.

Just as each company's facts and circumstances differ, state tax laws seem to have a life of their own when the answer isn't "black and white" (which is most of the time); or when each state's laws are different. This creates a world of grey (or some may say, "darkness"). This "darkness" is why I say every state tax question is a research question. (A research question that needs to be solved by a human (not A.I., AI or artificial intelligence, just saying)).

Darkness is debilitating. It's hard to drive in the dark without headlights. It's hard to walk in the dark without a flashlight. Darkness creates fear and uncertainty. Darkness creates unknown risks. Thus, light is needed to move forward with some level of assurance and confidence.

Darkness can also create unknown opportunities. You can't see them. This requires faith. A compass. A navigator. A roadmap.

"Darkness" in the state tax world surrounds several areas and questions companies continually ask:

• what states do I need to file tax returns in?

• is what I'm selling subject to sales tax?

• which entity in my affiliated group of companies is required to file the tax return?

• if I sell my interest in this partnership, to what states do I source the gain and have to pay tax?

• I'm selling services all across the United States. How do I source those sales to each state in the apportionment factor of my income tax returns?

• do I really have to get exemption certificates from my customers?

• do I have to register with a state for sales tax purposes to provide a vendor with that state's resale exemption certificate or can I use a multijurisdictional certificate?

• am I required to file combined income tax returns or does every entity file separately?

• should I make this election or that election?

• do I qualify for these tax credits?

• do I have to collect sales tax on my total gross receipts or can I deduct costs reimbursements or costs that I flow-through and pay to someone else?

• how do I know if we really meet the requirements to be protected from a state's income tax by P.L. 86-272?

• I didn't even know that state had a gross receipts tax.

• what is a franchise tax and why is the tax base so high?

• am I really selling SaaS and does the state tax it?

• should I make a state's pass-through entity tax election? How do i quantify or model the impact? Will it be beneficial for all partners and shareholders?

• should I file a Voluntary Disclosure Agreement (VDA) or simply start filing returns?

• should I request a Private Letter Ruling (PLR)?

• should I challenge (protest) this audit assessment or simply pay it and move on?

• when can I stop filing returns in a state?

• how do I dissolve or withdraw from a state?

• is registering with a state's Secretary of State's Office the same thing as registering with a state's Department of Revenue (taxation)?

• what sales tax compliance software should I use? Should I outsource the return prep to a third-party?

I could keep going, but I think you get the point. The darkness is everywhere.

Finding the light in the state tax world is not easy.

Unlike darkness in life where you can just flip the light switch and see, darkness in the state tax world takes research and analysis and judgment based on experience. And even then, the answer may not be clear (still dark or grey).

Consequently, I think the "light" is finding the right-fit state tax consultant that you trust and like working with. Someone with not only the technical knowledge and experience, but the ability to look at an issue from 2 feet and 50,000 feet. To be technical and practical. To look at the risk and provide judgment. To reduce risk. To recommend positions with the proper level of assurance. Knowledge. Judgment. Advocacy. That is the light in the proverbial darkness. The compass. The roadmap. The flashlight. The headlight.

I hope you find the light you need to move your company and clients forward.

If you are a state tax consultant, I hope you "shine brightly."

QUOTES

"The art and science of asking questions is the source of all knowledge." - Thomas Berger

"The prize goes to the person who sees the future the quickest." - William Stiritz

"We are drowning in information and starved for knowledge." - John Naisbitt

STATE TAX KNOWLEDGE UPDATE (54 ITEMS) - JULY 3, 2018

The following are state tax and business developments I have curated since June 11th, and posted in the LEVERAGE SALT LinkedIn group:

Some of the items may be on the same state/issue/topic, but they are from different sources which may give you a broader perspective to help your company or client.

1. High Court Will Not Review Pennsylvania NLC Carryover Decision

2. North Carolina Budget Bill Makes Major Tax Changes, Updates Conformity

3. Colorado Issues IRC Sec. 965 Repatriation Transition Tax Guidance

4. Connecticut Issues Guidance on Pass-Through Entity Tax

5. Connecticut Issues Guidance on Bonus Depreciation Changes

6. Hawaii Enacts Sales Thresholds for Sales Tax

7. Hawaii Updates IRC Conformity for 2018

8. Chicago Tax on Streaming Services Upheld

9. Virginia Enacts Biennial Budget Legislation

10. Are High Court Tax Precedents Set in Stone After 25 Years?

11. DON'T PANIC - Physical Presence No Longer Matters in Determining Whether A Company is Required to Collect Sales Tax

12. North Dakota Remote Seller Thresholds Take Effect With Quill Overturn

13. Louisiana Enacts Remote Seller Law

14. Minnesota Offers Wayfair Guidance

15. What will non-streamlined sales tax states do??

16. STOP THE USE TAX NOTICE AND REPORTING LAWS!!!!

17. California OTA Issues Revised Draft Proposed Permanent Regulations on Administration and Procedures of Appeals and Petitions for Rehearing

18. Louisiana: New Law Clarifies that Certain Reductions and/or Suspensions of Tax Benefits, Credits, and Exemptions Enacted via 2015 Legislative Changes were Temporary

19. North Carolina: New Law Updates State Conformity to IRC, Responds to Some Provisions of the Federal 2017 Tax Act, and Revises Sales Factor Sourcing Rules

20. US Supreme Court Denies Taxpayer’s Request to Review 2017 Pennsylvania Supreme Court Ruling on NOL Carryovers

21. Rhode Island Division of Taxation Releases Guidance on Treatment of IRC Sec. 965 Income for C Corporations, and Accompanying Proposed New Regulation

22. Texas Appellate Court Holds that Taxpayer Provides Services Rather than “Goods” for Purposes of Calculating Deductible Costs of Goods Sold under Franchise Tax

23. Alabama Issues IRC Sec. 965 Repatriation Income Guidance

24. Decoupling Bill Sent to New Jersey Governor

25. New Jersey Legislature Passes Tax Amnesty Bill

26. Rhode Island Budget Bill Amends Personal Exemptions, Credits

27. Connecticut Creates Deduction for Venture Capital Income

28. Iowa Offers Wayfair Guidance

29. Louisiana Decreases Sales Tax Rate

30. New Jersey Legislature Passes Alternative Surtax and Decoupling Bill

31. Massachusetts Bill Creates Family and Medical Leave Payroll Tax

32. Remote Sellers Not Yet Required to Collect Tax From South Dakota Buyers

33. Vermont’s Remote Seller Law Takes Effect July 1

34. Corporate Close-Up: Colorado Latest State to Enact Market-Based Sourcing

35. Hawaii Explains Nexus Thresholds

36. Kentucky Provides Wayfair Guidance

37. Rhode Island Outlines Remote Seller Registration Options

38. Vermont Reduces Rates, Updates IRC Conformity

39. Idaho Is Reviewing Impact of Wayfair Decision

40. New Hampshire Responds to Wayfair Decision

41. Pennsylvania Decouples Corporate Income Tax from Federal Bonus Depreciation

42. NCSL says states should ensure that they are fully prepared before begin enforcing their sales tax laws on remote sellers

43. New Jersey Enacts Tax Amnesty Bill

44. New Jersey Enacts Surtax, Combined Reporting, and Decoupling

45. Colorado DOR Discusses State Treatment of Foreign Earnings Subject to New Federal Transition Tax under IRC §965

46. Hawaii: New Law Updates State Conformity to Internal Revenue Code, Responds to Some Provisions of the Federal 2017 Tax Act

47. Illinois DOR Issues Proposed Amended and New Rules on Prior Year NOL Suspensions and Special NOL Computation Rules

48. New York: Draft Proposed Article 9-A Franchise Tax Regulations Issued on Corporations Subject to Tax

49. New Jersey Appellate Court Affirms that IRC Tax Attribute Reductions May Not be Reversed

50. Alabama DOR Issues Additional Guidance on IRC Sec. 965 Transition Tax’s Impact on State Tax Returns

51. California: FTB Explains New Policy Prohibiting Certain Ex Parte Communications Involving Alternative Apportionment Petition Hearings

52. Rhode Island: New Law Grants State Tax Administrator Additional Authority in Light of Federal 2017 Tax Act

53. Louisiana: New Law Includes Tax Rate Reduction and Various other Changes

54. Rhode Island: New Law Imposes Tax on Sales of Software as a Service (SaaS)

The above represents 'general curating' of state tax developments into one spot. If you still feel overwhelmed by the volume of state tax developments, please consider my 'custom curating' service. Meaning, clients hire LEVERAGE SALT to daily curate state tax developments relating to a specific industry, state(s), tax type and issue. You can make it as granular as you prefer. This allows you to reduce information overload, and only get the information you need to help your clients or company. This service is provided on a fixed-fee or subscription basis. Contact me at strahle@leveragesalt.com.

YEAR-END TAX PLANNING: DON'T FORGET THE SALT

I have been swamped the past month with work and finishing our 6-month house renovation, so please forgive me for not posting as often. 2017 will be different. Looking to do great and different things in the world of state taxation next year. We are planning on moving-in this weekend (before Christmas - YES!). If you are considering renovating a house, feel free to contact me. I will give advice and my story. It may be helpful, or not.

In the midst of the chaos, I thought I would send out my annual year-end state tax planning list. Its strange, but predictable, that the list hasn't really changed from year-to-year. 

The following is a brief list of some actions you may want to take RIGHT NOW:

1. Nexus and FIN 48: At this time of year, it is a good time for companies to address their nexus position in advance of their FIN 48 analysis. Operations may also be able to be restructured. If your company or client utilizes telecommuting employees or independent contractors and hasn’t addressed their nexus position in a while, this may be a good time. Also, more states have adopted economic nexus standards and “bright line” nexus standards that may come into play.
2. Sales and Use Tax: It is also a good time to conduct a reverse sales tax audit to identify sales and use tax refund opportunities and potential exposure. If your client has purchased any software, SaaS or cloud computing recently, they may want to confirm there is no sales or use tax exposure. States are still playing 'catch-up' with cloud computing, but several states have issued rulings and guidance over the last year.
3. Income Tax: For C corporations, a reverse income tax audit could identify state income/franchise and gross receipts tax refund opportunities and potential exposure. Combined reporting and apportionment issues or opportunities may exist. Alternative apportionment and transfer pricing have become big (or bigger) issues in 2016.
4. Income Tax: For flow-through entities, a reverse income tax audit may be helpful on major states such as Texas, Michigan, Washington, Pennsylvania, etc.
5. Credits and Incentives: If your company or clients are entering into new states, hiring new employees, building new facilities, retaining employees, "going green," involved with renewable energy, etc. this is a good time to identify and capture credit and incentive opportunities.
6. Transaction Due Diligence: If your company or clients are entering into any acquisitions of other companies or assets, state and local tax issues should be reviewed to determine exposure, successor liability, and nexus impact.
7. Residency Issues: For individual tax clients that have changed their residency to another state or are considering such a change, guidance should be provided in regards to what records they need to maintain, etc.to support their residency or domicile.
8. Employee Misclassification: If your company or client utilizes a high volume of independent contractors, contracts should be reviewed to mitigate exposure of those independent contractors being reclassified as employees.

What do you think? What is a high priority for you? Comment or send me an e-mail.

the usual suspects rise again: economic nexus, combined reporting, market-based sourcing

State legislatures and governors continued to move in the same direction this week - economic nexus, combined reporting, and market-based sourcing. The usual suspects popped up everywhere.

1. Tennessee enacted the "Revenue Modernization Act" (HB 644 and HB 291) - implementing economic nexus (effective for tax years beginning on or after January 1, 2016), and market-based sourcing (applicable to tax years beginning on or after July 1, 2016); the bills also make changes to the affiliated intangible expense addback (applicable to tax years beginning on or after July 1, 2016) and impose a new use tax on cloud computing starting July 1, 2015.
2. Tennessee Supreme Court heard oral arguments in the alternative apportionment Vodafone case (see prior posts for details). The case may be impacted by the Revenue Modernization Act's enactment of market-based sourcing.
3. Connecticut Senate proposed mandatory combined reporting (HB 7061). General Electric and Aetna, Inc. publicly communicated their disapproval by stating they would actually consider moving their operations out of state if the bill is signed by the Governor.
4. Virginia workgroup met to discuss enacting market-based sourcing.
5. Maryland Tax Court continued to use unitary principle to establish nexus (Staples Inc. v. Comptroller).
6. California Court of Appeals held that allowing only intrastate unitary taxpayers to make a separate or combined filing election was discriminatory (Harley-Davidson, Inc. v. Franchise Tax Board).
7. New York Tax Appeals Tribunal reversed an administrative law judge's determination and decided that affiliated corporations were entitled to file on a combined basis (SunGard Capital Corp).