SALT Report: January 2017

January 4, 2017

Each month, our State and Local Tax team will provide highlights of recent state tax law changes that may affect you. Updates are sorted by state so that you can easily view the changes that impact the state(s) in which you are doing business.

Contact any member of our State and Local Tax team for specific guidance.

California

  • Effective January 1, 2017, California state sales tax rate decreased from 7.5% to 7.25%.
  • The inflation-adjusted, factor-based thresholds for determining whether a multistate corporation is doing business in California for corporation franchise and income tax purposes have been set for tax years beginning on or after January 1, 2016:
    • The property factor threshold is increased to $54,771 (previously, $53,644 for 2015)
    • The payroll factor is increased to $54,771 (previously, $53,644 for 2015)
    • The sales factor is increased to $547,711 (previously, $536,446 for 2015).

Illinois

Massachusetts

  • The Massachusetts Department of Revenue announced a simplified process regarding income tax filing extensions. Beginning with returns due on or after December 5, 2016, a six-month extension will be automatically granted to all individuals, fiduciaries, partnerships, and estates to file their tax returns, provided they have paid at least 80% of the total amount of tax due on or before the original due date of the return.

Michigan

  • Revenue Administrative Bulletin 2016-24 issued, Use Tax Base of Tangible Personal Property Affixed to Real Estate by a Manufacturer/Contractor or Other Contractor. Property purchased or manufactured by a contractor is exempt from use tax to the extent that the property is affixed to real estate located in another state. However, the retail sale of property in Michigan to a contractor remains taxable whether it is affixed to real estate located in Michigan or another state. A manufacturer/contractor may also claim an industrial processing exemption for tangible personal property used for industrial processing in connection with its product as long as the product is sold at retail or affixed to real estate located in another state.

Ohio

  • The Ohio Supreme Court affirmed the Ohio Board of Tax Appeals (BTA) opinions upholding commercial activity tax (CAT) assessments on out-of-state retailers with no physical presence in Ohio. Taxpayers with more than $500,000 in gross receipts in Ohio sales meet the bright-line presence test for nexus with Ohio.

Pennsylvania

  • Pennsylvania adopted legislation replacing the existing law on general partnerships, limited partnerships and limited liability companies with the most recent revisions of three acts promulgated by the Uniform Law Commission: the Uniform Partnership Act (UPA), the Uniform Limited Partnership Act (ULPA) and the Uniform Limited Liability Act (ULLA).

Tennessee

  • FAQs updated concerning receipts factor for multistate calendar year taxpayers. A multistate calendar year taxpayer should not triple weight its receipts factor for receipts between July 1 and December 31 of 2016. All receipts on the 2016 return of a calendar year taxpayer should be double weighted since the taxpayer’s tax year begins before the July 1, 2016, effective date of the law change. All receipts on the 2017 return should be triple weighted.

Washington

  • A distributor was liable for wholesaling business and occupation (B&O) tax on national and drop-shipped sales because it failed to show that its local activities are not associated with its ability to establish and maintain a market in Washington. In order for B&O tax to be imposed on sales that originate from outside the state, the seller must have nexus and the goods must be received by the purchaser in Washington. The definition of "received" includes the physical possession or exercise of dominion over the goods by the purchaser or its agent. In this case, the taxpayer’s in-state activities created nexus for taxation of drop-shipped sales.

Wisconsin

  • The Wisconsin Tax Appeals Commission found that a president and vice president who were co-owners of corporations that operated marinas in Wisconsin were personally liable for the corporations’ unpaid sales taxes because the requirements for establishing their personal liability were satisfied: the co-owners owned the marinas and were corporate officers, sales taxes were collected from sales at the marinas and the co-owners knew the taxes were not being paid to the department, the co-owners were authorized to sign checks on the account used to pay other creditors, and the co-owners signed and sent checks to other creditors and knew other creditors were being paid.
  • Publication 120, Net Operating Losses for Individuals, Estates, and Trusts, updated. Worksheets 1 and 2 have been revised to reflect the treatment of the exclusion for capital gain on investments held for five years in a qualified Wisconsin business.
  • Annual Filing Frequency Update: The annual review of sales & use and withholding tax filing frequencies has been completed. Letters are being mailed informing selected filers of a change in their filing frequency effective January 1, 2017.
  • Kewaunee County tax will adopt a local county sales and use tax of 0.5%, effective April 1, 2017.
  • Reminder: Sheboygan County will adopt a county-wide sales and use tax of 0.5%, effective January 1, 2017.