The SALT Shaker – February 2017
February 9, 2017
By Keith Habel, CPA
Partner, SALT Practice Leader
No Nexus for Passive LLC Members: The California Court of Appeals ruled that an out-of-state corporation, which was a 0.2% passive member in a California LLC, did not meet the requirements of “doing business” in California. To be required to pay the minimum tax, the court determined that the corporation had to be incorporated in California, qualified to transact business in California, or actively doing business in California.
The corporation’s only connection to California was a 0.2% ownership interest that closely resembled that of a limited, rather than general, partnership as shown by the fact that the corporation had no interest in the specific property of the LLC. Therefore, the corporation was found not personally liable for the obligations of the LLC, it had no right to act on behalf of or to bind the LLC and, most importantly, it had no ability to participate in the management and control of the LLC. Because the business activities of a partnership cannot be attributed to limited partners, the court stated that the corporation cannot be deemed to be “doing business” in California solely by virtue of its ownership interest in the LLC and is not subject to the $800 minimum franchise tax imposed. Court of Appeals Opinion
Take Away: Contrary to the position California has previously taken, passive membership in a California LLC does not alone create nexus in California, and owners of passive California LLC interests should review and separately consider other connections to California when determining nexus.
Withholding Income Tax Changes: Several changes to Illinois withholding income tax took effect January 1, 2017. The annual filing option is no longer available; instead, all withholding taxpayers must file quarterly returns. The annual withholding payment option is also no longer available; rather, withholding payments must be made on a monthly or semi-weekly basis. Form IL-941 has changed and requires additional information. Please review the bulletin for additional details on the changes. Informational Bulletin
Take Away: Employers, payroll service providers, software developers, and those that pay gambling and lottery winnings with Illinois withholding obligations must comply with the Illinois withholding changes for tax year 2017.
Copy and Print Machines Available to General Public Taxable: A private letter ruling was issued stating that UPS Stores (UPS) do not qualify for the Iowa Code § 423.3(2) manufacturing or sale for resale exemptions on leases of copying or printing equipment. UPS leases copying and printing machines and makes them available to the general public for self-service copying and printing. The department determined that the manufacturing exemption did not apply to the equipment since the user was the general public and not a manufacturer. The department also determined UPS did not qualify for the sale for resale exemption since UPS was not reselling the printer to its customers. PL 16300050
Take Away: Copying and printing machines made available to the general public do not qualify for the manufacturing or resale sales tax exemptions.
Digital Video Cameras and Equipment Non-Taxable: The Iowa Department of Revenue (DOR) issued a policy letter providing an informal opinion on the taxability of sales of digital video cameras and equipment used for security and video surveillance of the commercial enterprise taxpayer’s grocery store. The DOR noted that taxpayer’s video cameras are attached to a computer via a signal cable. Thus, the cameras and signal cables are part of the computer. Further, the taxpayer’s computer is used in the storage of data as the computer’s final output is data obtained through the video cameras. PL 16300059
Take Away: The Department made it clear that digital video cameras and equipment purchased for surveillance by taxpayers who qualify as a commercial enterprise are exempt from tax.
Environmental Protection Charge (EPC) Repealed: The one cent per gallon Environmental Protection Charge on petroleum products deposited into certain storage tanks was repealed as of December 31, 2016. This should not be charged on transactions occurring on or after January 1, 2017. EPC Repealed
Take Away: Review any transactions occurring in 2017 to confirm no EPC charge was added.
Reporting Requirement for Remote Sellers: The Louisiana State Legislature signed into law amendments to Act 569 to establish reporting requirements for remote sellers. Act 569 amendments, which go into effect July 1, 2017 require remote sellers with gross receipts in excess of $50,000 that do not collect state and local sales tax to provide a sale notice to the purchaser and provide an annual report of customer names and purchase amounts to the Louisiana Department of Revenue. As a result of Act 569 and Act 22, which was passed in June of 2016, new collection and remittance requirements on certain remote sellers took effect by expanding the applicable statutory definition of “dealer.” Consequently, Amazon began collecting and remitting Louisiana sales tax, despite lacking physical nexus with the State. LA Act 569
Take Away: Louisiana joins a growing list of states trying to require remote sellers that aren’t required to collect and remit its sales tax to notify their buyers of their use tax liabilities.
New Sales and Use Tax Form: The Wisconsin Department of Revenue released a new sales and use tax form, Form S-227 Contractor Statement of Building Materials Purchased, in an effort to help contractors track their exempt building material purchases. This form is for documentation purposes only and is not required to be filed with the state. Building materials purchased by contractors must meet certain requirements in order to be exempt. A complete Form S-211 exemption certificate must be provided to the seller for exempt purchases of building materials. Form S-227
Take Away: Contractors should maintain a record of all sales and use tax exempt purchases of building materials especially exemption certificates and related purchase invoices. The Wisconsin Department of Revenue is attempting to make record-keeping easier for contractors by creating Form S-227.