The Salt Shaker – July 2017
July 11, 2017
A monthly pinch of SALT. The HK SALT Shaker is a monthly update on state and local tax laws and regulations. For questions regarding these updates or Sales & Local Tax (SALT), please contact us using our online contact form.
Legislature Overrides Governor’s Veto – Passes Income Tax Increase and Budget:
On Thursday, July 6, the Illinois House of Representatives voted to override Governor Rauner’s veto, passing the state’s first budget in over two years that includes income tax increases for both businesses and individuals.
Relevant changes of this legislation include the following items effective July 1, 2017:
- Individual tax rate is increased to 4.95% from 3.75%.
- Corporate tax rate is increased to 7% from 5.25%.
- Separate combined reporting rules for insurance companies, financial organizations, federally regulated exchanges, and transportation services is eliminated.
- Decoupling from the domestic production deduction under IRC Section 199.
- End of tax incentives for gasohol.
Other changes include:
- Reinstatement of R&D credit retroactive to Jan. 1, 2016, and extended through Jan., 2022.
- Expansion of the sales/use tax exemption for manufacturing equipment to include machinery and equipment used in the production of graphic arts.
- Extends the sales/use tax discount for blended ethanol and biodiesel fuels to Dec. 31, 2023.
- Eliminates the tax credit for residential real property for taxable years on or after Jan. 1, 2017 for spouses filing jointly with AGI exceeding $500,000 ($250,000 for all other taxpayers).
- Education expense credit is increased to a maximum of $750 (previously $500) for tax years ending on or after Dec. 31, 2017.
Take Away: These changes are substantial, and will affect many people living or doing business in Illinois. If you have questions on the impact of these new developments, please contact the HK tax department.
Ohio Budget Legislation Signed – Includes Tax Amnesty Program, Economic Nexus Provisions
As part of Ohio’s new budget legislation signed by the governor on June 30, 2017, the state is offering a new tax amnesty program to run from Jan. 1, 2018, through Feb. 15, 2018. Most Ohio taxes are covered under the program, including sales/use and commercial activity taxes, and offers potential waiver of 100% of related penalties and 50% waiver of interest. Taxes that were due and payable as of May 1, 2017, are includible under the program.
Also beginning Jan. 1, 2018, out-of-state sellers with annual Ohio sales of at least $500,000, regardless of whether they have physical presence in Ohio, would be required to collect and remit sales tax on sales to Ohio customers. This proposal is similar to economic nexus statues being contested in other states.
Take Away: Anyone with outstanding Ohio tax liability has a nice opportunity to come forward and resolve those issues under favorable terms.
Missouri Stops the Collection of Sales Tax on Delivery Fees
The governor has signed S.B.16 that provides that usual and customary delivery charges that are separately stated from the sales price of tangible personal property are not subject to sales/use tax, effective Aug. 28, 2017.
Under previous law, when delivery was an expected part of the transaction, and when the risk of loss and title didn’t transfer to the buyer until delivery was complete, then the charges were taxable, even when separately stated.
Take Away: Businesses may cease adding sales/use tax to delivery charges effective Aug. 28, 2017.
Michigan Business Tax Deduction for “Materials and Supplies” Gets Broader Meaning
On June 9, 2017, the Michigan Department of Treasury acquiesced to a Michigan Tax Tribunal decision and a Court of Claims decision regarding the meaning of the Michigan Business Tax deduction for ‘materials and supplies.’ The department originally limited the definition to require that ‘materials and supplies’ support inventory or depreciable property. The department now agrees that ‘materials and supplies’ means “tangible personal property purchased in the tax year that are ordinary and necessary expenses to be used in carrying on a trade or business.”
Take Away: The definition of ‘materials and supplies’ has been a hotly contested issue between the Michigan Department of Treasury and taxpayers since the MBT was enacted. While controversy is likely to continue with respect to the characterization of certain items as tangible versus intangible, this is a significant victory for taxpayers asserting that the department’s interpretation of the modified gross receipts base subtraction was far too narrow.
“Production” Under Cost of Goods Sold Deduction to Exclude “Installation”
Effective Sept. 9, 2017, the definition of ‘production’ for purposes of the cost of goods sold deduction no longer includes ‘installation.’
Although the legislation purports this change to be a clarification, it remains an open question whether a court would view striking a word from a definition as a clarification rather than a prospective-only change.
Take Away: Taxpayers should consider whether installation costs could qualify as costs of goods sold prior to the law change.