The SALT Shaker – June 2017
June 6, 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 Adjourns Without Final Action on Tax Hikes, Privilege Tax on Investment Management Service Businesses: The Illinois General Assembly adjourned its regular legislative session on May 31, 2017 without the House passing a Senate bill that would increase corporate and personal income tax rates, as well as expand the sales and use tax to certain untaxed services. The House also failed to pass a Senate bill that would impose a privilege tax on the performance fees of certain investment management service businesses. However, Speaker of the House Michael Madigan extended the deadline for final action on both bills to June 30, 2017. Under House rules, the speaker has discretion to extend the schedule for final passage of Senate bills.
Take Away: Although regular session has adjourned, Illinois continues to face significant budget issues. Stay tuned to see if they take action by the June 30, 2017 deadline.
Sales/Use Tax Exemption Disallowed on Transfer of Vehicles – Deemed Not Continuation of Existing Business: The Iowa Department of Revenue has upheld the assessment of Sales/Use tax on the taxpayer’s transfer of motor vehicles from an LLC operating a farming/land management company to a new LLC formed to lease motor vehicles. Both of the entities were held by the same common ownership. The department based its finding on Iowa Rule 701-34.5(9)a(2) which states “the new entity must have been formed for the purpose of continuing the business of the prior entity. The activities of the new entity must, therefore, be the same as the prior entity.”
According to its interpretation of this rule, despite the fact that both entities are under common ownership, the leasing company activities are not a continuation of the farming/land management companies’ activities, and therefore exemption does not apply. http://itrl.idr.iowa.gov/Browse/OpenFile/5990
Take Away: If you are considering the transfer of motor vehicles between related entities, take care to structure the transaction to provide for proper continuation of business activities to qualify for exemption.
First-Time Homebuyer Savings Account Enacted: The First-Time Homebuyer Savings Account Act creates a personal income tax exemption for residents who establish a savings account for the purpose of paying or reimbursing a designated beneficiary’s eligible home costs in connection with a qualified home purchase. An Iowa resident qualifies as a first-time homebuyer if the resident has not owned, either individually or jointly, a single or multifamily residence for the previous three years.
Applicable to tax years beginning on, or after, Jan. 1, 2018, taxpayers will be able to subtract contributions made by an account holder to the account holder’s first-time homebuyer savings account and any interest received from those accounts. For married taxpayers filing joint returns, there is a $4,000 yearly limit and a $40,000 total lifetime limit. For any other account holder, there is a $2,000 yearly limit and a $20,000 lifetime limit. The amounts will be adjusted yearly by a cumulative inflation factor.
Money in an account can be used for up to 10 years for the qualifying purchase costs of a single-family residence. If the money in an account is withdrawn for a non-qualified reason or if the money is not used to purchase a home within 10 years, the money not used for a qualifying purchase, plus a 10% penalty, will be added to the account holder’s taxable income for state income tax purposes. The 10% penalty does not apply if the withdrawal is due to the death of the account holder or due to a garnishment, levy, or order.
Take Away: If you are considering the purchase of a home, take advantage of this exemption. This law takes effect Jan. 1, 2018, so this planning works best for anyone purchasing next year.
Minnesota Enacts Sales and Use Tax Legislation Addressing Marketplace Providers and Retailers: Minnesota sales and use tax statutes provide that a ‘retailer maintaining a place of business in this state’ means, among other items, a retailer having or maintaining within this state, directly or by a subsidiary or an affiliate, an office, place of distribution, sales or sample room or place, warehouse, or other place of business. An entity is an ‘affiliate’ of a retailer if: (1) the entity uses its facilities or employees in-state to advertise, promote, or facilitate the establishment or maintenance of a market for sales of items by the retailer to purchasers in this state or for the provision of services to the retailer’s in-state purchasers, such as accepting returns of purchases for the retailer, providing assistance in resolving customer complaints of the retailer, or providing other services; and (2) the retailer and the entity are related parties.
On May 30, 2017, Minnesota House File 1 was enacted, which provides, in part:
- an expanded definition of ‘retailer maintaining a place of business in this state’
- a collection requirement for marketplace providers and sellers
- an exclusion for de minimis sales using marketplace providers
- an expanded definition of ‘affiliated entities’
- a delayed effective date.
The aforementioned sales and use tax provisions are effective at the earlier of:
- a decision by the United States Supreme Court ‘modifying’ its decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992) allowing a state to require retailers without a physical presence in the state to collect and remit sales tax; or
- July 1, 2019.
If a federal law is enacted authorizing a state to impose a requirement to collect and remit sales tax on retailers without a physical presence in-state, H.F. 1 requires the commissioner to enforce the sales and use tax provisions to the extent allowed under federal law.
Take Away: Although a handful of states have proposed marketplace provider legislation, Minnesota is the first state to enact such provisions. H.F. 1 significantly expands collection requirements for remote retailers and affiliated retailers. Companies should consider the implications of the legislation when evaluating sales to Minnesota customers.
Oklahoma Enacts Voluntary Disclosure Initiative: Recently enacted legislation authorizes and directs the Oklahoma Tax Commission to establish a voluntary compliance initiative for specified eligible taxes. Eligible taxpayers would be entitled to a waiver of penalty, interest, or other collection fees due on the eligible taxes if the taxpayer voluntarily files returns and pays taxes due during the course of the initiative, which would be limited to the period beginning on Sept. 1, 2017, and ending Nov. 30, 2017. The Tax Commission must limit the lookback period for which additional taxes may be assessed to three taxable years for annually filed taxes or 36 months for taxes that do not have an annual filing frequency.
Eligible taxes would include:
- mixed beverage tax
- gasoline and diesel tax
- gross production and petroleum excise tax
- sales and use taxes
- corporate and personal income taxes
- personal withholding tax
To be eligible to participate, taxpayers must not have outstanding tax liabilities other than those reported under the initiative; must not have been contacted by the commission with respect to the obligation to file a return or make a payment; must not have collected taxes from others, such as sales and use taxes or payroll taxes, and not reported those taxes; and must not have entered into a voluntary disclosure agreement for the type of tax owed within the preceding three years.
Taxpayers who have collected taxes from others, such as sales and use taxes or payroll taxes, and not reported those taxes, would be eligible to enter into a modified voluntary disclosure agreement (VDA). Modified VDAs would be the same as a VDA except that interest waivers may be optionally granted at the discretion of the commission, and the lookback period would be extended beyond the three-year or 36-month period for VDAs to include all periods in which tax has been collected but not remitted.
Take Away: Businesses who have determined to have nexus in Oklahoma should take advantage of this opportunity to settle their past tax Oklahoma state tax exposure during the amnesty period.
Remote Seller Notice Requirements Introduced: Legislation introduced in the Wisconsin Senate would require certain sellers who are not required to collect Wisconsin sales or use tax (remote sellers) to provide an itemized statement to each of their customers in Wisconsin of their sales to the customer in the previous year. This notice requirement would apply if the person’s sales of tangible personal property and taxable services in Wisconsin, not including occasional sales, exceed $50,000 during the year.
The itemized statement would have to be provided to customers by January 31 of the subsequent year. Furthermore, persons required to provide the itemized statements would have to verify to the Wisconsin Department of Revenue that they have complied with the requirement. These requirements would not apply to persons who are not required to collect Wisconsin sales or use tax but who voluntarily collect and remit the tax.
In the alternative, persons required to provide the itemized statements to customers may instead provide the department with a summary of all of the person’s sales to customers in Wisconsin that includes the name and address of each customer and the sales price of each sale.
Take Away: Although several states have enacted legislation requiring out of state retailers to notify customers of their duty to remit use tax, this proposed legislation goes much further, by compelling retailers to turn over a list of their customers to the state. This would make it easier for Wisconsin to go after individual customers for non-compliance.