The SALT Shaker – May 2017
May 16, 2017
By Keith Habel, CPA
Partner, SALT Practice Leader
Proposed 20% Privilege Tax on Investment Management Services: Illinois has proposed legislation that would levy a privilege tax at a rate of 20 percent on partnerships and S corporations engaged in the business of conducting investment management services. The legislation, which was introduced on February 9, 2017, was approved by the House Revenue and Finance Committee on March 23, 2017. If enacted, the provisions would become effective July 1, 2017.
Under HB 3393, ‘investment management services’ means providing a substantial quantity of any of the following services to a partnership, S corporation or other entity:
- advising the entity as to the advisability of investing in, purchasing or selling any specific asset;
- managing, acquiring, or disposing of any specified asset;
- arranging financing with respect to acquiring specified assets; or
- any activity in support of any of the services noted above.
Additionally, ‘specified asset’ means certain securities, real estate held for rental or investment, interests in partnerships, commodities, or options or derivatives contracts to any of these. However, a partner or shareholder will not be deemed to hold an investment management services interest if at least eighty percent of the average fair market value of the specific assets of business during the taxable year consists of real estate.
Take Away: The taxation of carried interest has been a point of considerable debate at both the state and federal level for many years. Other states, including New York and New Jersey, have proposed similar provisions. While this proposal may be facing an uphill battle in this year’s legislative session, its introduction does shine a light on the actions that states might take to both close this perceived ‘loophole’ and to target more revenue for the state.
Financial Institution Tax Return Due Date Revised: Effective July 1, 2017, Indiana generally sets the state’s financial institution tax (FIT) return due date to the later of the fifteenth day of the fourth month following the close of the taxpayer’s tax year, or the fifteenth of the month following the taxpayer’s federal original return due date.
Take Away: If you are subject to this tax in Indiana, please update the due date in your records to avoid missing filing deadlines.
Court Rules Ownership of Parent Company Intangibles Used By Subsidiaries in Iowa Does not Create Nexus – Denies Parent Inclusion in Consolidated Return: The parent and subsidiaries argued that the parent derived taxable income from the subsidiaries because it owned intangible property that was used by its subsidiaries, entitling it to join the subsidiaries’ Iowa consolidated income tax returns. Citing the reasoning of the Iowa Supreme Court in Myria Holdings Inc. v. Iowa Department of Revenue, No. 15-0296, 2017 WL 1103175 (Iowa 2017) the court reasoned that it was clear the Iowa subsidiaries and their intangible property were not enough to establish a taxable nexus with Iowa sufficient to remove the parent from the Iowa safe harbor provisions. Like Myria, by electing to have the subsidiaries taxed as corporations, the parent chose to receive not only the tax advantages of corporate taxation but any disadvantages as well. Thus, because the parent lacked a taxable nexus with Iowa, the department correctly concluded the parent could not join the consolidated return (Romantix Holdings, Inc. v. Iowa Department of Revenue, Iowa Court of Appeals, No. 16-0416, May 3, 2017.)
Take Away: If you desire to be included on a consolidated return whose only business within the state is through the ownership of intangible property, take additional precautions to ensure client establishes nexus within the state.
ND Enacts Sales and Use Tax Economic Nexus Contingent on US Supreme Court Overturning Quill v. North Dakota: Governor Burgum (R) signed Senate Bill 2298 instituting an economic nexus standard that requires sales tax collection and remittance for any entity exceeding an annual sales threshold of $100,000 or 200 separate transactions in North Dakota.
Take Away: The law’s effective date is a contingent date tied to the U.S. Supreme Court issuing an opinion overturning Quill, or otherwise confirming a state may constitutionally impose sales or use tax on an out of state seller without a physical presence in a state.
State Tax Amnesty Period Offered Through June 19, 2017: Pennsylvania’s 2017 tax amnesty program applies to over 30 taxes administered by the Department, including:
- Capital Stock / Foreign Franchise Tax
- Corporate Net Income Tax
- Bank Shares Tax
- Employer Withholding Tax
- Personal Income Tax
- Realty Transfer Tax
- Sales and Use Tax
Taxpayers who come forward to settle their obligations during this period receive abatement of all penalties, and half of any interest accrued. Depending on facts and circumstances, a limited lookback period may also be available.
Take Away: Businesses who have determined to have nexus in Pennsylvania should take advantage of this opportunity to settle their past tax Pennsylvania state tax exposure during the amnesty period.
Upcoming State Tax Amnesty Period Offered Between July 1, 2017 and June 30, 2018: Virginia introduced House Bill 2246, Leg. 2017 (Va. 2017), which authorizes the Department of Taxation to oversee a Tax Amnesty Program ranging between 60 and 75 days between July 1, 2017 and June 30, 2018. All penalties and half of associated interest would be waived upon payment of the taxpayer’s remaining balance. Taxpayers under criminal or civil investigation or under assessments issued within 90 days of the start of the amnesty period will not be eligible.
Take Away: Although Virginia is still due to issue the definitive periods and additional guidelines regarding the program, it is expected to be a favorable time for taxpayers with Virginia tax exposure to come forward and resolve their liabilities.