As employers look forward to reopening after the Covid-19 pandemic and, perhaps more importantly, adjusting to the “new normal” of indefinite telework, they should evaluate the multistate tax obligations that arise out of remote employees. Some states (and a few localities) have passed laws, promulgated regulations, or issued guidance on the impact that Covid-19 has on withholding obligations for multijurisdictional employers. The majority of this pandemic-related guidance temporarily changes, in whole or in part, the tax jurisdiction’s ordinary withholding rules in-place before the onset of the pandemic in March 2020.

This SALT@Work column co-authored by Charles Kearns and Chelsea Marmor for the Journal of Multistate Taxation and Incentives reviews how employers may distinguish between pandemic-induced telework and permanent teleworking arrangements, based on the limited applicability of the relevant state guidance.

With remote work spiking in popularity (or infamy), adherence to Covid-19 stay-at-home orders is progressing to permanent teleworking arrangements for some employees. Under normal circumstances, navigating the unemployment insurance (UI) rules on multistate employment may be more complicated than they seem. The Covid-19 pandemic and the resulting remote work mandates exacerbate the potential for such complications.

This SALT@Work column co-authored by Charles Kearns and Alexandra Louderback for the Journal of Multistate Taxation and Incentives summarizes the UI laws that determine the state where tele-working-related employment occurs, whether such employment arose from the Covid-19 pandemic or will arise under a permanent arrangement.

In an unpublished opinion, the Appellate Division of the New Jersey Superior Court affirmed the Tax Court’s holding that the New Jersey partnership filing fee does not violate the Commerce Clause of the U.S. Constitution. New Jersey statutes require partnerships with more than two owners and income derived from New Jersey sources to pay an annual partnership filing fee (PFF) of $150 for each owner, up to a maximum of $250,000. The taxpayer, Ferrellgas Partners, LP, had more than 67,000 owners and paid the maximum PFF for tax years 2009 through 2011. The taxpayer then challenged the PFF, arguing that it violated the Commerce Clause because it is not fairly apportioned and discriminates against interstate commerce, and is not internally consistent. The appellate court affirmed substantially for the reasons expressed by the Tax Court, noting that Ferrellgas did not present a prima facie case of disparate impact or other form of discrimination violative of the Commerce Clause. Rather, the appellate court found that the record demonstrated that the PFF funds the cost of the processing and reviewing of partnership and partner returns filed in New Jersey, which is a purely intrastate activity. As a result, the appellate court agreed with the Tax Court that the PFF does not implicate or violate the Commerce Clause.

Ferrellgas Partners, LP v. Director, Division of Taxation, Dkt. No. A-3904-18T1 (N.J. Super. Ct. App. Div. Jan. 13, 2021)

Since December of 2018, taxpayers have been battling with the Nebraska Department of Revenue over its interpretation of the state’s dividend received deduction (DRD) provisions. Although the statute provides a 100% DRD for dividends or dividends deemed to be received and the Department has long taken the position that Subpart F income qualifies for that deduction, the Department asserted in a GIL that I.R.C. § 965 (deemed repatriation) income did not qualify for the DRD. (GIL 24-18-1, Superseded by GIL 24-19-1).  In its 2018 guidance, the Department asserted that 965 income is not a foreign dividend. Subsequently, the Department has since refined its position to encompass the taxation of Subpart F income as a whole and not just 965 income, including global intangible low tax income (GILTI). (GIL 24-20-1). Specifically, the Department has taken the position that beginning with the 2018 tax year substantially all of a taxpayer’s subpart F income must be included in the tax base.  The Department has taken a similar position with GILTI, that GILTI is not a deemed dividend and thus does not qualify for the state’s DRD.

On January 13, LB 347 was introduced in Nebraska, which if passed would make clear that Nebraska’s DRD would apply to I.R.C. § 965 as well as I.R.C. § 951A (GILTI).  Specifically, the bill provides that such receipts would be treated as “dividends deemed” for purposes of NRS § 77-2716(5) and that the changes are intended to clarify the meaning of this subsection prior to the effective date of the bill.

A similar bill was proposed last year but failed to pass, which many believe has much to do with Covid-19 pandemic shutdown. The Eversheds Sutherland policy team is working with a coalition supporting this legislation run by the Nebraska Chamber of Commerce.

On January 11, H.B. 2392 was introduced in Oregon, which if passed would impose 5% gross receipts tax on the sale of “taxable personal information” of individuals located in the state, which is sold in Oregon. The definition of “personal information” (PI) includes “information that identifies, relates to, describes or is capable of being associated with an individual” and includes a laundry list of information that could qualify (i.e., name, physical address or other location information, telephone number, email address, IP address, signature, physical characteristics or description, biometric data, driver license number, state identification card number, passport number, Social Security number or other government-issued identification number, bank account number, debit card number, credit card number or other financial information, insurance information, medical information, employment information, educational background information, browser habits, consumer preferences, and other data that can be attributed to the individual and used for marketing or determining access and costs related to insurance, credit or health care). Photographs are specifically carved out of the definition of PI. “Taxable personal information” is defined as “personal information accumulated from the internet.”

Not only is a 5% rate extraordinary for a gross receipts tax, this proposal is riddled with compliance issues. Again, the tax is only imposed on the sale of information of an “individual located in” Oregon and provides that would be determined by use of one’s IP address, which would be very challenging to comply with – for example, an IP address may not accurately reflect in-state activity based on server location or use of a virtual private network. In addition, the tax is required to be filed on a quarterly basis and a business is required to file regardless of whether tax is actually due.

This proposal also raises several legal issues, including potential Internet Tax Freedom Act (ITFA) challenges based on the tax only being applicable to PI accumulated online. In addition, there may raise international, federal, and state privacy law issues as the list of information it covers is incredibly broad.

Finally, the proposed gross receipts tax may result in “tax pyramiding” and damaging economic effects, as such taxes apply to receipts from all transactions, including intermediate business-to-business purchases and not just final sales.

The Oregon Legislature will start holding public hearings on bills later this month, and we anticipate this bill will be set for hearing. The bill sponsor, Representative Marsh, is on the House Revenue Committee and is well respected; thus, the proposal is one to be taken seriously.

On January 13, the authors of California Assembly Bill AB 71, a bill introduced to address the state’s homelessness problem, amended the bill’s provisions to propose an increase to the corporate income tax rate and to establish global intangible low-taxed income (GILTI) inclusion rules.

The bill provides that for taxable years starting January 1, 2022, the corporate income tax rate would increase from the current rate of 8.84% to 9.6% for businesses with taxable income over $5 million for the taxable year (and, from current rate of 10.84% to 11.6% for financial institutions).

Next, the bill would require taxpayers who make a water’s-edge election to include in gross income 50% of the GILTI and 40% of the repatriation income of affiliated corporations, but not take into account the apportionment factors of those affiliated corporations.  For calendar year 2022 only, the bill would allow a taxpayer to revoke its water’s-edge election.

With respect to the personal income tax, the bill would require inclusion of a taxpayer’s GILTI in gross income for taxable years starting January 1, 2022.

This bill is currently being reviewed by the Assembly Housing and Community Development Committee.

Welcome to the second episode of the Eversheds Sutherland State and Local Tax Policy series, a new feature of the SALT Shaker Podcast. In this episode, we discuss substantive state tax legislative issues that should be on your radar for 2021. With the recognition that many state and local governments will be looking for additional revenue, we review the top three items on our lists (and a few others). Some of the items we are watching include digital advertising taxes, the need to replenish unemployment trust funds, a revisiting of credits and incentives, administrative gimmicks to accelerate revenue and taxes targeted at companies that have done well during the pandemic. But, we do not forget the usual suspects.

The Eversheds Sutherland State and Local Tax team has been engaged in state tax policy work for years, tracking tax legislation, helping clients gauge the impact of various proposals, drafting talking points and rewriting legislation. This series is hosted by Partners Nikki Dobay, Charlie Kearns and Todd Lard, who each have extensive backgrounds in tax policy.





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Representative J.D. Prescott (R) introduced Indiana House Bill 1312, which would impose a surcharge tax on social media providers.  This proposed bill shares similarities with proposed digital advertising taxes in Maryland and New York, except that Indiana’s proposed surcharge tax is targeted at social media providers deriving revenue from advertising services on their platforms of at least one million dollars and does not contain a tiered rate structure.

Specifically, HB 1312 would impose a surcharge tax on social media providers equal to: (1) the annual gross revenue derived from social media advertising services in Indiana in a calendar year multiplied by seven percent; plus (2) the total number of the social media provider’s active Indiana account holders in a calendar year multiplied by $1.

A “social media provider” is defined as a social media company that: (1) maintains a public social media platform; (2) has more than one million active Indiana account holders; (3) has annual gross revenue derived from social media advertising services in Indiana of at least one million dollars; and (4) derives economic benefit from the data individuals in Indiana share with the company.  The bill defines a “social media platform” to mean an internet website or internet medium that: (1) allows account holders to create, share, and view user generated content through an account or profile; and (2) primarily serves as a medium for users to interact with content generated by other third party users of the medium.

“Social media advertising services” means advertising services that are placed or served on a social media platform.  The term includes advertisements in the form of banner advertising, promoted content, interstitial advertising, and other comparable advertising services.

The bill contains an apportionment provision, similar to the provision included in Maryland’s digital advertising tax bill (HB 732), which provides that the apportionment of annual gross revenue derived from social media advertising services in Indiana shall be determined using an allocation fraction, the numerator of which is the annual gross revenue derived from social media advertising in Indiana, and the denominator of which is the annual gross revenue derived from social media advertising in the United states, during the calendar year.

The bill would be effective January 1, 2022 and is expected, under the fiscal note, to raise between $35 million – $62.3 million in FY 2022 and between $60 million – $118 million in FY 2023, which would fund a rural broadband fund and an online bullying, social isolation, and suicide prevention fund.

If enacted, legal challenges will certainly follow as the bill appears to violate federal statutory and constitutional law, including the Permanent Internet Tax Freedom Act/Supremacy Clause and the dormant Commerce Clause. The Eversheds Sutherland SALT Team will continue to follow this bill during the legislative session, along with the many other digital advertising tax proposals that have been proposed and are surely to follow.

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This Week’s Question: Which state recently issued guidance regarding its new marketplace facilitator law that includes six categories of retailers with different tax liabilities?

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In a per curiam opinion, the New Jersey Supreme Court affirmed an insurance premium tax (IPT) decision of the Appellate Division “substantially for the reasons expressed” in the Appellate Division’s opinion. The New Jersey Appellate Division held that New Jersey’s IPT for self-procured insurance coverage is based only on the risks insured in the state, and not based on risks insured throughout the United States.  The appellate court considered a 2011 “home state rule” amendment to the IPT that provided that if a surplus lines policy covers risks in New Jersey and other states and New Jersey is the home state, then the tax payable shall be based on the total United States premium for the applicable policy.  The appellate court noted the differences between self-procured insurance and surplus lines insurance. With respect to surplice lines insurance, the plain language of the IPT statute applies a “home state rule” imposing the IPT on the premiums paid on all risks in the United States, while self-procured insurance is only subject to tax on risks within New Jersey. Because the taxpayer self-procured the insurance from a subsidiary captive insurance company, the appellate court concluded that the insurance was not a surplus lines policy and thus, the taxpayer was not subject to IPT on all of its risks in the United States. The appellate court relied on the plain language of the statute to resolve the case however, the appellate court noted that even if the IPT statute’s reference to surplus lines policies was ambiguous, any ambiguity would need to be resolved in the taxpayer’s favor. The New Jersey Supreme Court noted in its two sentence opinion affirming the appellate court’s decision that “[t]he Legislature, of course, may amend the statute if it chooses to do so.”

Johnson & Johnson v. Dir., Div. of Taxation, 2020 N.J. LEXIS 1387 (Dec. 7, 2020)