With the majority of the nation facing limitations on business travel and mandatory stay-at-home orders, states and localities are beginning to issue guidance on the impact that COVID-19 disruptions will have on withholding obligations for multistate employers. Some states have responded to COVID-19 telework requirements in a variety of ways:

  • New Jersey and Mississippi have altered their withholding policies to allow businesses to retain their same withholding for employees’ temporary pandemic-related telework location. In general, businesses likely will not incur new withholding obligations in these states as a result of in-state teleworkers who regularly work out-of-state.
  • Minnesota and Maryland issued guidance indicating that teleworkers may create new withholding obligations. Businesses in these states may need to change their withholding to reflect employees’ states of residence as their place of work. However, Maryland’s reciprocity agreements with most neighboring states could mean few changes for Maryland employers.
  • Ohio passed legislation providing that pandemic-related remote work does not count toward the 20-day withholding threshold for municipal income taxes.
  • For corporate income tax purposes (as opposed to withholding), the District of Columbia, Indiana and North Dakota indicated that they will not impose corporate income tax nexus due to the temporary presence of new teleworkers without specifying what impact this will have on withholding obligations.

This legal alert reviews some of the recent COVID-19 withholding guidance issued by states and localities so far, including its potential impact on employers and employees.

Thank you to everyone who participated in last week’s trivia question!

Last Week’s Question:
What was the first state to adopt a single-factor sales factor formula for apportioning an interstate corporation’s income for state income tax purposes?

The Answer:
Iowa. In Moorman Mfg. Co. v. Bair, 437 U.S. 267 (1978), the U.S. Supreme Court held that Iowa’s use of a single-sales factor did not violate the U.S. Due Process Clause or Commerce Clause, paving the path for a trend towards increasing weight placed on sales factors, while reducing the emphasis on property and payroll factors.

The dissent noted this particularity, with Justice Powell noting that “[i]t suffices to dispose of this case that nearly all the other States use a basic three-factor formula, while Iowa clings to its sales-only method.” Moorman Mfg. Co., 437 U.S. at 297, n.9.

Keep an eye out for our next trivia question on Wednesday!

The New York State Tax Appeals Tribunal affirmed a New York State Division of Tax Appeals determination denying a refund claim to a taxpayer that sought to apply the income sourcing rules for registered broker-dealers to receipts from its separate investment advisory business. The taxpayer structured its broker-dealer operations and investment advisory operations into two separate single-member limited liability companies (LLCs). The taxpayer claimed that it was entitled to apply the customer-based sourcing rules for registered broker-dealers under former N.Y. Tax Law § 210(3)(a)(9) to income from its investment advisory business because the LLCs were disregarded and deemed divisions under the federal check-the-box regulations. However, the Tribunal concluded that the taxpayer could not carry over one LLC’s status as a broker-dealer to the non-broker-dealer receipts earned by the other LLC. The Tribunal agreed with the Administrative Law Judge at the Division of Tax Appeals, who concluded that “even a disregarded entity that is not a registered broker-dealer is not disregarded under the check-the-box regulations in determining where its receipts are sourced for New York State corporate franchise tax purposes.”

In re BTG Pactual N.Y. Corp., DTA No. 827577 (N.Y.S. Tax App. Trib., Mar. 24, 2020).

New York State and City taxpayers should be aware that, at least publicly, State and City administrative bodies have taken different approaches regarding the applicability of Executive Orders tolling statutes of limitations.

Almost one month ago, New York Governor Andrew Cuomo issued Executive Order No. 202.8, which referenced a directive of the Chief Judge of the State to limit court operations to essential matters during the pendency of the COVID-19 health crisis. In furtherance of that directive, Governor Cuomo ordered the tolling of deadlines “for the commencement, filing, or service of any legal action, notice, motion, or other process or proceeding, as prescribed by the procedural laws of the state” from March 20, 2020 until April 19, 2020. (See our prior Legal Alert.) On April 7, 2020, Governor Cuomo issued Executive Order No. 202.14, which suggests that tolling periods are extended through “through May 7, 2020.” On April 16, 2020, Governor Cuomo issued Executive Order No. 202.18, which further extended Executive Order No 202.14 “through May 16, 2020.”

While Executive Order No. 202.8 specifically referenced its application to various legal actions, administrative tax appeal deadlines were not explicitly covered.

New York State and New York City have separate administrative forums for the resolution of disputes between taxpayers and their respective tax departments. The New York City Tax Appeals Tribunal (“City Tribunal”) consistently provided guidance stating that these Executive Orders are applicable to its matters. The City Tribunal’s website was first updated to state the following:

Per the Governor’s Executive Order 202.8 issued on March 20, 2020 the time limitations relating to the “commencement, filing, or service” in connection with a New York City Tax Appeals Tribunal proceeding are, as of March 20, 2020, tolled until April 19, 2020.

Subsequent to the issuance of Executive Order No. 202.14, the City Tribunal updated its guidance to reference the new Executive Order and state that time limitations are tolled until May 7, 2020.

Public guidance from the State’s administrative forum, however, suggests that the Executive Orders are not applicable to its matters, and that its statutes of limitations will not be tolled. Guidance on the New York State Division of Tax Appeals’ (“New York DTA”) website has consistently stated the New York DTA does not have “the authority to waive statutory deadlines” and, therefore “any petition, exception, or request for an extension of time to file an exception must be filed . . . by the current statutory deadline.” While the New York DTA is working with reduced staff and taking other distancing measures, such as adjourning hearings, it appears that the New York DTA is operating under the assumption that the Executive Orders only apply to the tolling of deadlines in courts, and the New York DTA is an administrative body rather than a court.

The California Department of Tax and Fee Administration announced that the state’s Office of Administrative Law has approved amendments to regulations on the state’s remote seller law. The amendments are retroactive to April 1, 2019, the effective date of the legislation.

Under the amended regulations, a remote seller that did not surpass the $500,000 per calendar year threshold in the previous calendar year is required to register and begin collection immediately after the sale that exceeds $500,000 in a current calendar year. Additionally, a remote seller is not obligated to remain registered on January 1 if it did not meet the $500,000 threshold in the previous calendar year, although a remote seller should not close its registration if it anticipates that it will be required to re-register during the calendar year.

Effective April 1, 2020, the Cook County Department of Revenue is no longer applying its amusement tax to sales of paid television to non-residential customers, such as bars and hotels. The amusement tax ordinance never expressly applied to paid television. Rather, in 2007, the Department issued Amusement Ruling #1, which purported to include paid television within the definition of an “amusement.” In a letter recently issued to taxpayers, the Department stated that it will no longer collect the tax. The Department attributes its policy change to the “result of rulings recently issued by the Department of Administrative Hearings.” This position change is only prospective. The implication is that the Department will not allow any refund claims (which are subject to an unusually short one-year limitations period).

A number of states provide immediate valuation relief for calamities and disasters. Learn how those special property tax relief provisions may apply to the disaster declarations concerning COVID-19 and how your company may benefit from those provisions.

Join Doug Mo, Eric Tresh and Fred Nicely from the Council On State Taxation (COST) on Monday, April 20 at 2 pm ET for a webcast discussion on how these special property tax relief provisions may apply to the disaster declarations concerning COVID-19 .

Register now.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

Today’s Question
What was the first state to adopt a single-factor sales factor formula for apportioning an interstate corporation’s income for state income tax purposes?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $20 UBER Eats gift card.

Answers will be posted on Monday. Be sure to check back then!

The Office of Tax Appeals (OTA) was established in 2017 as California’s new administrative appeals forum. Born from controversy, the agency was designed to function as an independent and impartial tribunal. Two years in, taxpayers have a better idea about how the OTA will shape California’s corporate tax landscape, but questions still remain. We recently published a three-part series on the OTA in Law360 discussing how the OTA has approached corporate tax issues thus far and identifying the questions yet to be answered.

To provide more background on the agency itself, this alert re-introduces the OTA and the appeals process, providing a refresher on the events leading to the establishment of the state’s new independent tax appeals forum, a description of how the process works and insight on the impact the OTA already is having on California’s tax landscape.

Read the full Legal Alert here.

On April 13, 2020, legislation (S.8166) was introduced in the New York State Senate that would expand the sales tax base to digital advertising services. “Digital advertising services” is defined as “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services which markets or promotes a particular good, service, or political candidate or message.”

S.8166 is the second digital advertising tax bill to be introduced in the New York State Senate this session. In March, legislation (S.8056) was introduced that would establish a tax similar to the digital advertising gross revenues tax that recently passed the Maryland General Assembly. But, unlike S.8056, the sales tax expansion would not be limited to advertisements “that use personal information about the people the ads are being served to.” Rather, the tax base is advertisements that “market” or “promote” “a particular good, service, or political candidate or message.” (This language was previously used in Nebraska’s attempt to expand its sales tax base to digital advertisements.)

If passed, the tax’s revenue would be paid into a special fund for providing zero interest refinancing of eligible undergraduate education loans by the higher education services corporation. The act would sunset after 5 years.