Please join us on Tuesday, March 31 at 12 pm ET for a discussion of State and Local Tax legislative developments from 2020. We will discuss which state legislatures have adjourned or temporarily suspended their legislative sessions in response to the threat of COVID-19. Despite their adjournment, many tax bills were passed and several were still being actively considered. A number of states are expected to react to the economic slowdown. This webcast will provide an overview of recently enacted and pending legislation from this year’s legislative session including highlights such as:

  • proposals to tax digital advertising
  • proposals to tax digital goods and services
  • combined reporting bills out of several states

Register here.

The Tennessee General Assembly passed S.B. 2182 on March 19 and the measure awaits execution by the Governor. The bill would require marketplace facilitators to collect and remit tax on behalf of their third-party sellers. Specifically, marketplace facilitators that made or facilitated total sales to consumers in the state of more than $500,000 in the previous year would be required to collect and remit sales and use tax on third-party sales. The bill would exclude from the definition of a marketplace facilitator certain delivery network companies facilitating local sales and deliveries and would allow for waivers and remittance agreements between the facilitator and seller under certain circumstances. The bill would take effect on October 1.

The Georgia Department of Revenue released guidance on March 17 clarifying that marketplace facilitators will be required to collect and remit state sales tax being April 1. The bulletin states that marketplace sellers in the state are not required to collect or remit state sales or use tax on retail sales that the marketplace facilitator is required to collect. The bulletin outlines the circumstances in which a marketplace facilitator will not be liable for sales tax it fails to collect. The bulletin also provides examples of circumstances of when the marketplace facilitator collection requirements apply and how the tax base is calculated for certain marketplace facilitators.

Calling all trivia fans! Today we are launching a new weekly trivia series. 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
Which state was the first to enact a general state sales tax?

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 later this week. Be sure to check back then.

Join Eversheds Sutherland to discuss the issues employers should be cognizant of as they prepare their response to employees around Coronavirus. SALT Partner Charlie Kearns will be joined by Mary Monahan, Marlene Williams and Laura Taylor on March 26 at 12 pm ET.

Bringing together perspectives from employment law, tax, and employee benefits lawyers, participants will hear an overview of the employer-centered issues related to remote working, travel policies (including what to do if employees are quarantined in a location they don’t typically work,) leave issues, health insurance (including the IRS’s recent HSA/high deductible health plan guidance) and HIPAA. We hope to provide a concise and actionable overview to these timely concerns and answer participant questions.

Register here.

To submit your pet for our SALT Pets Working from Home series, send us a photo of your pet working from home on Twitter using #SALTPets or email saltonline@eversheds-sutherland.com.

Oscar and Duke had a lot to review so they lobbied to join their friends Rebecca Siegel and Jordan Scheer from Cox Enterprises (along with Atlanta Partner, Maria Todorova) to let them join a SALT video conference.

Once on the call they were finally able to discuss their favorite pawed-casts, the interesting odors of the Atlanta outdoors and being good dogs. We hope they get another chance to bark together again very soon.

 

On a recent podcast, our State and Local Tax team discussed the Maryland digital advertising tax, which proposes a first of its kind state tax on digital advertising imposed on gross revenues of up to 10%. The bill awaits Governor Larry Hogan’s signature – and he is expected to veto it.

Here are ten things that you need to know about the recently passed Maryland Digital Advertising Tax:

  1. First in the nation
    Maryland’s digital advertising tax is the first in the nation to target digital advertising and is unlike anything we have seen in the United States before.
  2. What’s next?
    The Maryland digital advertising tax passed with three-fifths support in both the House and the Senate. Governor Larry Hogan is expected to veto the bill, as he has been very vocal about his disapproval of any tax increases. The legislature can override his veto by a three-fifths vote in both chambers. Three senators or 10 delegates would need to change their minds in order to sustain the Governor’s veto. The Maryland legislature is planning to convene for a special session at the end of May.
  3. Effective date
    The tax will applies to all taxable years beginning after December 31, 2020.
  4. Unclear language
    The bill does a bad job of explaining what a digital advertising service is, or who actually does it. The bill defines digital advertising service as including advertisement services on a digital interface. It is not clear what is considered a digital interface because it is vaguely defined.
  5. What ads are taxable?
    Taxable ads include banner, search engine ads and very broadly, “other comparable” ads. There is no explanation of what makes an ad “comparable.” It does not apply to traditional print advertisements, like classified ads, circulars and newspaper ads.
  6. Ambiguous tax base
    There is very little description as to how to determine digital advertising taxable by Maryland. Instead of creating clear rules for how much and what revenue can be taxed, the Maryland legislature punted responsibility to the Comptroller to issue guidance. The Comptroller will need to issue regulations (or some other type of guidance) before taxpayers can actually determine how to calculate their tax liability. This legislative “lateral” to the Comptroller is an abandonment of the legislature’s responsibility to actually draft tax legislation.
  7. Who will be taxed?
    The tax will apply to any company that meet two thresholds – $1,000,000 of gross revenues in Maryland derived from digital advertising services and $100,000,000 of global annual gross revenues.
  8. Varying tax rates
    The tax rate varies from 2.5% to 10% depending on a company’s global annual gross revenues. The tax rate is not determined with respect to Maryland digital advertising. Rather, it focuses on global revenues from any source and any activity.
  9. Legal challenges
    The Maryland digital advertising tax – if enacted – will face a number of legal challenges, including a violation of the Internet Tax Freedom Act, which prohibits states from imposing discriminatory taxes against electronic commerce. The tax also likely violates the Commerce Clause of the United States Constitution. The tax’s high thresholds, especially for the elevated tax rates, are targeted at out-of-state companies. Plus, there is a mismatch between the elevated tax rates and advertising activity in the state. The high tax rates apply to large companies, but not necessarily ones that engage in Maryland digital advertising.
  10. What you can do!
    There is still time to stop the digital advertising tax from being enacted. A veto override requires three-fifths support in each chamber. Taxpayers can still lobby the legislature’s members to oppose the tax.

The Supreme Court of Idaho upheld the lower court’s judgment that the Idaho Reimbursement Incentive Act (“IRIA”) does not violate the separation of powers provisions of the Idaho Constitution because the IRIA does not delegate lawmaking powers to an administrative body and the IRIA does not limit judicial review. An administrative agency created under the IRIA is tasked with approving and denying applications for refundable tax credits based on statutory requirements. After a $6.5 million tax credit was granted to an out-of-state corporation under the IRIA, an Idaho-based company filed a declaratory relief action claiming the IRIA was providing its competitor with an unfair economic advantage and is unconstitutional under the Idaho Constitution. Having already established that it had competitor standing to challenge the refundable tax credit in a previous appeal (Employers Resource Mgmt. Co. v. Ronk, 162 Idaho 774, 405 P.3d 33 (2017)) the Idaho-based company argued that the IRIA conferred “unbridled discretion” to an administrative agency because it does not contain standards and guidelines to evaluate businesses. However, the court found that the administrative agency merely acts in a “fact-finding” capacity, citing guidelines the IRIA places on the agency to evaluate specific facts and conditions of businesses applying for refundable tax credits. Because the agency “can only approve the issuance of a tax credit when all the statutory conditions are met,” the court held that the IRIA does not delegate lawmaking powers to another administrative body. Additionally, the court concluded that the IRIA does not unconstitutionally limit judicial review because although the Idaho-based company was barred from seeking judicial review of the tax credit granted to an out-of-state corporation in this matter pursuant to the Administrative Procedure Act, the Idaho-based company was not barred from filing a declaratory judgment action.

Employers Resource Mgmt. Co. v. Kealy, — P.3d —, 2020 WL 1178665 (2020).

This podcast discusses the recently passed Maryland digital advertising tax, which proposes a first of its kind state tax on digital advertising imposed on gross revenues of up to 10%. The bill awaits Governor Larry Hogan’s signature – and he is expected to veto it. Our State and Local Tax team provides a ten minute update on everything you need to know about this first-of-a-kind state tax, including its status, applicability and the legal challenges that are expected if it becomes law.

Listen to the full podcast:

COVID-19 is impacting many aspects of everyday business, and state taxes are not immune. The Eversheds Sutherland State and Local Tax team has put together the following list of considerations that businesses may want to keep in mind from a state and local tax perspective as the Coronavirus crisis continues to play out.

State Tax Incentive Packages

Some state and local officials are looking to large corporate taxpayers for ideas on how to retain employees and incent investment. We are working with taxpayers to identify options that accomplish these goals that take into account current fiscal conditions.

Property Taxes

Valuation – Taxpayers should consider whether they may have reason to decrease the value of their assets for property tax purposes. Even if assets are not impaired for book purposes, taxpayers may be entitled to substantial reductions in value. Taxpayers should review the property tax lien dates for each state. While most states have a valuation date of January 1, there are some states with non-January 1 lien dates where action may be required in 2020. Otherwise, taxpayers should consider any impact based on their January 1, 2021, lien date.

Credits and Incentives

Incentive Agreements­ – Some employers may have difficulty meeting near-term capital and employment commitments under negotiated incentive agreements. We are assisting taxpayers with revising incentive agreements—including avoiding clawbacks—by invoking force majeure and material adverse change clauses often associated with such agreements. Taxpayers may have opportunities to request relief or renegotiate certain deals.

Income Tax/Withholding

Nexus & Apportionment – Employees working from home may generate nexus exposure for employers. One employee working from home within a state has the potential to trigger nexus for income tax and/or sales tax purposes. Working from home arrangements may also impact sales, property, and/or payroll apportionment factor calculations.

In General

State courts, legislatures, and administrative agencies have either fully or partially closed to the public or are otherwise operating in a reduced capacity. As a result, it is likely that we will see tax return due dates postponed and court filing deadlines or time requirements modified or temporarily suspended. Taxpayers currently under audit should consider state requests to extend statutes of limitations.

Takeaway

COVID-19 is likely to impact taxpayers for 2020 and beyond. Businesses may generate unexpected net operating losses in 2020 or have significant unforeseen expenses. However, following the Tax Cuts and Jobs Act, nearly all states will not permit a carryback of net operating losses and instead will allow taxpayers to use 2020 losses only against future income. Further state tax considerations will likely arise as the Coronavirus crisis unfolds. Taxpayers should check into this space regularly for additional crisis-related updates and to learn how to best posture themselves for a positive state tax outcome in 2020.