On February 4, Idaho Governor Little signed into law HB 436, which will decrease individual and corporate income tax rates. HB 436 was passed and signed into law in just over 20 days after being introduced.  Specifically, the legislation lowers the corporate income tax rate from 6.5% to 6% and consolidates the personal income tax brackets from five brackets to four and lowers the rates as well. HB 436 also provides a one-time tax rebate totaling $350 million of personal income taxes (returning approximately 12% of an individual’s 2020 Idaho personal income tax or $75 per individual taxpayer and dependents, whichever is greater). These individual and corporate income tax changes are retroactive to January 1, 2022.

Although we have seen several states introduce legislation that would decrease corporate and individual income tax rates, Idaho is the first state to pass such legislation this year.

Introduced this week, California AB 87 implements Governor Gavin Newsom’s proposed budget plan to allow taxpayers to again fully utilize business tax credits, like the R&D credit, and net operating loss deductions in 2022 (see our previous coverage on Governor Newsom’s proposed budget here).  For tax years 2020 to 2022, AB 85 (enacted in 2020), limited the amount of business tax credits that can be claimed annually to $5 million and suspended use of net operating loss deductions for business taxpayers with income of $1 million or more (see our previous coverage on AB 85 here and here).  On February 3rd, the Senate Budget and Fiscal Review Committee passed AB 87.  

Further, AB 1400, which proposed universal single-payer health care coverage and a health care cost control system for state residents, failed to advance out of the state Assembly by the January 31 deadline for bills introduced in 2021 and has been declared dead for the year.  Consequently,  ACA 11, which would have funded the single-payer healthcare system by imposing a variety of new taxes and tax increases, is effectively dead this year too (see our previous coverage on ACA 11 here). 

Following on Maryland’s heels, there are currently five separate digital advertising tax measures pending before the Massachusetts legislature. H. 2894 would impose a 5% tax on the annual digital advertising revenue from companies generating more than $25 million in digital advertising sales in Massachusetts. H. 2928 would not impose a tax directly, but would create a commission to study the potential effects of imposing a tax on digital advertising by those companies generating over $100 million in global revenue. H. 3081 would create a gross revenue tax on digital advertising services with a rate varying form 5% for companies with a minimum annual gross revenue of $50 million up to 15% for companies with annual gross revenue exceeding $200 million. H. 4042 would create a 6.25% excise tax on the annual revenue from the digital advertising services provided in Massachusetts, while exempting the first $500,000 in revenue from Massachusetts digital advertising services. H. 4179 is similar to H. 4042, but is a 6.25% gross receipts tax on revenue from digital advertising services, with the first $1 million in digital advertising service revenue in Massachusetts exempt.

On February 2, the Multistate Tax Commission’s State Intercompany Transactions Advisory Service Committee (SITAS) held a public teleconference to address comments provided by Eversheds Sutherland and to schedule the first meeting of those states that have signed on to an Information Sharing Agreement (Agreement).

Eversheds Sutherland submitted a letter to the MTC Executive Committee in response to recent changes to the Agreement and the increased use of third parties as part of transfer pricing audits. Specifically, we expressed our concern about whether confidential taxpayer information, settlement agreements and advanced pricing agreements would be afforded the confidentiality that is required under state laws and whether taxpayer confidential information would be shared with third-party contractors. We also provided a number of recommendations to strengthen taxpayer confidentiality while balancing the member states’ ability to conduct fair and timely audits.

The MTC Executive Committee referred the Eversheds Sutherland letter to the SITAS Committee who issued a written response on October 25, 2021, stating that, in its view, the Agreement: (i) does not violate state laws on the exchange and use of confidential taxpayer data; (ii) does not address outside advisors and concerns about such contractors should be directed to the relevant states; and (iii) should not impose additional criteria for the exchange and use of information that may be in conflict with the existing laws and policies of the participating states.

During the February 2 teleconference, the Committee once again addressed our letter but declined to make any immediate changes to the Agreement. The Committee indicated that Alabama, Louisiana, Mississippi, New Jersey, and Washington have signed on to the Agreement and that a training and information session would be scheduled in March for those signatory states and any additional states that sign on to the agreement. The Committee will be sending out a survey to the signatory states to gather information as to what topics they would like for the Committee to cover during the upcoming session.

US Supreme Court Justice Stephen Breyer, who announced his retirement last week, leaves behind a series of notable decisions that continue to shape state and local taxation.

In this article published by Law360, Eversheds Sutherland attorneys Jeff Friedman, Justin Brown, Catalina Baron and Cyavash Ahmadi discuss some of Justice Breyer’s notable contributions to the field during his 27-year tenure on the Supreme Court.

Read the full article here.

In this episode of the SALT Shaker Podcast, host and Eversheds Sutherland Associate Jeremy Gove is joined by Associate Annie Rothschild for a quick review of GILTI, a 2021 failed California proposal to conform to GILTI and how GILTI has been treated in other states.

They examine the history and purpose of GILTI, and what prompted Annie to explore the failed California proposal in a recent issue of the Journal of Multistate Taxation and Incentives.

They conclude their discussion with Jeremy’s favorite question – overrated or underrated? This week, they talk Yosemite National Park.

Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

 

 

 

 

 

 

 

 

 

 

 

 

 

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The New York Tax Appeals Tribunal mostly affirmed the New York Division of Tax Appeals determination that a company’s provision of advertising measurement services was a taxable information service. The taxpayer provides services to its clients that measure advertising effectiveness. New York taxes the provision of information services, but exempts information services that are personal or individual in nature such that the information cannot be incorporated into reports furnished to multiple purchasers. The Tribunal concluded that the taxpayer’s advertising measurement services were largely taxable because some of the information the taxpayer collected was shared with third parties, and some was survey questions standard across customers. However, the Tribunal disagreed with the ALJ’s determination in one respect—information collected, but not provided to other customers is an exempted service, because even if the taxpayer has the right to give information to other customers, it did not actually do so.

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.

This week’s question: What two bills did Washington Governor Inslee recently sign that delayed the start of the long-term care program known as the Washington Cares Fund?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card.

Answers will be posted on Saturdays in our SALT Shaker Weekly Digest. Be sure to check back then!

Courts returned to business in a big way in 2021, following the pandemic-related slowdown in 2020. Over the year, there were several noteworthy income tax and sales tax decisions, as well as two First Amendment cases from the highest courts in Maryland and Ohio that reached opposite results and could be headed to the U.S. Supreme Court.

In this installment of A Pinch of SALT for Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman, Dan Schlueter and Fahad Mithavayani explore noteworthy tax decisions of 2021 and look at what the future might hold for taxpayers.

Read the full article here.

The Washington Administrative Review and Hearings Division (the Division) of the Department of Revenue held that payments between affiliated entities could not be deducted from “gross income” subject to the business and occupation tax (B&O Tax). Each of the taxpayers, three affiliated entities falling under the same parent company umbrella with each providing investment management services (the Taxpayers), sought to offset revenue received pursuant to customer contracts by deducting payments made to affiliated entities that performed some of the services provided under the contract. The Department audited the Taxpayers and issued an assessment, disallowing any gross income deduction attributable to payments made to affiliates in exchange for investment management services. In response, the Taxpayers filed a petition for review, asking the Division to determine whether monies transferred between affiliated—but separate—legal entities constitute gross income subject to the B&O Tax.

The Division, citing RCW 82.04.220 and RCW 82.04.290, stated that the B&O Tax is a gross receipts tax that includes gross proceeds from sales without any deduction for expenses. The Division found that there is no specific authority in Washington that allows a transfer pricing deduction.

The Division further determined that the Taxpayers provided no evidence to show that an agency relationship was in place, which could have qualified the payments as advances or reimbursements that are excludable from the gross income computation. Instead, the Division held that the provisions of services included two transactions: first, sales between a Taxpayer to its customer, and second, between such Taxpayer and its affiliate. Thus, the Division ultimately upheld the Department’s assessment.

Det. No. 19-0201, 40 WTD 242 (2021).