Policy and Legislation

On Tuesday, June 24, the Judiciary Committee of the US House of Representatives held a hearing on “Examining the Wayfair decision and its Ramifications for Consumers and Small Businesses.” The hearing was scheduled at the direction of Rep. Robert Goodlatte (R-VA), Chairman of the Judiciary Committee and did not address any specific pending or former legislation, but instead was informational and used to assist the committee in determining whether and how Congress should intervene.

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In the midst of a budget showdown between New Jersey’s Legislature and Governor Murphy, on June 25, 2018, the Legislature passed a replacement bill that seeks to raise revenue with a temporary Corporation Business Tax “surtax” on corporations meeting certain income thresholds and by limiting New Jersey’s dividend exclusion. The Legislature also responded to the Tax Cuts and Jobs Act (TCJA) passed by the United States Congress late last year by decoupling from the IRC § 199A qualified business income deduction. However, the current version of the bill fails to address other TCJA provisions, such as the tax on global intangible low-taxed income and the foreign-derived intangible income deduction. With the Governor threatening to veto the bill, the Legislature and the Governor are expected to continue negotiations over the next few days as the end of June deadline for the budget approaches.

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On December 22, 2017, the largest overhaul of the nation’s tax code since 1986 was signed into law. While the reduction in the corporate income tax rate grabbed most of the headlines, in their article for the Summer 2018 edition of Partnering Perspectives, Eversheds Sutherland attorneys Jeffrey Friedman and Michael Resnick discuss several additional important considerations related to the Tax Cuts and Jobs Act.

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On May 24, 2018, the Circuit Court of Cook County upheld the City of Chicago’s imposition of its amusement tax on streaming services.

  • On June 9, 2015, the Chicago Department of Finance issued a ruling indicating that electronically delivered amusements are subject to the amusement tax.
  • The circuit court upheld the tax against arguments that the tax violated the federal Internet Tax Freedom Act, the Commerce Clause of the United States Constitution and the Uniformity Clause of the Illinois Constitution, and that the tax exceeds Chicago’s home rule authority.
  • Now that Chicago has received a court ruling that the tax does not violate state and federal law, taxpayers should expect that Chicago will aggressively step up their enforcement of the tax.

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Maryland Tax Court holds that Maryland’s limitation of interest on refunds resulting from the US Supreme Court’s decision in Comptroller of the Treasury of Maryland v. Wynne violates the US Constitution.

  • In 2014, the Maryland legislature passed a law to retroactively limit the statutory interest rate on refunds related to the Comptroller of the Treasury of Maryland v. Wynne decision.
  • The Tax Court held that the same rationale used by the Supreme Court in finding the law at issue in Wynne was in violation of the dormant commerce clause also applies to the limited interest rate on Wynne refunds.
  • The limited interest on Wynne refunds is also the subject of a separate class action lawsuit filed in the Circuit Court of Baltimore City, which had previously been dismissed due to Plaintiff’s failure to exhaust administrative remedies.

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The IRS intends to issue regulations pertaining to states’ attempts to subvert the state and local tax deduction cap.

  • The Tax Cuts and Jobs Act imposed a $10,000 ($5,000 for married individuals filing separately) limit on state and local tax deductions for federal income tax purposes.
  • Certain states, including New York, New Jersey, and Connecticut, have enacted legislation to allow taxpayers to claim a federal tax deduction in excess of the SALT cap.
  • The pending regulations will emphasize that federal income tax substance-over-form principles, not state laws, dictate the characterization of the charitable contributions.

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On May 14, 2018, Indiana Governor Eric Holcomb signed into law H.B 1316 (the Bill). The Bill provides a number of changes to Indiana’s tax laws, including responding to provisions of the federal Tax Cuts and Jobs Act. Some notable provisions of the Bill include:

  • updating Indiana’s conformity to the Internal Revenue Code from January 1, 2016 to February 11, 2018, effective for taxable years beginning on or after January 1, 2018;
  • specifying that any IRC amendments made by an act passed by Congress prior to February 11, 2018, other than the 21st Century Cures Act or the Disaster Tax Relief and Airport and Airway Extension Act, that is effective for a taxable year that begins before February 11, 2018 and affects corporate taxable income, is also effective for the same taxable year for purposes of determining Indiana adjusted gross income.
  • specifying that amounts under IRC 951A (GILTI) are treated as foreign source dividends for Indiana purposes, which means that Indiana’s Dividends Received Deduction for foreign source income under Ind. Code § 6-3-2-12 will apply to GILTI;
  • providing for similar treatment of amounts under IRC 965 Repatriation Transition Tax;
  • specifying that to the extent any amounts from the Repatriation Transition Tax or GILTI are included in Indiana income, these receipts will be included in the Indiana apportionment factor and sourced based on the rules for dividends from investments;
  • decoupling from the limitation on interest expenses under IRC 163(j); and
  • decoupling from the federal unlimited NOL carryforward period under IRC §172 and instead providing for a carryforward period of 20 years.
Eversheds Sutherland Observation: Indiana’s treatment of GILTI as a “foreign source dividend” puts GILTI on equal footing with Subpart F income (including the Repatriation Transition Tax) for Indiana corporate tax purposes. Under Indiana Code § 6-3-2-12, a 100% DRD is allowed for foreign source dividends from 80% owned corporations. The DRD is reduced to 85% for dividends from corporations in which the US shareholder owns a 50-80% interest, and further reduced to 50% for dividends from corporations in which the ownership percentage is 50% or less. Indiana’s treatment of GILTI under the Bill is similar to certain other states’ treatment of GILTI including Georgia, which exempts both GILTI and Subpart F income from state taxation, and Illinois, which has a foreign dividend subtraction that applies to both GILTI as well as Subpart F income.

Read more here: Indiana H.B. 1316