Policy and Legislation

What are the State Tax Implications of International Tax Reform? Jeff Friedman and others outline the key points at the COST 2018 Spring Audit Session/Income Tax Conference in snowy Boston, Massachusetts.

These issues were also addressed in a recent article, “Waiting for the Other Shoe to Drop: State and Local Tax Implications of Federal Tax Reform – International Tax Provisions,” in Bloomberg Tax – Daily Tax Report: State by Jeff Friedman, Todd Betor and Michael Spencer.

        

On April 10, 2018, and April 13, 2018, Oregon Governor Kate Brown signed into law S.B. 1529 and S.B. 1528 (the Bills), respectively, which provide a series of changes to Oregon’s income tax laws in response to recent federal tax changes as part of the federal Tax Cuts and Jobs Act. Most notably, the Bills: (i) update the state’s IRC conformity date to December 31, 2017; (ii) decouple from the federal temporary dividend received deduction with respect to the transition tax under IRC § 965 by requiring an addback of the federal deduction allowed under IRC § 965(c); (iii) provide relief from double taxation of repatriated income for taxpayers subject to Oregon tax under the state’s tax haven legislation by allowing a credit equal to the lessor of any taxes paid attributable to the tax haven addback for years beginning on or after January 1, 2014, and before January 1, 2017, or the amount of Oregon tax attributable to income reported under IRC § 965 for tax years beginning on or after January 1, 2017, and before January 1, 2018; and (iv) establish a state Opportunity Grant Fund and provide individual and corporate income tax credits for contributions made to this fund. Although taxpayers are required to addback the amounts deducted under IRC § 965(c), the Oregon Department of Revenue has issued guidance stating their position that the transition tax’s income inclusion is eligible for the state’s dividends received deduction under ORS 317.267(2)(b), which provides an 80% deduction for dividends received from a 20% owned corporation and a 70% deduction for all other dividends.

The Bills also repeal the tax haven addback found under Oregon Revised Statutes section 317.716 and require the Department of Revenue to evaluate the efficacy of including global intangible low-taxed income (GILTI) under IRC § 951A in the state tax base in comparison to Oregon’s now-repealed tax haven addback, with a report to be issued on or before December 1, 2020.

Read more here:  Oregon Senate Bill 1528; Oregon Senate Bill 1529; Oregon Corporation Excise/Income Tax Update

The New York Legislature passed its 2018-2019 Fiscal Year budget on March 30, 2018, which is expected to be signed into law by Governor Cuomo. The Legislature responded to the Tax Cuts and Jobs Act (TCJA) passed by the United States Congress late last year by excluding IRC § 965 repatriated income from New York taxable income. However, the final budget failed to address other TCJA provisions, such as the tax on global intangible low-taxed income (GILTI) and the interest expense limitation under IRC § 163(j). Thus, New York will conform to these federal tax changes.

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The Texas Comptroller ruled that, for Texas apportionment purposes, the sale for resale of mobile voice and data services, purchased from third-party mobile telecommunications carriers and sold to an out-of-state third-party retailer using the carrier’s network infrastructure, is characterized as the sale of telecommunications services and internet access services, respectively, not the sale of an intangible right to access a service. Accordingly, unlike receipts from the sale of an intangible asset which are sourced to the purchaser’s location, the taxpayer’s service receipts were sourced to the state to the extent that the Internet was accessed in Texas or the mobile voice services were provided in Texas. Private Letter Ruling No. 201711016L (Nov. 27, 2017).

During the second half of 2017, California expanded its partial sales and use tax manufacturing and research and development exemption to include electric generation and distribution equipment. The legislative changes are particularly favorable to businesses engaged in electric generation through the use of renewable energy sources.

The California Department of Tax and Fee Administration (CDTFA) has issued a notice inviting stakeholders to participate in an interested parties meeting (IPM) scheduled for April 11, 2018, to discuss whether the CDTFA should undertake a regulatory project to amend its corresponding regulation to implement and apply the statutory changes and, if so, to what extent.

In their article for Law360, Eversheds Sutherland attorneys Carley Roberts, Robert Merten and Jessica Allen summarize the sales and use tax exemption’s scope and qualifying requirements, the 2017 legislative changes to the exemption, the CDTFA’s proposed amendments and why stakeholders may want to participate in the IPM process.

View the full article.

Many states require or permit affiliated businesses to report their income to the state in a combined group return. In their article for Bloomberg Tax, Eversheds Sutherland attorneys Maria Todorova, Justin Brown and Samantha Trencs discuss some of the complexities of combined reporting related to the inclusion of foreign entities in a combined group, including trends among states intended to expand the combined group to include additional foreign affiliates.

View the full article.

On March 12, 2018, Idaho’s governor signed into law H.B. 463 (the Bill), which provides a series of changes to Idaho’s income tax law in response to H.R. 1, popularly referred to as the Federal Tax Cuts and Jobs Act (the Act). The main changes to Idaho tax law include:  (i) conformity, for tax years beginning after January 1, 2018, to the IRC as of January 1, 2018; and (ii) the add-back to federal taxable income of all amounts previously deducted on the corporation’s federal tax return under: (a) IRC § 245A (the 100% DRD for certain foreign-source dividend) and (b) IRC § 250 (containing the deductions for GILTI, IRC § 78 gross-up amounts related to GILTI, and FDII). The Bill also preserves the pick-up of the Act’s one time transition tax or repatriation tax under IRC § 965 for tax years beginning in 2017 and the add-back to federal taxable income the corresponding deduction in IRC § 965, which were enacted by H.B. 355 on February 9, 2018.

However, Idaho H.B. 659, currently pending, proposes to limit the add-back of amounts deducted under IRC § 250 to the deduction for GILTI and related IRC § 78 gross-up amounts, and H.B. 684, also pending, proposes to remove the add-back of amounts deducted under IRC § 965.

The Georgia Legislature has introduced its annual Internal Revenue Code (IRC) conformity bill—HB 821. Georgia conformity is typically updated annually to apply for the most recent tax year. In light of the recently enacted federal tax reform, this year’s conformity bill will receive particular attention because of what tax reform provisions Georgia chooses to adopt and not to adopt.

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