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State & Local Tax Update: 11/13/14

Posted 7:11 PM by

Personal Property Tax and 263(a)

For companies taking advantage of 263(a) rules for federal tax purposes, it is important to remember that for personal property tax purposes, there may not be a de minimis safe harbor application. For income tax purposes, it may be acceptable to expense individual fixed assets costing $5,000 or less; for personal property tax returns, these assets may still be considered assessable and taxable. If you choose to take advantage of the new 263(a) rules and expense assets costing $5,000 or less, you may want to consider keeping a second set of records for personal property reporting.
 
As a reminder, some states exempt personal property; however, many states do impose a personal property tax, and due dates vary by state. Now is a good time to review your asset listing to ensure all personal property tax filing deadlines are met.
 
Please contact your KSM advisor with any questions regarding the effect of Section 263(a) and personal property reporting.
 

Indiana Rules on Taxability of Web Hosting and Web Design  
Based on documentation indicating the true nature of the transaction as services, Web-design and Web-hosting services were treated as nontaxable for Indiana sales and use tax purposes. (For more information, see LOF 04-20140207.)

California Issues Guidance on LLC Member Filing Requirements  
CA FTB Legal Ruling 2014-01 outlines various scenarios in which an entity holding a membership interest in an LLC is required to file in California. The Ruling also outlines when the member is subject to the LLC fee and tax, based on the activities of the LLC that are attributed to it. (For more information, see Legal Ruling 2014-01.)

California Issues Guidance on Sales Factor Sourcing Rules  
California has provided guidance on how to apply the new single-sales factor and market-based sourcing rules for tax years beginning 1/1/13. The changes to sourcing sales of other than tangible personal property are addressed, with examples of how market assignment will impact the numerator. (For more information, see Sales Factor Sourcing Rules.)

California Sets Doing Business Thresholds for 2014 
A taxpayer will be considered doing business in California if he or she has sales of $529,562, property of $52,956, or payroll of $52,956. 

California Issues Guidance on New Like-Kind Exchange Reporting Rules 
California issued a Public Service Bulletin to assist taxpayers with questions on the upcoming changes to reporting requirements for like-kind exchanges involving a California property. The bulletin outlines the new rules effective 1/1/14 and provides some guidance on Form 3840, which should be released before year end. (For more information, see the Public Service Bulletin.)

Illinois Provides Guidance on Sales Factor Sourcing for Cloud Computing  
In IT-14-0003-PLR , the Illinois Department of Revenue indicated revenue from cloud computing was a service and not the sale of tangible personal property, thus it was to be sourced using the service sourcing rules, using receipt as the primary location. Based on those rules, in situations where the taxpayer could not determine where the customer is accessing the services, the revenue would be sourced to where the customer ordered the services. If that cannot be determined, the billing address is used. In addition, the throwout rule would be a consideration if the taxpayer was not taxable in the state in which the service is deemed to be received. (For more information, see IT-14-0003-PLR.)

About the Author
Donna Niesen is a partner in Katz, Sapper & Miller’s State and Local Tax Group. Donna helps keep clients up-to-date on the multitude of tax rules and requirements in all 50 states. She guides them in the right direction as they address the complex issues that emerge on both the state and local levels. Connect with her on LinkedIn.

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