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State & Local Tax Update - 8/7/15

Posted 12:45 PM by

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Arizona Provides Sales and Use (TPT) Guidance on Changes to Prime Contracting Classification

TPN 15-1 has been issued to provide guidance on questions arising from recent legislative changes to the prime contracting classification, including new exemptions for the gross income derived from the maintenance, repair, replacement or alteration (MRRA) activities affecting real estate when the activities are performed directly for the property owner or authorized party. Note that modifications remain taxable.

Kansas Issues Guidance on Effective Date of Change Taxing Guaranteed Payments

The Kansas Department of Revenue has issued Public Notice 15-11, indicating the exclusion of guaranteed payments as an acceptable deduction to Kansas AGI is effective July 1, 2015, and not retroactively. 

Maryland Issues Guidance on 2015 Amnesty Program

The Maryland comptroller has issued information on the upcoming 2015 Tax Amnesty Program. The program runs from Sept. 1 through Oct. 30, 2015, and waives all civil penalties and one-half of the interest for delinquent taxpayers who apply and are approved. The tax amnesty application, tax amnesty calculator, and Tax Amnesty BillPay will be available by Aug. 28, 2015. Tax amnesty applications will be accepted beginning Sept. 1, 2015. See Maryland 2015 Amnesty for additional information on the program. 

New Jersey Rules on Residency of Telecommuters

In Gundecha v. Board of Review and DB Services New Jersey, the New Jersey Superior Court, Appellate Division, has ruled a telecommuter working in North Carolina for her employer in New Jersey was considered to be working in North Carolina and was not eligible for unemployment compensation benefits in New Jersey. Although the case dealt with unemployment compensation, some parallels from this case may be applied in the income tax context. 

New York Rules Buyer Responsible for Seller Sales Tax Liability

The taxpayer was liable for sales tax related to the bulk purchase of the business assets of a New York-based kitchen and bath company. The transfer at issue was clearly a bulk sale as a transfer to the taxpayer of the entire business assets of the seller outside the ordinary course of business.

At the time of the bulk sale transfer, the seller owed sales tax. The taxpayer, as the purchaser, was obligated to notify the Division of the transaction and withhold from the seller the transfer of any consideration on the purchase until payment of that liability was made.

Failure to comply with the notification requirements resulted in the taxpayer becoming personally liable for the payment of any New York state sales and use taxes determined to be due from the seller. For more details, see In the Matter of the Petition of GB&K/DCS LLC.

Tennessee Issues Notice on Taxability of Remotely Accessed Software

Important Notice 15-14 has been issued to reflect recent legislative changes with regard to the taxability of certain software products. Effective July 1, 2015, the taxable use of computer software in Tennessee includes the access and use of software that remains in possession of the seller and is remotely accessed by a customer for use in Tennessee. The notice outlines the reason for the change and related issues, including multiple points of use.

Tennessee Amends Definition of Nexus for Franchise, Excise and Business Taxes

Effective for tax years beginning on or after Jan. 1, 2016, taxpayers are subject to the franchise and excise tax if they are doing business in Tennessee and have substantial nexus with Tennessee. Substantial nexus is created if:

  1. The taxpayer is organized or commercially domiciled in Tennessee;
  2. The taxpayer owns or uses capital in Tennessee;
  3. The taxpayer has systematic and continuous business activity in Tennessee that has produced gross receipts attributable to customers in Tennessee (often referred to as economic nexus);
  4. The taxpayer licenses intangible property for use by another party in Tennessee and derives income from the use of that intangible property; or
  5. The taxpayer has bright-line presence* in Tennessee.

*The taxpayer has bright-line presence in Tennessee if any of the following applies:

  1. The taxpayer's receipts in Tennessee exceed either $500,000 or 25% of the taxpayer's total receipts everywhere;
  2. The average value of the taxpayer's real and tangible property owned or rented and used in Tennessee during the tax period exceeds $50,000 or 25% of the taxpayer's total real and tangible property; or
  3. The taxpayer paid compensation in Tennessee that exceeded more than $50,000 or 25% of the total compensation paid by that taxpayer. For more information, see HB0644

Tennessee Amends Apportionment Sourcing and Factor Weighting

Effective for tax years beginning on or after July 1, 2016, receipts from sales, other than sales of tangible personal property, are in Tennessee if the taxpayer's market for the sale is in Tennessee. In the case of the sale, rental, lease or license of real or tangible property, the market for the sale is in Tennessee to the extent that the property is located in Tennessee.

In the case of sale of a service, the sale will be sourced to Tennessee to the extent that the service is delivered to a location in Tennessee. In the case of intangible property that is rented, leased or licensed, the sale will be sourced to Tennessee to the extent that the intangible property is used in Tennessee.

Additionally, the weight of the sales factor increases so that it makes up 60% of the apportionment factor rather than 50% of the apportionment factor. For more information, see HB0644.

Washington Rules Captive Paymaster Subject to Business and Occupation (B&O) Tax

By failing to establish it had no liability to pay the employer obligations except as an agent of its affiliates, failing to establish it was a Form 2678 Agent for its clients, and failing to notify employees of the client’s status as employer liable for all employer obligations, a taxpayer was subject to B&O tax on all gross income received from related parties for the provision of payroll and benefits services, accounting services and administrative services. For more information, see  WA Tax Determination 14-0175.

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.