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EisnerAmper Blog

An EisnerAmper State And Local Tax Blog

Pennsylvania Commonwealth Court Strikes Down Net Loss Carryover Limits As Applied

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December 7, 2015

By Gary C. Bingel, CPA and William Gentilesco, CPA

On November 23, the Commonwealth Court of Pennsylvania decided Nextel Communications v. Commonwealth, (No. 98 F.R. 2012) struck down Pennsylvania’s Net Loss Carryover (“NLC”) limits as they pertained to Nextel for the 2007 tax year.  

Over the years, Pennsylvania has imposed various limits on the usage of net operating losses for corporations. For the year in question (2007), taxpayers were limited to the greater of the following: $3 million or 12.5% of taxable income. Nextel filed its return in accordance with these limits, and then filed a refund claim for taxes paid as a result of the caps, proposing that the cap, as applied to Nextel, violated the uniformity clause of Pennsylvania’s constitution.

Under Pennsylvania’s NLC limits, taxpayers with $3 million of income or less could entirely offset their income (assuming they had sufficient NLCs), while taxpayers with more than $3 million of income would be unable to do so, and consequently would owe Pennsylvania tax. For 2007, Nextel had $45 million in taxable income, and was only able to utilize $5.6 million of NLC (despite having a total NLC of $150 million), resulting in a tax liability of approximately $4 million. The crux of Nextel’s argument was that a similarly situated taxpayer with $3 million of taxable income would be entitled to offset all of their income, resulting in no tax liability. Thus, these two taxpayers would be subject to different effective tax rates, effectively creating a progressive tax structure. Under Pennsylvania’s Uniformity Clause, “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax . . . . “ 

The Commonwealth attempted to argue that the NLC cap scheme was “roughly uniform” and therefore withstood scrutiny, and that Pennsylvania’s Constitution should yield to the “wisdom of the legislature.”  

The Commonwealth Court concluded that the NLC deduction treated taxpayers with more than $3 million of taxable income differently than those with less than $3 million of income, and further agreed that a classification based solely on income levels violates the Uniformity Clause.  

Regarding the appropriate remedy, the bulk of the court held that both the dollar limits as well as the percentage limits should be struck down. The dissenting opinion felt that only the dollar limit should be severed from the statute, and the percentage limit should be upheld.  As a result, Nextel was granted a refund of approximately $4 million.  

It should be noted that this case will almost certainly be appealed by the Commonwealth, so a final decision regarding the matter is still a quite a ways off. Further, Nextel’s challenge was that the cap was unconstitutional “as applied” to Nextel in their specific facts and circumstances, as opposed to a facial challenge of the caps as a whole. As a result, the caps remain in place (at least for now).  

Pennsylvania taxpayers that have had their utilization of net loss carryovers limited in the past (including those that have had their NLCs expire prior to usage) should evaluate their circumstances and seriously consider filing refunds claims for relevant periods. 

SALT Update - What’s New

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November 19, 2015

By David Venanzi

Alabama Adopts Economic Sales and Use Tax Nexus Standards

The Alabama Department of Revenue recently adopted Rule 810-6-2-.90.03 which establishes an economic nexus sales and use tax standard for out-of-state sellers. This rule is effective January 1, 2016. For more information on the changes, click here.  

California Enacts IRS Conformity Legislation

On September 30, 2015, California Governor Jerry Brown signed into law L.2015, A154 which, effective immediately, updates California’s Revenue and Taxation Code conformity date with the Internal Revenue Code to January 1, 2015. For information on what provisions were brought into conformity and non-conforming provisions, click here.

Possible Refunds to Iowa Residents as a Result of Wynne

On October 16, 2015, the Iowa Department of Revenue released guidance on how Iowa residents who earned out-of-state income (excluding Illinois) may be eligible for a refund as a result of Comptroller of the Treasury of Maryland v. Wynne. For more information, click here.

Louisiana Announces Tax Amnesty Period

On October 29, 2015, the Louisiana Department of Revenue announced it will conduct a tax amnesty program from November 16, 2015 and ending Tuesday, December 15, 2015. For more information on the amnesty, click here.

Michigan Addresses Where the Benefit of Services Is Received for Tax Apportionment

On October 16, 2015, the Michigan Department of Treasury released Revenue Administrative Bulletin 2015-20 explaining where the benefit of services is received with regards to corporate income tax. For more information, click here.

New York Issues Draft Apportionment Regulations

The New York State Department of Taxation and Finance recently issued draft regulations relating to sourcing of receipts from digital products and other business receipts. Comments on the rules are due by January 16, 2016. For more information on the draft regulations, click here.

Pennsylvania Held that LLC Member Payments are Subject to Unemployment Tax

The Commonwealth Court of Pennsylvania held in King’s Kountry Korner, LLC v. Department of Labor and Industry, Office of Unemployment Compensation Tax Services, that payments made to members of an LLC are subject to Pennsylvania unemployment tax because the members of the LLC are considered employees of the LLC. For more information, click here.

SALT Update – Recent Developments

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October 24, 2015

By David Venanzi

Alabama Enacts Tax Delinquency Amnesty
On September 21, 2015, Alabama enacted the Alabama Tax Delinquency Amnesty Act of 2016.  This act requires the Department of Revenue to run a tax amnesty program in 2016 for at least a 2-month period prior to August 31, 2016.  For more information, click here.

Maryland Launches New Website to Claim Refunds as a Result of Wynne
Maryland Governor Larry Hogan and Comptroller Peter Franchot launched a new website to help Maryland taxpayers receive refunds in the wake of the decision in Comptroller of the Treasury of Maryland v. Wynne.  For more information, click here.

Michigan Court of Appeals Held Retroactive Repeal of MTC Was Valid
The Michigan Court of Appeals held that S.B. 156 (P.A. 282) which retroactively repealed the state’s Multistate Tax Compact (MTC) provisions was a valid act by the state legislature.  For more information, click here.

Missouri Issues Private Letter Ruling Regarding Taxability of Software
On August 21, 2015, the Missouri Director of Revenue issued Private Letter Ruling LR 7615 regarding the taxability of canned software, custom software, software licenses, and maintenance agreements.  For more information, click here.

North Carolina Budget Bill Phases in Single Sales Factor and Lowers Rates
On September 18, 2015, North Carolina Governor Pat McCrory signed the 2015 Appropriations Act which reduces corporate income tax rates, puts a provision in place for further reductions of the tax rate, and phases in a single sales factor, among other items.  For more information on the changes, click here.

Nevada Provides FAQs on the New Commerce Tax
On September 8, 2015, the Nevada Department of Taxation issued a set of question and answers, along with other information, regarding the newly enacted Commerce Tax.  For more information, click here.

New Hampshire Overrides Governor’s Veto and Enacts the FY 2016-2017 Budget
On September 28, 2015, the New Hampshire Legislature enacted H2, the FY 2016-2017 budget bill, by overriding Governor Maggie Hassan’s veto.  This bill lowers business taxes and provides a tax amnesty and voluntary disclosure program.  For more information on the changes, click here.

SALT Update - August 2015

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September 21, 2015

By David Venanzi

Alabama Enacts Factor Presence Nexus Standards

On August 4, 2015, effective for tax years beginning after December 31, 2014, Alabama enacted legislation that establishes factor presence nexus standards for business activities for the purposes of income tax.  For more information, click here.

City of Tucson, Arizona Announces It Will Offer Tax Amnesty

On August 24, the City of Tucson announced that it will offer a tax amnesty program running from September 1, 2015 through October 30, 2015.  For more information on the amnesty program, click here.

Kansas Makes Amnesty Application Available Online

As mentioned in our July SALT Blog, Kansas has announced that it will run an amnesty; the application for amnesty is now available online.  As a reminder, the amnesty will run from September 1, 2015 through October 15, 2015.  Payments may be made online at either https://www.kdor.org/TaxCenter/login.aspx or credit/debit card payments can be made at https://www.officialpayments.com/index.jsp. Otherwise, a check can be submitted with the application.  For more information, click here

Kinko’s Receives Refund for Double Taxed Royalties by New Jersey

Kinko’s Network, an affiliate of Kinko’s Ventures, received a post-audit refund for double taxed royalties by New Jersey because Kinko’s Network was required to addback paid royalties to Kinko’s Ventures and Kinko’s Ventures were required to claim the amount as income.  For more information, click here.

Missouri to Offer Tax Amnesty

The Missouri Department of Revenue has announced that it will offer a tax amnesty from September 1, 2015 through November 30, 2015.  This will provide individuals and businesses with a one-time opportunity to pay back taxes that were due prior to December 31, 2014.  For more information, click here.

New Jersey Issues TAM Regarding Convertible Virtual currency

On July 28, 2015, the New Jersey Division of Taxation issued Technical Advisory Memorandum 2015-1(R) regarding tax treatment of transactions that involve virtual currency.  For more information, click here.

New Jersey Division of Taxation Issues Technical Bulletins Related to Nexus

On August 13, 2015, the New Jersey Division of Taxation Regulatory Services Branch issued two technical bulletins, TB-78(R) and TB-79(R).  These TBs deal with nexus for sales and use tax and nexus for corporation business tax respectively.  For more information, click here.

New York Budget Enacts Investment Capital Identification Requirements

Amongst the numerous changes as a result of the 2015-2016 New York State budget, there is an added change to investment capital identification requirements for taking a deduction for investment capital on your New York State corporate tax return.  For more information on the requirements, click here.

President Obama Signs Stopgap Highway Bill Changing Federal Due Dates

On July 31, 2015, President Barack Obama signed the Stopgap Highway Bill.  Under the bill, the due dates of several different types of tax returns were changed.  For more information and the impact this will have on states click here.

Texas Releases Guidance on the Effects of an Unaffiliated Third-Party Manufacturer

On August 12, 2015, the Texas Comptroller of Public Accounts issued Texas Policy Letter Ruling 201508350L which discusses if a taxable entity that uses an unaffiliated third-party manufacturer to produce products is eligible for the 0.5% tax rate (Please note that this rate has changed effective 1/1/2015 and again in 1/1/2016).  For more information, click here.

Vermont Discusses Sales & Use Tax on Cloud Software

This past month, Vermont issued a fact sheet describing sales and use tax implications related to cloud software.  For more information, click here.

Washington Enacts Amnesty for Unclaimed Property Holders and Other Changes

Effective July 1, 2015 through November 1, 2016, the Washington Department of Revenue allows qualifying unclaimed property holders amnesty for penalties and interest if they report and pay unclaimed property by November 1, 2016.  For more information, click here.

Wisconsin Issues Tax Bulletin Summarizing Recent Tax Law Changes

On July 1, 2015, the Wisconsin Department of Revenue issued Tax Bulletin 189 summarizing the various tax changes as a result of Wisconsin tax law changes.  For more information, click here

 

 

SALT Update - July 2015

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August 5, 2015 

By Gary Bingel, CPA and David Venanzi

Connecticut Governor Signs Budget Mandating Combined Reporting, NOL Limits, and Other Provisions  

On June 30, 2015, Connecticut Governor Daniel Malloy signed into legislature the biennium budget.  This budget contains major tax changes.  In addition to various personal income tax changes, changes were made to corporate business taxation which now mandates combined reporting and limiting of corporate NOL carry forwards. Click here for more details. 

Massachusetts Governor Enacts 2016 Budget Bill 

On July 17, 2015, Governor Charlie Baker signed the fiscal year 2016 budget bill.  This bill, in addition to various personal tax changes, authorizes a tax amnesty program to start sometime in the 2016 fiscal year.  Click here for more details. 

Ohio Budget Bill Enacts Click-Through Nexus

With the signing of the fiscal year 2016-2017 budget by Ohio Governor John R. Kasich comes click-through nexus provisions.  These provisions are effective July 1, 2015. A presumption is provided that a seller will have substantial nexus in Ohio if the seller enters into an agreement with an instate resident, who for a commission or other consideration, refers potential customers by a link on a website, in-person oral presentation, etc., to the seller.  Click here for more details. 

Washington Enacts Economic Nexus Provisions and Click-Through Nexus Provisions 

Effective September 1, 2015, an out-of-state seller will be presumed to have substantial nexus in Washington if the seller enters into an agreement with a resident wherein the resident will refer customer via link on an internet website or other method for a commission or other consideration.  Click here for more details.

Delaware Makes Changes to Unclaimed Property Laws 

Delaware recently enacted legislature amending its laws regarding unclaimed property.  These changes include changes to its voluntary disclosure program and imposing interest on late-filed unclaimed property.  Click here for more details. 

Kansas Announces Tax Amnesty 

The Kansas Department of Revenue has announced that, beginning September 1, 2015, it will start accepting applications for tax amnesty.  The program will run from September 1, 2015 through October 15, 2015.  Click here for more details. 

Indiana Announces Tax Amnesty 

The Indiana Department of Revenue has announced that it will conduct a tax amnesty program starting September 15, 2015 and running through November 16, 2015.  Click here for more details. 

Vermont Mandates E-Filing

Beginning with the 2015 tax year, effective January 1, 2016, the Vermont Commissioner of Taxes has mandated electronic filing of Vermont Corporate Income, Business Income, and Fiduciary Income Taxes.  This mandate applies to tax practitioners who prepare more than 25 tax returns per year.  Click here for the announcement. 

EITC: Helping Your Local School Can Help Your Business

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July 20, 2015

By Dan Piasecki

The Educational Improvement Tax Credit (“EITC”) is an opportunity for businesses and business owners to reinvest in their communities by making a charitable contribution to qualified educational improvement, scholarship and pre-K organizations.  In exchange for the contribution, the business will receive a tax credit of up to 90% of the value of the contribution to be used against various Pennsylvania taxes including (but not limited to):

  • Corporate Income Tax;
  • Capital Stock Tax; and
  • Personal Income Tax. 

A list of qualified organizations can be found on the Pennslyvania Department of Community and Economic Development’s website .

Time is of the essence as there is a limited amount in the tax credit pool. Credits are issued on a first-come, first-serve basis.  The application period opens July 1 each year. Once all the credit money is allocated, a taxpayer must wait until the following July 1 to try again.   

The business community has overwhelmingly responded to this Program. Since its inception in 2001, more than 23,500 applications have been approved pledging in excess of $657 million dollars to the programs.  When you combine the benefits of a federal charitable contribution and the state tax credits, many businesses receive a benefit that exceeds the amount of the contribution.  Don’t wait to take advantage of this opportunity. 

For more information and application contact your tax advisor.  Additionally, there is a program summary on the Department’s website.

SALT Update – June 2015

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July 14, 2015

By David Venanzi

Each month, we’ll bring you a quick synopsis of critical state and local tax changes, to help you look for opportunities and avoid significant snags.

South Carolina Grants Department of Revenue Authorization to Enact a Tax Amnesty

Effective June 8, 2015, South Carolina Governor Nikki Haley signed a bill to amend the Code of Laws of South Carolina to allow the SC Department of Revenue to establish a 3-month amnesty period. During this period, the Department of Revenue will waive delinquent tax penalties and interest. Please click here for more details.

Maryland Releases Information Regarding 2015 Tax Amnesty Program

The Maryland Comptroller has released information regarding their 2015 Tax Amnesty Program that will run from September 1, 2015 through October 30, 2015. Amnesty applications must be received or postmarked no later than October 30, 2015. Please click here for more details.

Missouri Governor Signs Legislation Authorizing Tax Amnesty

On April 27, 2015, Missouri Governor Jay Nixon signed legislation that will authorize and create a tax amnesty program that will waive all penalties, additions to tax, and interest. The tax amnesty program will run from September 1, 2015 to November 30, 2015. Please click here for more details.

Tennessee Out-of-State Retailer Nexus

Effective July 1, 2015, Tennessee now has a rebuttable presumption that out-of-state retailers have nexus, and must collect sales and use tax. This is dependent on the retailer paying an in-state party fees or commissions to refer the customers to the retailer. Please click here for more details.

Nevada Enacts Annual Commerce Tax

Effective July 1, 2015, Nevada Governor Brian Sandoval singed into legislation an annual commerce tax. This tax is imposed on all entities engaged in business in Nevada whose Nevada gross revenue is greater than $4 million. Please click here for more details.

Texas Governor Signs Franchise Tax Reduction Act

On June 15, 2015, Texas Governor Greg Abbott signed the Franchise Tax Reduction Act of 2015. This act makes various changes to the franchise tax rates for reports originally due on or after January 1, 2015 but before January 1, 2016 and reports originally due on or after January 1, 2016. Please click here for more details.

Florida District Court of Appeal Determines Violation of Commerce Clause for In-State and Out-of-State Communication Services

The Florida District Court of Appeals determined on June 11, 2015 that Florida statute section 202.12(1) is unconstitutional and discriminates against interstate commerce which is a violation of the Commerce Clause. This stems from a 2005 suit filed in which the trial court held that section 202.12(1) does not violate the Commerce Clause because it does not benefit in-state economic interests. Please click here for more details.

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