Your First Taste of SALT for 2018

Here are a few state and local (SALT) tax items you should be aware of heading into the New Year:

Connecticut Announces “Fresh Start” Tax Amnesty Program

The Connecticut Department of Revenue Services (DRS) recently announced an amnesty program to entice non-filing and under-reporting taxpayers to come forward and resolve their tax exposures. The “CT Fresh Start” program applies to all taxes administered by the DRS, including income tax, business entity tax, sales and use tax, withholding tax, corporation business tax and gift tax.

Participants can avoid penalties, reduce their interest by 50% and avoid criminal prosecution. Non-filing taxpayers may also be eligible to limit their exposure period up to three years.

The program applies to non-filed tax returns or underreported tax obligations due on or before December 31, 2016. The program is not available to taxpayers who are under audit or taxpayers who have otherwise been contacted by the DRS. 

The window for applications to be accepted is from October 31, 2017, to November 30, 2018. Participating taxpayers must apply online and continue to comply with all of the CT tax filing and payment obligations for the following three years in order to remain compliant with CT Fresh Start.  Tax payments are due in full via electronic payment at the time of the application. The DRS will only notify taxpayers if their applications have been denied. Tax payments made via the CT Fresh Start program are not refundable in the case of overpayment.

NJ Tax Court Allows $5.8M Corporate Tax Refund for Foreign Company
By William Gentilesco

The NJ Tax Court recently held that the state cannot impose corporation business tax (CBT) on foreign-source income that was not included in a taxpayer’s federal taxable income (Infosys Limited of India Inc. v. Director, Tax).

Infosys is headquartered and incorporated in India with various branches worldwide including the U.S. Based on the U.S.-India Income Tax Treaty, Infosys filed federal income tax on Form 1120-F and paid U.S. tax only on income earned through a permanent establishment in the U.S. For NJ CBT purposes, Infosys reported and paid tax on worldwide income apportioned to the state, which is consistent with various guidance issued by the NJ Division of Taxation (“the Division”). Subsequently, Infosys amended its CBT returns to exclude foreign-sourced income. The Division disallowed the refunds, and Infosys appealed to the NJ Tax Court.   The case centered on what is included in a taxpayer’s “entire net income.” The CBT Act generally defines entire net income as being equal to a taxpayer’s federal taxable income, plus or minus certain adjustments, whereas the Division expands the definition to include worldwide or extraterritorial income. Based on the statute and case law, the court ruled in favor of Infosys limiting entire net income to federal taxable income and excluding extraterritorial income from the NJ tax base.  As such, Infosys’ $5.8M refund was allowed.   

Foreign corporations that included more income in their CBT returns than was included in their federal taxable income should consider amending their returns to request a refund.

Texas Announces Dates for Tax Amnesty Program
By Andria Siciliano 

The Texas Tax Amnesty Program will run from May 1, 2018, through June 29, 2018. The program provides delinquent taxpayers with relief from penalties and interest on tax due. Tax amnesty applies to periods prior to January 1, 2018, and only includes liabilities that have not been previously identified as due by the state comptroller. It does not apply to periods currently under audit review, IFTA taxes, PUC gross receipts assessments, local motor vehicle tax, and unclaimed property payments.

NJ Sales Tax Rate Now 6.625%
By Andria Siciliano 

The NJ Division of Taxation is reminding business owners and consumers that the state sales and use tax rate was reduced to 6.625% on January 1, 2018. The previous rate of 6.875% percent went into effect on January 1, 2017, which was a reduction from the 7% rate that had remained unchanged since 2006.

Business owners should change their point‐of‐sale systems to reflect the new lower rate. Rates for state sales tax in Urban Enterprise Zones also changed on January 1, 2018, to 50% of the sales tax rate, or 3.3125%. The previous UEZ rate was 3.4375%.

Calculate the tax due using either the ST‐75, Sales Tax Collection Schedule, or by multiplying taxable receipts by the applicable rate. Taxes are calculated to the third decimal point. Round up for one‐half cent ($0.005) or higher. Round down for less than a half a cent.