12.18.2014 Southeast State & Local Tax: Important Developments - November/December 2014
BY: STEPHANIE LIPINSKI GALLAND & KYLE H. WINGFIELD
The Williams Mullen Southeast State and Local Tax (SESALT) team is pleased to provide you with a comprehensive recap of important tax developments around the Southeast.
- Internet Tax Freedom Act. Congress approved an extension of the Internet Tax Freedom Act (the “ITFA”) through September 30, 2015 as part of the fiscal year 2015 spending bill, The Consolidated and Further Continuing Appropriations Act, 2015, H.R. 83, 113th Cong. (2014). The ITFA originally was scheduled to expire on November 1, 2014. Last month, the ITFA was temporarily extended to December 11, 2014. The next steps for the legislation include its enrollment and transmittal to the White House for action by President Obama.
Pass-Through Withholding. On October 28, 2014, the Virginia Department of Taxation published draft guidelines for Pass-Through Entity Withholding. The Department also published a work plan for receiving comment and publishing the final guidelines. The comment period ends on December 29, 2014. Va. Dept. of Tax, Draft Guidelines and Workplan.
Pass-Through Electronic Filing Requirement. Beginning January 1, 2015, all pass-through entities (“PTEs”) must file their annual returns and make all payments electronically. The requirement is effective beginning with taxable year 2014 returns, return payments and withholding payments. PTEs that are unable to file and pay electronically may request a waiver. Va. Dept. of Tax, Pass-Through Entity Filing Requirements.
- Department Updates Website. The Virginia Department of Taxation recently updated its website, which now provides a new layout and search function for accessing administrative rulings. The Department has yet to publish rulings issued between October 24, 2014 and December 9, 2014. Williams Mullen will report on these rulings as they become available.
Property Tax. Williams Mullen attorneys Nancy S. Rendleman and Charles B. Neely, Jr. recently updated and published two (2) manuscripts on North Carolina property tax. The manuscripts are Property Tax Assessment of Business Personal Property and The Discovery of Unlisted and Underlisted Property.
Sales and Use Tax. The North Carolina Department of Revenue issued an important notice to explain the application of sales and use tax to tangible personal property used to perform real property contracts for sales made on or after January 1, 2015 and contracts entered into on or after that date. N.C. Dept. of Rev., Important Notice: Real Property Contracts.
- Individual Income Tax. The North Carolina Department of Revenue updated its guidance regarding same-sex marriages and filing status. This directive replaces N.C. Directive No. PD-13-1, 10/18/2013, which provided that North Carolina did not recognize the marriage of same-sex couples who were legally married under any state law as valid. N.C. Directive No. PD-14-3.
- Withholding Tax Facts. The Maryland Comptroller issued a withholding guide for 2015 relating to information about filing employer withholding tax forms, reconciliation statements, and other employer withholding related forms. Md. Comptroller’s Office, Maryland Withholding Tax Facts, January 2015-December 2015.
AROUND THE NATION
South Carolina / Sales and Use Tax / Data Processing. The South Carolina Department of Revenue ruled that a web-based application used to process insurance claims was not subject to sales and use tax. The taxpayer received information furnished by the customer or the customer's insurance carriers on behalf of the customer, and the taxpayer then compiled the insurance claims information on its system as the result of the “data processing” performed by it. S.C. Code Ann. § 12-36-910(C) provides a specific exclusion from sales and use tax for data processing. The Department noted that, if the taxpayer did not manipulate the customer's insurance claims information, and only provided a service that allowed the customer to access a website to use software to enter its own claims information, to keep track of such claims information, to create various reports, and to otherwise do its own data processing of its information, then the service would be subject to the sales and use tax as a communications service. S.C. Private Letter Ruling No. 14-5.
Pennsylvania / Income Tax / Market-Based Sourcing of Sales. Pennsylvania issued an information notice regarding the sourcing of services for purposes of determining the corporate net income and capital stock franchise tax apportionment factors. Act 52 of 2013 amended Pa. Stat. Ann. § 7401(3)2.(a)(16.1)(C) with the intent of instituting a 100% market-based sourcing rule for sales of services. Under the statute, sales of services are no longer subject to the income-producing activity and cost-of-performance rules. Instead, such sales are sourced to Pennsylvania if the service is delivered to a location in Pennsylvania. Although the statute provides for an “apportionment” of the sales receipts if the service is delivered both within and without Pennsylvania, sellers that previously used a cost-of-performance to source the sale will not have to perform a state-by-state analysis on the sales of services to determine the Pennsylvania sales factor. Pa. Dept. of Rev., Information Notice Corporation Taxes 2014-01.
New Jersey / Sales and Use Tax / Remote Sellers. The New Jersey Division of Taxation issued a technical bulletin discussing the application of the post-June 30, 2014 rule creating a rebuttable presumption that a remote seller is soliciting business in New Jersey if (i) the remote seller enters into an agreement with a New Jersey independent contractor or other representative to refer potential customers via a link on a website and (ii) the seller has sales from such referrals to customers in New Jersey in excess of $10,000 for the prior four quarterly periods ending on the last day of March, June, September and December. The guidance provides criteria that a remote seller must satisfy in order to rebut the presumption. N.J. Div. of Tax, Technical Bulletin No. TB-76.
New Jersey / Income Tax / Amnesty Penalties Improperly Assessed. The New Jersey Supreme Court held that tax amnesty penalties and late payment penalties were improperly assessed against a corporate taxpayer that filed its returns on time, paid all reported taxes and was later found to owe additional taxes following an audit. The case involved the intercompany transfers of funds between the taxpayer and its affiliates. The taxpayer ascribed no tax consequence to the transfers on its corporate tax returns. The court determined that the transfers were loans, which created imputed interest income to the taxpayer. However, the court rejected the Division of Taxation’s claim that the taxpayer was subject to the failure-to-take-advantage-of-amnesty penalties for failing to report the transfers as loans. In addition, the court held that, because the taxpayer’s position regarding the loans was reasonable under existing law, the taxpayer had “reasonable cause" for an abatement of late payment penalties. United Parcel Services Gen. Services Co. v. Division of Taxation, N.J. S. Ct., Dkt. No. A-16/17-13 (2014).
- Delaware / Unclaimed Property. Temple-Inland, Inc. v. Cook, No 1:14-CV-00654-SLR (D. Del 2014) continues in Delaware. The taxpayer, a Delaware corporation, filed suit in federal court to stop the state from collecting an estimated previous unclaimed property liability of more than $1.3 million. The lawsuit seeks to overturn the first published decision from an administrative appeal under Delaware's unclaimed property laws. So far, oral arguments have been heard in the case. While there is no ruling, the presiding judge, Sue Robinson, stated during oral arguments that she found the audit look-back period “astounding, if not shocking,” which gives companies hope. We will continue to track this unclaimed property case.