April 2017 SALT Shaker
State Amnesty Period Beginning April 21, 2017 through June 19, 2017
Pennsylvania’s 2017 tax amnesty program, established by Act 84 of 2016, is set to begin on April 21, 2017, terminating on June 19, 2017. The Amnesty Program applies to more than 30 state taxes administered by the Pennsylvania Department of Revenue, including
- Capital Stock/Foreign Franchise Tax
- Corporate Net Income Tax
- Bank Shares Tax
- Employer Withholding Tax
- Personal Income Tax
- Realty Transfer Tax
- Sales and use tax
Participating taxpayers receive abatement of all penalties and half of associated interest. Additionally, a limited lookback period may also be available.
Commonwealth Withdraws Canned Software Service Taxability Guidance
The Pennsylvania Department of Revenue recently retracted one of its issued letter rulings (Ruling No. SUT-17-001) from its website addressing the taxability of support services provided in conjunction with the sale of canned software and digital products. Last year Pennsylvania expanded its sales tax base to include digital goods and software accessed electronically effective August 1, 2016. Under the revised law, maintenance, updates, and support services associated with the sale of canned software and digital products were to be treated as tangible personal property.
The withdrawn guidance addressed the tax treatment of support services performed with respect to canned software. The Department considered the Legislature’s express inclusion of the “maintenance, updates and support” language to reference all such services with respect to canned computer software subject to tax. Had the letter ruling remained, any support involving the access to, use of, or alteration of software would also have been considered taxable tangible personal property.
The Department has stated revised guidance on the taxability of such services will be issued at a later date.
State Provides Guidance on CBT Addbacks
The New Jersey Division of Taxation recently issued Technical Bulletin 80 (“TB-80”) discussing what taxes are required to be added back in determining New Jersey Corporation Business Tax (“CBT”).
Under New Jersey law, an addback is required for “taxes paid or accrued to the United States, a possession or territory of the United States, a state, a political subdivision thereof, or the District of Columbia, or to any foreign country, state, province, territory or subdivision thereof, on or measured by profits or income, or business presence or business activity.” New Jersey regulations clarify that “business presence” or “activity” taxes include those related to net worth, gross receipts, and single business taxes.
Property taxes, excise taxes, payroll taxes, and sales taxes are not considered taxes based on business presence or business activity.
The Bulletin addresses the three general types of taxes which must be added back:
- taxes based on profits or income
- taxes based on business presence or business activity that are not property, excise, payroll, or sales taxes
- taxes similar to the CBT (i.e. taxes imposed based on receipts but not on profits; taxes imposed on capital stock, made upon the value of a taxpayer’s assets)
The Bulletin concludes with list of taxes that, in the Division’s view, are not required to be added back in calculating CBT, including:
- West Virginia B&O Tax
- Alabama Privilege Tax
- Tennessee Franchise Tax
The Bulletin then provides a non-exclusive list of taxes required to be added back, which include:
- California Franchise Tax and LLC Fees/Taxes
- District of Columbia Unincorporated Business Tax
- Ohio Commercial Activities Tax (“CAT”)
- Texas Margin Tax
- Tennessee Excise Tax
- Washington B&O Tax
- NYC Unincorporated Business Tax
State Amnesty Period Tentatively Announced for Between July 1, 2017 and June 30, 2018
Virginia introduced House Bill 2246, Leg. 2017 (Va. 2017), which authorizes the Department of Taxation to oversee a Tax Amnesty Program ranging between 60 and 75 days between July 1, 2017 and June 30, 2018. All penalties and half of associated interest would be waived upon payment of the taxpayer’s remaining balance.
However, taxpayers who are under criminal or civil investigation or under assessments issued within 90 days of the start of the amnesty period will not be eligible.
The Department is due to issue the definitive periods and additional guidelines regarding the Tax Amnesty Program.
Postponed Date for Digital Sales Tax Until Quill is Overturned
On April 10, North Dakota signed into law S.B. 2298, which requires remote retailers to collect and remit sales tax if their annual sales in the state exceed $100,000 or amount to 200 or more separate transactions. The “economic nexus” established mirrors a similar South Dakota statute enacted in 2016 that at this time is pending review with the South Dakota Supreme Court.
However, North Dakota’s law has an effective date contingent on the U.S. Supreme Court overturning Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which prohibits states from imposing sales and use tax collection obligations on vendors without a physical presence in-state. As passed by the state Senate, S.B. 2298 would have originally been effective July 1. It is not clear whether the Supreme Court would accept a challenge to Quill , though South Dakota’s law is presents the most likely candidate for review.
Transfer of Title to Internally Developed Software From Affiliates to a Parent Is Exempt for Sales and Use Tax
The transfer of title to internally developed software from acquired entities to the taxpayer is exempt from Tennessee sales and use tax. Tennessee law provides a sales and use tax exemption for an entity’s use of computer software internally developed by an affiliate. Companies are affiliated for these purposes if either company directly owns or controls 100% of the ownership interest in the other company or both companies are 100% owned or controlled by a common parent.
Tennessee Dept. of Revenue Letter Ruling No. 17-02 (March 26, 2017) featured a taxpayer with acquired entities held to be affiliated companies. As the parent company of both the taxpayer and the acquired entities was a common parent controlling 100% of both, the transfer of software between them was tax exempt. Additionally the provision of software repair and other services by the acquired entities to the taxpayer was also deemed exempt from sales and use tax.
Market- Based Sourcing and Rate Reduction Legislation Introduced
North Carolina Senate Bill 325 was recently introduced in North Carolina, with particular changes for state corporate income taxes, particularly:
- The adoption of market-based sourcing also for tax years beginning on or after January 1, 2018. Under the market-based sourcing provisions, receipts from services would be sourced to the location where the service is delivered and receipts from intangible property would generally be sourced based on location of use, with additional industry-specific guidance for banks.
- Reduction of the current 3.0 percent corporate income tax rate to 2.75 percent for tax years beginning on or after January 1, 2018. The rate would be further reduced to 2.5 percent for tax years beginning on or after January 1, 2019
Communication Services Taxation Guidance Issued
The South Carolina Department of Revenue has issued an advisory opinion (South Carolina Revenue Ruling No. 17-2, 03/10/2017) concerning the taxability of various communication services. The purpose of the guidance is to list the communication services that the Department has held in the past as subject to the sales and use tax, whether through formal advisory opinions, audits or informal advice provided to taxpayers, as well as more recent developments.
The Department has attempted to list as many communication services as possible, noting that communication technology developments will require continued review on a case-by-case basis. Charges for other communication services not listed in the advisory opinion are still subject to the tax if they constitute charges for the ways or means for the transmission of the voice or messages and are not otherwise exempted under the law.
Specifically enumerated services include:
- Telephone/Teleconferencing/Paging/Fax Services
- Cable TV and Satellite Programming
- Voicemail and Answering Message Service
- Online Information Services
- Electronic Tax Return Filing
- Streaming Services
- Cloud-Based Services
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