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August 2018 SALT Shaker

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In this edition of the SALT SHAKER, we cover important State and Local Tax updates from New Jersey, Delaware, Pennsylvania, Georgia, Connecticut, Maryland and New York for August 2018.

New Jersey Initiates Tax Amnesty

Assembly Bill 3438 requires the Director of the Division of Taxation to establish a tax amnesty program, to be held for no more than 90 days and to end no later than January 15, 2019.

The actual dates of the amnesty have yet to be specified. Any qualified taxpayer that has failed to pay any state tax that is due may pay the full amount of tax and 50% of the interest due as of November 1, 2018 without penalty or associated fees. The Amnesty will not apply to any penalties that are owed due to civil fraud or criminal conduct, and those taxpayers that are under criminal investigation for any state tax matter may not participate in the amnesty.

The time frame for the Amnesty’s application for state tax liabilities are for those due on or after February 1, 2009 and prior to September 1, 2017. The bill further imposes a non-waivable 5% penalty in addition to all other penalties or interest upon any state tax liability that is eligible to be satisfied during the amnesty period for those taxpayers who fail to do so.

Delaware enacts Angel Investor Job Creation and Innovation credit

Effective after 12/31/2018, this new Delaware credit will allow qualified investors a refundable tax credit against their personal income tax equal to 25% of their qualified investment in a qualified small business. Before claiming the credit, the qualified investor must maintain the investment (minimum of $10,000 cash for individuals) for 180 days and if the investment is not held for at least three years, with exceptions, all or a portion of the credit must be repaid. Both the small businesses and investors will need to apply and pay an application fee up to $500 with the Director of the Division of Small Business, Development, and Tourism to become certified as “qualified”. For the calendar year 2019, this application must be made available on the Division’s website by November 1, 2018. In addition to paying an application fee, in order to receive certification, a business must meet strict criteria, a few include:

  1. Be a legal entity qualified to do business in Delaware with its business headquartered in Delaware
  2. Have at least 51% of its common law employees employed in Delaware and 51% of its total compensation paid be compensation for work in Delaware
  3. Have fewer than 25 employees
  4. Has not been in operation for more than 10 years and 20 years in some cases
  5. Primary business activities must be researching, developing, or producing a proprietary product, process, service, or technology in or for use in the fields of high technology, agriculture, manufacturing, environmental science, or transportation
  6. Not be engaged in real estate development, insurance, lobbying, political consulting, or professional services (i.e. attorneys, accountants, consulting, physicians)

Pennsylvania Provides Clarification of Depreciation Decoupling

The Pennsylvania Department of Revenue issued guidance providing that it would not allow 100 percent bonus depreciation under IRC § 168(k) for assets placed in service after September 27, 2017 pursuant to the Tax Cuts and Jobs Act. The guidance indicated a taxpayer would receive no additional depreciation deduction on those assets until the entity either sold or otherwise disposed of those assets.

On June 28, 2018, Governor Tom Wolf signed Senate Bill 1056, clarifying that qualified property placed in service after September 27, 2017, a corporate taxpayer is required to add back federal bonus depreciation for Corporate Net Income Tax (“CNI”) purposes. The corporate taxpayer will then be entitled a depreciation deduction on that property equal to the depreciation on the property for the taxable year as determined in accordance with IRC §§ 167 and 168 without the application of Internal Revenue Code § 168(k). The revised law applies for tax years beginning on or after January 1, 2017.

Georgia Enacts Economic Nexus Law

Effective January 1, 2019, retail sellers of tangible personal property located outside of Georgia will be required to either register to collect and remit sales tax or notify customers that sales or use tax may be due for those taxpayers that either:

  • have gross sales in either the current or previous year of greater than $250,000 to be “delivered” into Georgia; or
  • any seller that conducts 200 or more separate retail transactions into Georgia

The term “delivered” is defined to include both physical and electronic deliveries which are to be used, consumed, distributed, stored for use or consumption in Georgia.

If the retailer is choosing to comply with the notice and reporting requirements, they must send a sales and use tax disclosure statement to every purchaser who completed $500 in aggregate purchases throughout the year. In addition, the retailer must file a copy of the annual disclosure sent to purchasers with the Georgia Department of Revenue by January 31 of the following year. This will include various information including the total amount paid by each purchaser during the previous year.

Penalties include:

  • Retailer not providing the required notice to purchaser: $5 per failure
  • Retailer fails to send sales and use statement: $10 per failure
  • Failure to file copy of sales and use tax statement with Georgia: $10 per failure

Connecticut Relief Bill

In response to the federal Tax Cuts and Jobs Act’s limitation of the state and local tax deduction, the Governor of Connecticut has enacted a relief bill which includes:

Pass-Through Entity Tax (PET)

This 6.99% tax is imposed on partnerships, LLCs, and S Corporations that do business in Connecticut or have income derived from or connected with Connecticut source. This is an entity level tax based on federal income with Connecticut adjustments, and an election can be made to use an alternative tax base. The PET will be offset with a refundable personal or corporate income tax credit of 93.01% of the PET tax paid. It is important to know that the IRS may not respect efforts by states to bypass the $10,000 state and local limitation and it is still up in the air on whether they will try to challenge the Connecticut PET.

Bonus Depreciation Modification and IRC § 179

Connecticut has already decoupled from the federal bonus depreciation under IRC § 168(k) which requires individuals to addback that amount when calculating Connecticut taxable income. For any asset placed in service after September 27, 2017, in which bonus depreciation was taken, a subtraction can now be taken equal to 25% of the disallowed federal bonus depreciation for each of the next four succeeding taxable years.

Beginning on September 27, 2017, both corporate and personal income taxpayers will be required to addback 80% of the deductions claimed under IRC § 179. Similar to bonus depreciation, 25% of the disallowed § 179 deduction may be taken in each of the four succeeding years.

Maryland phase-in of Single Sales Factor Apportionment

Maryland Governor has signed legislation enacting single sales factor apportionment for calculating Maryland corporate income tax. It will be phased in over five years, and corporations will be using 100% sales beginning in tax year 2022. The phase-in will look like the following:

  • Tax years beginning in 2018, the sales factor will be multiplied by three, plus the payroll and property factor, with a denominator of five
  • Tax years beginning in 2019, the sales factor will by multiplied by four, plus the payroll and property factor, with a denominator of six
  • Tax years beginning in 2020, the sales factor will by multiplied by five, plus the payroll and property factor, with a denominator of seven
  • Tax years beginning in 2021, the sales factor will by multiplied by six, plus the payroll and property factor, with a denominator of eight
  • Tax years beginning 2022, the single sales factor will be used

New York Employer Compensation Expense Tax

Effective January 1, 2019, The Employer Compensation Expense Tax (ECET) is a new optional tax that employers can elect to pay if they have employees that earn more than $40,000 in annual wages. The optional tax covers employee wages that are paid for the calendar year to each employee who is employed in New York for whom the employer is required to withhold New York State tax. It will be phased in over three years as follows:

  • 2019: 1.5% tax rate
  • 2020: 3% tax rate
  • 2021 and after: 5% tax rate

For questions on state tax, contact our State and Local Services Group by filling out the form below.

Barry Horowitz, CPA, MST, Partner
(212) 829 3211
bhorowitz@withum.com

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