March 2017 SALT Shaker

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In this edition of the SALT SHAKER, we cover important State and Local Tax updates from New York, Colorado, Massachusetts and across the nation for March 2017.

New York

Combined Extensions

The New York State Department of Taxation and Finance addressed combined extensions for corporate filers on their website. Article 9-A corporations (i.e., C Corporations) filing a combined return must file one Form CT-5.3, Request for Six-Month Extension to File (for combined franchise tax return, or combined MTA surcharge return, or both), to request an extension of time to file for all corporations included in the combined group. In addition, taxpayer-members being added to an existing combined group must each also file a separate Forms CT-5 to extend the first period they are included in the combined group. A separate Form CT-5 must also be filed by each taxpayer member to extend the short period beginning immediately prior to the date it joined the combined group. Taxpayer members that are forming a new combined group must each also file a separate Form CT-5, to extend the first period they are included in the combined group. A separate Form CT-5 must also be filed by each taxpayer member to extend the short period beginning immediately prior to the date the combined group was formed. Non-taxpayer members of a combined group are never required to file a separate Form CT-5, regardless of whether they are included on Form CT-5.3.

Colorado

Use Tax Notification

In 2010 Colorado adopted use tax notice and reporting requirements applicable to retailers. Colorado law requires the non-collecting retailers that sell products to Colorado customers, to report certain information about such purchases to the customers and to the Department of Revenue (“DOR”). Originally, the reporting was scheduled for January 2011. However, after a suit was filed by Data & Marketing Association (“DMA”), the federal district court issued a preliminary injunction precluding the state from enforcing the regulations. Direct Marketing Ass’n v. Brohl, Colo. Dist. Ct., No. 13 CV 34855, Settlement Agreement (2/22/17).
On February 22, 2016, the Tenth Circuit Court of Appeals reversed the district court’s order granting summary judgement and found that Colorado reporting requirements did not constitute an undue burden on interstate commerce. As a result of the settlement agreement reached by DMA and the state, Colorado’s use tax reporting requirements will become effective on July 1, 2017. According to the settlement, Colorado will not require compliance with the reporting requirements prior to July 1, 2017 and will waive all penalties associated with any noncompliance prior to July 1, 2017. The reporting requirements include the following steps:

  • Transactional Notice – notifying Colorado customers that the retailer doesn’t collect Colorado sales tax and the customer is obligated to self-report and pay use tax.
  • Annual Summary – providing each of their Colorado customers, who purchased more than $500 of taxable items, an annual report containing the details of the purchases.
  • Customer Information Report – retailers with $100,000 or more of Colorado gross receipts are required to provide the DOR with an annual report, which includes customers’ names and total purchases from the retailer.

Massachusetts

Nexus for Offshore Massachusetts Companies

The Massachusetts Department of Revenue (“DOR”) has issued Massachusetts Technical Information Release, No. 17-2, 02/16/2017, which provides guidance for offshore investment funds, in addition to the safe harbor activities provided in Massachusetts Technical Information Release No. 98-6, 06/24/1998. The latter provided that an offshore investment company would not be considered to do business in the state based solely on the following activities:

  • communicating with its shareholders,
  • communicating with the general public,
  • soliciting sales of its own stock,
  • accepting subscriptions of new shareholders,
  • auditing its books of account,
  • disbursing payments of dividends, legal and accounting fees, and officers’ and directors’ salaries,
  • publishing or furnishing the offering and redemption price of its issued shares,
  • making redemptions of its own stock, and
  • executing contracts related to the purchase, sale or management of securities.

Based on TIR 17-2, the DOR now also provides that holding of shareholders’ meetings or boards of directors’ meetings of such an offshore investment company in Massachusetts will not by itself result in the offshore investment company being treated as doing business in the Commonwealth for purposes of G.L. c. 63, § 39. This determination also extends to the holding of boards of directors’ meetings by non-U.S. companies that serve as management companies for such offshore investment companies described in I.R.C. § 864(b)(2)(A)(ii), provided such meetings are exclusively related to the management of such offshore investment companies.

Late Filing Penalty Relief

The Massachusetts Department of Revenue (“DOR”) announced that it will waive any late filing penalties for Massachusetts corporate taxpayers affected by the change in federal tax return due dates under Federal Public Law 114-41. For tax years beginning after December 31, 2015, federal tax return filing due date for S corporations and partnerships are now March 15. The Massachusetts tax return filing due dates have not been amended to conform to the new federal due dates. While legislation that will conform these due dates is currently pending before the Massachusetts Legislature, this TIR announces relief intended to address the immediate consequences of the current non-conformity.

In the interest of efficient tax administration and in order to ease compliance for taxpayers, the Department of Revenue generally anticipates waiving any late filing penalties imposed in connection with a C corporation tax return that is filed after the applicable due date set forth in G.L. c. 62C, §§ 11 or 12 (March 15, 2017), but on or before the due date for the corporation’s federal tax return (April 18, 2017). Payment due with the return pursuant to G.L. c. 62C, §§ 19 or 32(a), if any, remains due on the date prescribed by G.L. c. 62C, §§ 11 or 12. In order to receive an extension of time to file, a corporation filing on a calendar year basis must pay on or before March 15th at least 50% of the total amount of tax ultimately due.

Arkansas

Amazon to Collect Sales Tax

Amazon made the announcement on February 10, four days after the Arkansas Senate approved a bill that would require remote sellers whose gross revenue from sales of tangible personal property and services delivered into Arkansas exceed $100,000, but who have no physical presence in the state, to collect Arkansas sales tax.

Arkansas joined other 38 states in which Amazon is collecting and remitting sales tax. Arkansas Governor Asa Hutchinson stated that Amazon’s decision reflects the new landscape, in which retailers recognize the practicality and fairness of treating online and in person store sales equally.

California

Swart Enterprises, Inc. v. FTB

California taxes everything it can possibly prove has even the most remote connection to the Golden State. If a corporation is doing business there, it is most certainly required to pay the annual $800 minimum tax. But California considers almost anything “doing business.” Swart Enterprises, Inc., a small family owned Iowa based business, invested in a 0.2% stake into a California LLC and had no management role in the company, which was a manager-managed (as opposed to member-managed) investment and equipment leasing company. Swart had no other connections to California, yet the Franchise Tax Board claimed they were doing business in the state and therefore must pay the $800 minimum tax, plus penalties and interest. They paid it, then sued the FTB for a refund and won. The California Court of Appeals held that there was no reasonable basis to conclude that they were “doing business” in California.

Swart Enterprises, Inc. v. Franchise Tax Board, California Court of Appeal, Fifth Appellate District,
No. F070922, Jan. 12, 2017, tells us something important: entities holding passive investments in California now have a strong position against filing a California tax return and paying the $800 minimum tax.

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To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

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