In this edition of the SALT SHAKER, we cover important State and Local Tax updates from Iowa, New Jersey, New York and Rhode Island for October 2019.
Guidance on Taxation of Digital Products, Software and Related Services
The Iowa Department of Revenue has issued guidance relating to changes enacted under Iowa’s tax reform law (L. 2018, S2417), relating to digital products, software, and services. Specifically, the guidance mentions that beginning January 1, 2019, prewritten computer software is subject to sales tax whether delivered or accessed in physical form or electronically. Custom software sold in either physical or electronic form will be taxed in the same manner as prewritten computer software. The guidance also discussed Iowa sales tax, local option sales tax, and use tax as it applies to “specified digital products,” which are non-tangible products that are transferred electronically and are usually purchased over and downloaded from or accessed through the Internet. Furthermore, the sale of certain storage services are newly taxable services. The guidance also discusses exemptions for “commercial enterprises” and “non end user” exemptions which were enacted under Iowa Code section 423.3(104).
30-Day Penalty Relief for Corporations
The New Jersey Division of Taxation will automatically waive the late filing penalty for corporation business taxpayers with a properly extended federal return due date of October 15, 2019, if the return is filed by November 15, 2019, for extended calendar-year corporations or filed within one month of the extended due date for 2018 returns for fiscal year corporations. The Division will consider elections made timely, if the elections are made on a 2018 New Jersey Corporation Business Tax Return filed by November 15th or within one month for an extended 2018 return for a fiscal year corporation. Interest and penalties for late payment of the tax may still apply but a failure to file by the November 15, 2019 date may result in the imposition of a late filing penalty based on the October 15, 2019 due date.
Imposed Sales Tax on Vapor Products
Effective December 1, 2019, a new 20% supplemental sales tax will apply to retail sales of vapor products in New York, which should be collected by a vapor products dealer. Any business that intends to sell vapor products must be registered as a vapor products dealer before making sales of vapor products. The Tax Department is developing an online registration process. In addition, if a taxpayer has debit blocks on their bank account, even if the taxpayer has already authorized sales tax payments to the Tax Department, the taxpayer must communicate with their bank to authorize their vapor products registration payment.
Corporation Tax Changes in 2019 Budget
This summary highlights the corporation tax changes that were part of the 2019- 2020 New York State budget. Most notably, several tax law provisions were amended, including the contributions to the capital of a corporation, entire net income for stock life insurance companies, and unrelated business taxable income. Additionally, electronic filing and payment mandates have been extended through December 31, 2024, and the tax shelter penalty and reporting requirements have been extended through July 1, 2024.
Tax Credit Budget Legislation Enacted in 2019
The New York Department of Taxation and Finance issued technical memorandum TSB-M-19(4)C, (5)I which discusses the individual income and corporate income tax credit budget legislation enacted in 2019. New credits were added to the law, which include the Central Business District Toll credit, Employer-Provided Child Care credit, and the Recovery Tax credit. The Empire State Commercial Production credit and Employee Training Incentive Tax credit provisions were amended. In addition, the Empire State Film Production and Empire State Film Post-Production Tax credit as well as the Workers with Disability Tax credit were extended to 2024 and 2022, respectively.
Pass-Through Entities Electing to Pay the New Entity-Level Tax
The Rhode Island Division of Taxation issued an advisory to provide guidance for pass-through entities electing to pay the new entity-level tax for the 2019 tax year. If an electing pass-through entity has resident and nonresident owners, the entity is essentially paying the entity-level tax on behalf of its resident and nonresident owners. Partnerships, S corporations, or other pass-through entities that elect to pay the entity level tax may elect to make a September estimated payment by using Form BUS-EST and checking the “Pass-Through Entity Election” box.
Companies should continue to monitor tax legislation and guidance in order to determine how these changes could affect their tax positions.