State Tax Update
Due to budget issues, state tax examinations of taxpayers are again on the rise. It is important for these types of healthcare entities to stay on top of state tax law. The below is an update with respect to various state and local tax issues that can potentially affect healthcare organizations.
NEW HAMPSHIRE TAX LAW CHANGES
Governor Chris Sununu signed new tax legislation on June 28, 2017, which reduces the rates of the Business Profits Tax and Business Enterprise Tax in 2019 and 2021 and increases the amount of Section 179 deduction under the business profits tax.
For tax years ending on or after December 31, 2019 the business profits tax will decrease to 7.7% from 8.2% and the business enterprise tax will decrease to 0.6% from 0.72% currently. To determine gross business profits tax business organizations, effective for the 2018 tax year, will be able to expense deductions not to exceed $500,000 under IRC 179 the limit was previously $100,000.
ILLINOIS TAX LAW CHANGES
The Illinois Senate and House overrode Governor Bruce Rauner’s veto and passed the state’s budget bill with the following changes to corporate income taxes in the state:
- Effective July 1, 2017 the corporate income tax rate will increase from 5.25% to 7%.
- For taxable years ending on or after December 31, 2017 a federal deduction taken under IRC 199 for domestic production must be added back.
CONNECTICUT TAX LAW CHANGES
New Withholding Requirement
Effective January 1, 2018, any payer of a pension or annuity distribution that carries on business in Connecticut or makes payment to a resident of the state is required to withhold taxes on the payment. The amount of tax withheld will be determined similarly to W2 withholdings. Except in the case of a lump sum distribution in which it will be taxed at the highest marginal rate.
INDIANA AND MAINE ADD ECONOMIC NEXUS THRESHOLDS FOR SALES TAX
Similar to other recent state legislation, Maine and Indiana have now added economic nexus thresholds for merchants to collect and remit sales tax even without physical presence within the state.
Maine and Indiana are requiring remote sellers to collect sales tax into their states when a merchant’s sales into their respective states exceeds $100,000 or they have 200 or more separate sales transactions into their state during the current or previous calendar year.
Maine’s legislation also contains a provision allowing the state to bring declaratory action against any person that it believes meeting the above requirements to collect tax regardless of whether the state has initiated an audit for that person. The legislation also allows taxpayers to deduct and retain 2% of the sales tax which they collect as a “collection allowance”.
WASHINGTON SALES TAX REPORTING
On July 7, 2017, Washington Governor Jay Inslee signed new legislation requiring remote sellers to either collect and remit sales and use tax or comply with notice and reporting requirements. Beginning January 1, 2018 remote sellers will need to comply with reporting requirements if they do not collect and remit sales tax if they have gross receipts from sales sourced to Washington of at least $10,000 in the current or immediate preceding year
If these sellers do not collect and remit sales tax they must post notice on their marketplace, platform, website, catalog, or any other similar medium explaining to Washington purchasers that sales or use tax is due on certain purchases and that Washington requires the purchaser to file a use tax return. Sellers must also provide an annual report to each Washington purchaser explaining that sales and use tax was not collected on any sales and including information on the purchaser’s transitions in the previous year. In addition, sellers must provide a report to the Washington Department of Taxation which includes Washington purchasers’ information, and an affidavit signed under penalty of perjury from the seller’s officer indicating that the seller has made reasonable efforts to comply with the notice and reporting requirements.
WASHINGTON ECONOMIC NEXUS THRESHOLDS
Effective July 7, 2017, the receipts threshold for Washington’s economic nexus standard for the Business & Occupation (B&O) tax has increased to $267,000. Out-of-state businesses making retail sales into Washington will be subject to B&O tax if more than $267,000 of yearly gross receipts are sourced to Washington in the current or prior year or if at least 25% of their total yearly gross receipts are sourced to Washington in the current or prior calendar year.
FLORIDA DATA CENTERS NOW EXEMPT FROM SALES TAX
Florida is joining the competition for technology and data processing industries. Effective July 1, 2017 Florida is allowing an exemption that eliminates sales tax and use tax for data centers, infrastructure, equipment, personal property, and electricity. In order to qualify for the exemption a company must make a $150 million cumulative investment, the data center must have critical load of least 15MW and a critical loan of at least 1MW per each individual owner or tenant in facility and be operational by June 30, 2022. Taxpayers that may qualify for this exemption must file an application with the Florida Department of Revenue and continually report to the Florida Department of Revenue to demonstrate the exemption was utilized as specified by the new law.
NEW JERSEY PROPERTY TAX BILL OF RIGHTS
New Jersey governor signed a bill adopting a “property taxpayers bill of rights” seeking to assist property owners with the real estate assessment process. The bill would require that the Division of Taxation develop and publish online a real property bill of rights in “simple and nontechnical terms” and post it on the website of the various county tax boards and municipalities in the state. Assemblywoman Joanne Downey, said the bill of rights will explain “how it is that the real property assessments are done, how their taxes are calculated, and then the detailed information about how they can go about to appeal.”
NEW YORK DISALLOWANCE OF CAPTIVE INSURANCE EXPENSES UPHELD
The laws regarding captive insurance are growing more stringent by the day. Recently in a precedential decision, the New York Office of Administrative Hearings’ disallowance of captive insurance premiums deduction was upheld. This decision was case-specific and is due to the fact that the captive insurance company was not being utilized as an insurance company, per Federal standards.
The New York courts decided that the taxpayer (corporation) was not allowed to deduct the insurance premiums paid to the captive because the captive was being used as an asset-protection and investment vehicle, rather than an insurance company.
RHODE ISLAND ESTABLISHES TAX AMNESTY PROGRAM:
On August 3, 2017, Rhode Island Governor Gina Raimondo signed a budget bill that contains a provision to establish a tax amnesty program. This program is available to all taxpayers owing any tax, with the exception of those taxpayers under criminal investigation or whom are a party to a civil or criminal proceeding in federal or state court. The amnesty program will allow taxpayers owing money for any taxable period ending on or prior to December 31, 2016 the opportunity to pay any outstanding balances without the attached penalties and the elimination of civil or criminal prosecution. In order to receive amnesty, taxpayers must apply during the 75-day amnesty period ending on February 15, 2018. Along with applying, the taxpayer must also pay the tax and interest due upon filing the amnesty tax return, or enter into an installment payment agreement if financial hardship is established.
CONCLUSION
As outlined above, state taxes can affect various types of healthcare organizations. It is important for these organizations to be familiar with state tax issues that can potentially have a profound effect on them. Generally, states will allow taxpayers to enter into voluntary compliance programs to eliminate penalties and minimize interest associated with noncompliance.
For more information or questions with respect to how certain state tax policies may impact your healthcare organization, please complete the information below and a member of our Healthcare Services Team will contact you.
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