Earlier this month, Connecticut Governor Dan Malloy released his Governor’s Bill addressing the various state tax implications of the federal tax reform bill enacted by Congress in December 2017, commonly referred to as the “Tax Cuts and Jobs Act.” Among other things, the Governor’s Bill addresses Connecticut’s treatment of the foreign earning deemed repatriation tax provisions of amended section 965 of the Internal Revenue Code (IRC). While the Governor’s Bill does not explicitly provide that the addition to federal income under IRC section 965 is an actual dividend for purposes of Connecticut’s dividend received deduction, the bill does protect Connecticut’s ability to tax at least part of the income brought into the federal tax base under the federal deemed repatriation tax provisions by defining nondeductible “expenses related to dividends” as 10 percent of the amount of the dividend. Continue Reading
Last year, Illinois enacted a mid-year income tax rate increase. Effective July 1, 2017, Illinois increased the income tax rate for individuals, trusts and estates from 3.75 percent to 4.95 percent, and for corporations from 5.25 percent to 7 percent. The Illinois Personal Property Replacement Tax (imposed on corporations, partnerships, trusts, S corporations and public utilities at various rates) was not changed.
As we previously reported, the Illinois Income Tax Act contains a number of provisions intended to resolve questions regarding how income should be allocated between the two income tax rates applicable in 2017. 35 ILCS 5/202.5(a). The default rule is a proration based on the number of days in each period (181/184). For taxpayers choosing this method, the Department of Revenue (Department) has recommended the use of a blended tax rate to calculate tax liability. A schedule of blended rates is included in the Department’s instructions for the 2017 returns. The blended rate is 4.3549 percent for calendar year individual taxpayers and 6.1322 percent for calendar year C corporation taxpayers. Continue Reading
Wrapping Up January – and Looking Forward to February
You can view all of the topics we discussed over the last month here.
Our lawyers will present at the following state and local tax event in February:
February 27, 2018: Diann Smith will be presenting “What’s Trending in State Sales Tax Audit Perspectives: Issues and Trends and Their Proper Reflection” at the 2018 Sales Tax Conference and Audit Session in New Orleans, LA.
This April, the United States Supreme Court is expected to hear oral arguments in South Dakota v. Wayfair, Inc., a state tax case poised to reconsider the dormant Commerce Clause physical presence standard upheld by the Court on stare decisis grounds in the historic mail-order case Quill Corp. v. North Dakota (U.S. 1992), which was litigated by McDermott Will & Emery. The Court is expected to consider whether a 2016 South Dakota law imposing sales and use tax collection obligations on online retailers–and other sellers–with no physical presence in the state is permissible given, among other things, the advances in technology and e-commerce since Quill was decided.
We invite you to join a discussion with COST, Bloomberg Tax, McDermott Will & Emery, and lawyers involved in many respects of the litigation for a moderated roundtable discussion to take place immediately following conclusion of oral arguments. The discussion will explore the issues before the Court and opinions regarding the many possible outcomes from the case. The discussion will take place at the DC office of McDermott Will & Emery which is minutes away from the Supreme Court.
We expect a full house and space will be limited, so please register your interest now so that we can plan to accommodate as many as possible. This case promises to revolutionize the world of SALT, no matter the outcome. Further details will be made available as soon as the Court schedules the argument.
On January 10, 2018, a bill was introduced in the Washington State Legislature that would substantially enact the Revised Uniform Unclaimed Property Act (RUUPA) finalized by the Uniform Law Commission (ULC) in late 2016. The bill, House Bill (HB) 2486, is sponsored by Representative Paul Graves at the request of the ULC and would be effective beginning January 1, 2019. The House Committee on Finance conducted a public hearing on the bill on January 16, 2018, but only the sponsor testified and the bill was held for further consideration.
While similar (or identical) to RUUPA in most respects, the bill contains a number of significant deviations. Below is a brief summary of several provisions that we flagged in our initial review and the potential impact on Washington holders. Continue Reading
On December 29, 2017, the Illinois Appellate Court issued a ruling reversing the decision of the Illinois Independent Tax Tribunal (Tribunal) in Waste Management of Ill., Inc. v. Ill. Independent Tax Tribunal, 2017 IL App (1st) 162830-U. This is the second appellate court to consider a Tax Tribunal ruling, and the first to overturn a decision of the Tribunal. The appellate court overturned the Tribunal’s grant of summary judgment in favor of the Illinois Department of Revenue (Department) and held that for the time periods at issue, the Motor Fuel Tax Law (Tax) (35 ILCS 505/1 et seq.) did not impose tax on compressed natural gas (CNG).
In this case, Waste Management filed monthly returns reporting and paying the Tax on its usage of CNG. Following an amendment to a Department regulation that explicitly provided that CNG was subject to the Tax (see 86 Ill. Admin. Code § 500.200(c)), Waste Management amended its returns and sought a refund of Tax paid on CNG-powered vehicles for time periods prior to the amendment. The Department denied the refund claims, and Waste Management appealed the Department’s denial to the Tribunal. On the parties’ cross motions for summary judgement, the Tribunal found in the Department’s favor, on the basis that CNG was a taxable “motor fuel” under the Tax statutes. A copy of the Tribunal’s Order (Order) is linked here.
Wrapping Up December – and Looking Forward to January
You can view all of the topics we discussed over the last month here. Our lawyers appear at the following state and local tax events in January:
January 24, 2018: Stephen Kranz is presenting “Handling State Tax Controversies to Win!!” at the 27th Annual Ohio Tax Conference in Columbus, Ohio, solving tax problems holistically to achieve success, understanding the offensive and defensive tools available and the avenues for relief when interacting with the government, planning and building the team to effectively work all avenues the government offers, tools available including Freedom of Information Act (FOIA), policy solutions and litigation, with Jeff McGhehey, Senior Manager, Indirect Tax, The Home Depot.
On December 19, 2017, DC Councilmember Mary Cheh introduced the District Tax Independence Act of 2017 (Act), which would require the Chief Financial Officer (CFO) to submit a report outlining the steps and amendments necessary to decouple the District’s tax deduction laws from federal law. As introduced, the Act would require this report by no later than April 30, 2018.
The Act was referred to the Committee on Finance and Revenue the same day it was introduced and has not been taken up by the committee, which has been dormant since and is not currently scheduled to meet again until the Council returns in late January. The legislation is co-sponsored by Councilmembers Allen, Evans, McDuffie, Bonds, Gray, Nadeau, R. White, Grosso, Silverman, T. White, and Chairman Mendelson. Notably, all members of the Committee on Finance and Revenue—including Chairman Evans—are co-sponsors.
The introduction of the Act signals the Council’s overwhelming disapproval of the federal tax reform enacted by Congress and signed by President Trump on December 22, 2017. This is a process that is likely to take place across the country as states begin to assess the revenue impact of the federal tax reform legislation on their state corporate income and franchise tax regime.
The District currently conforms to many federal deductions on a rolling basis for purposes of the Franchise Tax, which is imposed on both corporations and unincorporated entities. See generally DC Code Ann. § 47-1803.03. As part of the decoupling process, the CFO and Council will need to determine which deductions to alter to avoid a significant revenue loss and what the DC treatment should be. Furthermore, the CFO and Council should consider which deductions are necessary to retain due to related increases to the federal tax base, which DC utilizes as the starting point for Franchise Tax purposes. The effective dates and relation to 2017 return deadlines will be critical to monitor as this process moves forward, as several portions of the federal tax reform are effective for the 2017 tax year—meaning the corresponding District changes (if any) will need to be retroactive since returns (absent extensions) are due before the CFO’s report to the Council is.
DC taxpayers with specific questions on how this process may impact their Franchise Tax liability in 2017 and going forward are encouraged to contact the authors.
McDermott hosted its last Tax in the City® women’s tax roundtable of the year in its Chicago office on December 14, 2017.
The Chicago Year-In-Review event featured a CLE/CPE presentation, “Key Provisions of International Tax Reform,” by Britt Haxton, Kristen Hazel and Sandra McGill, followed by a roundtable discussion on interest expense limitations, changes to net operating loss provisions, pass through tax rates and effects of tax reform on benefits.
Additionally, Catherine Battin, Mary Kay Martire and Jane May discussed the SALT perspective on the international tax reform provisions. A summary of key Illinois income tax changes is below, and a thorough explanation of the new SALT implications in the tax reform bills can be found here.
The federal tax reform package recently approved by Congress (the Bill) contains a cap on the state and local tax deduction that may be claimed by individuals on their federal income tax returns. The Bill provides that an individual may claim up to $10,000 of state and local property taxes and either income or sales taxes. The cap expires on January 1, 2026.
Individual taxpayers who have been considering prepaying their 2018 (or later) taxes in 2017 should be aware that the final version of the Bill contains a provision that prohibits individuals from prepaying their income tax for future years in 2017. As a result, any guidance issued by state revenue departments (for example, in Illinois) regarding the prepayment of 2018 income tax is no longer applicable. In certain jurisdictions, individuals may still have an opportunity to prepay their property tax assessments. For additional details, please contact your tax preparer.