Tax Tips – June 2010

Going Green Update

AZ, MD, NC, WI

The trend in new state “green” initiatives continued in May:

Arizona

Expanding or locating renewable energy operations to Arizona – garners corporate and personal income tax credits along with a special property tax classification with a reduced assessment ratio for property used in such operations.

Installing solar energy devices for commercial or industrial use – the related corporate and personal income tax credits are extended through taxable year 2018. The exemption from the prime contracting transaction privilege (sales) tax classification provided for contracts to install solar energy devices is extended through taxable year 2016.

Research and development, production, conversion or modification of existing motor vehicle fuel stations and delivery system costs associated with liquid fuel that is generated through processes that use sunlight, carbon dioxide, and water to produce infrastructure-compatible liquid hydrocarbon fuels – corporate and personal income tax credits are allowed in various amounts and in various years for each phase of the process.

Taxpayers that hold title to a qualified energy generator that first produces electricity from and after December 31, 2010 and before January 2, 2021 – A credit based on the electricity that is generated by a qualified energy generator during the calendar year is allowed for ten consecutive calendar years.

Maryland

Electricity produced by certain facilities from certain qualified energy resources – Corporate and personal income tax credits are extended through December 31, 2015.

Rehabilitation of a certified historic structure that is a high-performance building (meets certain energy efficiency standards) – The Heritage Structure Rehabilitation Tax Credit program was reestablished as the Sustainable Communities Tax Credit program that is available against corporate and personal income tax and insurance premium tax.

North Carolina

Taxpayers that construct and place in service in the state a commercial facility for the manufacture of renewable energy property – A budget bill has passed the Senate that if enacted would provide for a credit against corporation franchise, personal and corporate income, and insurance gross premium taxes beginning in 2011 through 2014.

Wisconsin

The first 1,000 gallons of renewable fuel produced or converted from another purpose by an individual and used in his/her motor vehicle – Garners a yearly exemption from motor vehicle fuel tax.

Installation of pumps (or retrofitting) to allow the end user to choose the percentage of gasoline or diesel replacement renewable fuel – Legislation modified the ethanol and biodiesel fuel pump credit to 25% of the amount that the taxpayer paid for the installation or retrofit.

While utility credits/discounts and federal credits are also available for certain “green” initiatives, some of the states’ incentives are relatively new. Accordingly, the “green” initiatives undertaken by your business may need to be reexamined to determine whether state eligibility requirements have been met.

Nexus News

Oklahoma

The governor has signed legislation containing nexus presumption language amending the definition of “retailer” to specify that a retailer will be engaged in the business of selling tangible personal property for use in Oklahoma if:

• the retailer holds a substantial ownership interest in or is wholly or substantially owned by a retailer maintaining a place of business in Oklahoma, and the retailer sells the same or a substantially similar line of products as the related Oklahoma retailer, under the same or a substantially similar business name, or the Oklahoma facilities or Oklahoma employees of the related Oklahoma retailer are used to advertise, promote, or facilitate sales by the retailer to consumers or the retailer holds a substantial ownership interest in, or the retailer is wholly or substantially owned by a business that maintains a distribution house, sales house, warehouse, or similar place of business in Oklahoma that delivers property sold by the retailer to consumers;


• the retailer is part of a "controlled group of corporations" having a component member that is a retailer engaged in business in Oklahoma as described above;


• the retailer has a contractual relationship with an entity to provide and perform installation or maintenance services for the retailer’s purchasers.

Additionally, the legislation requires out-of-state retailers not required to collect Oklahoma use tax to post notice on their Internet websites or catalogs that use tax must be remitted directly by the purchaser on taxable use or consumption of the property in the state. These notice provisions do not take effect until a corresponding emergency or permanent administrative rule takes effect.

The law went into effect June 9, 2010.


Washington

On June 1, 2010, Washington State’s new economic nexus standard went into effect. Under the new standard, the income (service, royalty, and certain other income) of many businesses located outside the state may become subject to the Business and Occupation (B&O) tax, even though the business may not have a physical presence in the state. A business will be deemed to have nexus with Washington under the new standard if, in a given tax year, it meets one of the following thresholds:

• It is commercially domiciled in Washington;
• Property – average value exceeding $50,000,
• Payroll exceeding $50,000 (including certain third party costs),
• Sales exceeding $250,000, or
• At least 25% of its worldwide property, payroll, or sales.

Once nexus has been established, it will continue as long as the taxpayer continues to meet at least one of the above thresholds and for one year after the last year in which the taxpayer meets one of the thresholds. Each affiliate (legal entity) must determine for itself whether it has nexus with Washington under this new standard. The state of Washington does not allow for determining nexus or tax reporting on a combined entity or consolidated basis.

Washington is not the first state to impose economic nexus standards on out-of-state businesses. This concept of nexus (without physical presence) was first introduced by South Carolina in 1993, where the state successfully asserted income tax nexus on an out-of-state company’s income from the licensing of intangible property to affiliate companies. Massachusetts, New Jersey and West Virginia are among the growing number of states who have also asserted economic nexus standards in recent years.

Streamlined Sales Tax News

GA

The governor has signed legislation that brings the state’s sales & use tax laws into conformity with the Streamlined Sales and Use Tax (SST) Agreement, effective January 1, 2011. Georgia can now join the 20 other SST (full and associate) member states by submitting a petition for membership and certificate of compliance to the SST Governing Board.

In other news, Streamlined Sales and Use Tax conformity bills proposed in the Florida, Hawaii and Missouri legislatures died when these states’ legislative sessions ended in the past month.

State Amnesty Programs At-a-Glance

¹ 50% interest reduction if you are reporting a tax liability previously unknown to the Department of Revenue or are responding to a Letter of Inquiry, self-audit or self-analysis. 25% interest reduction if you are responding to a bill, delinquency, audit, or other assessment issued by the Department of Revenue.
² Out-of-state retailers will not have to remit use tax on sales made to purchasers in Oklahoma prior ro registering under this initiative.
³ Streamlined Sales Tax amnesty program does not include use tax due on purchases or any other taxes.

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