Tax Tips – May 2010

Sales Tax Rate Changes

AZ, KS

The following states have announced changes to the state portion of their sales & use tax rates:

Arizona
Voters in the state have approved a 1% (from 5.6% to 6.6%) increase in the state transaction privilege (sales) & use tax rate starting June 1, 2010. While this increase is only temporary, it will be in effect for the next three years.

Kansas
The state legislature has approved a bill that will increase the state sales & use tax rate 1% (from 5.3 to 6.3%) starting July 1, 2010. The rate will subsequently be reduced to 5.7% on July 1, 2013. It is anticipated that Kansas Governor Mark Parkinson will sign the bill into law by the end of the month.

Going Green

AZ, CT, MS, MO, TX, VA

While you may have the impression that states are desperately seeking “green” (cash), many states are also legislating a variety of strategies to incent “green” behavior (energy efficiency). The trend includes energy sales tax holidays, exemptions related to clean energy technology and credits for green jobs. The following states provided information regarding their green initiatives last month:

Arizona
The lease or rental of a motor vehicle used in an employee vanpool for a group of at least 7 people is exempt from the car rental surcharge.

Connecticut and Mississippi
Qualified businesses engaged in owning or operating a facility for the manufacture or assembly of systems or components used in the generation of clean energy are eligible for an exemption from sales tax. An exemption is also available for sales and leases of machinery and equipment acquired in the initial construction to establish the facilities. Connecticut is also providing an exemption for the sales, storage or use of machinery, equipment, materials and fuels used directly in renewable and clean energy technology.

Missouri and Texas
A Green sales tax holiday ran from April 19th through the 25th of this year. A sales tax exemption up to the first $1,500 cost of certain Energy Star appliances was offered. This holiday is also happening in Texas from May 29th through May 31st. This exemption is also on certain energy efficient products and provides an exemption up to $6,000 on the cost of some items.

Virginia
A $500 credit is available for tax years 2010-2014 for each green job created with an annual salary of $50,000 or more, up to 350 new positions per taxpayer. This credit is available against corporate and personal income taxes. “Green job” means employment in industries relating to the field of renewable, alternative energies, including the manufacture and operation of products used to generate electricity and other forms of energy from alternative sources that include hydrogen and fuel cell technology, landfill gas, geothermal heating systems, solar heating systems, hydropower systems, wind systems, and biomass and biofuel systems.

A myriad of “green” programs and incentives are presently available at both a state and national level. Since some of these are relatively new, business initiatives may need to be reexamined to determine whether eligibility requirements have been met.

Nexus News

Nexus presumption bills introduced earlier this year in the following states died upon adjournment of these states’ respective legislatures in April and May:

• Connecticut (H.B. 5481)
• Maryland (S.B. 824)
• Vermont (H.B. 661)

The only other state to recently introduce nexus presumption legislation was Illinois in February. This bill (S.B. 3353) was re-referred to the Senate Assignments committee in March where it will presumably be assigned to another committee for review.

Activities That May Create Nexus – and Result in Tax Liabilities

The Florida Department of Revenue recently issued a Technical Assistance Advisement (No. 10C1-001) in response to a taxpayer’s inquiry regarding whether their business activities in Florida exceeded the scope of activities protected by Public Law 86-272, thereby creating nexus for Florida corporate income tax purposes. The taxpayer’s activities included providing training and technical advice to independent dealers and customers at their locations in the state. The State of Florida concluded that these activities are not protected by P.L. 86-272 and the taxpayer is required to file Florida corporate income tax returns and remit the tax due.

P.L. 86-272, which was enacted on September 14, 1959, prohibits a state from imposing its net income tax on a business whose only activities within the state are the solicitation of orders for sales of tangible personal property which are sent outside the state for approval and filled from outside the state. Activities such as providing training and technical advice exceed the scope of “solicitation of orders” and can result in a business being subject to a state’s net income tax. The Multistate Tax Commission and most states have issued regulations addressing those business activities that are considered protected and unprotected activities for purposes of P.L. 86-272.

The message that really needs to be communicated here, though, is that businesses need to be cognizant of their activities in different states and realize that there are different nexus standards for different taxes. P.L. 86-272 only provides protection related to net income taxes. The “solicitation of orders” is a sufficient enough activity in most states to create a filing requirement for sales & use tax purposes. Businesses should be mindful of where their salespersons, whether employees or independent contractors, are visiting potential customers, where their advertising is directed, or where they’re attending tradeshows or conferences, as all these activities can result in nexus in a given state. Additionally, “net income tax” does not include capital or franchise taxes, gross receipts taxes or other types of taxes that are not based on net income. This is important to consider as the number of states that impose non-income based taxes (i.e., Michigan, Ohio, Texas, etc.) continues to grow each and every year.

Even though P.L. 86-272 is considered landmark legislation for protecting businesses from unfair state taxation, its scope is limited to net income tax; and states are getting increasingly aggressive in proposing new nexus legislation and taxes to work around nexus protections and identify more taxpayers.

State Amnesty Programs At-a-Glance

¹ Streamlined Sales Tax amnesty program does not include
use tax due on purchases or any other taxes.

Florida
The Florida legislature recently passed a bill that authorizes a tax amnesty program for a three-month period beginning on July 1, 2010 and ending on September 30, 2010. The amnesty program will include corporate income, sales & use, and motor fuel taxes among others. Participants will benefit from a reduction of interest charges and possible waiver of penalties depending on their circumstances. The bill has been sent to the Governor for his signature.

Pennsylvania
The Pennsylvania amnesty program will be ending on June 18, 2010. The Department of Revenue has made considerable efforts to reach delinquent taxpayers (through print, television, radio, and online advertisements) regarding this one-time opportunity to remit any tax due and take advantage of reduced interest charges and a waiver of penalties. Those taxpayers who are eligible to participate but forgo the amnesty program, will be subject to an additional 5% non-participation penalty added to their outstanding balance plus other enforcement actions. Visit the PA tax amnesty website at: http://www.pataxpayup.com.

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