TWIST - January 20, 2020

Welcome to TWIST for the week of January 20^th. This is Sarah McGahan from KPMG’s Washington National Tax state and local tax practice. If you are a regular reader or listener of TWIST, you probably noticed we are trying something new this year. Instead of reading longer summaries of each development, we are doing a round-up of the week’s happenings in our podcast and longer write-ups on the developments we discuss are available on the TWIST webpage.

Okay, this week, we have a number of developments related to legislation. The state legislative sessions are well underway and so we will probably be talking about legislative changes quite a bit over the next few months.

First up is New Jersey, which is the latest state to adopt an elective tax on pass-through entities.  On January 13, New Jersey Governor Phil Murphy signed into law the Pass-Through Business Alternative Income Tax Act, which is effective immediately and applicable to tax years beginning on or after January 1, 2020. In sum, the bill establishes an elective pass-through entity alternative income tax and allows non corporate owners of the pass-through entities to claim a corresponding refundable Gross Income Tax credit and corporate owner can receive a Corporation Business Tax credit.

Next up are proposed bills in Maryland and Nebraska that would impose taxes on digital advertising. The Maryland bill, Senate Bill 2, sets forth a new gross receipts tax on revenues derived from digital advertising services in the state. In Nebraska, Legislative Bill 989 would impose the sales tax on gross receipts received from digital advertisements. Another proposed bill in Nebraska would impose tax on all services unless specifically exempted.

In Virginia, there are a number of proposed bills that would adopt corporate income tax changes, including combined reporting and market- based sourcing for tax years beginning on or after January 1, 2021. The combined reporting bills would mandate worldwide filing, but would allow water’s-edge elections. There are also at least two recently introduced bills that would move Virginia from a fixed-date conformity state to a rolling conformity state.

 In California, a controversial bill was recently amended in committee that, if enacted, would impose increased rates of corporate income tax on corporations and financial institutions with net income over $10 million based on the entity’s compensation ratio, which looks at the pay of the CEO or highest paid employee compared to the pay of the average worker. The higher the compensation ratio, the higher the rate of tax.

Finally, this week we are also covering a case this week out of Washington State where the issue was whether the taxpayer was selling taxable Digital Automated services (DAS) or professional services. This matters because digital automated services are subject to retail sales tax and B&O at the retail rate. The appeals court ruled in the DOR’s favor and held that the provision of online access to the taxpayer’s research library was the sale of a DAS.

So, that’s our weekly summary of developments. Thank you for listening to TWIST and we’ll talk to you next week. Longer summaries of all these developments are available on the TWIST webpage.