TWIST - May 18, 2020

Welcome to TWIST for the week of May 18. This is Sarah McGahan from KPMG’s Washington National Tax state and local tax practice.

First up this week is a case from the Mississippi Supreme Court addressing whether the commencement of an audit by the Department of Revenue tolled the statute of limitations for the taxpayer to file a refund claim. Under Mississippi law for the tax years at issue, the statute of limitations for filing a refund claim was generally  three years from the return due date. However, another statute set forth an exception from that rule when the Department had notified the taxpayer of an audit within the three year period. The taxpayer argued that when reading the two statutes collectively, it was authorized to file a refund claim even after the three- year limitations period because the Department’s notice of audit tolled the statute of limitations. The court disagreed, holding that although notice of an audit tolled the limitations period for an audit examination, it did not toll the limitations period relating to refund claims filed by a taxpayer.

In other news, California is facing an estimated 54.3 billion dollar deficit for the remainder of FY20 and through FY21, which begins July 1. This shortfall is largely driven by reduced individual and corporate income and sales tax collections due to the Coronavirus.  In his recently-released May budget revisions, Governor Newsom is proposing to suspend net operating losses for 2020, 2021, and 2022 for “medium and large businesses.” The revised budget also envisions limiting business incentive tax credits from offsetting more than $5 million of tax liability for those same years. The budget is, however, far from a done deal, as it now goes to the Legislature for negotiations. There are also a number of other tax related bills pending in the legislature that are of interest to business taxpayers.

As we move forward with re-opening certain parts of the country, state and local governments continue to issue guidance on tax matters stemming from COVID-19. In Georgia, the Department of Revenue, in an FAQ, announced that the temporary relocation of employees will not establish Georgia nexus or cause an employer to exceed the protections provided by P.L. 86-272. Moreover, wages earned by employees while temporarily working in Georgia will not be considered Georgia income for withholding tax purposes The Alabama Department of Revenue announced it will not change withholding requirements for businesses based on an employee’s temporary telework location within Alabama that is necessitated by the pandemic. Alabama will also not consider temporary changes in an employee’s physical work location to impose nexus or alter apportionment of income for any business.

At least two states issued guidance on the tax treatment of certain federal payments designed to help ailing businesses. The Montana Department of Revenue announced that forgiven Paycheck Protection Program loans will not be included in gross income and are not taxable. Moreover, the business expenses offset by the loan amounts are not deductible business expenses for Montana tax purposes. In other words, Montana will follow the current IRS notice providing that such expenses cannot be deducted. Similarly, the Washington Department of Revenue announced that businesses receiving federal assistance, including Paycheck Protection Program loans, should not report amounts received as gross receipts and should not pay B&O tax on such assistance. With many employees working remotely, the Pennsylvania Department of Revenue announced it will temporarily waive the wet signature requirement for certain corporate tax returns.  Finally, as states and localities require heightened use of face coverings, Massachusetts and Vermont both issued guidance on the taxability of various types of face masks.

Thank you for listening and stay well!

To read about recent state and local tax guidance on extensions in response to COVID-19, please click here and bookmark KPMG TaxNewsFlash-United States to stay current as more guidance is regularly released.