Multistate: More state responses to COVID-19 and the CARES Act

The Arizona Department of Revenue issued a transaction privilege tax ruling (TPR 20-1) addressing whether taxpayers that fail to make transaction privilege tax payments in a timely manner due to COVID-19 have reasonable cause for such failure. Briefly stated, the Department determined that the severe impact of the COVID-19 pandemic, the statewide emergency declaration and other measures implemented by the state to protect public health, constituted a reasonable basis for business owners and operators’ inability to timely file or pay transaction privilege taxes. The Department has further determined that such taxpayers’ failure to timely file or pay does not stem from willful neglect. A recently-issued Transaction Privilege Tax Procedure document (TPP 20-1) provides the steps for requesting an abatement of penalties related to late tax payments for the COVID period (the period beginning February 1, 2020 and ending upon notice by the Department).

The Iowa Department of Revenue issued updated guidance on its conformity to certain CARES Act provisions in light of recent legislation (House File 2641). Notably, for 2019, Iowa does not conform to the post-CARES Act Internal Revenue Code and does not adopt changes to the treatment of Qualified Improvement Property or the expansion of the section 163(j) limitation. Beginning in 2020, Iowa has rolling conformity to the Code and also decouples from 163(j). Recently enacted legislation also provides  that for any tax years beginning on or after January 1, 2019 and ending March 27, 2020, section 1106(i) of the CARES Act (excluding from income loans forgiven under the Payroll Protection Program) applies in computing net income for state purposes for both personal and corporate taxpayers.

The Kentucky Department of Revenue issued FAQs addressing whether the state conforms to various aspects of the federal CARES Act. Kentucky is a static conformity state and adopts the IRC as of December 31, 2019. Consequently, Kentucky will not conform to the suspension of the 80 percent NOL limitation, the expanded interest deduction temporarily available under IRC section 163(j) and other federal changes in the CARES Act. The FAQs provide that Kentucky will follow the federal law excluding forgiven PPP loans from income and will follow Treasury Notice 2020-32, which disallows deductions for expenses paid with forgiven loans.  In response to the question as to whether the presence of an employee working in Kentucky would create nexus for a company, the Department responded that it will review Kentucky income tax nexus determinations on a case by case basis.

In Massachusetts, the Department of Revenue finalized a Technical Information Release (TIR 20-9) addressing the Commonwealth’s conformity to the federal CARES Act. Because Massachusetts does not conform to IRC section 172 for computing taxable income, the suspension of the 80 percent NOL limitation has no impact on Massachusetts corporate taxpayers. Further, Massachusetts does not allow NOL deductions for personal income tax purposes. With regard to the changes made to IRC section 163(j) under the CARES Act, Massachusetts conforms to those changes for personal and corporate excise tax purposes. The retroactive amendment made with respect to the depreciable life of “qualified improvement property” applies in Massachusetts to QIP placed in service after December 31, 2017. However, Massachusetts decouples from bonus depreciation, thus the deduction for QIP must be calculated without regard to IRC section 168(k). The TIR also addresses loan forgiveness under the Paycheck Protection Program (PPP). As Massachusetts generally follows the Code as amended and in effect on January 1, 2005 for personal income tax purposes, any forgiven amount would be includable in gross income, and there would be no disallowance of deductions attributable to the payment of expenses covered by loan proceeds. Conversely, for corporate excise taxpayers, the forgiven amount would be excluded from gross income, and any deduction disallowed by the IRS would also disallowed by Massachusetts. Finally, Massachusetts does not conform to the provisions modifying the limitations on charitable contributions for individual income tax purposes, but would conform for purposes of the corporate excise tax.

Finally, Maine’s Department of Revenue Services issued an Alert discussing the state’s non-conformity to the CARES Act due to the state’s adoption of the Internal Revenue Code as amended through December 31, 2019. Please stay tuned to TWIST for future CARES Act updates.

To read about the 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.