TWIST - August 10, 2020

Summary of state tax developments in Arizona, Maryland, New Jersey, and a Multistate update on COVID-19.

Weekly TWIST Podcast Overview

This Week's Developments

Welcome to TWIST for the week of August 10.  This is Sarah McGahan from KPMG’s Washington National Tax state and local tax practice.

The first development we are covering today is an Arizona Supreme Court case addressing whether “trip fees” imposed by the City of Phoenix on commercial ground transportation providers providing rides for passengers to and from the Phoenix airport violated a provision of the Arizona Constitution. Recall, in 2018, Section 25 of the Arizona Constitution was amended to prohibit the state or its political subdivisions from imposing or increasing any sales tax, transaction privilege tax, or any other transaction-based tax or fee on services performed in Arizona. Resolving this question determining whether the fees were transaction-based fees or user fees.  The court ultimately concluded that the “trip fees” were not transaction-based fees, but were akin to “authorized-user fees.” In the court’s view, the trip fees were imposed on providers for using the Airport property and having access to dedicated curbside space for pick-up and drop-off of passengers. Moreover, the trip fees were comparable to other user fees imposed in Arizona, such as highway tolls. As such, they did not violate the constitutional prohibition against new or increased taxes on services.

The Maryland Tax Court recently held that an unauthorized insurance company subject to the Maryland premiums receipt tax was exempt from corporate income tax on its non-premium income. Taxpayers subject to the Maryland premiums tax are exempt from all other state taxes.  During the tax years at issue, the taxpayer did not earn any insurance premiums, but earned interest income from its parent corporation.  The Tax Court rejected the Comptroller’s argument that because the taxpayer did not earn any premiums during the tax years at issue, the exemption from all other state taxes was inapplicable.

In federal court news, the U.S. Court of Appeals for the Third Circuit recently reversed a decision by the U.S. Tax Court, and in doing so held that a company’s receipt of economic incentives from New Jersey were not excluded from the taxpayer’s gross income as contributions to capital. The tax years at issue were before the Tax Cuts and Jobs Act modified IRC section 118 to require certain government contributions to corporations be included in gross income. The appellate court, after reviewing many prior cases, concluded that unrestricted government payments, such as the incentives at issue, indicated an intent to provide a company with additional income rather than a contribution to capital.

Finally, last week a few more states issued guidance on COVID-19 tax issues or the CARES Act. The California Franchise Tax Board extended the period of time during which taxpayers can sign certain documents, including tax returns, with alternative signatures.  The South Carolina Department of Revenue issued an information letter that addresses the sales and use tax treatment of charges imposed by retailers related to COVID-19. And, the Tennessee Department of Revenue has issued guidance on the state’s conformity to the CARES Act for excise tax purposes.

Thank you for listening and stay well.

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Featured Speaker

Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US