TWIST - August 24, 2020

Welcome to TWIST for the week of August 24, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

The first development we are covering today is a Nebraska Supreme Court decision holding that a contractor specializing in building and maintaining cellular towers, transmission lines, and other improvements at cellular sites, was liable for uncollected sales tax on its service receipts. The taxpayer essentially argued that it was improper to require it to pay sales taxes on its purchase of materials and then require it to collect tax on its receipts from furnishing, installing or connecting mobile telecommunications services. In the taxpayer’s view, this treatment constituted impermissible double taxation. The court disagreed, holding that there was no double taxation as two different activities were subject to tax – the taxpayer’s purchase of building materials, and the taxpayer’s performance of services.

In corporate income tax news, the Tennessee Department of Revenue recently issued guidance addressing the use of IRC section 163(j) interest expense carryforwards for tax years beginning on or after January 1, 2020 when Tennessee decouples from section 163(j) and no longer limits the deduction for interest expense. In addition, few more states recently issued guidance addressing the state tax treatment of certain provisions in the federal CARES Act. In New Hampshire, the Department of Revenue Administration issued a press release addressing the Business Profits Tax and Business Enterprise Tax consequences of COVID-19-related federal relief payments.  The Montana Department of Revenue issued guidance addressing the taxability of certain CARES Act relief programs. In Ohio, the Department of Taxation issued FAQs addressing certain key tax issues, such as extensions of time and conformity to the CARES Act. Finally, in Hawaii, legislation was enacted that updates the state’s connection to the Internal Revenue Code. Specifically, for tax years beginning after December 31, 2019, Hawaii conforms to the Code as amended as of March 27, 2020. The legislation specifically provides that Section 1106(i) of the CARES Act, which addresses Paycheck Protection Program (PPP) loan forgiveness, will be operative for Hawaii purposes. IRC sections 172 and 461 will be operative for Hawaii purposes in the form that they existed as of December 31, 2019.

Finally, the Arizona Supreme Court recently ruled that the description of a ballot initiative was not deceptive, and the measure was, therefore, eligible to be placed on the November ballot. If approved by voters, the Invest in Education Initiative would impose a 3.5 percent income tax surcharge on taxable income above $250,000 annually for single persons or married persons filing separately, and on taxable income above $500,000 annually for married persons filing jointly. Please stay tuned to TWIST for future state tax updates and stay well.