TWIST - October 5, 2020

Welcome to TWIST for the week of October 5, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

We have a couple of legislative developments to cover today. First up, two bills were enacted in New Jersey that increase taxes on certain individuals and corporations. Under Assembly Bill 10, effective retroactively to tax years beginning on or after January 1, 2020,  the personal income tax rate is increased from 8.97 percent to 10.75 percent for persons with income over $1 million.  Individuals with income over $5 million were already subject to a 10.75 percent rate on such income.  Also effective retroactively to January 1, 2020, Assembly Bill 4721 extends the Corporation Business Tax (CBT) surtax. As such, CBT taxpayers, except public utilities, having allocated taxable New Jersey net income in excess of $1 million are subject to an additional 2.5 percent rate of tax for the privilege periods through December 31, 2023. The surtax does not apply if the federal corporate income tax rate is increased to at least 35 percent.

In South Carolina, House Bill 4431, entitled the “South Carolina Business License Tax Standardization Act,” was signed into law by Governor. McMaster on September 30, 2020.  The bill makes a number of reforms to South Carolina’s local business license taxes, which are imposed by certain counties or municipalities for the privilege of doing business in the jurisdiction. Specifically, a county or municipality that levies a business license tax must comply with the provisions of the bill.

Finally, we have a couple developments from state taxing authorities. Out west, the California Franchise Tax Board issued a public service bulletin informing taxpayers that tax returns being prepared for tax years beginning during the 2019 calendar year are not required to use the proposed changes to CCR section 25136-2 . Recall, this is the regulation that sets forth market-based sourcing rules for sales of other than tangible personal property. The Bulletin notes that certain of the regulations are being revised in light of the July 2020 Interested Parties Meeting and the applicability date for the proposed revisions has yet to be finally determined.

Finally, further out west, the Hawaii Department of Taxation has issued a Tax Information Release (TIR) addressing the application of P.L. 86-272 in light of Hawaii’s new corporate income tax economic nexus threshold.  At the outset, the Department notes that only activities associated with solicitation of orders of tangible personal property are protected under P.L. 86-272.  The TIR sets forth a list of activities that if performed by a taxpayer would cause the loss of P.L. 86-272 protection, as well as activities that would be protected. Interestingly, the list of unprotected activities includes making sales that equal or exceed $100,000 during the current or preceding calendar year, and engaging in 200 or more business transactions with persons within Hawaii during the current or preceding calendar year.  In other words, the Department seems to be taking a position in the TIR that having substantial economic activity in the state eliminates the protection of P.L. 86-272.

Thank you for listening and stay well.