TWIST - February 15, 2021

Welcome to TWIST for the week of February 15th, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

First up today we are going to cover some recently enacted state tax legisaltion. In Alabama, a comprehensive corporate income tax bill, House Bill 170, was recently signed into law that moves Alabama to single-sales factor apportionment and repeals the throwback rule. The bill also adopts a new subtraction for GILTI, allows a deduction for any amount included in income that relates to contributions made by Alabama or its political subdivisions, and revises the law to confirm that unless a taxpayer or the taxpayer’s consolidated group has a section 163(j) limitation, then there is no Alabama limitation.  Guidance is also provided on how the 163(j) interest expense limitation intersects with the state’s related party interest addback provisions. House Bill 170 also confirms that certain amounts received under PPP loan programs or other federal COVID-19 relief bills will not be included in a taxpayer’s income for Alabama purposes. Finally, the bill adopts a new, elective pass-through entity tax regime. 

In Maryland, the Senate joined the House of Delegates and voted to override the Governor’s veto of House Bill 932. This bill expands Maryland’s sales and use tax to retail sales of digital products and digital codes, including permanent downloads and streaming of such products.

The New York Department of Taxation and Finance recently issued two advisory opinions addressing the taxability of equipment provided along with an operator.  Under New York law, sales and use tax is imposed on leases and rentals of equipment when the right to use or direct control of the use of the equipment transfers to the lessee. When an equipment lease includes the services of an operator, possession is deemed to be transferred only where the lessee has the right to direct and control the use of the equipment. In both opinions, the Department concluded that there was no rental of equipment because control was never provided to the lessee.

Finally, the Louisiana Board of Tax Appeals released two corporate income and franchise tax opinions. In the first, the Board concluded that a taxpayer was not entitled to the tax credit for property taxes paid on inventory because its equipment was primarily rented out to customers. In the second decision, the Board concluded that interest from Louisiana retail installment contracts was included in the franchise tax sales factor numerator, but the contracts themselves were excluded from the franchise tax property factor numerator.