TWIST - February 22, 2021

Welcome to TWIST for the week of February 22, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

First up today, we are going to cover a couple legislative developments. In Utah, House Bill 39, which has passed both the House and Senate, retroactively clarifies the taxation of 965 income, GILTI, and FDII. Specifically, amounts included in income under IRC sections 965(a) and 951A are eligible for the state’s 50 percent dividends received deduction. Further, the bill clarifies that Utah is a Line 28 state, the deduction for FDII is not allowed, and that the 50 percent dividends-received deduction applies to the gross amount of GILTI and section 965 income included in the tax base. 

In terms of prospective legislation, in his recently released FY 2022 budget, Illinois Governor J. Pritzker outlined a proposal to fill the deficit by cutting spending and closing $932 million worth of corporate “loopholes.”  Revenue raising measures that affect corporate income taxpayers include limiting corporate NOLs to $100,000 per year, decoupling from 100 percent bonus depreciation, and aligning the state’s treatment of foreign source dividends to its treatment of domestic source dividends.

An Administrative Law Judge (ALJ) for the New York Division of Tax Appeals recently concluded that a taxpayer owed sales tax on property and equipment it acquired under the terms of an LLC purchase agreement. The taxpayer argued that the acquisition was merely a transfer of the intangible equity interests in an LLC. The ALJ found that the taxpayer acquired taxable tangible assets in the transaction, but that certain of the tangible personal property acquired qualified for sales and use tax exemptions. Therefore, the assessment was reduced to capture only the taxable transactions.

Finally, the Pennsylvania Department of Revenue has announced a new voluntary compliance effort aimed at retailers that had inventory or other property stored in Pennsylvania and had not filed the appropriate returns. The program, which will run through May 8, 2021, offers penalty relief for past due tax returns that were not filed and taxes that were not paid. It does not appear that interest will be abated. For participating businesses, the lookback period is limited to January 1, 2019, and taxpayers who participate in the program will not be liable for taxes prior to that date.