TWIST - March 22, 2021

Summary of state tax developments in Arkansas, New York, Oregon, Virginia, and a Multistate update.

Weekly TWIST Podcast Overview

This Week's Developments

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

The Arkansas Supreme Court recently held that rent-to-own transactions of furniture and electronics were subject to Arkansas’s special short-term rental excise tax. Under Arkansas law, the short-term rental tax is imposed on a rental or lease of tangible personal property for a period of less than thirty days. Although there was evidence that customers almost always renewed their initial lease terms beyond a 30-day period, the court, strictly construing the short-term rental statute, held that the tax applied. In its view, the rental transactions that had an initial weekly or semimonthly term were subject to the short-term rental tax as these transactions fell within the plain and ordinary meaning of “a period of less than thirty days.”

In other news, state taxes on digital advertising have received a lot of attention this year. Maryland Senate Bill 787, which has passed the Senate and been set for Hearing in the House on March 25, 2021, would extend the effective date of the state’s digital advertising tax to tax years beginning after December 31, 2021.  The tax originally became effective for tax years beginning after December 31, 2020. Senate Bill 787 would also narrow the definition of digital advertising services and prohibit taxpayers from passing the tax directly on to customers. New digital advertising tax proposals recently introduced in Texas and West Virginia are very similar to Maryland’s tax.

In New York, the Assembly and Senate recently issued their revised budget proposals for the upcoming fiscal year. Both proposals currently include major corporate and personal tax increases that exceed those proposed earlier this year by Governor Cuomo. The budget is generally required to be in place by April 1, so over the next several days lawmakers will be negotiating the final budget package.

Recently, significant tax legislation was signed into law in Virginia. Senate Bill 1146 and House Bill 1935 update the Commonwealth’s conformity to the Internal Revenue Code as it existed on December 31, 2020. Importantly for corporate taxpayers, the bills decouple Virginia from the CARES Act changes that (1) suspend the 80 percent limit on NOLs and allowing NOL carrybacks; and (2) temporarily enhance the amount of business interest that can be deducted under IRC section 163(j). For corporate and individual taxpayers, for tax years beginning on and after January 1, 2020, but before January 1, 2021, the bills require an addback of expenses paid with forgiven PPP loan amounts to the extent they exceed $100,000. House Bill 2185 and Senate Bill 1403 create a temporary sales and use tax exemption for personal protective equipment. The exemption is available to businesses who purchase PPE to enable compliance with COVID-19 safety protocols.

Finally, the Oregon Department of Revenue announced last year that the presence of employees teleworking in Oregon due to COVID-19 would not be a relevant factor when determining whether the employer has Oregon nexus for corporate income tax purposes. This policy has been extended to the later of the date certain executive orders or emergency declarations expire or December 31, 2021.

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Featured Speaker

Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US