TWIST - July 19, 2021

Welcome to TWIST for the week of July 19th, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

First up, California has joined the growing list of states that have adopted elective pass-through entity tax regimes. Specifically, Assembly Bill 150 allows “qualified entities” doing business in California to elect to pay an entity-level tax equal to 9.3 percent of qualified net income. A “qualified entity” means an entity that is taxed as a partnership or an S Corporation and whose partners, shareholders or members are exclusively corporations or taxpayers as defined under the personal income tax law, excluding partnerships. If the $10,000 federal SALT cap is not repealed in the intervening years, the election is effective for taxable years beginning on or after January 1, 2021 and before January 1, 2026.

Moving up the west coast to Oregon, Senate Bill 164, which is pending signature, would modify certain provisions of the Corporate Activity Tax or CAT law. Importantly, the bill would allow taxpayers to use their federal tax year for CAT purposes.  Currently, all taxpayers file their CAT returns using the calendar year as the CAT year.

A few states also recently revised and/or issued guidance on their treatment of forgiven PPP loans and expenses paid with such loans. In Minnesota, legislation was enacted that conforms to the federal treatment of forgiven PPP loans and expenses. In Rhode Island, for taxable years beginning on or after January 1, 2020, any PPP loan forgiveness amount that exceeds $250,000 is includable in the gross income of businesses and individuals. Finally, the Hawaii Department of Taxation issued a revised Technical Information Release reminding taxpayers that they cannot deduct expenses paid with PPP loans if the taxpayer has a reasonable expectation of PPP loan forgiveness (even if loan forgiveness is expected in a future taxable year).

Finally, the Arizona Department of Revenue ruled that a taxpayer’s provision of a temporary, non-perpetual right to use digital data was subject to Arizona’s transaction privilege tax under the personal property rental classification. The Department concluded that based on Arizona’s broad interpretation of tangible personal property, the taxpayer’s rental of data was subject to tax.

Thank you for listening to TWIST and stay well.