TWIST - This Week in State Tax

Welcome to TWIST for the week of February 21th, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

The first development today is from Utah. Senate Bill 59, which was signed into law on February 11, 2022, reduces the corporate income tax rate from 4.95 percent to 4.85 percent effective for tax years beginning on or after January 1, 2022. The state’s flat individual income tax rate is likewise reduced from 4.95 percent to 4.85 percent.

The Alabama Department of Revenue has issued a notice requiring rental facilitators to remit rental tax for leases to Alabama customers or comply with certain notice and reporting requirements. “Rental facilitators” are persons that facilitate third-party rental transactions of property classified as Class II or Class IV for property tax purposes. Rental facilitators are required to apply for a special tax account irrespective of whether they choose to remit rental tax or comply with the state’s notice and reporting requirements.

The Pennsylvania Board of Finance and Revenue recently denied a taxpayer’s sales tax refund claim that was related to sales taxes paid on vehicle finance contracts written off as bad debt.  Under Pennsylvania law, a vendor or lender is entitled to a refund of sales taxes that were previously reported and paid to the Department of Revenue if certain conditions are met. A lender includes a person that owns or has owned a private label credit card account pursuant to a contract with the vendor that reported sales taxes. The Board of Finance and Revenue rejected the taxpayer’s argument that its vehicle financing agreements were akin to private label credit cards. 

Thank you for listening to TWIST and stay well!

Alabama: Department Issues Tax Guidance for Rental Facilitators

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The Alabama Department of Revenue recently issued a notice requiring rental facilitators to remit rental tax for leases to Alabama customers or comply with certain notice and reporting requirements. “Rental facilitators” are persons or entities that facilitate third-party rental transactions of Class II or Class IV property. Alabama law sets forth four classes of property for ad valorem tax purposes. Class II property is “[a]ll property not otherwise classified” and Class IV property is “[a]ll private passenger automobiles and motor trucks […] owned and operated by an individual for personal or private use and not for hire, rent, or compensation.” Class I property is all property of utilities used in the business of such utilities. Class III property is all agricultural, forest and residential property and historic buildings and sites.

Rental facilitators are required to apply for a special tax account irrespective of whether they choose to remit rental tax or comply with the state’s notice and reporting requirements. If they choose the latter, an annual informational report must be filed online by January 31 of the following calendar year. In addition, rental facilitators must provide an annual informational summary notice to all third-party owners or lessors they engage with. The Department recommends that lease contracts include a statement indicating whether the rental facilitator is collecting rental tax on facilitated transactions. Please contact Scott Jackson with questions on this notice. 

Pennsylvania: Vehicle Financing Contract was Not a Private Label Credit Card

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The Pennsylvania Board of Finance and Revenue recently released a slew of decisions and in one of them addressed whether a taxpayer was entitled to a refund of sales tax paid on vehicle finance contracts written off as bad debt.  The taxpayer, the financing subsidiary for a car manufacturer, provided financing for customers purchasing vehicles. Under Pennsylvania law, a vendor or lender is entitled to a refund of sales taxes that were previously reported and paid to the Department of Revenue if certain conditions are met. A lender includes a person that owns or has owned a private label credit card account pursuant to a contract directly with the vendor that reported sales taxes. A “private label credit card” is defined as “any charge card, credit card or other instrument serving similar purpose which carries, refers to or is branded with the name or logo of a vendor and which can be used for purchases from the vendor. The taxpayer argued that its finance agreements were akin to an “instrument serving similar purpose” as a private label credit card. The financing agreements were branded with the dealership’s name and logo and could be used only to purchase a vehicle from that particular dealer. As such, the taxpayer argued it was entitled to relief under the private label credit card provisions.  The Board of Finance and Revenue concluded, without much explanation, that the taxpayer had not provided sufficient evidence to prove it holds private label credit card accounts. Please stay tuned to TWIST for additional Pennsylvania developments. 

Utah: Corporate Income Tax Rate Lowered

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Utah Senate Bill 59, signed into law on February 11, 2022, lowers the income tax rate imposed on domestic and foreign corporations from 4.95 percent to 4.85 percent. This change is retroactive to tax years beginning on or after January 1, 2022. The state’s flat individual income tax rate is likewise reduced from 4.95 percent to 4.85 percent. The bill also adopts a nonrefundable earned income tax credit for qualifying individuals that claim the federal earned income tax credit for the taxable year.

Please stay tuned to TWIST for more rate changes!