TWIST - This Week in State Tax

Welcome to TWIST for the week of April 10, 2023, featuring Sarah McGahan from the KPMG Washington National Tax state and local tax practice.

Today we have several legislative updates. First, House Bill 23-1006, which was recently signed into law in Colorado, requires employers to annually notify employees of the availability of certain state and federal credits, in addition to providing the annual withholding tax notice. Specifically, an employer must provide written notice to all employees informing them of the availability of the federal earned income tax credit, the federal child tax credit, the state earned income tax credit, and the state child tax credit.

In West Virginia, recently enacted House Bill 3286 provides a new subtraction for publicly traded companies intended to offset the financial statement impact of recent apportionment law changes. Recall, these recent changes include moving to single sales factor apportionment and market-based sourcing and the repeal of the throw-out rule.

Georgia Senate Bill 56, which has been sent to Governor Kemp for signature, would conform to the Internal Revenue Code as amended through January 1, 2023. However, IRC section 174 would be treated as it was in effect before the enactment of the Tax Cuts and Jobs Act. On the sales and use tax side, Senate Bill 56 would impose sales and use tax on the retail purchase of specified digital products, other digital goods, or digital codes sold to an end user in Georgia, provided that the end user receives or will receive the right of permanent use of such products or codes and the transaction is not conditioned on continued payment by the end user.

Finally, on April 7, 2023, Governor Lujan Grisham of New Mexico vetoed almost every provision of House Bill 547, a comprehensive tax package.  The partial veto is not particularly surprising, as the Governor had publicly expressed concerns with the cost of the bill, which would have reduced the state’s gross receipts tax, adopted numerous new tax credits, and new gross receipts tax deductions. The bill would have also required most corporations to use single sales factor apportionment.

Colorado: Notice Must be Provided to Employees on Certain Tax Credits

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House Bill 23-1006, which was recently signed into law in Colorado, requires employers to annually notify employees of the availability of certain state and federal credits. Specifically, for income tax years beginning on and after January 1, 2023, in addition to the annual withholding tax notice, an employer must provide written notice to all employees informing them of the availability of the federal earned income tax credit, the federal child tax credit, the state earned income tax credit, and the state child tax credit. The written notice may be provided electronically or via text message and must be in English and in any other language that the employer normally uses to communicate with the employee. The Department of Revenue is authorized to promulgate rules specifying additional content employers must include in the notice. Please stay tuned to TWIST for additional legislative updates.

Georgia: Pending Bill Taxes Digital Goods; Decouples from TCJA-Changes to IRC section 174

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Senate Bill 56, which has been sent to Governor Kemp for signature, would make a number of tax changes, including updating the state’s connection to the Internal Revenue Code. Specifically, for tax years beginning on or after January 1, 2022, Georgia would adopt the Code as amended through January 1, 2023. However, IRC section 174 would be treated as it was in effect before the enactment of the Tax Cuts and Jobs Act. This means that Georgia would continue to allow taxpayers to deduct research and experimental expenses in the year in which they are incurred.

On the sales and use tax side, effective for transactions occurring on or after January 1, 2024, Senate Bill 56 would impose sales and use tax on the retail purchase of specified digital products, other digital goods, or digital codes sold to an end user in Georgia, provided that the end user receives or will receive the right of permanent use of such products or codes and the transaction is not conditioned on continued payment by the end user.  The tax would apply regardless of whether possession of the goods is maintained by a seller or a third party. “Specified digital products,” would mean digital audio-visual works, digital audio works, or digital books transferred electronically to an end user. “Other digital products” would mean the following if transferred electronically: artwork, photographs, periodicals, newspapers, magazines, video or audio greeting cards, and video games or electronic entertainment. Senate Bill 56 would also adopt a new sales and use tax exemption for Internet access services (as defined) and would modify the existing exemption for sales of prewritten computer software delivered electronically to capture prewritten computer software transferred electronically to purchasers. “Transferred electronically” would be defined to include a product that is “available, accessed or available to be accessed” other than on a tangible medium. The bill further makes clear that the exemption for prewritten computer software would not apply to sales of specified digital products, digital goods, or digital codes. Other sections of the bill affect individual income taxes and rates. Please contact Ben Cella with questions on the digital goods taxation.

New Mexico: Governor Vetoes Significant Tax Package

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On April 7, 2023, Governor Michelle Lujan Grisham of New Mexico vetoed almost every provision in House Bill 547, a comprehensive tax package. Provisions increasing the child tax credit, providing individual tax rebates and expanding the state’s film tax credit remained intact and were enacted.  The partial veto is not particularly surprising, as the Governor had publicly expressed concerns with the cost of the bill, which would have reduced the state’s gross receipts tax, adopted numerous new tax credits, and new gross receipts tax deductions. On the corporate income tax side, House Bill 547 would have created a 5.9 percent flat corporate income tax rate for tax years beginning on or after January 1, 2024.  The bill would also have mandated that for tax years beginning on or after January 1, 2024, all business income be apportioned by use of a single-sales factor, with certain exceptions.  Reports are that the legislature is not expected to attempt to override the veto.

West Virginia: New Subtraction Created to Offset Apportionment Changes

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In 2021, West Virginia adopted single sales factor apportionment for tax years beginning on or after January 1, 2022. Effective for sales made on or after January 1, 2022, market-based sourcing was adopted for service and intangible receipts, and the throwout rule was repealed. Recently-enacted legislation (House Bill 3286, signed March 29, 2023) provides a new subtraction intended to offset the financial statement impact of the 2021 apportionment changes. Specifically, if the application of the three apportionment changes collectively results in an aggregate increase in the taxpayer’s net deferred tax liability or an aggregate decrease in the taxpayer’s net deferred tax asset, or an aggregate change from a net deferred tax asset to a net deferred tax liability, the taxpayer shall be entitled to a new subtraction. The subtraction will be taken over a 10-year period beginning with the taxpayer’s tax year that begins on or after January 1, 2033 and will be equal to one tenth of the amount necessary to offset the increase in the net deferred tax liability or decrease in the net deferred tax asset. The subtraction is available only to publicly traded companies, and any taxpayer intending to claim the subtraction must file a statement with the Tax Commissioner on or before July 1, 2024, specifying the total amount of the subtraction.  The statement must be made on such form and in such manner as prescribed by the Commissioner.  Please stay tuned to TWIST for additional legislative updates.