TWIST - This Week in State Tax

Colorado: COVID-19 Did Not Trigger Revaluation of Commercial Properties

The Colorado Supreme Court recently issued multiple decisions addressing the effect of COVID-19 on commercial property tax valuations.  The lawsuits were generally brought by commercial property owners alleging that the COVID-19 pandemic amounted to an “unusual condition” under Colorado’s property tax law that required the county assessor to revalue their properties outside the normal two-year reassessment cycle.  Under Colorado law, in determining the actual value of real property, an assessor may consider any unusual conditions in or related to any real property which would result in an increase or decrease in actual value.  The statute lists out the types of unusual conditions that might result in an increase or decrease in the actual value, which include, but are not limited to, any new regulations restricting the use of land, or any detrimental acts of nature. The property owners argued that COVID-19 was a detrimental act of nature and the public health orders issued in response were regulations restricting use of their land. After state district courts ruled against the property owners, the Colorado Supreme Court accepted jurisdiction to consider how the unusual conditions exception to the two-year valuation cycle applied to the circumstances created by the pandemic during the 2020 property tax year.

The Colorado Supreme Court determined that the COVID-19 pandemic did not constitute a “detrimental act of nature.”  Under the law, assessors must consider “any unusual conditions in or related to any real property which would result in an increase or decrease in actual value.” To fall within this provision, the unusual condition must be both an “act of nature” and “in or related to any real property.” Applying the dictionary definition of “act of nature,” which includes earthquakes, floods, or tornados, the court concluded that COVID-19, a respiratory disease caused by novel coronavirus, was not an act of nature related to real property. Further, requiring a mid-cycle revaluation based on a global pandemic would be absurd, both because every property would be at least indirectly affected by it, and the COVID-19 pandemic was not a one-time event such as a landslide or a fire. The court next rejected the property owners’ contention that the numerous public health orders issued in response to COVID-19 constituted regulations restricting the use of their land. Notably, the public health orders regulated the operation of commercial activity on the land, and not the use of the land itself. As such, they were not “regulations restricting . . . the use of the land;” instead, they were restrictions on the use of the improvements on the land. Further, in the court’s view, to accept the taxpayers’ argument that the public health orders in this case were an unusual condition would lead to absurd results. If the COVID-19 orders were deemed regulations restricting the use of land because they required a temporary closure, then ordinary changes to fire codes affecting occupancy limits or even a routine public health order requiring the temporary closure of a particular restaurant would likewise amount to an unusual condition requiring revaluation of the property. In sum, the court concluded that COVID-19 was not a “detrimental act of nature,” nor were the public health orders passed in response “regulations restricting . . . the use of the land” as required to trigger the valuation exception. The court noted that its prior cases had similarly held that mere changes in economic conditions were not sufficient to trigger a revaluation under Colorado law, but that the impact of COVID-19 would be reflected in subsequent valuation cycles. Please contact Harley Duncan with questions on MJB Motels LLC v. Cnty. of Jefferson Bd. of Equalization.

Minnesota: Retail Delivery Fee Effective July 1, 2024

Minnesota House File 2887, a comprehensive transportation policy and funding bill, was signed into law on May 24, 2023. In addition to making numerous motor fuel and vehicle tax changes, the legislation imposes a new 50 cent retail delivery fee on retailers in certain circumstances. The fee is similar to the retail delivery fee imposed on delivery transactions in Colorado but is considerably more complex because numerous products and transactions are excluded from the scope of the fee. Although the fee is imposed on retailers, it may be collected from purchasers.  The fee is imposed on each transaction that exceeds a “threshold amount” involving a retail delivery in Minnesota. The threshold amount is $100 before the application of state and local sales tax and excluding any exempt items.  A retail delivery means a delivery to a person located in Minnesota as part of a retail sale of (1) tangible personal property subject to sales and use tax, and (2) clothing, excluding diapers. A retail delivery does not include a transaction that is picked up at the retailer’s place of business, including curbside delivery.

If the retailer elects to collect the fee from purchasers, it must be charged in addition to any other delivery fee and must be identified separately on invoices as the “road improvement and food delivery fee.”  If the fee is separately stated on the invoice or bill or sale, the fee will be excluded from the sales price and not subject to sales tax.  The fee is imposed once per transaction regardless of whether multiple shipments are necessary to deliver the items of tangible personal property purchased.

Certain types of retail deliveries are exempt from the fee, including (1) a retail delivery to a purchaser that is exempt from sales tax; (2) a retail delivery of certain motor vehicles; (3) a retail delivery resulting from a retail sale of food, food ingredients, or prepared food; (4) a retail delivery resulting from a retail sale by a food and beverage establishment even if the retail delivery is made by a third party; (5) a retail delivery resulting from a retail sale of drugs and medical devices, accessories and supplies as defined in the retail sales tax; and (6) a retail delivery resulting from a retail sale of baby products as defined in the bill.  The listing of transactions involving the delivery of “baby products” exempt from the delivery fee encompasses substantially more products than are exempt from the retail sales tax. For example, the sales and use tax exemption for baby products does not include baby swings or infant eating utensils, but such items are included in the list of items in the definition of “baby products” for purposes of the retail delivery fee.

In addition, a retailer that made retail sales totaling less than $1 million in the previous calendar year is exempt from the fee, as are marketplace providers when facilitating the sale of a retailer that made retail sales totaling less than $100,000 in the previous calendar year through the marketplace provider. Collection of the fee by or for these retailers must commence on the beginning of a month that is not less than 60 days after the date on which they exceed the sales threshold. Administration of the fee is generally governed under the schedule and rules for collecting and remitting sales and use taxes.

Please contact Alana Purvis or Jamie Louwagie with questions on Minnesota’s retail delivery fee.

Nebraska: Corporate Income Tax Rate Reduction Enacted

On May 31, 2023, LB 754 was signed into law. This bill provides for individual income tax relief and adopts a new elective pass-through entity tax; it also reduces individual and corporate income tax rates. Currently, for taxable years beginning on or after January 1, 2023, and before January 1, 2024, the rate applied to a corporation’s taxable income in excess of $100,000 is 7.25 percent, and on the first $100,000 of income, it is 5.58 percent. For taxable years beginning on or after January 1, 2024, and before January 1, 2025, the rate applied to income over $100,000 is 5.84 percent. For taxable years beginning on or after January 1, 2025 and before January 1, 2026, a flat 5.20 percent rate applies to all income. That flat rate is reduced to 4.55 percent for 2026 and then down to 3.99 percent for tax years beginning on or after January 1, 2027. Please stay tuned to TWIST for future rate changes.

Virginia: Taxpayer May Elect Manufacturer’s Apportionment Formula on an Amended Return

A Virginia appellate court recently held that a taxpayer was permitted to elect the single sales factor apportionment method allowed to manufacturers meeting certain criteria on an amended return. Under Virginia law, the default apportionment method is a three-factor double weighted sales formula.  However, qualifying manufacturers may elect to use a single sales factor formula. The taxpayer at issue filed its returns using the default method, but later amended its returns to elect the single sales method applicable to manufacturers. The Department of Taxation asserted that the election could not be made on an amended return and the taxpayer protested. After a trial court ruled in the taxpayer’s favor, the Department appealed.