Through its content-sharing partnership with Thomson Reuters Checkpoint, SC&H Group’s State and Local Tax practice has compiled the following round up of actionable state tax news.
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Arkansas — Sales Tax Rates — Local rate changes.
The Arkansas Department of Finance and Administration has announced that, effective July 1, 2014, Bradford (White County) will impose a 2% sales and use tax, and Horatio (Sevier County) will impose a 1% sales and use tax. Searcy (White County) will increase its rate from 0.5% to 1.5%, and Stuttgart (Arkansas County), will increase its rate from 2% to 3%. Calhoun County will increase its rate from 2.25% to 2.50%; and Yell County will increase its rate from 1% to 2%. In addition, Bell Vista (Benton County), Fort Smith (Sebastian County), and Mountain Home (Baxter County) are subject to annexation. (Recent Changes in Local Taxes, Arkansas Department of Finance and Administration, 01/06/2014.)
Arkansas — Sales And Use Tax — Local rate changes.
The Arkansas Department of Finance and Administration has announced that, effective July 1, 2014, Bradford (White County) will impose a 2% sales and use tax, and Horatio (Sevier County) will impose a 1% sales and use tax. Searcy (White County) will increase its rate from 0.5% to 1.5%, and Stuttgart (Arkansas County), will increase its rate from 2% to 3%. Calhoun County will increase its rate from 2.25% to 2.50%; and Yell County will increase its rate from 1% to 2%. In addition, Bell Vista (Benton County), Fort Smith (Sebastian County), and Mountain Home (Baxter County) are subject to annexation. (Recent Changes in Local Taxes, Arkansas Department of Finance and Administration, 01/06/2014.)
Arizona — Personal Income Tax — Credit for increased excise taxes.
L. 2014, S1081, effective on the 91st day following the close of the 2014 legislative session, provides that for tax years beginning from and after December 31, 2014, any tax return or form prescribed by the Arizona Department of Revenue that claimants who have no income tax liability and who are not required to file an Arizona individual income tax return use to claim the credit for increased excise taxes under Ariz. Rev. Stat. Ann. § 43-1072.01 must have: (1) a Social Security number that is valid for employment for the claimant; and (2) either a valid Social Security number or an individual taxpayer identification number issued by the Internal Revenue Service for the claimant’s spouse and any qualifying children of the claimant.
Arizona — Sales And Use Tax — Coal refining.
L. 2014, H2285, generally effective on the 91st day following the close of the 2014 legislative session and retroactively applicable to refining facilities constructed in Arizona from and after 12/31/2013, provides transaction privilege (sales) and use tax exemptions for transfers of title or possession of coal, back and forth, between a coal refinery and power plant. More specifically, the bill does the following: (1) exempts the transfer of title or possession of coal, back and forth, between a power plant owner or operator and a coal refinery, from state, county, city, town, and special district transaction privilege tax (TPT) if: (a) the transfer of the title or possession of the coal is for refining purposes, and (b) the title or possession of the coal is transferred back to the power plant owner or operator after the coal refining process; (2) provides that the transfer of title or possession of coal back and forth, between a coal refinery and power plant, may not be deemed as being engaged in business classified under the mining classification; (3) defines “coal refining process” as the application of a coal additive system that aids the reduction of power plant emissions during the combustion of coal and the treatment of flue gas; and (4) exempts, from use tax, coal acquired from an owner or operator of a power plant by a coal refinery if the transfer of title of possession of the coal is for refining purposes and is transferred back to the owner or operator of the power plant after the coal refining process.
California — Corporate Income Tax — Information returns of brokers/estates distributable to nonresident beneficiaries.
The Franchise Tax Board (FTB) has repealed, effective April 9, 2014, two regulation sections because the statutes that they were implementing, interpreting and making specific were repealed. California Code of Regulations (CCR) § 18641, Tit. 18, is repealed because it solely describes requirements for a broker that was defined in § 18641 of the Revenue and Taxation Code, which has been repealed. CCR § 19513, Tit. 18, is repealed because it implements and makes specific § 19513 of the Revenue and Taxation Code, which has been repealed.
California — General Administrative Provisions — Special session called to replace Rainy Day Fund.
Governor Edmund G. Brown Jr. has issued a proclamation convening a special session for April 24, 2014 of the legislature to replace the Rainy Day Fund on the November ballot with a dedicated reserve that would allow the state to pay down its debts and unfunded liabilities. Voters enacted the current Rainy Day Fund in 2004 with the passage of Proposition 58, which directs 3% of annual revenues into the Budget Stabilization Account. The current system has no restriction on when funds can be withdrawn and requires deposits even in deficit years, unless the law is suspended.
California — Personal Income Tax — Information returns of brokers/estates distributable to nonresident beneficiaries.
The Franchise Tax Board (FTB) has repealed, effective April 9, 2014, two regulation sections because the statutes that they were implementing, interpreting and making specific were repealed. California Code of Regulations (CCR) § 18641, Tit. 18, is repealed because it solely describes requirements for a broker that was defined in § 18641 of the Revenue and Taxation Code, which has been repealed. CCR § 19513, Tit. 18, is repealed because it implements and makes specific § 19513 of the Revenue and Taxation Code, which has been repealed.
Colorado — Sales And Use Tax — Sales tax coupon books discontinued.
The Colorado Department of Revenue (CDOR) is reminding taxpayers that the sales tax coupon booklet has been discontinued due to cost and processing charges and that the DR 0100 (Colorado Retail Sales Tax Return) paper forms it mailed out in January were of a different size and format than previous versions of the DR 0100. Quarterly filers will not be able to use the coupon booklet for their first 2014 return. The mailing in January to quarterly filing, single location businesses contained two DR 0100 forms, and the mailing to monthly filing, single location businesses contained six DR 0100 forms. Accounts that have transitioned to sales tax e-file through Revenue Online will not receive DR 0100 paper forms. There was only one instruction page included with the packet of DR 0100 forms sent in January, which taxpayers should keep for reference for each filing period. The 2014 filing year form instructions are available with the DR 0100 form on the Colorado Taxation website. Also, completion of the Deductions and Exemptions page is now required, and taxpayers should consult the instructions for guidance. (Sales Tax Coupon Booklet Format Is a Thing of the Past, Colorado Department of Revenue Taxation Division Weblog, 04/17/2014.)
Colorado — Sales And Use Tax — Avoiding certain errors on sales tax return.
The Colorado Department of Revenue (CDOR) is reminding taxpayers that if they file their sales tax return through Revenue Online, they can avoid math calculation and other types of errors. When taxpayers log into their account on Revenue Online, the system knows the sales tax rates for their business and will help them accurately complete their sales tax return. (Want to Avoid Math Calculation and Other Types of Errors on Your Sales Tax Return? Colorado Department of Revenue Taxation Division Weblog, 04/18/2014.)
Georgia — Personal Income Tax — Medical core clerkship deduction.
L. 2014, S391, effective 04/15/2014, provides a $1,000 deduction for certain medical core clerkships available for any physician who served as the community-based faculty physician for a medical core clerkship, physician assistant core clerkship, or nurse practitioner core clerkship. Covered clerkships are those for a student who is enrolled in a Georgia medical school, a Georgia physician assistant school, or a Georgia nurse practitioner school and who completes a minimum of 160 hours of community-based instruction in certain specified types of medicine. The deductions are applicable to all taxable years beginning on or after January 1, 2014.
Louisiana — Business Tax Rates — Natural gas severance tax rate.
The Louisiana Department of Revenue announced the severance tax rate on natural gas, effective for the period July 1, 2014 through June 30, 2015, in the Louisiana Register, Vol. 40, No. 4, April 20, 2014. The severance tax rate on natural gas for that period has been set at 16.3¢ per 1,000 cubic feet (MCF), measured at a base pressure of 15.025 lbs. per square inch absolute and a temperature base of 60 degrees Fahrenheit. The Department is statutorily required to adjust the severance tax rate annually, by multiplying the tax base rate of 7¢ per MCF by the current “gas base rate adjustment” figure. The current “gas base rate adjustment” figure, based on market price formula calculations for the 12-month period ending March 31, 2014, is 232.34% (2.3234). The natural gas severance tax rate for the period from July 1, 2013 through June 30, 2014 is 11.8¢ per MCF.
Louisiana — Corporate Income Tax — Partnership composite return filing extension.
Effective April 20, 2014, the Louisiana Department of Revenue and Taxation adopted an administrative rule, codified at La. Admin. Code § 61:III.2505, regarding filling extensions for partnerships filing composite returns. The secretary may grant a reasonable extension file a composite return due, not to exceed six months, from the date the return is due. To obtain a filing extension for filing a composite return, partnerships must make the request on or before the tax return’s due date. A partnership must request a state filing extension by submitting an electronic application via one of the following: the Department’s website at www.revenue.louisiana.gov/extensions; tax preparation software; or any other electronic method authorized by the secretary. A filing extension granted by the Secretary only allows for an extension of time to file the tax return, it does not allow an extension of time to pay the tax due. To avoid interest and penalty assessments, income taxes due must be prepaid on or before the original due date.
Louisiana — Fuels And Minerals — Natural gas severance tax rate.
The Louisiana Department of Revenue announced the severance tax rate on natural gas, effective for the period July 1, 2014 through June 30, 2015, in the Louisiana Register, Vol. 40, No. 4, April 20, 2014. The severance tax rate on natural gas for that period has been set at 16.3¢ per 1,000 cubic feet (MCF), measured at a base pressure of 15.025 lbs. per square inch absolute and a temperature base of 60 degrees Fahrenheit. The Department is statutorily required to adjust the severance tax rate annually, by multiplying the tax base rate of 7¢ per MCF by the current “gas base rate adjustment” figure. The current “gas base rate adjustment” figure, based on market price formula calculations for the 12-month period ending March 31, 2014, is 232.34% (2.3234). The natural gas severance tax rate for the period from July 1, 2013 through June 30, 2014 is 11.8¢ per MCF.
Louisiana — Personal Income Tax — Partnership composite return filing extension.
Effective April 20, 2014, the Louisiana Department of Revenue and Taxation adopted an administrative rule, codified at La. Admin. Code § 61:III.2505, regarding filling extensions for partnerships filing composite returns. The secretary may grant a reasonable extension file a composite return due, not to exceed six months, from the date the return is due. To obtain a filing extension for filing a composite return, partnerships must make the request on or before the tax return’s due date. A partnership must request a state filing extension by submitting an electronic application via one of the following: the Department’s website at www.revenue.louisiana.gov/extensions; tax preparation software; or any other electronic method authorized by the secretary. A filing extension granted by the Secretary only allows for an extension of time to file the tax return, it does not allow an extension of time to pay the tax due. To avoid interest and penalty assessments, income taxes due must be prepaid on or before the original due date.
Louisiana — Partnership — Partnership composite return filing extension.
Effective April 20, 2014, the Louisiana Department of Revenue and Taxation adopted an administrative rule, codified at La. Admin. Code § 61:III.2505, regarding filling extensions for partnerships filing composite returns. The secretary may grant a reasonable extension file a composite return due, not to exceed six months, from the date the return is due. To obtain a filing extension for filing a composite return, partnerships must make the request on or before the tax return’s due date. A partnership must request a state filing extension by submitting an electronic application via one of the following: the Department’s website at www.revenue.louisiana.gov/extensions; tax preparation software; or any other electronic method authorized by the secretary. A filing extension granted by the Secretary only allows for an extension of time to file the tax return, it does not allow an extension of time to pay the tax due. To avoid interest and penalty assessments, income taxes due must be prepaid on or before the original due date.
Maine — Sales And Use Tax — Exempt organizations and government agencies.
Maine Revenue Services has updated its instructional bulletin relating to exempt organizations and government agencies to clarify the tax treatment of sales to exempt organization employees. When an employee of the exempt organization or agency presents a retailer with a purchase order or other authority issued by the exempt organization and accepted in good faith by the retailer, the sale will generally qualify as an exempt sale to that organization provided that the sale price does not exceed the amount stated in the purchase order. If the retailer is not presented with a purchase order or other authority, the sale is considered to be a sale to the individual, not a sale to the exempt organization. Additionally, if the sale price exceeds the dollar amount of the purchase order and the employee pays the difference with his or her own funds, the entire sale is considered to be a sale to the individual, not a sale to the exempt organization. If the employee is making a personal purchase together with a purchase covered by a purchase order or other authority from the organization, the retailer should make two separate sales. But even if the retailer includes more than one item in the same transaction, only the item or items that are identified in the purchase order or other authority that are within the dollar limit stated are considered to be sold to the exempt organization. These rules apply to sales to employees of the state or federal government when purchases are made with cash, check or personal credit card; sales that are paid for with credit cards that are billed to and paid for directly by the governmental agency are exempt from the Maine sales and use tax. ( Maine Instructional Bulletin 36, 04/18/2014 .)
Michigan — General Administrative Provisions — Seizures without judicially-issued warrants.
A federal court has held a class of 162 businesses did not have standing to seek an injunction against the Michigan Department of Treasury’s practice of executing tax seizures without a judicially-issued warrant. For many years, the Department conducted seizures to satisfy tax debts without a judicially-issued warrant, including entering and searching private areas on business premises in order to effectuate a seizure, utilizing a multi-level, internal review in place to ostensibly ensure that the correct assets were seized. Since institution of the lawsuit, the Department has modified its tax seizure process to include the acquisition of a court order authorizing each seizure. However, the Department maintains that in order to seize assets from a business, as opposed to a private residence, no such court order is necessary to satisfy the Fourth Amendment. The court found that the possibility of a warrantless search of any of the 162 class members is sufficient to create the actual and imminent threat required by Article III of the U.S. Constitution would require the court to assume that at least one of the class will again fall into a tax delinquency as to have their account be approved for a tax seizure for a second time and that the Department would resort to its old, extra-judicial tactics in attempting to satisfy the debt. Therefore, the court found that the threat to the class of another unconstitutional seizure is so remote that it inhabits the realm of the “conjectural or hypothetical” and as a result, the plaintiffs do not have standing to seek injunctive relief in this case. (Miri v. Clinton, U.S. Dist. Ct., E.D. Mich., Dkt. No. 2:11-cv-15248, 04/16/2014.)
Michigan — Real Property — Tax Tribunal valuation upheld.
In a consolidated case, the Tax Tribunal’s assessments of all of the properties at issue were affirmed and the Tribunal did not err when it rejected the use of the taxpayer’s comparable sales. With respect to one of the properties, given the taxpayer had provided various reasons why it had determined that an income approach was inapplicable, including “a lack of reliable, verifiable rental data,” the Tribunal’s factual finding that the taxpayer’s significant involvement in the rental home business indicated a lack of candor in making such representations was supported by competent, material, and substantial evidence on the record. Since the property is a rental property, the income tax approach would have been the most accurate method of determining value, but neither party adopted such an approach. Given the Tribunal’s careful analysis of each of the comparable sales provided by each party, specifically discussing why the comparables were or were not, in fact comparable or reliable, and its adoption of the method of valuation as the most appropriate to this property given the particular facts of the case, the Tribunal committed no error. With regards to the remaining five properties, because all but one of the taxpayer’s comparables were bank-owned sales, and the taxpayer failed to establish that the bank sales were arm’s-length transactions, the taxpayer failed to meet its burden. Therefore, the sales evidence in the record of the surrounding properties, as well as the property record cards of the subject properties were sufficient to support the Tribunal’s conclusions as to value. (Utah Company, et al. v. City of Detroit, Mich. Ct. App., Dkt. Nos. 309203; 309205; 309224; 309296; 309298; 309300, 04/17/2014 (unpublished).)
Michigan — Real Property — Parsonage exemption.
A parcel of real property qualified for the parsonage exemption under Mich. Comp. Laws Ann. § 211.7s because it was owned by a religious society by land contract, under which it made payments to the former owner. The taxpayer, a nonprofit, national and international ministry, purchased a residential property, and has made monthly land contract payments to the seller since. The court rejected the city’s argument that Tribunal had failed to address the enforceability of the land contract. The Tribunal did address the issue of enforceability, because it found that the seller had ratified the contract by accepting payments from the taxpayer and the seller was not disputing ownership. Therefore, there was sufficient evidence that the taxpayer owned the property. While the Tribunal did make a number of errors, the appeals court found that it had to affirm the Tribunal’s ruling because the relevant factual findings made by the Tribunal that the taxpayer owned the subject property were supported by competent, material, and substantial evidence. There was also sufficient evidence to support the Tribunal’s conclusion that the subject property was occupied as a parsonage. (Prophetic Word Ministries, Inc. v. City of Saugatuck, Mich. Ct. App., Dkt. No. 313706, 04/17/2014 (unpublished).)
Michigan — Real Property — Exemption for public school academies.
Real property owned by the taxpayer, a nonprofit educational institution, was exempt from property taxation under Mich. Comp. Laws Ann. § 380.503(9) , even though the taxpayer did not occupy the property. The building at issue was occupied by a for-profit management company that provides management services to four public school academies (PSAs), including the taxpayer. The plain language of Mich. Comp. Laws Ann. § 380.503(9) , which exempts a public school academy from all taxation on its earnings and property, does not include a requirement that a PSA has to own and occupy the property to be exempt from taxation. The appeals court also found that its interpretation of Mich. Comp. Laws Ann. § 380.503(9) is inconsistent with Mich. Comp. Laws Ann. § 211.7n , which requires the property to be occupied by the educational institution in addition to ownership to be exempt under the General Property Tax Act (GPTA). Mich. Comp. Laws Ann. § 211.7n acts as a general rule, with Mich. Comp. Laws Ann. § 380.503(9) being an exception to that general rule in that the occupancy requirement does not apply to PSAs. Given that Mich. Comp. Laws Ann. § 380.503(9) was enacted after Mich. Comp. Laws Ann. § 211.7n , it is reasonable to conclude that although a PSA would ordinarily be subject to taxation on property it owned and did not occupy under the GPTA, the legislature intended to provide an exception to that rule by enacting Mich. Comp. Laws Ann. § 380.503(9) and exempting PSAs from taxation on all property they own. (Star International Academy v. City of Dearborn Heights, Mich. Ct. App., Dkt. No. 314036, 04/17/2014 (unpublished).)
North Carolina — Sales And Use Tax — Rentals of certain accommodations.
The North Carolina Department of Revenue has issued guidance regarding the sales tax on rentals of private residences, cottages, and other accommodations. The Department had previously issued an important notice stating the Department’s longstanding interpretation that private residences and cottages listed with real estate agents, including real estate brokers, for rentals to transients were deemed to be generally available for rental to transients, and the less than 15 days exclusion was not applicable to any receipts from such rentals to transients. In an amendment (dated June 14, 2012) to the important notice, the Department altered its interpretation to provide that the gross receipts derived from the rental of all private residences and cottages for fewer than 15 days in a calendar year were not subject to sales tax, no matter if such were listed with a real estate agent or broker for rental to other persons. However, upon further review, the Department has concluded that the amendment did not reflect the intent of the law. The Department has asked the General Assembly to provide clarifying legislation upholding the longstanding interpretation prior to the change. The Revenue Laws Study Committee has voted to recommend codifying the interpretation held prior to June 14, 2012 in its report to the General Assembly. (Sales Tax on Rentals of Private Residences, Cottages, and Other Accommodations, N.C. Dept. of Rev., 04/17/2014.)
Nebraska — Corporate Income Tax — Tax credit provided for historic building restoration.
L. 2014, L191, effective three calendar months after the adjournment of this legislative session, creates the Nebraska Job Creation and Mainstreet Revitalization Act that provides for a transferrable, nonrefundable tax credit for eligible expenditures to improve qualifying historically significant real property for tax years beginning on or after January 1, 2015. Historically significant real property may be designated by the U.S. Department of the Interior or by local ordinance, but may not include a single-family detached residence or buildings less than 50 years old. The credit may be used against income tax, insurance premium tax, and financial institutions franchise tax for the year in which the property is placed in service. A taxpayer is entitled to a 20% credit, up to $1 million, for eligible expenditures per property. The credit may be carried forward until fully utilized, but may not be claimed on any return filed after December 31, 2024. In addition, no new applications may be filed after December 31, 2018. A taxpayer making the eligible expenditures must file an application with the State Historic Preservation Officer and receive approval of expenditures before utilizing approved credit. In addition, the taxpayer claiming the credit must pay the Department of Revenue a credit certificate fee representing the lesser of $25,000 or 1/4 of 1% of the credit amount. This fee will credit the Civic and Community Center Financing Fund for community revitalization efforts.
Nebraska — Credits and Incentives — Tax credit provided for historic building restoration.
L. 2014, L191, effective three calendar months after the adjournment of this legislative session, creates the Nebraska Job Creation and Mainstreet Revitalization Act that provides for a transferrable, nonrefundable tax credit for eligible expenditures to improve qualifying historically significant real property for tax years beginning on or after January 1, 2015. Historically significant real property may be designated by the U.S. Department of the Interior or by local ordinance, but may not include a single-family detached residence or buildings less than 50 years old. The credit may be used against income tax, insurance premium tax, and financial institutions franchise tax for the year in which the property is placed in service. A taxpayer is entitled to a 20% credit, up to $1 million, for eligible expenditures per property. The credit may be carried forward until fully utilized, but may not be claimed on any return filed after December 31, 2024. In addition, no new applications may be filed after December 31, 2018. A taxpayer making the eligible expenditures must file an application with the State Historic Preservation Officer and receive approval of expenditures before utilizing approved credit. In addition, the taxpayer claiming the credit must pay the Department of Revenue a credit certificate fee representing the lesser of $25,000 or 1/4 of 1% of the credit amount. This fee will credit the Civic and Community Center Financing Fund for community revitalization efforts.
Nebraska — General Administrative Provisions — Declaratory judgments and illegal taxes provisions amended.
L. 2014, L558, effective three calendar months after the adjournment of this legislative session, amends provisions related to declaratory judgments and illegal taxes paid. The new law amends current law to extend the time period in which a taxpayer can bring a lawsuit seeking a declaratory judgment that any tax or penalty is unconstitutional to 12 months after the tax or penalty is levied. Current law requires that the action be brought within the same tax year. In addition, the new law clarifies that a taxpayer may claim that a property tax levied or assessed is either illegal or unconstitutional and then start the process to challenge the tax. Such claim must be made within 30 days after the payment to the county treasurer.
Nebraska — Insurance — Tax credit provided for historic building restoration.
L. 2014, L191, effective three calendar months after the adjournment of this legislative session, creates the Nebraska Job Creation and Mainstreet Revitalization Act that provides for a transferrable, nonrefundable tax credit for eligible expenditures to improve qualifying historically significant real property for tax years beginning on or after January 1, 2015. Historically significant real property may be designated by the U.S. Department of the Interior or by local ordinance, but may not include a single-family detached residence or buildings less than 50 years old. The credit may be used against income tax, insurance premium tax, and financial institutions franchise tax for the year in which the property is placed in service. A taxpayer is entitled to a 20% credit, up to $1 million, for eligible expenditures per property. The credit may be carried forward until fully utilized, but may not be claimed on any return filed after December 31, 2024. In addition, no new applications may be filed after December 31, 2018. A taxpayer making the eligible expenditures must file an application with the State Historic Preservation Officer and receive approval of expenditures before utilizing approved credit. In addition, the taxpayer claiming the credit must pay the Department of Revenue a credit certificate fee representing the lesser of $25,000 or 1/4 of 1% of the credit amount. This fee will credit the Civic and Community Center Financing Fund for community revitalization efforts.
Nebraska — Personal Income Tax — Tax credit provided for historic building restoration.
L. 2014, L191, effective three calendar months after the adjournment of this legislative session, creates the Nebraska Job Creation and Mainstreet Revitalization Act that provides for a transferrable, nonrefundable tax credit for eligible expenditures to improve qualifying historically significant real property for tax years beginning on or after January 1, 2015. Historically significant real property may be designated by the U.S. Department of the Interior or by local ordinance, but may not include a single-family detached residence or buildings less than 50 years old. The credit may be used against income tax, insurance premium tax, and financial institutions franchise tax for the year in which the property is placed in service. A taxpayer is entitled to a 20% credit, up to $1 million, for eligible expenditures per property. The credit may be carried forward until fully utilized, but may not be claimed on any return filed after December 31, 2024. In addition, no new applications may be filed after December 31, 2018. A taxpayer making the eligible expenditures must file an application with the State Historic Preservation Officer and receive approval of expenditures before utilizing approved credit. In addition, the taxpayer claiming the credit must pay the Department of Revenue a credit certificate fee representing the lesser of $25,000 or 1/4 of 1% of the credit amount. This fee will credit the Civic and Community Center Financing Fund for community revitalization efforts.
Nebraska — Real Property — Income approach required to value certain parcels.
L. 2014, L191, effective three calendar months after the adjournment of this legislative session, amends the definition of a parcel and requires the county assessor to use the income approach, including the use of a discounted cash-flow analysis, to determine actual value. Under the new law, two or more vacant or unimproved lots owned by the same person in the same tax district and held for sale or resale may be included in one parcel for property tax purposes if the owner makes an election to do so. The election must be made annually by filing an application with the county assessor by December 31. In addition, the new law adds language to the statute requiring the county assessor, when determining the actual value of such parcels, to utilize the income approach, including the use of a discounted cash-flow analysis.
New York — Franchise Tax — QEZE credit for real property taxes disallowed.
A corporation making payments in lieu of taxes (PILOT) under a lease obligation was not eligible for qualified empire zone (QEZE) credit for real property taxes. During the relevant years, the taxpayer paid the PILOT amounts directly to the pertinent local taxing authorities and thereafter claimed QEZE credit for real property taxes against its corporate franchise tax. However, the taxpayer was not a party to the written PILOT agreement. To qualify for the QEZE credit, the PILOT payments must be made pursuant to a written agreement between the QEZE and the appropriate entity. Since the taxpayer was not a party to the PILOT agreement, its separate lease obligation to make these payments did not constitute “eligible real property taxes” qualifying for the credit. (In the Matter of the Golub Corporation v. New York State Tax Appeals Tribunal, NY Sup. Ct. App. Div. 3rd Dept., 515402, 04/17/2014.)
New York — Personal Income Tax — Partner’s loss could not be allocated to New York.
The taxpayer, a nonresident, cannot allocate to New York State a capital loss arising from the disposition of a partnership interest. During the year at issue, the taxpayer, a Colorado resident, filed a New York State nonresident and part-year resident personal income tax return claiming a long-term capital loss from a New York limited partnership. This limited partnership sold a NYC office building and then dissolved. The taxpayer assumed his pro rata share of the partnership’s adjusted basis in the office building (inside basis). Since the partnership did not make a 26 USC § 754 election to equalize the taxpayer’s basis, the value of his outside basis, or partnership interest exceeded his inside basis in the New York City office building. The dissolution caused the taxpayer to realize a loss on his interest in the partnership equal to the difference between his outside and inside bases (hereafter, the “Loss”). On his 2005 New York return, the taxpayer allocated the loss to New York State, which offset his gain from the sale of the partnership asset. However, distributive shares of partnership gain are allocable to New York to the extent that such gain is derived from property in New York. Further, the taxpayer could not deduct the loss because it was intangible property, which he did not prove was used in a trade, business, or profession in New York State. Therefore, the Division properly adjusted the taxpayer’s nonresident return for the year by disallowing the loss. (In the Matter of the Petition of Olsheim, NYS Tax Appeals Tribunal, 824218, 04/10/2014. )
New York — Personal Income Tax — Calculation of Empire Zone credit.
The taxpayers properly calculated the Empire Zone tax reduction credit pursuant to N.Y. Tax Law § 16 on their personal income tax returns for the years 2008 and 2009. The taxpayers were indirect owners of a limited liability company (LLC), that elected to be treated as an S corporation, and was certified as a Qualified Empire Zone Enterprise (QEZE). For the years at issue, the taxpayers reported and paid tax on all income that flowed through to them from the LLC and claimed the Empire Zone tax reduction credit for each of the years at issue. The Division argued that the taxpayers should have used only income allocated within New York State in calculating the “tax factor” used to calculate the Empire Zone tax reduction credit. However, N.Y. Tax Law § 16 clearly requires use of the shareholder’s portion of income from the QEZE that is allocated to New York State in calculating the tax factor. As New York State residents, all of the taxpayers’ income from the LLC was allocated to New York, and their tax was determined under N.Y. Tax Law § 601 . Consequently, consistent with the statute, the taxpayers’ tax factor was the amount of their tax that was attributable to the income from the LLC, which, for the years at issue, was as they reported. Further, there is no mention in N.Y. Tax Law § 16 of application of the business allocation percentage when the tax reduction credit is claimed by resident shareholders of subchapter S corporations under Article 22. (In the Matter of the Petitions Henson, et al., Division of Tax Appeals, ALJ, 825068, 04/10/2014.)
New York — Sales And Use Tax — Claims for prepaid sales tax disallowed.
The Division of Taxation properly disallowed a portion of the prepaid sales tax credits claimed by the taxpayer. The taxpayer, a convenience store, failed to respond to the Division’s request for books and records and, thus, the Division was entitled to attempt to verify the amount of prepaid sales tax on cigarettes, that was claimed by the taxpayer, by contacting the taxpayer’s cigarette suppliers. The documentation received from the suppliers, in addition to that provided by the taxpayer, established only a portion of the amount of prepaid tax claimed. Therefore, the taxpayers were properly assessed the amount of prepaid sales tax claimed, but not substantiated. (In the Matter of the Petition of 4 U Convenience, Inc, Division of Tax Appeals, ALJ, 824971, 04/10/2014.)
Utah — Real Property — Veterans’ exemption.
L. 2014, H219, effective 05/13/2014, amends Utah Code Ann. § 59-2-1104, related to the property tax exemption for disabled veterans. The bills clarifies the statutory language regarding military discharge, specifying that a person who received an honorary or general discharge from an active branch of the U.S. Armed Services is presumed to be a U.S. citizen for purposes of the exemption.