SC&H Group Blog: "Expertise Beyond the Numbers"

State & Local Tax Updates: Arizona Small Bill of Rights; California Real Property Valuations; Texas Franchise Oil Taxes; and Much More

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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AlaskaGeneral Administrative Provisions — Corrective amendments.
L. 2014, H292 (c. 9), effective 04/23/2014, makes technical corrective amendments to Alaska Statutes.

ArizonaAuthorized disclosure of confidential information.
L.2014, H2522, effective 12/31/2014, amends the confidential information disclosure provision to allow confidential information collected by the Department of Revenue on behalf of any jurisdiction (previously, county) to be disclosed to any county, city or town tax official if the information relates to a taxpayer who may be subject to audit. Previously, the information was disclosable only if it related to a taxpayer who is or may be taxable by the county, city or town.

ArizonaGeneral Administrative Provisions — Small business bill of rights.
L. 2014, H2260, effective on the 91st day following the close of the 2014 legislative session, amends Ariz. Rev. Stat. Ann. §41-1001.01, related to the regulatory bill of rights for small businesses, which applies to the Department of Revenue. The legislation gives taxpayers the right to have hearings on contested cases heard by an independent administrative law judge. In addition, the bill requires state agencies that conduct administrative enforcement actions to create and post a small business bill of rights on the agency website. Agencies must include with the bill of rights information on filing complaints regarding agency employees designated to assist members of the public, contact information for designated employees and a statement informing persons that they may contact their ombudsman-citizens aid in the case of unresolved problems.

ArizonaPersonal Income Tax — Charitable contribution credit amended.
L. 2014, H2667, effective on the 91st day following the close of the 2014 legislative session, amends the credit for contributions to charities for the working poor. The 2014 legislation makes statutory language amendments, without substantive change, by changing “physically disabled children” to “children with physical disabilities” in the statutory requirements for the contents of charitable organization’s written certification.

ArizonaReal Property — “Disabled persons” replaced with “persons with disabilities.”
L. 2014, H2667, effective on the 91st day following the close of the 2014 legislative session, replaces, without substantive effect, words “disabled person” and “handicapped person” with “a person or persons with disabilities” in the statutes that provide for: (1) exemption for health care property; apartments for elderly residents or residents with disabilities; property of widows, widowers and persons with disabilities; (2) a deadline for filing affidavit for claiming exemption; and (3) Class Four property classification for property used to operate nonprofit residential housing facilities.

ArizonaReal Property — Liens, tax sales.
L. 2014, H2287, effective on the on the 91st day following the close of the 2014 legislative session, amends various property tax provisions. With regard to the action to foreclose the right to redeem under Ariz. Rev. Stat. Ann. § 42-18201 , the bill provides that the action must name the county treasurer as a party to the action. With regard to the public sale by the county sheriff of personal property with delinquent taxes under Ariz. Rev. Stat. Ann. § 42-19113 , the bill strikes the requirement that the sheriff sell the foreclosed property to the county in which the property is assessed if there is no bid sufficient to repay all back taxes, interest, and costs of sale. With regard to the civil penalty for reclassifying real property from class 3 to class 4 under Ariz. Rev. Stat. Ann. § 42-12052 , the bill provides that the penalty may not be imposed if the ownership of the property has changed after the notice of reclassification was issued.

ArizonaReal Property — Ban on certain municipal taxes.
L. 2014, H2378, retroactively effective 01/01/2014, prohibits a municipality from levying or assessing a municipal-wide tax or fee against property owners based on the size or value of real property or improvements to real property in order to fund any public service but grandfathers in any municipality that adopted an ordinance before December 31, 2013, requiring property owners to obtain fire prevention and control services.

ArizonaReal Property — Property tax calculations for school districts.
L. 2014, H2395, effective on the on the 91st day following the close of the 2014 legislative session, requires a county school superintendent to report primary property tax calculations to the Property Tax Oversight Commission (PTOC) and requires the PTOC to review such estimates which are then reported by the county school superintendent to the county board of supervisors.

ArizonaSales And Use Tax — Tax base deductions amended.
L.2014, H2522, generally effective 12/31/2014, removes the statutory provision providing a deduction from the tax base for sales of tangible personal property that are shipped or delivered directly to a destination outside the United States for use in a foreign country. The legislation also provides that machinery and equipment or other tangible personal property used by a contractor in the performance of a contract may not be deducted from the tax base. Finally, the legislation makes other technical and grammatical changes.

ArizonaSales And Use Tax — Exemptions from municipal tax.
L.2014, H2546, effective 05/31/2014, amends Ariz. Rev. Stat. Ann. § 42-6004, which lists the exemptions from municipal tax. The exemption for sales of motor vehicles to nonresidents for use outside the state previously applied to“ vendors” who shipped or delivered a motor vehicle to a destination outside the state, now only applies to “motor vehicle dealers.” The legislation also adds an exemption for: (1) monitoring services relating to an alarm system; and (2) gross proceeds of sales or gross income derived from a contract with the owner of real property for the maintenance, repair or replacement of existing property is not subject to tax if the contract does not include modification activities. Each contract or project is considered independent of another contract, and “modification” means construction, alteration, addition, subtraction, improvement, movement, wreckage or demolition.

ArizonaSales And Use Tax — “Disabled persons” replaced with “persons with disabilities.”
L. 2014, H2667, effective 01/01/2015, replaces, without substantive effect, words “disabled person” and “handicapped person” with “a person or persons with disabilities” in the statutes that provide an exemption from the retail tax classification and use tax for: (1) qualifying health care organizations; (2) purchases made by exempt 501(c)(3) charitable organization; and (3) purchases of machinery, equipment, technology or related supplies that are only useful to assist a person who has physical disability

CaliforniaCigarettes, Tobacco and Miscellaneous Tax Rates — 2014-2015 tobacco products tax rate.
The State Board of Equalization (SBE) has approved a tobacco products tax rate of 28.95% of wholesale cost. Distributors are required to apply this rate to all distributions of tobacco products, other than cigarettes, for the period July 1, 2014 through June 30, 2015. The current rate is 29.82%. (SBE Special Taxes & Fees, 04/24/2014.)

CaliforniaCigarette, Alcohol & Miscellaneous Taxes — 2014-2015 tobacco products tax rate.
The State Board of Equalization (SBE) has approved a tobacco products tax rate of 28.95% of wholesale cost. Distributors are required to apply this rate to all distributions of tobacco products, other than cigarettes, for the period July 1, 2014 through June 30, 2015. The current rate is 29.82%. (SBE Special Taxes & Fees, 04/24/2014.)

CaliforniaReal Property — Valuation of taxable possessory interests (TPIs)—guidance.
The State Board of Equalization (SBE) has issued a Letter to Assessors to clarify that the SBE interprets its rules as requiring county assessors and assessment appeals boards (AABs) to: (1) rely on Rule 21(d) and AH 510 to determine the reasonably anticipated term of possession and create a base year value for a taxable possessory interest (TPI) based on the private possessor’s right created by the TPI that excludes any reversionary interest held by the public owner in the real property; and (2) in the absence of a subsequent change in ownership or modification of the stated term of a TPI, decline the term of any TPI on each lien date throughout the reasonably anticipated term of possession to determine if the TPI’s factored base year value is lower than its fair market value. Absent this clarification of Rule 21(d), the lack of uniformity in appraisal and assessment of TPIs will persist. Clarification of Rule 21(d) consistent with published guidance will ensure that assessors will administer and AABs will implement Rule 21 consistent with the law, guarding against violations of Cal. Constitution VIII § 1 , that requires assessment of all property, including TPIs, at fair market value. ( California State Board of Equalization Letter to Assessors 2014/023, 04/25/2014. )

ConnecticutCorporate Income Tax — United Technologies legislation approved.
Connecticut Governor Dannel Malloy praised the final passage of H5465 by the Connecticut General Assembly, legislation that will support an agreement reached by the state with United Technologies Corporation under which the company will invest up to $500 million to upgrade and expand its aerospace research and development and manufacturing facilities over the next five years. H5465 establishes a tax credit exchange program that compensates manufacturers proposing industrial reinvestment projects for unused research and development credits. Eligible taxpayers are those primarily engaged in the industrial sector (NAICS sectors 31, 32 or 33 (manufacturing)), that employ at least 15,000 people in Connecticut, have incurred $200 million per year in research and development expenses in the state for the five full income years immediately preceding the date of the application and have at least $400 million of accumulated credits. An industrial reinvestment project is one or more projects in the state that will have expenditures of not less than $100 million over a period of not more than five years. Upon certification of an application, the Commissioner of Economic and Community Development may enter into a reinvestment contract with an eligible taxpayer pursuant to which the Commissioner may, in consideration of the eligible taxpayer’s agreement to make the eligible expenditures in connection with the state-certified industrial reinvestment project, agree to exchange certain of the eligible taxpayer’s accumulated credits up to a specified amount. The payments attributable to the exchange of credits may be made in the form of an offset or refund of state taxes. The Commissioner must begin making payments on or after July 1, 2015. The legislation caps the total number of payments under the program at $400 million and the amount of all payments made by the state during any of the first five payment years must not exceed $20 million per year and may not exceed $33,334,000 per year for the sixth and subsequent years. The governor indicated he will sign the bill when it reaches his desk. (Connecticut Governor Applauds Passage of Aerospace Reinvestment Act, 04/24/2014.)

KansasReal Property — Appraisal has sufficient supporting evidence.
The Kansas Appellate Court has affirmed a decision of the Court of Tax Appeals (COTA) after finding sufficient evidence to support COTA’s valuation of the taxpayers’ property and that the County failed to meet the burden of showing error on the part of an administrative agency like COTA. COTA relied upon a real estate appraisal submitted by the taxpayers, which provided substantial evidence to support the decision, COTA found that the county’s valuation was too high based on the comparable sales on the taxpayers’ appraisal, and comparing the property to those outside of the county was reasonable because there were no truly comparable property sales in Geary County. The County claimed that COTA violated two Kansas statutes that require adherence to the Uniform Standards of Professional Appraisal Practice (USPAP), Kan. Stat. Ann. § 79-505 and Kan. Stat. Ann. § 79-506 , however the Court found that the County never articulated how USPAP was violated, how it should be applied in this case, or even cited or quoted a single USPAP standard, and the taxpayers’ appraisal is certified as compliant with USPAP requirements. The County also did not present any evidence that COTA failed to consider that the property was for sale when valuing the property, but the appellate court does not reweigh evidence on appeal and COTA makes factual findings, not the Appellate court. Based on COTA’s findings, the contract for the sale of the property also does not play a material role in the valuation, the County did not meet its burden of showing this, and substantial evidence supports COTA’s valuation. COTA found that the comparable sales in the taxpayers’ appraisal were the most useful for valuing the property, and there was sufficient evidence to support that decision; a decision will only be overturned if it is not supported by substantial evidence, and it is substantial if it is sufficiently relevant and significant to provide a substantial basis of fact from which the issues can be resolved. (In the Matter of the Equalization Appeal of Geary County Appraiser/Scott T. & Candice B. Johnson Trust, for the Year 2012 in Geary County, Kansas, Kan. App. Ct.,Dkt. No. 110,013, 04/18/2014 .)

KansasReal Property — Payment of commercial registration fee required.
The Kansas Appellate Court has upheld a ruling of the Kansas Corporation Commission (KCC) and district court that a taxpayer was subject to federal statutes that require a motor carrier to pay a registration fee and display a registration number, and as a result of his noncompliance, the taxpayer was subject to civil penalties imposed by the KCC. The Appellate Court found that the taxpayer failed to provide an adequate factual background with citations or legal authorities to support his argument or any basis for the judgment the appealed, and as the challenging party, he bore the burden of proof. The taxpayer argued that a conflict existed in the applicable statutes and regulations, therefore the “Rule of Lenity” required a finding that he was exempt from the payment of fees and the display of a registration number, however the courts concluded the statutes and regulations are clear and not in conflict and the KCC correctly imposed civil penalties. (Durand Dickerson v. The State Corporation Commission of the State of Kansas, Kan. App. Ct., Dkt. No. 109,828, 04/18/2014.)

KentuckyReal Property — Buyer’s premium.
The Kentucky Board of Tax Appeals (BTA) upheld the value of two adjoining lots that were assessed for the 2013 tax year at $34,760, which was the sales price on the deed that was entered into on November 28, 2011. The taxpayer argued that the amount of commission (buyer’s premium) that he paid should be deducted from the sales price, before the sales price could be applied as the assessment. However, this is not the law in Kentucky for any properties, other than subdivision developments with five or more units. Kentucky courts have concluded that if the property is sold at or near the assessment date in a fair and voluntary sale, the sale price is usually the best evidence of the property’s fair cash value. The sales price for a property was set forth in the deed and in the statement of consideration, and there were no deductions noted therein. (Bennett v. Breckenridge County Property Valuation Administrator, Ky. BTA, File No. K13-S-56, 04/24/2014.)

MississippiCredits and Incentives — Economic Development Programs Tax Incentives Evaluation Act created.
L. 2014, H1365, effective 07/01/2014, creates the Economic Development Programs Tax Incentives Evaluation Act of 2014, in order to provide a systematic and comprehensive analysis of economic development tax incentives and development programs, in order to incorporate them and the analysis of such into the budget and policymaking processes, including tax and development programs for the purpose of recruiting or retaining business in Mississippi. Analyses of programs enacted prior to July 1, 2014 must be completed by December 31, 2015 and must be completed no less than once every four years thereafter, including the number of jobs created, the number of taxpayers granted the incentives over the last 12 months, the value of the incentives, an estimate of jobs directly and indirectly benefitted from the incentive, revenues generated, any constraints, and the methodology and assumptions used in the analysis. The bill also provides, in accordance with the law about the secrecy of tax returns, that all departments, offices, boards, and agencies of the state cooperate with the University Research Center as well as that information required to prepare the analyses will be furnished upon request but it will be unlawful to divulge or make known the amount of any income or particulars of any information prepared other than as required in a report. An annual report must be filed with the governor, regarding tax credits and loans and grants made, approved, or awarded as a result of negotiations involving an economic development project.

MississippiGeneral Administrative Provisions — Economic Development Programs Tax Incentives Evaluation Act created.
L. 2014, H1365, effective 07/01/2014, creates the Economic Development Programs Tax Incentives Evaluation Act of 2014, in order to provide a systematic and comprehensive analysis of economic development tax incentives and development programs, in order to incorporate them and the analysis of such into the budget and policymaking processes, including tax and development programs for the purpose of recruiting or retaining business in Mississippi. Analyses of programs enacted prior to July 1, 2014 must be completed by December 31, 2015 and must be completed no less than once every four years thereafter, including the number of jobs created, the number of taxpayers granted the incentives over the last 12 months, the value of the incentives, an estimate of jobs directly and indirectly benefitted from the incentive, revenues generated, any constraints, and the methodology and assumptions used in the analysis. The bill also provides, in accordance with the law about the secrecy of tax returns, that all departments, offices, boards, and agencies of the state cooperate with the University Research Center as well as that information required to prepare the analyses will be furnished upon request but it will be unlawful to divulge or make known the amount of any income or particulars of any information prepared other than as required in a report. An annual report must be filed with the governor, regarding tax credits and loans and grants made, approved, or awarded as a result of negotiations involving an economic development project.

MississippiSales And Use Tax — Tourism Project Sales Tax Incentive Program certificates.
L. 2014, H1358, effective 07/01/2014, provides that the Mississippi Development Authority (MDA), must not issue certificates designating entities as approved participants in the tourism project sales tax incentive program from and after July 1, 2014 for tourism projects that are cultural retail attractions or from and after July 1, 2016 for other tourism projects.

OklahomaFranchise Tax — Franchise tax reinstated.
Oklahoma previously suspended its franchise tax for periods from July 1, 2010, through July 1, 2013. The suspension is over and the entities that are required to file the franchise tax should be aware that the due date for filing Oklahoma franchise tax is July 1, 2014 for the June 30, 2015 period. Returns filed after September 2, 2014 will be considered delinquent. Profit corporations that do business in the State of Oklahoma are required to file and pay franchise tax. This includes S corporations as well as regular corporations. Not for Profit corporations are not required to file franchise tax; however, foreign not for profit corporations are still required to pay the $100 registered agents fee. Limited liability companies are statutorily exempt from franchise tax and corporations statutorily converted to LLC status by June 30, 2014 will avoid the filing and tax altogether. (Oklahoma Tax Commission Informational Notice, 04/21/2014.)

TexasFuels And Minerals — Crude oil and gas exemptions—March 2014.
The Texas Comptroller of Public Accounts has announced certification of the average taxable price of gas and oil for March 2014 in Texas Register, Vol. 39, No. 17, April 25, 2014. Since the comptroller has determined that the average taxable price of crude oil for reporting period March 2014 is $73.50 per barrel for the 3-month period beginning on December 1, 2013 and ending February 28, 2014, crude oil produced during the month of March 2014 from a qualified low-producing oil lease is not eligible for exemption from the crude oil production tax. Since the comptroller has determined that the average taxable price of gas for reporting period March 2014 is $3.70 per mcf for the 3-month period beginning on December 1, 2013 and ending February 28, 2014, gas produced during the month of March 2014 from a qualified low-producing well is not eligible for an exemption from the natural gas production tax.

TexasFranchise Tax — Oil and gas exclusions—March 2014.
The Texas Comptroller of Public Accounts has announced certification of the average taxable price of gas and oil for March 2014 in Texas Register, Vol. 39, No. 17, April 25, 2014. Since the comptroller has determined that the average closing price of West Texas Intermediate crude oil for the month of March 2014 is $100.51 per barrel, a taxable entity cannot exclude total revenue received from oil produced during the month of March 2014 from a qualified low-producing oil well. Since the comptroller has determined that the average closing price of gas for the month of March 2014 is $4.49 per MMBtu, a taxable entity must exclude total revenue received from gas produced during the month of March 2014 from a qualified low-producing gas well.

VirginiaReal Property — Notice of assessment.
L. 2014, S480 (c. 802), effective 07/01/2014, requires that every notice of assessment set forth the new and prior two appraised values of land and appraised value of improvements, and the assessed values of such if different from the appraised values; the new tax rate and the rates for the prior two tax years; the total new tax levy and the tax levies for the prior two years; and the percentage changes in such levies. Currently this information is required for the current year and the prior year. Additionally, the notice must also inform each property owner of the right to view and make copies of records maintained by the local assessment office.

VirginiaSales And Use Tax — Sales suppression device—penalties.
L. 2014, H829 (c. 785), effective 07/01/2014, provides that it is a Class 1 misdemeanor to willfully utilize any device or software to falsify the electronic records of cash registers or manipulate transaction records that affect any state or local tax liability. Any violation will result in a civil penalty of $20,000.

WashingtonSales And Use Tax — Annexations.
Sixteen Washington municipalities will be annexing unincorporated territory, effective July 1, 2014. In some instances, a municipality will be making multiple annexations. These annexations may result in changes to local sales and use taxes. (Annexations Q3 2014, Washington Department of Revenue, 04/24/2014.)

WisconsinCorporate Income Tax — Entertainers—bonds—withholding.
L. 2014, A107 (Act 349), effective for taxable years beginning on or after 01/01/2014, raises the threshold for entertainers or entertainment corporations to provide a surety bond to the Department of Revenue to a total contract price of $7,000 (was $3,200) or the Department’s estimate of $7,000 (was $3,200) as the total remuneration to be received by the entertainer or entertainment corporation. The total contract price may be reduced by travel expenses, or advance payments of travel expenses, made pursuant to an accountable plan under Treas. Reg. § 1.62-2. “Travel expenses” means amounts paid to, or on behalf of, an entertainer for actual transportation, lodging, and meals that are directly related to the entertainer’s performance in Wisconsin. Travel expenses, or advance payments of travel expenses, are not presumed to be subject to withholding.

WisconsinCigarette, Alcohol & Miscellaneous Taxes — Waiver of solid/hazardous waste fees.
L. 2014, A494 (Act 333), effective 04/25/2014, provides that, when the Department of Natural Resources requests a person to participate in waste removal activities to mitigate potential environmental impacts and related liability, the Department can grant a waiver of the following fees if it determines that granting a waiver will provide an incentive for the person to participate in those activities: groundwater and well compensation fees (Wis. Stat. § 289.63 ); solid waste facility siting board fee (Wis. Stat. § 289.64 ); recycling fee (Wis. Stat. § 289.645 ); and environmental repair fee (Wis. Stat. § 289.67 ). A waiver cannot be granted to a person who: (1) knowingly committed a violation of law that caused or contributed to the need for the waste removal activities; or (2) committed an act that the person knew or should have known would cause or contribute to the need for the waste removal activities. The Department will issue a document to a person granted a waiver stating that solid or hazardous waste generated as a result of the waste removal activities for which the waiver is granted is exempt from the fees listed above. The person must provide a copy of the document to the operator of the licensed solid or hazardous waste disposal facility at which the solid or hazardous waste is disposed of or to any intermediate hauler used to transport the solid or hazardous waste to a licensed facility.

WisconsinPersonal Income Tax — Entertainers—bonds—withholding.
L. 2014, A107 (Act 349), effective for taxable years beginning on or after 01/01/2014, raises the threshold for entertainers or entertainment corporations to provide a surety bond to the Department of Revenue to a total contract price of $7,000 (was $3,200) or the Department’s estimate of $7,000 (was $3,200) as the total remuneration to be received by the entertainer or entertainment corporation. The total contract price may be reduced by travel expenses, or advance payments of travel expenses, made pursuant to an accountable plan under Treas. Reg. § 1.62-2. “Travel expenses” means amounts paid to, or on behalf of, an entertainer for actual transportation, lodging, and meals that are directly related to the entertainer’s performance in Wisconsin. Travel expenses, or advance payments of travel expenses, are not presumed to be subject to withholding.

WisconsinSales And Use Tax — Commercial radio or television stations.
L. 2014, A5 (Act 346), effective 07/01/2014, creates an exemption for sales of tangible personal property and property under Wis. Stat. § 77.52(1)(c) (leased property affixed to real property) to, and the storage, use, or other consumption of such property by, a person who is licensed to operate a commercial radio or television station in Wisconsin, if the tangible personal property or property under Wis. Stat. § 77.52(1)(c) is used exclusively and directly in, or is fuel or electricity consumed in, the origination or integration of various sources of program material for commercial radio or television transmissions that are generally available to the public free of charge without a subscription or service agreement. This exemption applies to vehicles licensed for highway use and equipment used to transmit or receive signals from a satellite.

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