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

State & Local Tax Updates: Alabama Accountability Act; Iowa Credits & Incentives; and Missouri Real Property Tax

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.

Please note that a subscription will be required to access the links through Thomson Reuters Checkpoint.

Alabama

Corporate Income Tax — Alabama Accountability Act—future donations/tax credits suspended.

The Alabama of Department of Revenue has announced that it has disabled its online portal that allows taxpayers to donate to scholarship granting organizations and reserve an Alabama tax credit under the Alabama Accountability Act (the Act). This Department explained that it has taken this action in response to the Montgomery County Circuit Court’s ruling in Boyd, et al. v. Magee, et al., Case No. 03-CV-2013-901470.00, 05/28/2014 (discussed separately in State & Local Taxes Weekly, Vol. 25, No. 22, 06/02/2014) which found the Act to be unconstitutional, having been enacted in violation of several provisions of the Alabama State Constitution which govern the legislative process. The Department notes that since the court order applies prospectively, any tax credits under Section 8 of the Act for expenditures with respect to the 2013-2014 school year and any tax credits under Section 9 of the Act with respect to donations made prior to the date of this order will be allowed. (Notice, Ala. Dept. of Rev., 05/28/2014.)

Alabama

Credits and Incentives — Alabama Accountability Act—future donations/tax credits suspended.

The Alabama of Department of Revenue has announced that it has disabled its online portal that allows taxpayers to donate to scholarship granting organizations and reserve an Alabama tax credit under the Alabama Accountability Act (the Act). This Department explained that it has taken this action in response to the Montgomery County Circuit Court’s ruling in Boyd, et al. v. Magee, et al., Case No. 03-CV-2013-901470.00, 05/28/2014 (discussed separately in State & Local Taxes Weekly, Vol. 25, No. 22, 06/02/2014) which found the Act to be unconstitutional, having been enacted in violation of several provisions of the Alabama State Constitution which govern the legislative process. The Department notes that since the court order applies prospectively, any tax credits under Section 8 of the Act for expenditures with respect to the 2013-2014 school year and any tax credits under Section 9 of the Act with respect to donations made prior to the date of this order will be allowed. (Notice, Ala. Dept. of Rev., 05/28/2014.)

Alabama

Personal Income Tax — Alabama Accountability Act—future donations/tax credits suspended.

The Alabama of Department of Revenue has announced that it has disabled its online portal that allows taxpayers to donate to scholarship granting organizations and reserve an Alabama tax credit under the Alabama Accountability Act (the Act). This Department explained that it has taken this action in response to the Montgomery County Circuit Court’s ruling in Boyd, et al. v. Magee, et al., Case No. 03-CV-2013-901470.00, 05/28/2014 (discussed separately in State & Local Taxes Weekly, Vol. 25, No. 22, 06/02/2014) which found the Act to be unconstitutional, having been enacted in violation of several provisions of the Alabama State Constitution which govern the legislative process. The Department notes that since the court order applies prospectively, any tax credits under Section 8 of the Act for expenditures with respect to the 2013-2014 school year and any tax credits under Section 9 of the Act with respect to donations made prior to the date of this order will be allowed. (Notice, Ala. Dept. of Rev., 05/28/2014.)

Alabama

Sales And Use Tax — Change in administration of Lake View taxes.

The Alabama Department of Revenue has announced that the Town of Lake View has asked the Department to begin collecting the town’s sales, use, and any other additional taxes, effective June 1, 2014. Consequently, the first Town of Lake View local tax return filed with the Department will be for the tax period ending June 30, 2014, which is due on or before July 21, 2014. Lake View local taxes will be collected, reported, and remitted in the same manner as the state sales, use, rental and lodgings taxes. Lake View taxes can be filed online through My Alabama Taxes (MAT). (Notice, Alabama Department of Revenue, 05/23/2014.)

California

General Administrative Provisions — Small business seminar and expo in Carlsbad.

One member of the California State Board of Equalization (SBE) is co-sponsoring a free small business seminar and resource expo for business owners who would like to group their business by working with government and reaching out to tax and feepayers affected by the wildfires in San Diego County. Presentations will be given by representatives from the SBE, the Department of Insurance, the Office of Emergency Services, the Franchise Tax Board, the Employment Development Department, the Internal Revenue Service, the U.S. Small Business Administration, and the Small Business Development Center. The event will take place on Tuesday, June 10, 2014, from 9:00 a.m. to 2:45 p.m. (check-begins at 8:30 a.m.) in the Carlsbad City Library (Dove Library), Ruby. G. Schulman Auditorium (free parking), 1775 Dove Lane, Carlsbad, CA 92606. Registration is by phone at 1-888-847-9652 or online. The news release also notes that tax and feepayers impacted by the San Diego County wildfires can go online to request relief from penalty and/or interest and an extension of time to file a tax/fee return. ( California SBE News Release 76-14-S, 05/28/2014 .)

California

Public Utilities — PUC surcharge was a fee, not a tax.

In a consolidated case in which the issue was whether the Public Utilities Commission (PUC) has the authority to implement its Electric Program Investment Charge (EPIC), a California Court of Appeal has held that the PUC has such authority and rejected various arguments raised by Southern California Edison Co. (SCE), including one that claimed that EPIC was an unlawful tax and another that claimed the EPIC violated the Separation of Powers Clause in the California Constitution by usurping the legislature’s taxing authority. EPIC requires electric utility corporations serving California to collect a surcharge on their ratepayers’ electricity bills to fund renewable energy research, development, and demonstration (RD&D) projects with the aim of making electricity cheaper, safer, and more reliable for the corporations’ own ratepayers. Regarding the unlawful tax claim, the issue was whether the EPIC surcharge was a tax or a fee (if it were a tax, it would be unlawful because the California Constitution requires legislative approval for “[a]ny change in state statute which results in any taxpayer paying a higher tax,” unless an exception applies). Generally, a tax refers to a compulsory payment made to the government, and taxes ordinarily are imposed to raise revenue for the government, whereas a regulatory fee may be charged by a government entity so long as it does not exceed the reasonable cost of providing services necessary to regulate the activity for which the fee is charged. The court concluded that the EPIC surcharge was not a tax requiring legislative enactment because a tax as defined in the California Constitution does not include a commission’s decision to regulate utility corporations’ RD&D into renewable energy for their own electricity customers and to charge a fee to pay for that activity. The EPIC surcharge is a valid regulatory fee. The PUC has demonstrated that the fees charged in connection with the EPIC are not excessive and bear a reasonable relationship to the ratepayers’ benefits. Regarding the separation-of-powers claim, the court rejected it because the EPIC is a lawful exercise of the PUC’s authority, not a usurpation of the Legislature’s authority over appropriations and taxation. (Southern California Edison Co. v. Public Utilities Commission of the State of California, Cal. Ct. App., Dkt. No. B246782 consolidated with B246786, 05/28/2014 (not certified for publication).)

Iowa

Corporate Income Tax — Iowa historic preservation and cultural and entertainment district credit.

L. 2014, h4453, effective 07/01/2014 and applicable as stated, makes revisions to the existing historic preservation and cultural and entertainment district tax credit. An eligible taxpayer who has entered into an agreement with the Department of Cultural Affairs for the successful completion of all requirements of the program is eligible to receive a historic preservation and cultural and entertainment district tax credit in an amount equal to 25% of the qualified rehabilitation expenditures of a qualified rehabilitation project that are specified in the agreement. The law allows unclaimed credits to be awarded to different projects and makes changes to the process of reserving tax credits for qualified projects. These credit provisions apply to agreements entered into by the Department of Cultural Affairs and an eligible taxpayer on or after July 1, 2014; rehabilitation projects for which a project application was approved and tax credits reserved prior to July 1, 2014 will be governed by Iowa Code § 404A.1 through Iowa Code § 404A.5 , Code 2014.

Iowa

Credits and Incentives — Historic preservation and cultural and entertainment district credit.

L. 2014, h4453, effective 07/01/2014 and applicable as stated, makes revisions to the existing historic preservation and cultural and entertainment district tax credit. An eligible taxpayer who has entered into an agreement with the Department of Cultural Affairs for the successful completion of all requirements of the program is eligible to receive a historic preservation and cultural and entertainment district tax credit in an amount equal to 25% of the qualified rehabilitation expenditures of a qualified rehabilitation project that are specified in the agreement. The law allows unclaimed credits to be awarded to different projects and makes changes to the process of reserving tax credits for qualified projects. These credit provisions apply to agreements entered into by the Department of Cultural Affairs and an eligible taxpayer on or after July 1, 2014; rehabilitation projects for which a project application was approved and tax credits reserved prior to July 1, 2014 will be governed by Iowa Code § 404A.1 through Iowa Code § 404A.5 , Code 2014.

Iowa

Personal Income Tax — Historic preservation and cultural and entertainment district credit.

L. 2014, h4453, effective 07/01/2014 and applicable as stated, makes revisions to the existing historic preservation and cultural and entertainment district tax credit. An eligible taxpayer who has entered into an agreement with the Department of Cultural Affairs for the successful completion of all requirements of the program is eligible to receive a historic preservation and cultural and entertainment district tax credit in an amount equal to 25% of the qualified rehabilitation expenditures of a qualified rehabilitation project that are specified in the agreement. The law allows unclaimed credits to be awarded to different projects and makes changes to the process of reserving tax credits for qualified projects. These credit provisions apply to agreements entered into by the Department of Cultural Affairs and an eligible taxpayer on or after July 1, 2014; rehabilitation projects for which a project application was approved and tax credits reserved prior to July 1, 2014 will be governed by Iowa Code § 404A.1 through Iowa Code § 404A.5 , Code 2014.

Indiana

Real Property — Real property assessment—market value-in-use basis.

The Indiana Tax Court ruled that the Indiana Tax Review Board did not err in upholding a taxpayer’s real property assessment. Real property is assessed on the basis of its market value-in-use which is the value of a property for its current use, as reflected by the utility received by the owner or a similar user, from the property. In order to determine a property’s market value-in-use, assessing officials refer to a series of guidelines that explain the valuation process for both land and improvements; however, a taxpayer may rebut assessments made pursuant to these guidelines by providing market-based evidence, such as sales data, that indicates that the property’s assessment does not accurately reflect its market value-in-use. In this case, the taxpayers believed their land assessment was too high and appealed the assessment which was subsequently upheld by the Indiana Board. In an original tax appeal, the taxpayers argued that the Indiana Board erred in: disregarding their claim concerning the establishment of their neighborhood, rejecting their base rate claim, and concluding that their sales comparison analysis lacked probative value; however, the court disagreed, concluding that the taxpayers did not meet their burden to demonstrate that the Indiana Board’s final determination is invalid. (McKeeman v. Steuben County Assessor, Ind. Tax Ct., Cause No. 02T10-1104-TA-31, 05/28/2014.)

Indiana

Sales And Use Tax — Gasoline use tax reminder.

The Indiana Department of Revenue has issued a reminder to taxpayers concerning the gasoline use tax. Beginning July 1, 2014, a gasoline use tax will be imposed on gasoline and gasohol fuels; the gasoline use tax replaces the prepaid sales tax on gasoline collected from the retail merchant. The gasoline use tax will be collected when a qualified distributor sells gasoline to a nonqualified distributor, however, the tax will not be collected when a qualified distributor sells to qualified distributor or exports the gasoline to another state; the qualified distributor must collect and remit the tax from the nonqualified distributor to the Department. The Department will determine the gasoline use tax rate by calculating a rolling, monthly, statewide average retail price per gallon of gasoline (excluding tax), multiplied by 7%; since the gasoline use tax rate may change on a monthly basis depending on the average Indiana retail price of gasoline, the Department will publish the gasoline use tax rate monthly in Departmental Notice #2. Additional information is available on the Department’s website. (Gasoline Use Tax, Ind. Dept. of Rev., 05/29/2014.)

Kansas

General Administrative Provisions — Tax publication updated.

The Kansas Department of Revenue has updated the business tax application and instructions. The application conforms applicable examples and sections to reflect the previously enacted state sales and use tax rate decrease to 6.15%. Other changes include items such as those in the specific line instructions, part 10, where language has been inserted to create a new Line 3 regarding electronic cigarettes and entering the names of wholesalers for retailers who sell these items. The previous Line 3 became Line 4, and previous Lines 4 and 5 have been combined and shortened into a new Line 5, deleting the language “and make retail sales of cigarette and tobacco products” with regard to fuel supply or retailing agreements. The application form itself, Form CR-16, was updated as of April 1, 2014, and the registration schedule for additional business locations was updated as of October 1, 2013. ( Kansas Information Guide KS-1216, 04/01/2014 .)

Kansas

Cigarette, Alcohol & Miscellaneous Taxes — Tax publication updated.

The Kansas Department of Revenue has updated the business tax application and instructions. The application conforms applicable examples and sections to reflect the previously enacted state sales and use tax rate decrease to 6.15%. Other changes include items such as those in the specific line instructions, part 10, where language has been inserted to create a new Line 3 regarding electronic cigarettes and entering the names of wholesalers for retailers who sell these items. The previous Line 3 became Line 4, and previous Lines 4 and 5 have been combined and shortened into a new Line 5, deleting the language “and make retail sales of cigarette and tobacco products” with regard to fuel supply or retailing agreements. The application form itself, Form CR-16, was updated as of April 1, 2014, and the registration schedule for additional business locations was updated as of October 1, 2013. ( Kansas Information Guide KS-1216, 04/01/2014 .)

Kansas

Sales And Use Tax — Tax publication updated.

The Kansas Department of Revenue has updated the business tax application and instructions. The application conforms applicable examples and sections to reflect the previously enacted state sales and use tax rate decrease to 6.15%. Other changes include items such as those in the specific line instructions, part 10, where language has been inserted to create a new Line 3 regarding electronic cigarettes and entering the names of wholesalers for retailers who sell these items. The previous Line 3 became Line 4, and previous Lines 4 and 5 have been combined and shortened into a new Line 5, deleting the language “and make retail sales of cigarette and tobacco products” with regard to fuel supply or retailing agreements. The application form itself, Form CR-16, was updated as of April 1, 2014, and the registration schedule for additional business locations was updated as of October 1, 2013. ( Kansas Information Guide KS-1216, 04/01/2014 .)

Missouri

Real Property — Educational purpose exemption.

The Missouri State Tax Commission of Missouri held that subject personal properties, consisting of various items of office furniture, equipment, computers and supplies, were exempt from ad valorem tax as property used actually and regularly used exclusively for educational purposes. The taxpayer has presented substantial and persuasive evidence that the subject personal properties were owned and operated on a not-for-profit basis by a not-for-profit corporation, actually and regularly used exclusively for educational purposes, and used for the benefit of an indefinite number of persons and for society in general, thereby rebutting the presumption of correct assessment by the Board of Equalization. The fact that the taxpayer is not a school, college or university in the traditional sense of those words is of no import since the taxpayer offered programs and courses similar to adult education courses offered through community college programs. It is both directly and indirectly beneficial to society that an institution such as the taxpayer exists. The imparting of specialized management and career educational instruction and training, as conducted by the taxpayer, promotes a better trained workforce and citizenry. (AAIM Education Center v. Zimmerman, Mo. State Tax Comm., Dkt. No. 12-10855, 05/19/2014.)

New Hampshire

General Administrative Provisions — Committee to review tax expenditures.

L. 2014, H1531 (c. 28), effective 05/31/2014, establishes a joint committee on tax expenditure review to review all qualifying tax expenditures on a rotating basis and recommend continuance, amendment, or repeal of relevant provisions. The law also requires an annual tax expenditure and potential liability report by the Department of Revenue Administration. The first report is due November 1, 2014.

New Jersey

Real Property — Senior freeze application deadline extended.

The deadline for filing applications for the 2013 Senior Freeze Property Tax Reimbursement Program has been extended from June 2, 2014 to September 15, 2014. (Christie Administration Extends Filing Deadline by three months for Property Tax Reimbursement Program for Seniors and the Disabled, 05/28/2014.)

New York

Franchise Tax — New York QEZE credit properly denied; written agreement requirement not satisfied.

An administrative law judge (ALJ) has determined that the Division of Taxation properly disallowed the taxpayers’ claim for a qualified empire zone enterprises (QEZE) credit for real property taxes for payments in lieu of taxes that the taxpayer paid with respect to its facility. The Division argued that because the payments in lieu of taxes were not made pursuant to a written agreement entered into between the taxpayer and the county development agency, the payments were not “eligible real property taxes” for purposes of the QEZE credit. The ALJ agreed, stating that the outcome was governed by the interpretation of N.Y. Tax Law § 15 , which required that there be a written agreement between a QEZE and an eligible entity. The ALJ rejected the taxpayer’s argument that the written agreement requirement could be satisfied by a group of documents, as existed in this matter, stating that the statute clearly required a written agreement and that requirement could not be overlooked. Finally, the ALJ added that the requirement could not be met “through the adoption of a legal fiction that each of the separate documents is treated as one.” (In the Matter of the Petition of Allied Frozen Storage, Inc., NYS Division of Tax Appeals, ALJ, 824721, 05/22/2014.)

New York

Personal Income Tax — Accountant’s unrelated criminal behavior not an excuse for untimely filing.

An administrative law judge (ALJ) has determined that the taxpayers were not entitled to a refund of personal income tax for the year 2001, because their claim was filed in 2011, which was well beyond the applicable limitations period. The taxpayers argued for relief based on the grounds that their paid tax return preparer was eventually revealed to be a criminal who was convicted of stealing money from his employer and failing to file his own tax returns, and, they suggested, he must have been distracted from competently representing them. The ALJ, finding that the taxpayers’ arguments amounted to a plea for equity, rejected their claim, noting that the taxpayers failed to allege one instance of a fraud perpetrated against them by their former accountant. Because the taxpayers did not establish any fraud perpetrated against them by their former accountant, nor did they provide any guidance that would establish a basis for granting them equitable relief, the ALJ sustained the Division of Taxation’s notice disallowing their refund claim. (In the Matter of the Petition of Joel and Rona Levy, NYS Division of Tax Appeals, ALJ, 825005, 05/22/2014.)

Oregon

Personal Income Tax — Taxpayers’ dude ranch found to be not-for-profit activity.

The Oregon Tax Court denied an income tax appeal over claimed business losses, determining that the taxpayers’ operation of a dude ranch was a not-for-profit activity. In addition, the court affirmed a penalty for falsely prepared income tax returns because the taxpayers failed to show that they did not intend to evade taxes. (Hansen v. Dept. of Rev., Or. Tax Ct., Magis. Div., Case No. TC-MD 130387D, 05/27/2014.)

South Carolina

Business Tax Rates — E911 surcharge rate for 2014.

The South Carolina E911 Advisory Committee has set the annual CMRS E911 monthly surcharge for the year 2014. Effective June 1, 2014, the average monthly telephone 911 surcharge rate will be $0.62, and should be collected for each CMRS connection for which there is a mobile identification number containing an area code assigned to South Carolina by the North American Numbering Plan Administrator and/or prepaid wireless transactions in 2014. The $0.62 rate will be reflected on the June 2014 ST-406 Wireless 911 Charge Return, which is due August 20, 2014. (Rate Change Notification–911 Monthly Surcharge, South Carolina E911 Advisory Committee, 05/29/2014.)

South Carolina

Public Utilities — E911 surcharge rate for 2014.

The South Carolina E911 Advisory Committee has set the annual CMRS E911 monthly surcharge for the year 2014. Effective June 1, 2014, the average monthly telephone 911 surcharge rate will be $0.62, and should be collected for each CMRS connection for which there is a mobile identification number containing an area code assigned to South Carolina by the North American Numbering Plan Administrator and/or prepaid wireless transactions in 2014. The $0.62 rate will be reflected on the June 2014 ST-406 Wireless 911 Charge Return, which is due August 20, 2014. (Rate Change Notification–911 Monthly Surcharge, South Carolina E911 Advisory Committee, 05/29/2014.)

Utah

Personal Income Tax — Research activities credit disallowed.

The administrative law judge determined that the taxpayer did not qualify for the credit for research activities that was taken on his 2008 Utah personal income tax return. The taxpayer claimed that he had incurred expenses, including the cost of a vehicle, in order to obtain mineral samples for research to develop new extraction technology. Utah statute authorized a state research credit equal to 5% of a taxpayer’s qualified research expenses, defined as “in-house research expenses” and “contract research expenses.” The taxpayer did not incur contract expenses and the vehicle did not qualify as in-house research expenses because it was not wages, payment for supplies and payments for right to use computers, as set out in IRC § 41(b)(2)(A). Further, there was no proof that the vehicle was used in the conduct of qualified research, defined as research that is useful in the development of a new or improved business component. As such, the taxpayer does not qualify for any amount of tax credit for research activities in Utah. Lastly, the taxpayer’s request for waiver of interest was denied since a delay in imposing the assessment did not constitute sufficient reasonable cause. (Taxpayer v. Auditing Division of the Utah State Tax Comm’n, Utah State Tax Comm’n, Dkt. No. 12-799, 06/04/2013 (released May 2014).)

Utah

Personal Income Tax — Order of Dismissal upheld.

The taxpayer’s request to set aside the Order of Dismissal was denied since he timely filed an appeal of the Notice of Deficiency and specifically checked the box on the Petition for Redetermination indicating that the appeal involved “individual income tax” and “penalty/interest.” Although the taxpayer claimed he was never informed of the penalties and interest assessed on audit, the Petition for Redetermination indicates that the taxpayer was informed of the penalties and interest assessed on the audit and therefore there is no reasonable cause to set aside the Order of Dismissal and re-open the appeal. (Taxpayer v. Auditing Division of the Utah State Tax Comm’n, Utah State Tax Comm’n, Dkt. No. 11-2218, 04/26/2013 (released May 2014).)

Utah

Personal Income Tax — Penalties and interest waiver request denied.

The taxpayer’s request for waiver of penalties and interest assessed for the 2011 tax year was denied. Here, the taxpayer has not requested a waiver based on any of the circumstances set forth in the Utah Admin. R. § 861-1A-42 , instead requesting a waiver of penalties on the basis of financial hardship, indicating she was unable to pay the tax liability on the due date because of other expenses. The administrative law judge noted that it generally does not consider financial hardship as reasonable cause for a waiver of penalties, as there are other programs in place to assist those who are unable to pay their tax liability in full by the due date. As such, the taxpayer has not shown reasonable cause to waive the penalties. As for the request for waiver of interest, the grounds for waiving interest are more stringent than for penalty and the taxpayer failed to prove error on the part of the tax commission or its employees, and therefore interest should not be waived. (Taxpayer v. Taxpayer Services Division of the Utah State Tax Comm’n, Utah State Tax Comm’n, Dkt. No. 12-2219, 04/26/2013 (released May 2014).)

Utah

Personal Income Tax — Treatment of gambling income/losses.

The administrative law judge (ALJ) sustained the assessments of additional tax, finding that gambling losses that completely offset gambling income for federal income tax purposes did not have a similar “zero” effect under Utah law. On his 2008 and 2009 federal returns, the taxpayer claimed gambling income as part of his FAGI and claimed gambling losses as one of his itemized deductions, where the losses completely offset gambling income, so that his gambling activity resulted in “net” losses that did not increase his federal tax liability. The taxpayer noted that if he reported his gambling income as part of FAGI and his gambling losses as part of itemized returns, he would end up paying Utah income tax on his gambling income without any deduction for gambling losses. Until 2008, Utah law provided that itemized deductions could be fully deducted from FAGI when determining Utah taxable income, but that had since been changed so that itemized deductions became part of a tax credit calculation for Utah tax purposes. The taxpayer contended that unless the tax commission accepted his amended Utah returns as submitted, part of his gambling income would be subject to Utah taxation, even though his losses far exceeded his winnings for the years at issue. The ALJ noted that there was no claim of a double tax benefit in this case, and no double tax detriment was established that would qualify as an equitable adjustment. Although the taxpayer’s gambling income and gambling losses are completely offset at the federal level, the fact that they are not offset at the state level does not result in a double tax detriment. In its assessments, the Auditing Division was only taxing the taxpayer’s gambling income once. For these reasons, no adjustments should be made to the taxpayer’s FAGI and the taxpayer should report his gambling losses (which are part of his federal itemized deduction) as itemized deductions for state purpose too, which will be used to determine whether he qualifies for a tax credit. However, the request for interest waiver was granted since the Division had admittedly issued confusing instructions to the taxpayer with respect to carrying over gambling gain or loss from the federal schedule. (Taxpayer v. Auditing Division of the Utah State Tax Comm’n, Utah State Tax Comm’n, Dkt. No. 12-268, 04/08/2013 (released May 2014).)

Utah

Personal Income Tax — Partial penalty waiver.

The administrative law judge (ALJ) granted the taxpayer’s request for a waiver of penalties, in part, and denied the taxpayer’s request for a waiver of an interest assessment. The taxpayer, after filing her 2010 Utah income tax return on February 6, 2012, requested a waiver of penalties and interest due to the circumstances surrounding her tax filing. The taxpayer claimed that because of deaths in her family, she was required to be out of the state for much of the time preceding the due date for the Utah return. In addition, she had relied on her ex-husband to provide income information necessary to file the return, which he failed to do. The Taxpayer Services Division had denied the taxpayer’s request for a waiver of penalties and interest because the deaths in the taxpayer’s family did not occur immediately prior to the due date of the return. The ALJ considered whether reasonable cause existed to waive penalties under Rule 42(c)(3) and examined the totality of the taxpayer’s circumstances, including the taxpayer’s previous late tax return filings and concluded that reasonable cause existed to waive half of the penalties assessed against the taxpayer. Interest was not waived because the taxpayer did not demonstrate that the Tax Commission took erroneous action or gave inappropriate information contributing to an error. (Taxpayer v. Taxpayer Services Division of the Utah State Tax Comm’n, Utah State Tax Comm’n, Dkt. No. 12-1969, 02/27/2013 (released May 2014).)

Utah

Personal Income Tax — Income of part-year resident.

The Commission found no error in the Audit Division’s (Division) calculation of taxable income for a taxpayer that mistakenly filed a Utah resident return and later filed an amended return as a part-year resident, but saw no reason to impose a penalty where no penalty had been imposed pursuant to the initial audit. The Division assessed additional taxes and interest based on an IRS change in federal adjusted income due to the omission of 1099-Misc-Non-Employee Compensation. The taxpayer filed an amended return claiming that he was only a part-year resident and that the income was excludable as source income from his other state of domicile. The Division accepted the taxpayer’s status as a part-year resident, but found errors in the amended return, which, when corrected, resulted in a higher amount of tax, which the taxpayer protested; but also took the position that if it accepted the part-year resident return with the corrections, a 10% late payment penalty would need to be applied. The Commission found no error in the Division’s calculation of the tax due (which followed Utah law), but found no reason why a penalty that was no applied pursuant to the audit would need to be applied where the situation at hand meets the equitable consideration factor under Utah Admin. R. § R861-1A-42 . (Taxpayer 1 and Taxpayer 2 v. Auditing Division of the Utah State Tax Comm., Utah State Tax Comm., Dkt. No. 11-1780, 03/15/2013 (released May 2014).)

Utah

Personal Income Tax — Proof of domicile.

A taxpayer who took a position that removed him from Utah with the intent of staying with the company for the long term, but later returned to Utah submitted sufficient proof of a change of domicile to file returns as a part-time resident for the years at issue, but was not entitled to the “equitable adjustment” for the wages he earned while in the other state. The Division’s representative argued that the taxpayer intended for Utah to remain his domicile, and did not have intent to remain out of state, noting that the taxpayer used a Utah address on his returns for the years at issue, allowed his vehicle to remain registered in Utah, left and returned to the same address, paid resident tuition at a Utah University, and got a Utah driver license when he returned to the state. However, the Commission found that the taxpayer took substantial steps in establishing a domicile in the other state, including renting an apartment, obtaining renters and automobile insurance, changing his banking institution, and obtaining a driver’s license in the new state; the taxpayer also explained that he had not changed his car registration because it was not yet due. The Commission determined that, although the taxpayer ultimately decided that a career with the out-of-state company did not suit him and returned to Utah, a review of the facts and circumstances as a whole indicate that the taxpayer did establish a domicile in another state prior to his return to Utah. However, the taxpayer is not entitled to the “equitable adjustment” for the wages he earned while out of state, so the income earned in that state must be accounted for by doing the calculations on Form TC-40B. (Taxpayer v. Auditing Division of the Utah State Tax Comm., Utah State Tax Comm., Dot. No. 11-2422, 03/15/2013 (released May 2014).)

Utah

Sales And Use Tax — Exhaust and fire suppression systems deemed tangible personal property.

The administrative law judge (ALJ) sustained the assessment against the taxpayer, finding that the taxpayer’s charges to repair or clean the exhaust systems and fire suppression systems located over commercial cooking equipment was subject to sales and use tax. The taxpayer contended that the assessment was incorrect because the exhaust and fire suppression systems were not tangible personal property and because the services the taxpayer performed are not the type of “assisted cleaning or washing” the legislature intended to tax. The Auditing Division noted that Prior to July 2009, hood cleaning was determined to be cleaning of real property and not subject to sales tax, but argued that beginning July 1, 2009, S35 classified all appliances as tangible personal property, regardless of whether the appliance was attached or whether it slid in. The ALJ determined that based on S35, it was clear that an exhaust hood located over a stove in a commercial or residential kitchen should be treated the same as other appliance in the kitchen, and since cooking appliances are treated as tangible personal property, the exhaust systems that are part of these cooking systems should also be considered to be tangible personal property for sales and use tax purposes, regardless of whether the exhaust systems are permanently attached to real property. As such, the cleaning services that the taxpayer performs on exhaust systems in commercial restaurants are subject to sales tax because the taxpayer is performing assisted cleaning or washing services on tangible personal property. Likewise, because the fire suppression systems are so integrated into the exhaust or hood systems in commercial restaurants, the ALJ found convincing the Division’s argument that they should be treated similarly. As such, the repair or renovation services that the taxpayer performs on fire suppression systems in commercial restaurants are subject to sale tax because the taxpayer’s repair or renovation services are being performed on tangible personal property. (Petitioner v. Auditing Division of the Utah State Tax Comm’n, Utah State Tax Comm’n, Dkt. No. 12-769, 10/15/2013 (released May 2014).)

Utah

Sales And Use Tax — Guides and outfitters publication revised.

The Utah State Tax Commission has revised Publication 69, entitled Sales Tax Information for Guides and Outfitters. Revisions include specifying that charges for admissions or user fees for recreational activities are subject to sales tax. With regard to guide/outfitter charges, if the guide purchases items or services for resale to a client, he must purchase the items or services exempt from sales tax and collect sales tax when he bills the client for those items or services. Guides and outfitters must collect sales tax on amounts charged for the following: Guide services, Tours, Camping, Lodging–provided by the guide or outfitter, Meals–prepared by the guide or outfitter, Entrance onto private lands, Game retrieval and care, Access to private waters, Use of facilities or equipment, and Sales or rentals of tangible personal property. Amounts charged for aircraft tours that enter into airspace designated by the Federal Aviation Administration as a federal airway during the tour are exempt from sales tax. For sales of tangible personal property, the tax rate is based on the guide or outfitter’s fixed place of business. For rentals of tangible personal property, the tax rate is based on the location the client receives the goods. (Utah Informational Publication 69, 05/01/2014.)

Utah

Sales And Use Tax — Transient room tax—waiver of penalties denied.

The Utah Tax Commission (the Commission”) denied a taxpayer’s request to waive the late payment and filing penalties on the transient room tax. The taxpayer claimed that (1) it had changed controllers, and (2) it was inconsistent for the Taxpayer Services Division (the “Division”) to waive the penalties on the sales and use tax, but not the transient room tax penalties for the same period. The Division argued that the taxpayer was able to timely file and pay the taxes due the first month after the comptroller left, thus demonstrating the ability to file and pay its transient room taxes several weeks after the controller left. Secondly, the Division explained that it considers each account separately when determining whether to waive penalties, and will look back three years to determine whether the taxpayer’s compliance history; if the account does not have more than late two periods, then the compliance is good enough to warrant a waiver of penalties. Using the look back period, the Division found that the taxpayer had been late in filing or paying two sales and use tax returns, and four transient room tax returns. The Commission found that given the ability of the taxpayer to still timely file, a change in comptroller did not qualify as a “reasonable cause” to waive penalties. In addition, it was not inconsistent that the Division waived the taxpayer’s sales and use tax penalties for the same period because the taxpayer’s compliance history concerning its sales and use tax account was better than its compliance history for its transient room tax account. (Petitioner v. Taxpayer Services Division of the Utah State Tax Commission, Utah State Tax Comm’n, Dkt. No. 12-1882, 02/08/2013 (released May 2014).)

Utah

Sales And Use Tax — Sales and use tax—waiver of penalties denied.

The Utah Tax Commission (the Commission) denied a taxpayer’s request to waive penalties that it incurred on its sales and use tax account for three periods. The taxpayers explained that cash flow problems prevented them from timely filing and paying their taxes, because they were required to remit taxes before many of their customers paid their bills. In addition, the taxpayers explained that they had worked with Division personnel for a number of years in regards to their delinquent account and to enter into payment agreements. They stated that they were astonished to learn in November 2011 that for past periods when they did not have the funds to pay their sales and use taxes, they could have still filed the returns on time and avoided late filing penalties. Lastly, the taxpayers argued that they had been trying to comply and used their retirement savings to make sure that they have filed and paid the sales and use taxes on time since November 2011 and to make the monthly payments on their past delinquency in compliance with a payment agreement with the Division. The Commission found that the taxpayers did not fall under any “reasonable cause” exception: their compliance history did not warrant a waiver, and the taxpayer’s could not demonstrate that they had relied on erroneous information from a Division employee, thus their waiver petition was denied. (Petitioner v. Taxpayer Services Division of the Utah State Tax Commission, Utah State Tax Comm’n, Dkt. No. 12-1909, 02/08/2013 (released May 2014).)

Virginia

Insurance — Late filing penalty—surplus line brokers.

The Virginia Department of Taxation has issued a tax bulletin notifying surplus line brokers that they are required to file Form 802 (Virginia Surplus Line Broker’s Annual Reconciliation Report) by March 1 of each year. Surplus line brokers that fail to file Form 802 are generally subject to a $50 fine for each day the report is late. The Department reminds taxpayers that the administration of the insurance premiums license tax was transferred from the State Corporation Commission (SCC) to the Department for taxable years beginning on or after January 1, 2013. To maintain consistency with the SCC, the Department has elected to cap the late filing penalty on surplus line brokers at $250 for a first offense, and $500 for a second offense. After the second offense, the Department will impose the full late filing penalty on surplus line brokers. ( Virginia Public Document Ruling 14-74, 05/29/2014 ; Virginia Tax Bulletin 14-3, 05/29/2014 .)

Washington

Sales And Use Tax — Vessel deconstruction exemption.

The Department of Revenue reminds taxpayers that recently enacted legislation has authorized a sales and use tax exemption for vessel deconstruction services, effective October 1, 2014. To qualify for the exemption the deconstruction services must be performed at a qualified vessel deconstruction facility or over water in an area which has a National Pollutant Discharge Elimination System permit for vessel deconstruction. Buyers must provide sellers with a Retail Sales Exemption Certificate and submit a Buyer’s Sales and Use Tax Preference Addendum with their next excise tax return filing. ( Washington Special Notice 05/01/2014, 05/01/2014 .)

Washington

Sales And Use Tax — Lodging rate schedule.

The Department of Revenue has published a table of lodging tax rates effective July 1, 2014 through September 30, 2014. (Lodging Information Rates and Changes, Washington Department of Revenue, 05/07/2014.)

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