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

State & Local Tax Updates: Connecticut Sales & Use Tax; Kansas Real Property Tax; and Michigan Corporate Income 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.

Arizona General Administrative Provisions — AZTaxes—maintenance advisory.
The Arizona Department of Revenue (ADOR) is advising AZTaxes users who log in to their account that they may experience intermittent problems with filing a tax return or making a payment. Users who experience such problems may want to consider filing a paper return and remitting payment by check or money order so the return/payment is timely. The ADOR apologizes for any inconvenience. (Maintenance Advisory, Arizona Department of Revenue Website, 10/16/2014.)

California Limited Liability Companies — Cost recovery fees were misapplied to certain SMLLCs.
The California Franchise Tax Board (FTB) has discovered that the collection cost recovery fee and the filing enforcement cost recovery fee under Cal. Rev. & Tax. Cd. § 19254 were misapplied to certain single member limited liability companies (SMLLCs). The FTB determined that the fees should not be imposed on SMLLCs treated as disregarded entities for tax purposes. The amount of the fees varies by year. Multiple member LLCs or LLCs treated as corporations are not affected. The FTB will identify SMLLCs based on information from their California Form 568 (Limited Liability Company Return of Income) and will mail affected SMLLCs a letter indicating their eligibility for a refund, with a refund warrant to follow. The FTB anticipates that refunds, repayments, or credits for affected SMLLCs will be completed over the next several months. The FTB is also abating any unpaid collection and filing enforcement cost recovery fees applied to SMLLCs treated as disregarded entities. SMLLC taxpayers identified by the FTB will receive a letter from the FTB indicating that the penalty was abated and their account adjusted. (CA FTB Tax NewsFlash, 10/17/2014.)

Connecticut Sales And Use Tax — Filing and payment dates.
The Connecticut Department of Revenue Services (DRS) has posted a reminder on their website that although the due dates for filing and paying sales and use taxes have been changed from the last day of the month to the 20th day of the month following the end of the applicable monthly or quarterly period by recent legislation, the implementation of the changes in the due dates will take effect in 2015. Additional guidance regarding these changes will be issued in November, according to DRS.

Illinois Sales And Use Tax — Sourcing rules.
Effective October 1, 2014, the Illinois Department of Revenue adopted amendments to certain retailers’ occupation tax, use tax, and service tax administrative rules that contain sourcing provisions (86 Ill. Admin. Code § 130.605, § 150.201, and § 160.105) and repealed other rules (86 Ill. Admin. Code § 130.601 and § 130.610). Those changes further the Department’s intent to make the state’s rules and regulations consistent with the Illinois Supreme Court decision in Hartney Fuel Oil Co. v. Hamer, Ill. S. Ct., Dkt. No. 115130, 11/21/2013,, 376 Ill Dec 294, 998 NE2d 1227 (2013) reported in State & Local Taxes Weekly, Vol. 24, No. 48, 11/25/2013. In that decision, the court addressed the meaning of the Illinois’ local Retailers’ Occupation Tax Acts and concluded that a seller incurs retailers’ occupation taxes in the local jurisdiction where its predominant selling activities occur, even if engaging in limited activities elsewhere.

Kansas Real Property — Agent may represent taxpayer before BOTA.
The Kansas Court of Appeals has concluded that the Court of Tax Appeals (COTA) was incorrect in dismissing an appeal for lack of jurisdiction when a taxpayer sent an agent to represent it in the small-claims division, as Kan. Stat. Ann. § 74-2433f(f) specifically provides that a party may be represented by a tax representative or agent in the small-claims division. The engineer signed and attached a “Declaration of Representative” form to notify COTA that he would serve as the representative throughout the appeal; the County filed a motion to dismiss the case for lack of jurisdiction because the engineer was neither an attorney nor the taxpayer. The Court of Appeals determined the engineer was the taxpayer’s representative for purposes of Kan. Stat. Ann. § 74-2433f because a managing partner of the taxpayer signed the COTA form for “Declaration of Representative” stating he was its representative; the engineer stated in a letter with the appeal notice that he is a licensed engineer with 28 years of Kansas ad valorem tax preparation experience, including testimony before counties and COTA; and COTA did not question whether he was a tax representative. (In the Matter of the Protest Appeal of Rakestraw Brothers, LLC, for the Tax Year 2011 in Kingman County, Kansas, Kan. App. Ct., 110,219, 10/17/2014.

Kansas Real Property — Taxpayer may hire agents to represent it.
The Kansas Court of Appeals determined that any problem with signatures within a consolidated group of taxpayers’ appeal notices would have been a correctable matter, not a jurisdictional issue that lead the Court of Tax Appeals (COTA) to conclude it was unable to consider their appeals, and COTA was incorrect in dismissing appeals for lack of jurisdiction when taxpayers sent agents to represent them in the small claims division. Additionally the Court of Appeals determined that COTA has no statutory authority to determine the validity of contractual arrangements between any taxpayer and any third party the taxpayer may hire to represent it. For the three taxpayers who began their appeals in the small-claims division, the Court of Appeals concluded in that jurisdiction was proper under Kan. Stat. Ann. § 74-2433f(f) and In re Tax Appeal of Rakestraw Brothers , 110,219, 10/17/2014, as attorneys, CPAs, and a “tax representative or agent” may represent a taxpayer in the small-claims division and even a signature problem is a correctable error rather than a jurisdiction defect. However, while Kan. Stat. Ann. § 74-2433f(f) does not apply to the two taxpayers who filed in the regular division, the rules of COTA have allowed at least some non-attorneys to represent corporations and other artificial entities, as long as the representative does not engage in the practice of law, and the Court of Appeals determined it is an abuse of discretion to dismiss the appeals without first giving the taxpayers an opportunity to correct the errors, just as a court in the judicial branch would be required to do. (In the Matter of Protest Appeals of Lyerla, Kathy L. Liv. Trust, et al., for Tax Year 2011 in Johnson County, Kansas, Kan. App. Ct., 109,577, 10/17/2014.

Michigan Corporate Income Tax — Appeal to Michigan Court of Claims—full payment required.
A taxpayer failed to invoke the jurisdiction of the Michigan Court of Claims concerning the Department of Treasury’s assessment because while the taxpayer paid the full amount specified in the Department’s notice of additional tax due at the time it filed its appeal, it did not pay the full amount of tax owed as of the date it filed its appeal, which included penalties and interest that accrued after the date of the Department’s notice. Under Mich. Comp. Laws Ann. § 205.22(2) , before a taxpayer appeals the amount of tax it owes to the court, the taxpayer must pay the tax it owes to the Department, including any applicable penalties and interest. The taxpayer should not have relied on the amount specified in the Department’s notice as an accurate calculation of the precise amount of tax owed when it filed its appeal because the taxpayer ignored the express language in the notice that additional penalties and interest could be added to the tax, then waited 90 days before taking any action—time during which any sensible party would have expected interest to accrue. To comply with Mich. Comp. Laws Ann. § 205.22(2) , a taxpayer needs to determine the additional interest accrued from the date of the notice to the date of payment. The Department provides multiple ways to assist taxpayers in making these calculations, including: (1) direct contact with the Department (which was expressly mentioned in the notice to the taxpayer); (2) a website interest calculator; and (3) publication of interest rates—none of which was used by the taxpayer. (Coventry Health Care Inc. v. Department of Treasury, et al., Mich. Ct. App., Dkt. No. 317389, 10/16/2014 (unpublished).)

Michigan Real Property — Poverty tax exemption—right to counsel.
The factual findings of the Tax Tribunal as to whether the taxpayer met the city’s alternative guidelines for qualifying for the poverty exemption were supported by competent, material, and substantial evidence on the whole record. The Tribunal had found that there was insufficient documentation to explain the gap between the taxpayers’ expenses and income, and so concluded that a 10% reduction in taxable value was appropriate. The taxpayers were not denied their right to be represented by counsel at the Tribunal hearing since the law and rules provide that petitioners have the option of appearing before the Tribunal on their own behalf or appointing a representative, legal or otherwise authorized to appear for them. Neither rule nor the statute creates an entitlement to representation that deprives the Tribunal of the discretion to conduct hearings in the absence of counsel, and the Tribunal rules allow the Tribunal to conduct a hearing in the absence of a party and to dismiss proceedings altogether when petitioners fail to appear of be represented at a scheduled hearing. The Tribunal’s decision in not granting a postponement of the hearing when the taxpayers’ counsel informed the Tribunal that he was delayed by traffic was not an abuse of discretion because the Tribunal could not postpone the commencement of the hearing since small claims hearings are scheduled in half-hour increments and there was another hearing scheduled immediately after the taxpayers’. Finally the taxpayers were not denied their due process right to a fair hearing because the taxpayers did submit documentary evidence to the Tribunal for consideration in advance of the hearing, one of the taxpayers testified at the Tribunal hearing, and the taxpayers filed a motion for reconsideration of the Tribunal’s decision. Finally, there is no constitutional right to counsel in civil cases. (Hallman v. City of Warren, Mich. Ct. App., Dkt. No. 317612, 10/16/2014 (unpublished).)

Michigan Sales And Use Tax — Electrical and natural gas distribution systems in Michigan—appliance-service plans.
The taxpayer’s electrical distribution equipment and natural-gas distribution equipment were exempt under the industrial-processing exemption of Mich. Comp. Laws Ann. § 205.94o , and the taxpayer was not liable for use tax levied on repair-related items purchased by third-party contractors under its appliance-service plans (ASP). The taxpayer was an industrial processor and it was undisputed that its electrical distribution equipment is tangible personal property (and under the use tax, tangible personal property includes electricity), in that it can be seen, felt, or touched. The taxpayer presented exhaustive evidence at trail, which the Department of Treasury did not effectively contest, that its electrical distribution equipment changes the form, composition, quality, combination, or character of electricity before it reaches its customers for use, and so is entitled to the industrial-processing exemption. The same analysis applies with equal force to the taxpayer’s natural-gas distribution equipment (under the use tax, tangible personal property includes gas), and so the equipment is also exempt under the industrial-processing exemption. The taxpayer was not liable for use tax levied on repair-related items purchased by third-party contractors under the taxpayer’s ASP plans for its natural gas customers. The taxpayer did not use, store, or consume the repair-related items, even though the taxpayer reimburses the third-party contractors for its work and expenses (including sales and use taxes paid on the necessary repair equipment by the contractors). (Consumers Energy Co., f/k/a Consumers Power Co. v Department of Treasury, Mich. Ct. App., Dkt. Nos. 316038; 316131, 10/16/2014 (unpublished).)

Minnesota Sales And Use Tax — Local governments.
The Minnesota Department of Revenue has revised a release that discusses how the sales and use tax applies to local governments. Minn. Stat. § 297A.70, Subd. 2 allows local governments to buy some goods and services without paying sales and use tax. The revised release notes that starting July 1, 2014, for purposes of this exemption, the term “local governments” means statutory or home rule charter cities, counties, townships, and qualifying cooperative agreements. The list of taxable purchases that do not qualify for this exemption has been updated. ( Minnesota Sales Tax Fact Sheet 176, 10/01/2014 .)

New Jersey Real Property — Reimbursement denied because of untimely filed application.
The New Jersey Tax Court has ruled that a homestead property tax reimbursement application was properly rejected by the Division of Taxation because the application was filed after the September 16, 2013 filing deadline. While it was undisputed that the taxpayer never received her application because she had moved, the law clearly states that good cause for not filing a timely application cannot be established due to a claimant not receiving an application. (Ryan v. Director, Division of Taxation, N.J. Tax Ct., Dkt. No. 008833-2014, 10/16/2014.)

New Jersey Real Property — Dismissal of petitions in error.
The New Jersey Tax Court (Court) has ruled in five separate cases that taxpayers who had their petitions improperly dismissed by a county board were permitted to appeal their assessed valuations to the Court. The Court determined in each of the cases that the appeals to the county board were improperly dismissed for failure to prosecute. The reason that each of the taxpayers did not appear at their hearing was that the taxpayers did not receive notice of the time and date of those hearings. (Cornelius and Freeman v. Scotch Plains Township, N.J. Tax Ct., Dkt. No. 011953-2014, 10/14/2014.)

New York Credits and Incentives — New York Empire Zones reform—emergency rules readopted.
Effective September 30, 2014, the Department of Economic Development has renumbered and amended the emergency rule contained in 5 NYCRR Parts 10 through 14 (now Parts 10-16 as amended) to implement the statutory changes to the Empire Zones (EZ) Program contained in Chapter 57 of the Laws of 2009. The amendments to the EZ regulations include, but are not limited to: (1) updates to outdated references; (2) additional definitions, such as cost-benefit analysis, applicant municipality, chief executive, concurring municipality, EZ capital tax credits or zone capital tax credits, change of ownership, and regionally significant project; (3) higher standards for entry into and continued eligibility in the program; (4) amendments to the application for EZ designation and the certification and decertification processes; and (5) new record-keeping requirements.

New York Franchise Tax — New York Empire Zones reform—emergency rules readopted.
Effective September 30, 2014, the Department of Economic Development has renumbered and amended the emergency rule contained in 5 NYCRR Parts 10 through 14 (now Parts 10-16 as amended) to implement the statutory changes to the Empire Zones (EZ) Program contained in Chapter 57 of the Laws of 2009. The amendments to the EZ regulations include, but are not limited to: (1) updates to outdated references; (2) additional definitions, such as cost-benefit analysis, applicant municipality, chief executive, concurring municipality, EZ capital tax credits or zone capital tax credits, change of ownership, and regionally significant project; (3) higher standards for entry into and continued eligibility in the program; (4) amendments to the application for EZ designation and the certification and decertification processes; and (5) new record-keeping requirements.

Ohio Real Property — Homestead exemption—verification of income.
A county auditor is expected to exercise his discretion in administering the homestead exemption under Ohio Rev. Code Ann. § 323.153 . In the administration of the homestead exemption, that discretion takes the form of determining whether the income information an applicant provides on his or her application is accurate. In order to make that determination, a county auditor is required by the Tax Commissioner to independently verify the income reported by an applicant. The Tax Commissioner previously issued Tax Bulletin 23, which describes various tools the Department of Taxation provides to assist county auditors in effecting their income verification responsibilities. These include access to a web-based income verification system, a flow diagram for the various forms and returns which may be available from an applicant, and a “Form 105H” for determining the income of those who are not required to file income tax returns. A county auditor is not required to use the web-based income verification system provided by the Tax Commissioner and may complete the income verification using any reasonable means, including examination of any tax or financial records relating to the income of the applicant as stated on the application. The county auditor is required to mail a continuing application each year to each person receiving the homestead exemption, which is used to report changes in information, including total income, that was previously reported to the auditor and that is relative to the reduction in taxes on the property. No statutory provision requires a county auditor to separately verify the income of homestead exemption recipients on a recurring annual basis. However, it would be prudent for a county auditor to verify income information of continuing applications for the homestead exemption in cases where the county auditor receives independent information that calls into question the veracity of an applicant’s information. (OAG, 2014-037 , 10/16/2014.)

Oklahoma Personal Income Tax — Electronic filing handbook.
The Oklahoma Tax Commission (OTC), in conjunction with the Internal Revenue Service (IRS), accepts returns filed through the Modernized e-File system, a web service using Simple Object Access Protocol with attachments messaging capability. State returns are submitted as linked to the IRS submissions. Oklahoma relies on the IRS to receive the state’s electronic data. Oklahoma resident returns (Form 511) and part-year & nonresident returns (Form 511NR) are accepted. Electronically transmitted individual income tax returns will be accepted from all participants that are accepted into the federal electronic filing program and are using accepted Federal/State Electronic Filing software, subject to suitability checks. IRS Publication 1345, Handbook for Electronic Filers of Individual Income Tax Returns , as well as all rules, regulations and requirements governing tax preparers, transmitters, and originators of returns put forth by the IRS are used by the OTC. (Electronic Filer Handbook Individual Income Tax: Tax Year 2014, Oklahoma Tax Commission, 09/30/2014.)

Pennsylvania Real Property — Set aside of sheriff’s sale.
The trial court properly denied a petition to set aside a sheriff’s sale because neither petitioner had standing to bring the claim and all of their issues were waived. The petition to set aside was filed by two individuals who claimed to be owners of the property. The one petitioner claimed to have conveyed his interest to the other petitioner by quitclaim deed before the petition to set aside was filed, at which point he was no longer an aggrieved party and had no standing to challenge the sale. The other petitioner lacked standing because the property was conveyed to him after the sheriff’s deed to the property from the tax sale was recorded, and such a deed cannot overcome a previously lawfully recorded deed. Claims that he owned the property by adverse possession were rejected because that claim had never been litigated and was never reduced to a favorable judgment. The holder of the quitclaim deed also had constructive notice of the recorded sheriff’s deed, so he had no valid claim to the property under the quitclaim deed conveyed after the sheriff’s deed was filed. (Lewandowski, et al. v. Wachovia Bank, N.A., Pa Commw. Ct., Dkt. No. 2068 EDA 2013, 10/16/2014.)

Rhode Island Sales And Use Tax — Taxability matrix and Certificate of Compliance updated.
The Rhode Island Division of Taxation has updated its Streamlined Sales and Use Tax taxability matrix and Certificate of Compliance again, effective August 1, 2014. (Streamlined Sales Tax Governing Board Taxability Matrix, R.I. Div. of Taxation, revised September 17, 2014, effective 08/01/2014; Certificate of Compliance, R.I. Div. of Taxation, revised September 17, 2014, effective 08/01/2014.)

Texas Fuels And Minerals — Crude oil and gas exemptions—September 2014.
The Texas Comptroller of Public Accounts has announced certification of the average taxable price of gas and oil for September 2014 in Texas Register, Vol. 39, No. 42, October 17, 2014. Since the comptroller has determined that the average taxable price of crude oil for reporting period September 2014 is $74.70 per barrel for the 3-month period beginning on June 1, 2014, and ending August 31, 2014, crude oil produced during the month of September 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 September 2014 is $3.25 per mcf for the 3-month period beginning on June 1, 2014, and ending August 31, 2014, gas produced during the month of September 2014 from a qualified low-producing well is eligible for a 25% credit on the natural gas production tax.

Texas Franchise Tax — Texas oil and gas exclusions—September 2014.
The Texas Comptroller of Public Accounts has announced certification of the average taxable price of gas and oil for September 2014 in Texas Register, Vol. 39, No. 42, October 17, 2014. Since the comptroller has determined that the average closing price of West Texas Intermediate crude oil for the month of September 2014 is $93.03 per barrel, a taxable entity cannot exclude total revenue received from oil produced during the month of September 2014 from a qualified low-producing oil well. Since the comptroller has determined that the average closing price of gas for the month of September 2014 is $3.92 per MMBtu, a taxable entity must exclude total revenue received from gas produced during the month of September 2014 from a qualified low-producing gas well.

Texas Real Property — Delinquent tax collection.
The Texas Court of Appeals has ruled that an individual taxpayer, who inherited land, must pay delinquent ad valorem taxes. The evidence shows that the taxpayer was given proper notice of hearing. The taxpayer cannot use as a defense the educational and religious purpose exemption because the exemption is not one of the affirmative defenses available to a person against whom a suit to collect a delinquent property tax is filed. (Scott v. Hamilton County, et al., Tex. Ct. App. (10th Dist.), No. 10-13-00411-CV, 10/16/2014.)

Wisconsin Sales And Use Tax — Taxes included in taxable sales price.
The Wisconsin Department of Revenue has issued revised guidance concerning taxes that are included in the taxable sales price, which replaces the information provided in Wisconsin News for Tax Practitioners 11/12/2013, 11/12/2013 . For sales on and after July 2, 2013, the state universal service fund (USF) fee is not included in the retailer’s taxable sales price, so retailers should not charge tax on this fee. Prior to July 2, 2013, retailers were required to collect and remit tax on the state USF fee. 2013 Wis. Act 20 amended the definitions of “sales price” and “purchase price” to provide that when taxes are imposed on a retailer, the tax is not included in the retailer’s taxable sales price if both of the following apply: (1) the retailer separately states the tax on the invoice, bill of sale, or similar document that the retailer gives to the purchaser; and (2) the law imposing or authorizing the tax provides that the seller may, but is not required to, pass on and collect the tax from the user or consumer. Beginning September 1, 2014, the federal excise tax imposed on the first retail sale of heavy trucks and trailers under IRC § 4051 is included in the retailer’s taxable sales price. Taxpayers should note that Wisconsin Dept. Rev. Tax Bulletin 182, 10/01/2013 and Wisconsin Dept. of Rev. Sales and Use Tax Report 3-13, 12/01/2013 incorrectly stated that this federal excise tax is included in the retailer’s taxable sales price effective July 2, 2013. Retailers who followed this guidance, and overpaid sales tax as a result, can file a refund claim. Wisconsin Dept. Rev. Tax Publication 216, 10/01/2012 provides information about filing a claim for refund of overpaid sales tax. Retailers who receive a refund of sales tax and interest for tax that they collected from a buyer must return the tax and interest to the buyer or to the Department within 90 days after the refund. ( Wisconsin News for Tax Practitioners 10/02/2014, 10/02/2014 .)

Sign Up And Stay Informed

Your data is safe and secure. SC&H will never share or sell your information with any 3rd party vendors. Guaranteed.