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

State & Local Tax Updates: Kentucky Corporate Income Tax; Minnesota Sales and Use Tax; and Texas Franchise 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 Fuels And Minerals — Wholesale oil license fee return due October 14.
The Alabama Department of Revenue has issued a reminder that the annual wholesale oil license fee return is due on October 14, 2014. All returns must be filed electronically through My Alabama Taxes (MAT) and any wholesale oil license fee liability exceeding $750 must be paid electronically. Diesel fuel exported from Alabama for which proof of export is available in the form of a terminal issued shipping document is not subject to the wholesale oil/import license fee. Also, an exemption from the wholesale oil license fee is provided for biodiesel sold to a licensed supplier when delivered to a terminal. Transmix is not taxable for purposes of the wholesale oil license/import fee. (Notice, Alabama Department of Revenue, 09/05/2014.)

Indiana Real Property — Charitable purposes exemption.
The Indiana Tax Court denied a taxpayer’s Petition for Rehearing because the taxpayer did not provide sufficient evidence showing that its provision of low-income housing met the legal requirements of a charitable purpose that would entitle it to a property tax exemption. In Housing Partnerships, Inc. v. Tom Owens, Bartholomew County Assessor, Ind. Tax Ct., 10 NE3d 1057 (2014) (see State & Local Taxes Weekly, Vol. 25, No. 24, 06/16/2014), the court recognized that the taxpayer, an Indiana corporation formed to address the housing needs of disadvantaged persons, provided substantial evidence to the Indiana Board of Tax Review demonstrating that it owned, occupied, and used its property to provide affordable housing and financial counseling to low-income residents. However, the court concluded that the provision of low-income housing is not per se a charitable purpose, i.e., good and noble deeds alone do not satisfy the requirements for a charitable purposes exemption. (Housing Partnerships, Inc. v. Tom Owens, Bartholomew County Assessor, Ind. Tax Ct., Cause No. 49T10-1005-TA-23, 09/04/2014.)

Kentucky Corporate Income Tax — Kentucky consolidated return not allowed.
The Kentucky Board of Tax Appeals (BTA) ruled that the Kentucky property, payroll and sales factors of a South Carolina parent corporation, which had realized a net operating loss, were de minimis and therefore, the parent corporation was not an includible corporation in an affiliated group within the meaning of Ky. Rev. Stat. Ann. § 141.200(9)(e) and could not file a consolidated tax return with its wholly owned subsidiary in Kentucky. The Department of Revenue (DOR) was not bound by an anonymous 2011 letter ruling that it had issued to the taxpayer previously because the anonymous letter ruling request did not disclose the material facts that most of the management services were performed outside of Kentucky or that the employee who worked in Kentucky also worked in other states. Both of these additional facts changed the sourcing of the payroll and sales factors and resulted in a different outcome. The parent corporation had only one employee, an auditor, performing services in Kentucky. The auditor was a Tennessee resident who also performed the majority of her services in that state and received her assignments from corporate headquarters in South Carolina. The BTA ruled that the DOR properly sourced all of the employee’s compensation to Tennessee and the payroll factor numerator for Kentucky was zero. The parent corporation’s only sales in Kentucky was a management fee charged to the subsidiary. Since the management fee was for accounting and administrative services, which were mostly performed in South Carolina, the DOR correctly sourced the management fee to South Carolina and the parent had a zero sales factor. Consequently, The DOR properly concluded that the Kentucky property, payroll and sales factors of the parent corporation were de minimis and it was not an includible corporation within the meaning of the statute and could not file a consolidated tax return in Kentucky. (World Acceptance Corp., et al. v. Kentucky Finance and Administration Cabinet DOR, Ky. BTA, File No. K13-R-18, 08/29/2014.)

Kentucky Real Property — Valuation of commercial buildings.
The Kentucky Board of Tax Appeals (BTA) determined that a property owner failed to prove that his three commercial buildings were overvalued. The properties were three nine year old commercial buildings. One building was 6,000 square feet and the other two were 10,000 square feet. The recent sale of a comparable fourth building across the street, which was 8400 square feet, for $1 million, supported the assessment of the remaining three buildings at $2.8 million for the 2013 tax year. (Hall v. Perry County Property Valuation Administrator, Ky. BTA, File No. K13-S-321, 08/29/2014.)

Massachusetts General Administrative Provisions — Massachusetts overpayment/underpayment interest rates for fourth quarter 2014.
The Massachusetts Department of Revenue has announced that the interest rates for the fourth quarter of 2014 will remain unchanged at 2% (simple interest) for tax overpayments and at 4% (compounded daily) for tax underpayments. The interest rate on overpayments is the federal short-term rate determined under IRC § 6621(b), as amended and in effect for the tax year, plus two percentage points, simple interest. The interest rate for underpayments is the federal short-term rate plus four percentage points, compounded daily. ( Massachusetts Technical Information Release 14-9, 09/05/2014 .)

Maryland Public Utilities — Public Service Company Franchise Tax.
The Department of Assessments and Taxation has adopted amendments to the Public Service Company Franchise Tax regulation Md. Regs. Code § 18.08.01.04 Administration, effective September 15, 2014. The amendments provide that if the annual return is not filed within 30 days of the mailing of a notice and demand for the return, the Department will estimate the company’s operating revenues and assess an additional penalty of up to 25% (currently 20%) of the estimated tax liability. The amendments also require certain documents to be included with the form, and give the Department the same authority over incomplete forms as it has over unfiled forms.

Minnesota Business Tax Rates — Prepaid wireless telecommunications access Minnesota (TAM) fee.
The Minnesota Department of Revenue has announced that starting December 1, 2014, the prepaid wireless telecommunications access Minnesota (TAM) fee that is collected by prepaid wireless providers will increase to 8¢ from the current rate of 6¢. The E911 fee remains at 78¢. ( Minnesota Sales Tax Fact Sheet 179, 09/01/2014 .)

Minnesota Sales And Use Tax — Prepaid wireless E911 and TAM fees.
The Minnesota Department of Revenue has announced that starting December 1, 2014, the prepaid wireless telecommunications access Minnesota (TAM) fee that is collected by prepaid wireless providers will increase to 8¢ from the current rate of 6¢. The E911 fee remains at 78¢. These fees apply to prepaid wireless phones or calling cards that: (1) are sold in set units or dollar amounts which decline by a set amount as calls are made; or (2) provide unlimited use for a set time period. Retailers must collect the prepaid wireless E911 and TAM fees when selling: phones or calling cards preloaded with a set dollar amount for minutes or units of air time; or additional minutes or units of air time to refill a prepaid wireless phone or reusable calling card. State and local sales taxes still apply to prepaid phones and cards, in addition to E911 and TAM fees. The E911 and TAM fees are not due if the retailer charges one price for a wireless device (i.e., a phone) with a small amount of prepaid service, which is defined as up to 10 minutes or $5 worth of airtime. ( Minnesota Sales Tax Fact Sheet 179, 09/01/2014 .)

North Dakota Sales And Use Tax — Radio and television stations.
The North Dakota Department of Revenue has updated its sales tax guideline for radio and television stations. The guideline discusses when purchases made by radio and television stations, or sales of tangible personal property made by these stations, are subject to North Dakota sales or use tax. In addition, the guideline explains the sales and use tax rules that apply when radio and television stations sponsor entertainment and athletic events or offer prizes and give-away items to their listeners and viewers. (North Dakota Guideline: Sales Tax Radio and Television, N.D. Dept. of Rev., 07/01/2014.)

New Jersey Real Property — Ballet society did not qualify for exemption.
The New Jersey Tax Court (Court) has ruled that the Princeton Ballet Society (PBS) did not qualify for a property tax exemption for a building that was used primarily as a dance studio. In Paper Mill Playhouse v. Millburn Township, N.J. S. Ct., 95 NJ 503 (1984), the New Jersey Supreme Court established a 3-prong test that provides that in order for property to qualify for a property tax exemption: (1) the property-owning entity must be organized exclusively for the moral and mental improvement of men, women and children; (2) the property must actually be used for this purpose; and (3) the operation and use of the property must not be conducted for profit. The Court determined that while PBS was organized to provide ballet performances to the general public and met the first prong of this test, it did not meet the second prong of the test because it was using the building primarily to offer dance lessons at market rates to children and not using the building in connection with providing ballet performances to the public. (Township of Cranbury v. Princeton Ballet Society, N.J. Tax Ct., Dkt. Nos. 010651-2012; 012522-2013, 09/03/2014.)

New York Cigarette, Alcohol & Miscellaneous Taxes — Guidance offered on little cigars.
The Department of Taxation and Finance has issued a tax bulletin that discusses little cigars, which are taxed at the same rate as cigarettes rather than the rate for other cigars. The bulletin explains what a little cigar is and provides guidance in distinguishing little cigars from other cigars. (New York Cigarette Tax Bulletin, TB-TP-530, Department of Taxation and Finance, 08/28/2014.)

Ohio Commercial Activity Tax — Petroleum activity tax—transfers in distribution system.
The Ohio Department of Taxation has issued an information release to provide guidance to suppliers who receive gross receipts from a sale of motor fuel back into the distribution system. The release states that the incidence of the petroleum activity tax (PAT) occurs when the supplier receives gross receipts from the initial sale of motor fuel outside the distribution system in this state. When this occurs, a supplier must include these gross receipts in its PAT base. With regard to many additives or blend stocks, such as ethanol, which are transported from the production facility of the product, i.e., refinery and delivered back to a terminal or another refinery for blending purposes, the Department does not consider a sale of motor fuel with the destination and sale of the motor fuel to a point in the distribution system to be a sale outside of the distribution system. Consequently, the gross receipts received from the sale of motor fuel in this manner are not included in the base of the PAT until it is initially sold to a destination outside the distribution system in this state. Currently, Ohio statute is silent as to transportation of motor fuel back into the distribution system but L. 2014, H492 revised the definition of “distribution system” to clarify that the transportation of the motor fuel back into the distribution system is not the first sale of motor fuel “outside the distribution system” (see State & Local Taxes Weekly, Vol. 25 No. 25, 06/23/2014). Lastly, the release contains a form that taxpayers may use to assist in proving that the sale was not the initial sale of motor fuel outside of the distribution system. While not mandatory, it is recommended that both the transferring supplier and the receiving supplier retain a copy of this completed document in their records. ( Ohio Tax Information Release PAT 2014-07, 09/01/2014 .)

Oregon Corporate Income Tax — Oregon discretionary penalty waivers for information returns.
The Oregon Department of Revenue has amended Or. Admin. R. 150-305.145(5), effective September 1, 2014, to provide for the waiver of W-2 or 1099 (information return) penalties in certain circumstances.

Oregon Corporate Income Tax — Oregon clarifies rules for modifying federal consolidated taxable income.
The Oregon Department of Revenue has amended Or. Admin. R. 150-317.715(3)-(A), effective September 1, 2014, to provide that federal consolidated taxable income will be modified if the affiliated group of corporations consists of more than one unitary group. The separate taxable income determined under the provisions set forth in the treasury regulations under IRC § 1502 attributable to an affiliated corporation, which does not belong to the unitary group of which the corporation subject to tax is a member, will be subtracted from federal consolidated taxable income.

Oregon Corporate Income Tax — Oregon clarifies intercompany eliminations of unitary group.
The Oregon Department of Revenue has amended Or. Admin. R. 150-317.715(3)-(B), effective September 1, 2014, to provide that intercompany eliminations addressed in the rule apply to unitary members incorporated in a listed foreign jurisdiction.

Oregon Corporate Income Tax — Oregon clarifies apportionment formula.
The Oregon Department of Revenue has amended Or. Admin. R. 150-317.715(3)-(B), effective September 1, 2014, to provide that each member of an affiliated group of corporations must be treated as a separate corporation for purposes of determining whether it is subject to the tax jurisdiction of Oregon. A corporation is subject to the tax jurisdiction of Oregon if it is “doing business” in Oregon or has income from Oregon sources. In applying the apportionment provisions, each corporation subject to the tax jurisdiction of Oregon must be considered separately.

Oregon Corporate Income Tax — Verification process of returns, statements, and documents filed.
The Oregon Department of Revenue has amended Or. Admin. R. 150-305.810, effective September 1, 2014, to clarify that a return, statement, other document or report is made under penalties for false swearing and is true, complete, and correct must be verified by the taxpayer, an authorized agent, or declarant, and in the case of a joint personal income tax return, by each taxpayer or authorized agent for such taxpayer. Returns, statements, other documents and reports are verified by: (1) hand signing the return, statement, other document or report; (2) an electronic signature associated with an electronically filed return, statement, other document or report, by the taxpayer, tax preparer, authorized representative of the taxpayer, or declarant; (3) any verification method allowed by the IRS when electronically filing the federal return with the Oregon return, such as a federal personal identification number; (4) a hand signed statement, such as Oregon Form EF, submitted to the Department if requested; (5) a hand signed and scanned Corporation E-file Signature Form included with the electronically filed corporate income and excise tax return for tax year 2011 and earlier, without the use of a federal signature method or when the Oregon filer is different than the federal filer; and (6) transmitting a payroll tax return using the state’s online payroll reporting method. The return is considered signed when the return is transmitted to the state by a person certified by the employer and the Oregon Employment Department as allowed to file the return using the state’s reporting system.

Oregon Corporate Income Tax — Information returns.
The Oregon Department of Revenue has amended Or. Admin. R. 150-314.360, effective September 1, 2014, to clarify the penalty provisions in H2464, which added penalties for employers who fail to file a timely federal form W-2 (W-2) or file an incorrect or incomplete W-2 with the Department. In addition, enhanced penalties were added for knowingly failing to file a timely W-2 or knowingly filing a false, misleading or incomplete W-2.

Oregon Corporate Income Tax — Electronic filing of returns clarified.
The Oregon Department of Revenue has amended Or. Admin. R. 150-305.100(D), effective September 1, 2014, to provide acceptable methods of filing returns statements, and other documents with the Department, including electronic filing.

South Carolina Cigarette, Alcohol & Miscellaneous Taxes — Penalty guidelines for violations of bingo laws.
The Department of Revenue (DOR) has revised its guidelines to be used by DOR employees in assessing administrative penalties for violations of the statutes governing bingo. The penalties include a fine of up to $5,000 and/or a revocation of the license at the discretion of the DOR. Administrative violations are divided into four classes, with the recommended penalty to be assessed based on whether the violation is considered a Class I, Class II, Class III or Class IV violation. Each violation and each day in violation of a provision constitutes a separate offense. The DOR will consider any administrative violations within the preceding three years, regardless of type, in determining the appropriate penalty. However, a repeat violation involving the identical statutory provision will automatically constitute a “second violation” or “third violation” and could result in the highest fine and revocation of a license. For example, a Class I violation, such as failure to notify the DOR of changes in the information supplied on the original application regarding the operation or location of the game, would result in a $250 fine for the first violation, $1,000 for the second violation, and $5,000 fine and a revocation of the license with a third violation. ( South Carolina Revenue Procedure 14-2, 09/04/2014 .)

Tennessee Sales And Use Tax — Sales tax allocation for economically distressed counties.
Effective July 22, 2014 and expiring January 18, 2015, the Tennessee Department of Finance and Administration has temporarily adopted Tenn. Comp. R. and Reg § 0620-03-07.01 and Tenn. Comp. R. and Reg § 0620-03-07.02 to implement a new law that provides for the allocation of sales tax revenues to assist economically distressed counties.

Texas Credits and Incentives — Certified rehabilitation of certified historic structures credit.
The Texas Historical Commission has adopted new rules 13 Tex. Admin. Code § 13.1 through § 13.8, concerning the administration of the Texas franchise tax credit for certified rehabilitation of certified historic structures. The rules address qualification requirements for the credit, evaluation of a building’s significance as a certified historic structure, description of rehabilitation, request for certification of completed work, the application review process, inspection, and relationship with the federal Rehabilitation Tax Credit Program. The new chapter is effective September 11, 2014.

Texas Fuels And Minerals — Crude oil and gas exemptions—July 2014.
The Texas Comptroller of Public Accounts has announced certification of the average taxable price of gas and oil for July 2014 in Texas Register, Vol. 39, No. 36, September 5, 2014. Since the comptroller has determined that the average taxable price of crude oil for reporting period July 2014 is $76.14 per barrel for the 3-month period beginning on April 1, 2014, and ending June 30, 2014, crude oil produced during the month of July 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 July 2014 is $3.57 per mcf for the 3-month period beginning on April 1, 2014, and ending June 30, 2014, gas produced during the month of July 2014 from a qualified low-producing well is not eligible for an exemption from the natural gas production tax.

Texas Franchise Tax — Texas oil and gas exclusions—July 2014.
The Texas Comptroller of Public Accounts has announced certification of the average taxable price of gas and oil for July 2014 in Texas Register, Vol. 39, No. 36, September 5, 2014. Since the comptroller has determined that the average closing price of West Texas Intermediate crude oil for the month of July 2014 is $102.39 per barrel, a taxable entity cannot exclude total revenue received from oil produced during the month of July 2014 from a qualified low-producing oil well. Since the comptroller has determined that the average closing price of gas for the month of July 2014 is $4.02 per MMBtu, a taxable entity must exclude total revenue received from gas produced during the month of July 2014 from a qualified low-producing gas well.

Texas Franchise Tax — Texas certified rehabilitation of certified historic structures credit.
The Texas Historical Commission has adopted new rules 13 Tex. Admin. Code § 13.1 through § 13.8, concerning the administration of the Texas franchise tax credit for certified rehabilitation of certified historic structures. The rules address qualification requirements for the credit, evaluation of a building’s significance as a certified historic structure, description of rehabilitation, request for certification of completed work, the application review process, inspection, and relationship with the federal Rehabilitation Tax Credit Program. The new chapter is effective September 11, 2014.

Wisconsin Sales And Use Tax — Sales to Native American tribal members.
The Wisconsin Department of Revenue has updated its fact sheet concerning sales to Native American tribal members. The fact sheet was revised to add an additional example to illustrate when an exemption applies, and to make other nonsubstantive changes. (Sales to Native American Tribal Members – Fact Sheet 2103-2 , Wis. Dept. Rev., 09/03/2014.)

West Virginia Sales And Use Tax — Taxability Matrix revised.
West Virginia has revised the current Taxability Matrix to add code references to 11022 (postage for direct mail) and 41025 (Prepared food—Meat or seafood products sold without eating utensils) based on the recertification review. The date of the matrix is also updated date to reflect the date that the changes were made. The Matrix is effective as of August 1, 2014. (West Virginia Taxability Matrix, W.V. Dept. of Rev., 09/04/2014.)

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