Elections have SALT consequences November 4, 2020

© 2020 Eversheds Sutherland (US) LLP PRIVILEGED AND CONFIDENTIAL. Eversheds Sutherland (US) LLP is part of a global legal practice, operating through various separate and distinct legal entities, under Eversheds Sutherland. For a full description of the structure and a list of offices, please visit www.eversheds-sutherland.com. Agenda

─ Tax consequences of the presidential election ─ State and local elections ─ Ballot initiatives ─ SALT Trends for 2021

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 2 The SALT Impact of the Presidential Election

Eversheds Sutherland 3 The Election Landscape – A Very Long Year

─ As 2020 began, the U.S. economy showed continued growth and low unemployment (3.6 percent) ─ Global pandemic ushered in biggest economic decrease since World War II ─ Tax policy does not occur in a vacuum: . Widespread protests . Political scandals

. Trade wars . Collapse in oil prices

. Global immigration crisis . European attempts to tax MNEs

. Climate disruption . SCOTUS nominations

. Brexit . Foreign disinformation campaigns

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 2016 Presidential Election

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 2020 Presidential Election (11:15 am ET)

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL Biden Tax Plan – Businesses

─ Raising the corporate tax rate to 28 percent ─ Imposing a 21 percent minimum tax “on all foreign earnings of U.S. companies located overseas” • This is double the current 10.5 percent GILTI rate • Compute GILTI tax (and related foreign tax credits) on a county-by-country basis rather than a worldwide average* • Elimination of exemption for QBAI*

Source: https://joebiden.com/two-tax-policies (Last visited Oct. 31, 2020) * Reported in media but not present on official campaign website as of Oct. 31, 2020 Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 7 Biden Tax Plan – Businesses

─ Instituting an “offshoring tax penalty” on “corporations that ship jobs overseas in order to sell products back to America” ─ Imposing a 15 percent minimum tax on book income of corporations with at least $100m of book income ─ Eliminate Section 1031 exchanges and the ability to offset real estate losses against other income under the passive activity loss rules* ─ Other provisions: Green credits, “Made in America” (10 percent advanceable) tax credit*

Source: https://joebiden.com/two-tax-policies (Last visited Nov. 3, 2020) * Reported in media but not present on official campaign website as of Nov. 3, 2020

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 8 Biden Tax Plan – Individuals

─ Raise the top individual income rate back to 39.6 percent • Income over $400,000 would also be subject to Social Security Tax* • Creates a donut-hole for earnings between the $142,400 cap and $400,000 ─ Equalizing the wage and investment income rates for individuals making over $1 million. ─ SALT cap elimination

Source: https://joebiden.com/two-tax-policies (Last visited Nov. 3, 2020) * Reported in media but not present on official campaign website as of Nov. 3, 2020 Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 9 Biden Tax Plan – Individuals

─ Child tax credit expansion • $3,000 - $3,600 per child; fully refundable ─ Health premium tax credits • Caps spending on healthcare to 8.5 percent of income ─ First-time homeowner tax credit • Up to $15,000 ─ “Equalizing the tax benefits of requirement plans”

Source: https://joebiden.com/two-tax-policies (Last visited Oct. 31, 2020) * Reported in media but not present on official campaign website as of Oct. 31, 2020

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 10 Trump Tax Plan

─ Tax plan tends to be fluid ─ Focuses on retaining and extending TCJA provisions ─ Possibility for lower rates ─ Less emphasis on tax policy towards to the end of the campaign

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 11 Trump Tax Plan

─ Retain (or lower) current corporate rate of 21% ─ Floating possibility of other rates including as low as 10.5% for “corporations who are coming back home” (Kudlow, May 2020) ─ Payroll taxes: EO deferring payment of employee portion of FICA. • Intention to “terminate” FICA (unclear if for deferred amounts only) ─ Retain BEAT, FDII, GILTI and 245A and extend past 2025 • Proposals for “Made in America”/onshoring of jobs from China tax credits (in addition to FDII)

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 12 Trump Tax Plan

─ Retain current section 199A ─ Extend 100% depreciation expensing after current expiration date of 2025 ─ Extend TCJA provisions limiting 1031 exchanges to real estate, past 2025 ─ Retain Opportunity Zone provisions without requirements to partner with community organizations or public reporting

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 13 Implementation

─ Campaign promises vs. implementation • Many tax proposals only given verbally vs. placement on the campaign websites • Will some items be negotiated away? • Push-back from other parties and taxpayers • Prioritization of tax changes vs. COVID-19 relief

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 14 Implementation

─ Timing • Uncertain—Biden campaign hinted that some policies may not take effect until 2022 but Biden himself stating corporate tax changes may be pursued immediately

• Senate makeup in flux (as of 11:15 am ET)

Source: Associated Press

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 15 SALT Considerations

1. Gating question: conformity 2. State and local politics • Economic inequality • Competition among states and localities • Mobility of industries and workforce 3. Budget concerns • Feds to the rescue? • 2021 legislative priorities

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 16 The State Conformity Landscape

Key CT Fixed DC NH Rolling WA ME Selective DE NJ MT ND No income tax MN MA RI OR WI NY ID SD MD VT MI WY PA IA Iowa currently conforms to NE OH the IRC on a rolling basis. For NV IN tax years beginning on or after IL 1/1/19 but prior to 1/1/20, UT WV CO VA Iowa conformed to the IRC as of 3/24/2018. For prior CA KS MO KY periods Iowa conformed to the IRC as of 1/1/2015. NC TN New York has static IRC conformity of 3/1/2020 for OK AR SC personal income tax purposes AZ NM (tax years beginning before GA AL 1/1/2022); rolling conformity MS for corporate franchise tax purposes LA TX

AK FL

Source: Bloomberg Tax & Accounting, As of Sept. 28, 2020 HI

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 17 Budget Problems

─ Many budgets for FY 2021 completed or nearly completed when the pandemic hit ─ Many legislatures already adjourned or forced to suspend meeting due to health precautions ─ Limited time and ability to respond ─ State employees working from home and responding to unemployment claims, tax filing issues, and other issues

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 18 Sources of State Revenue

Intergovernmental transfers to state governments—primarily from the federal government—totaled $659 billion in 2017. The largest were federal grants for public welfare programs, predominately Medicaid.

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 19 Corporate Income Tax

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 20 Individual Income Tax

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 21 Key State and Local Elections

Eversheds Sutherland 22 States with Battleground Chambers

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 23 Pre-Election State Government Trifectas

─ When one party holds the governorship plus majorities in the state senate and house ─ Prior to the election, there were 36 trifectas • 15 Democratic and 21 Republican ─ Historical trend away from split government

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 24 Historical State Government Trifectas

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 25 Pre-Election State Government Trifectas

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 26 States with Vulnerable State Government Trifectas

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 27 Potential New Government Trifectas

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 28 Governors up for Election

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 29 Governor Election Results

─ Utah incumbent Governor Gary Herbert (R) decided not to run for reelection and endorsed his Lieutenant Governor Spencer Cox (R), who won Utah Governor-elect Spencer Cox ─ Montana Governor Stephen Bullock (D) was term-limited and decided to run for Senate, where he lost to Steve Daines (R) • Meanwhile, Greg Gianforte (R) won the Governor’s race, making Montana the only Montana Governor-elect Greg Gianforte Governor’s seat to flip parties Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 30 Ballot Initiatives

Eversheds Sutherland 31 California – Prop 22 58.4% Voted “YES” With 72% reporting Classification of Gig Economy Workers as of 10am ET ─ Proposition 22 would consider app-based drivers to be independent contractors of rideshare companies • Overrides Assembly Bill 5 (AB 5), signed in September 2019, which provides that app-based drivers are employees • Also provides labor and wage policies specific to app-based drivers and companies ─ App-based rideshare companies have indicated that their business models cannot work under AB 5

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL California – Prop 15 51.7% Voted “NO” With 72% reporting Split-roll property taxation as of 10am ET

─ Amends the California State Constitution to require commercial and industrial properties to be reassessed at fair market value at least once every three years • Residential properties would remain subject to reassessment upon change of ownership or new construction • Exception for agricultural land; various small business exemptions • The change for commercial/industrial properties would be phased-in beginning in fiscal year 2022-2023 • Properties, such as retail centers, whose occupants are 50 percent or more small businesses would be taxed based on market value beginning in fiscal year 2025-2026 (or later)

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL San Francisco, California Four Passed Propositions

Prop F: eliminates payroll expense tax; increases gross receipts tax and administrative office tax rates; imposes tax on receipts from commercial leases Prop I: Doubles real estate transfer tax to 5.50%-6.00% depending on property value Prop J: Authorizes annual parcel tax of $288/parcel to replace existing parcel tax (which is subject of litigation) Prop L: Additional tax on businesses whose executives make more than 100x the median employee comp

Source: City and County of San Francisco Department of Elections Results – 100% Reporting Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 34 Colorado

Three Tax Initiatives – Early Indicators (Only 4/64 counties reporting) ─ Amendment B • Repeals the Gallagher Amendment, which set residential and non- residential property tax assessment rates in the state constitution • Allows state legislature to freeze property tax assessment rates at the current rates and provide for future rate decreases through state law • Voter approval still required for rate increases due to TABOR ─ Prop 116 • Decreases state income tax rate from 4.63% to 4.55% for individuals, estates, trusts, and foreign and domestic C corps ─ Prop 117 • Requires voter approval of new enterprises that are exempt from TABOR if their revenue is greater than $100 million within its first five years Source: Colorado Secretary of State Election Results (11/4 10:10 am ET) Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 35 Illinois 55% Voted “NO” With 97% reporting Amendment 1: Graduated Income Tax as of 10am ET

─ Repeals the state's constitutional requirement that the state personal income tax be a flat rate and instead allow the state to enact legislation for a graduated income tax • Most (32 of 50) states have a graduated income tax, with different rates applied to different levels of income • Background – P.A. 101-0008 • Under SB 687, the proposed individual tax rates would range from 4.75% to 7.99% • Together with the existing 2.5 percent personal property tax replacement income tax, the overall Illinois corporate tax rate would be 10.49 percent and the overall Illinois pass-through tax rate would be 9.49 percent (among the highest in the U.S.)

Source: WGN9 Election Results (11/4 10:30 am ET) Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL Portland, Oregon 56.78% Voted “NO” With 80.28% reporting Get Moving 2020 Measure (Payroll Tax) as of 10:30am ET

─ Proposed Measure 26-218 for Multnomah, Clackamas, and Washington counties ─ Would authorize the Metro Council to impose a payroll tax up to 0.75% on companies with more than 25 employees ─ Excludes companies with 25 employees or less and local governments ─ Applies to nonprofits and government agencies ─ Tax starts in 2022

Source: Oregon Secretary of State (11/4 10:30 am ET) Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL Additional Ballot Initiatives

─ Alaska Ballot Measure 1 • Increases taxes on oil production fields in the “North Slope” that meet certain production criteria • Makes public any filings or supporting documentation provided to the ADOR related to the tax ─ Arizona Prop. 208 • Imposes an additional 3.5 percent individual income tax on certain high-earners ─ Arkansas Issue 1 • Would make permanent a 0.5 percent sales tax earmarked for transportation

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 38 Additional Ballot Initiatives

─ Denver Measure 2B • Would raise Denver's local sales tax rate to 4.56% effective Jan. 1, 2021, and result in a total rate of 8.56% after adding in regional and state sales tax • Money to fund Homelessness Resolution Program for housing and other services ─ Georgia Amendment 1 • Authorizes the Georgia Legislature to dedicate tax or fee revenue to the public purpose for which the taxes or fees were imposed • Arises out of the historic practice of lawmakers of raiding the state’s Hazardous Waste and Solid Waste Trust Funds for general purpose spending ─ Louisiana Amendment 5 • Adds an exemption from ad valorem taxation for property that is subject to a cooperative endeavor agreement between the owner and one or more taxing authorities which requires the property owner to make payments in lieu of taxes

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 39 SALT Trends for 2021

Eversheds Sutherland 40 SALT Trends to Watch What’s Next for 2021?

─ Increased audit activity ─ Assertion of nexus based on WFH employees ─ Taxes targeting large out-of- state taxpayers ─ Moves to limit NOLs and decouple from TCJA provisions ─ Local marketplace collection laws ─ And more! ─ Legalization (and taxation) of marijuana ─ Digital advertising taxes ─ Movement against tax incentives

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL Questions?

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL 42 Thank you!

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