State Tax Matters the Power of Knowing

State Tax Matters The power of knowing. May 7, 2021

In this issue:

Administrative: Georgia: New Law Revises Judicial Standard of Deference Accorded to Non-Regulatory DOR Actions ...... 2 Income/Franchise: Arkansas: New Law Says Nonresident Income is Allocated Based on Where Employee Performs Work ...... 3 Income/Franchise: Arkansas: ALJ Addresses Acquiring Entity’s NOL Computation in Post-Merger Context ...... 4 Income/Franchise: California FTB Says Returns May Be Prepared Using Current Market- Sourcing Rule, Not Draft ...... 5 Income/Franchise: Indiana: New Law Updates State Conformity to Internal Revenue Code; DOR Provides Updated Guidance ...... 6 Income/Franchise: Indiana: New Law Addresses State Reporting of Partnership Final Federal Tax Adjustments 6 Income/Franchise: Kansas: New Law Addresses Treatment of GILTI and §163(j) and Extends NOL Carryforward Period ...... 7 Income/Franchise: Maine: State High Court Rejects Claim that Disallowed Loss Carryover Lead to Invalid Taxation ...... 8 Income/Franchise: Massachusetts DOR Issues Personal Income Tax Guidance on Pandemic- Related Telecommuting ...... 9

State Tax Matters Page 1 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. Income/Franchise: New York: Comments on Updated Draft Proposed Corporation Franchise Tax Rules are Due by August 2 ...... 10 Income/Franchise: New York City: Investment Management Company Owes GCT on Gains Derived from Sale of LLC Interest ...... 12 Income/Franchise: Ohio: Judge Dismisses Lawsuit Involving Pandemic-Related Telecommuting and Local Income Taxes ...... 13 Gross Receipts/Other Miscellaneous: Oregon: Proposed Permanent Corporate Activity Tax Rule Addresses Unitary Group Filing ...... 14 Sales/Use: Kansas: New Law Imposes Economic Nexus on Some Remote Sellers and Marketplace Facilitators 15 Sales/Use: West Virginia: New Law Creates Exemption for Machinery & Equipment Rental Among Commonly Owned Entities ...... 16 Sales/Use: Wisconsin DOR Issues Guidance and Reminders on State Tax Treatment of Virtual Currency Transactions ...... 16 Multistate Tax Alerts ...... 17

Administrative: Georgia: New Law Revises Judicial Standard of Deference Accorded to Non- Regulatory DOR Actions

S.B. 185, signed by gov. 4/29/21. New law modifies the judicial standard of deference accorded to non- regulatory actions of the Georgia Department of Revenue (Department) – generally requiring that all questions of tax law decided by a court or the Georgia Tax Tribunal be made without any deference to any determination or interpretation made by the Department, with the exception of the judicial standard of deference accorded to rules/regulations promulgated by the Department. Specifically, the bill amends Ga. Code Ann. §§ 48-2-18(c), 48-2-35(c)(7), 48-2-59(e), and 50-13A-14(a) and provides that: URL: https://www.legis.ga.gov/legislation/59714

• All questions of law decided by a court or the Georgia Tax Tribunal, including interpretations of constitutional, statutory, and regulatory provisions, shall be made without any deference to any determination or interpretation, whether written or unwritten, that may have been made by the Department; • This new “no deference” requirement has no effect on the judicial standard of deference accorded to rules promulgated pursuant to the Georgia Administrative Procedure Act; and • This new law applies to all proceedings commenced before the Georgia Tax Tribunal or a superior court of the State of Georgia on or after its effective date (i.e., April 29, 2021).

State Tax Matters Page 2 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. See forthcoming Multistate Tax Alert for more details on these law changes, and please contact us with any questions in the meantime.

— John Paek (Atlanta) Joe Garrett (Birmingham) Principal Managing Director Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Kent Clay (Charlotte) Cari Sorsa (Atlanta) Managing Director Senior Manager Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Doug Nagode (Atlanta) Stephen Crane (Denver) Managing Director Managing Director Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Income/Franchise: Arkansas: New Law Says Nonresident Income is Allocated Based on Where Employee Performs Work

S.B. 484, signed by gov. 4/29/21. Attempting to “clarify” that nonresident income is allocated based on where the employee is located when performing the work associated with the income, new law provides that, applicable for tax years beginning on or after January 1, 2021, a nonresident individual who is paid a salary, lump sum payment, or any other form of payment that encompasses work performed both inside and outside of Arkansas “shall pay Arkansas income tax only on the portion of the individual’s income that reasonably can be allocated to work performed in Arkansas.” The legislation states that “a nonresident individual performs work in Arkansas when that individual is physically located in Arkansas when performing the work.” URL: https://www.arkleg.state.ar.us/Bills/Detail?id=sb484

The new law also expands the definition of an Arkansas “employer” for income tax withholding purposes to include “a person doing business in or deriving income from sources outside this state who has control of the payment of wages to an individual for services performed within this state.” Other changes in the law include revisions to current law that provides a tax credit for individual income tax owed to other states – stating that income from property located or business transacted in another state does not include work performed in Arkansas. Please contact us with any questions.

State Tax Matters Page 3 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. — Scott Bedunah (Dallas) Joe Garrett (Birmingham) Senior Manager Managing Director Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Gregory Bergmann (Chicago) Crissy Williams (Dallas) Partner Senior Manager Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Olivia Schulte (Washington, DC) John Volk (Dallas) Manager Manager Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Income/Franchise: Arkansas: ALJ Addresses Acquiring Entity’s NOL Computation in Post-Merger Context

Docket No. 21-070, Ark. Dep’t of Fin. & Admin. (4/27/21). In a case involving computation of net operating losses (NOLs) from an acquired corporation post-merger, an administrative law judge held that pursuant to Ark. Code Ann. section 26-51-427(3) as in effect for the prior tax years at issue, the acquiring corporation must compute “total income” as delineated in Arkansas Corporate Income Tax Rule 1.26-51-427(3)(C) – which provides that the amount of NOL that may be claimed is computed by multiplying the ratio of the acquired corporation’s assets to all assets by “total income” – based on its total income apportioned to Arkansas rather than its total multistate income. In doing so, the judge reasoned that applying the taxpayer’s proposed methodology to utilize “total multistate income” in this calculation “would use the total income apportioned to Arkansas earned by all the assets of the succeeding corporation (including those not located within Arkansas), not just the apportioned income associated with the preceding company’s Arkansas assets” in seeming contradiction to applicable Arkansas statutes and rules. Accordingly, the judge sustained the Arkansas Department of Finance and Administration’s underlying tax assessment, noting that the taxpayer failed to meet its burden of proving entitlement to the total amount of its claimed NOL deduction by a preponderance of the evidence. Please contact us with any questions. URL: https://www.ark.org/dfa-act896/index.php/api/document/download/21-070.pdf

— Scott Bedunah (Dallas) Joe Garrett (Birmingham) Senior Manager Managing Director Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

State Tax Matters Page 4 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. John Paek (Atlanta) John Volk (Dallas) Principal Manager Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Income/Franchise: California FTB Says Returns May Be Prepared Using Current Market-Sourcing Rule, Not Draft

Public Service Bulletin: Applicability Date of Proposed Revisions to California Code of Regulations, Title 18, Section 25136-2, Cal. FTB (4/15/21). The California Franchise Tax Board (FTB) recently issued a public service bulletin stating that tax returns prepared for taxable years beginning during the 2020 calendar year are not required to be prepared utilizing the version of market-sourcing rules reflected in proposed revisions to California Code of Regulations, title 18, (CCR) section 25136-2. In doing so, the FTB explains that certain provisions of CCR section 25136-2 are currently undergoing revision, and there have been five Interested Party Meetings (IPMs) held to discuss the proposed revisions with the public [see July 2020 Multistate Tax Alerts “California FTB Proposes Additional Amendments to Market-Based Sourcing Rules,” and “California FTB Retains New Proposed Method for Sourcing Receipts from Asset Management Services“ for some details on the proposed revisions to CCR section 25136-2]. While the draft language circulated at the most recent IPM indicated that the proposed revisions would be applicable for taxable years beginning on January 1, 2019, the FTB provides that “the actual applicability date for the proposed revisions has yet to be finally determined.” Accordingly, the FTB explains that the proposed revisions to CCR section 25136-2 “will not apply for taxable years beginning during the 2020 calendar year.” Please contact us with any related questions. URL: https://www.ftb.ca.gov/about-ftb/newsroom/public-service-bulletins/2021-11-applicability-date-of-proposed- revisions-to-ca-code-of-regs-title-18-section-25136-2.html URL: https://www2.deloitte.com/us/en/pages/tax/articles/california-ftb-proposes-additional-amendments-to-market- based-sourcing-rules.html?id=us:2em:3na:stm:awa:tax:050721&sfid=7011O0000038lByQAI URL: https://www2.deloitte.com/us/en/pages/tax/articles/california-ftb-proposes-new-method-for-sourcing-receipts- from-asset-management-services.html?id=us:2em:3na:stm:awa:tax:050721&sfid=7011O0000038lByQAI

— Christopher Campbell (Los Angeles) Kathy Freeman (Sacramento) Principal Managing Director Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Shirley Wei (Los Angeles) Senior Manager Deloitte Tax LLP [email protected]

State Tax Matters Page 5 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. Income/Franchise: Indiana: New Law Updates State Conformity to Internal Revenue Code; DOR Provides Updated Guidance

H.B. 1001, signed by gov. 4/29/21; Information Bulletin #119, Ind. Dept. of Rev. (5/21). Effective retroactively to January 1, 2021, new law generally updates state corporate and personal income tax statutory references to the Internal Revenue Code (IRC) so that IRC references in Indiana law generally refer to the federal income tax law in effect on March 31, 2021 (previously, January 1, 2020). The legislation also provides that to the extent that a federal statute is enacted or amended in a title other than the IRC on or before March 31, 2021, and affects federal adjusted gross income, federal taxable income, federal tax credits, or other federal tax attributes, “the federal statute shall be considered to be part of the Internal Revenue Code as amended and in effect on March 31, 2021.” The bill includes some specific addition and subtraction adjustments related to net operating losses (NOLs) under IRC section 172, as well as excess business losses under IRC section 461(l) used in determining Indiana adjusted gross income. The Indiana Department of Revenue has since updated its administrative guidance (Information Bulletin No. 119) addressing Indiana’s conformity and nonconformity to recent federal tax law changes. URL: http://iga.in.gov/legislative/2021/bills/house/1001#document-08ac7848 URL: https://www.in.gov/dor/files/ib119.pdf

H.B. 1436, signed by gov. 4/29/21. Another recently signed bill revises provisions pertaining to Indiana NOL carryovers for individual income and corporate income tax purposes, some of which will expire on July 1, 2024. Among these changes, are “if an Indiana net operating loss arising from a taxable year has been claimed as a deduction in a taxable year ending before July 1, 2021, the Indiana net operating loss available for use in taxable years ending after June 30, 2021, shall be computed after application of the deductions taken for Indiana net operating losses in previous years to the extent necessary to prevent duplicate use of a net operating loss.” Please contact us with any questions. URL: http://iga.in.gov/legislative/2021/bills/house/1436

— Amanda Suasnabar (Indianapolis) Tom Engle (St. Louis) Managing Director Manager Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Income/Franchise: Indiana: New Law Addresses State Reporting of Partnership Final Federal Tax Adjustments

S.B. 383, signed by gov. 4/29/21. Following state legislation enacted in 2020 [see S.B. 408 (2020) for more details on this 2020 legislation] addressing Indiana’s response to changes in the federal partnership audit and adjustment process under the federal 2015 Bipartisan Budget Act – which authorized the Indiana Department

State Tax Matters Page 6 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. of Revenue (Department) to issue some corresponding state tax assessments against a partnership and/or its partners resulting from adjustments under the federal partnership audit regime changes – new law provides some updated procedures for reporting final federal tax adjustments to the Department to conform with the federal law changes. The new law provides that the Department may prescribe procedures: URL: http://iga.in.gov/legislative/2021/bills/senate/383 URL: http://iga.in.gov/legislative/2020/bills/senate/408

• By which a passthrough entity remits tax; • For persons or entities that are otherwise subject to withholding but that may have circumstances such that standard tax computation may result in excess withholding; • For individuals and trusts that are residents for part of the taxable year and nonresidents for part of the taxable year; and • By which an entity may request alternative withholding arrangements.

Regarding state reporting of final federal tax adjustments for taxpayers that are included in an Indiana combined return with any members undergoing federal tax audits, the new law provides that the date on which the alteration or modification is made for federal tax purposes “shall be considered to be the last day on which an alteration or modification occurs for any entity filing as part of the combined return.” Please contact us with any questions.

— Amanda Suasnabar (Indianapolis) Tom Engle (St. Louis) Managing Director Manager Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Gregory Bergmann (Chicago) Olivia Schulte (Washington, DC) Partner Manager Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Income/Franchise: Kansas: New Law Addresses Treatment of GILTI and §163(j) and Extends NOL Carryforward Period

S.B. 50, Governor veto overridden by House and Senate on 5/3/21. Recently enacted legislation addresses the state treatment of i) federal Tax Cuts and Jobs Act (i.e., P.L. 115-97) provisions involving Internal Revenue Code (IRC) section 951A global intangible low-taxed income (GILTI), ii) IRC section 163(j) business interest expense limitations, and iii) net operating loss (NOL) carryforwards for Kansas corporate income tax purposes. Specifically, for taxable years commencing after December 31, 2020, the legislation provides for a subtraction from federal taxable income of 100% of GILTI, as defined in IRC section 951A, before any deductions allowed

State Tax Matters Page 7 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. under IRC section 250(a)(1)(B) – which, together with another required addition adjustment for IRC section 250(a)(1)(B) deductions, effectively results in an overall subtraction of the “net GILTI amount.” Additionally, for taxable years commencing after December 31, 2020, a subtraction from federal taxable income is allowed for business interest expense to the extent such interest is limited for federal tax purposes under IRC section 163(j); correspondingly, any carryforward claimed for federal purposes in tax years 2021 and beyond that is related to the disallowance of interest expense in tax years prior to 2021 must be reported as an addition modification for Kansas purposes. The new law also provides that for NOLs incurred in taxable years beginning after December 31, 2017, an NOL deduction shall be allowed in the same manner that it is allowed under the IRC, except that the loss may only be carried forward. URL: http://www.kslegislature.org/li/b2021_22/measures/sb50/

See recently issued Multistate Tax Alert for more details on these and other significant Kansas tax law changes included in this bill, and please contact us with any questions. URL: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-mta-kansas-legislature-overrides- governor-veto-to-enact-significant-indirect-and-income-tax-law-changes.pdf

— Bill Lowenstein (Kansas City) Collin Koenig (Kansas City) Senior Manager Manager Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Income/Franchise: Maine: State High Court Rejects Claim that Disallowed Loss Carryover Lead to Invalid Taxation

Case No. BCD-20-59, Me. (4/29/21). The Maine Supreme Judicial Court (Court) affirmed the Maine Tax Assessor’s disallowance of a telecommunications company’s claimed unitary business loss carryover and underlying income tax refund request for the 2013 taxable year at issue and, in doing so, rejected the company’s assertion that such application of Maine corporate income tax law resulted in an unconstitutional indirect tax on extraterritorial “nonunitary” income that was not subject to taxation in Maine. Under the facts, the unitary group was unable to take a net operating loss carryforward deduction on its 2013 amended Maine corporate income tax return because in 2012, certain members of the unitary business group received substantial amounts in nonunitary income that more than offset the group’s unitary net operating loss for that tax year and thereby caused the group’s 2012 federal tax return to reflect net taxable income rather than a net operating loss. URL: https://www.courts.maine.gov/courts/sjc/lawcourt/2021/21me026.pdf

In denying the telecom’s unitary business loss carryover claim in Maine for the 2013 tax year, the Court reasoned that although application of Maine’s taxation statutes might preclude a group from taking a deduction or receiving a credit for a previous year’s net operating loss, “that does not mean that the group is being taxed on nonunitary income during the tax year for which a carryover is denied.” The Court determined

State Tax Matters Page 8 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. that no part of nonunitary income reported in 2013 has been taxed, and “thus there has been no unconstitutional taxation of that nonunitary income.” Rather, the Court concluded that in each year, the application of Maine statutes reflected a reasonable effort to allocate between taxable and tax-exempt income, and the taxpayer in this case mistakenly sought “to create a new deduction in Maine that was not authorized by statute and is not required by the Constitution.” Given that Maine law does not provide for a carryover of the 2012 net operating loss to the 2013 tax year, and because no such carryover is constitutionally required, the Court denied the taxpayer’s refund claim. A dissenting opinion follows. Please contact us with any questions.

— Bob Carleo (Boston) Alexis Morrison-Howe (Boston) Managing Director Principal Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Ian Gilbert (Boston) Senior Manager Deloitte Tax LLP [email protected]

Income/Franchise: Massachusetts DOR Issues Personal Income Tax Guidance on Pandemic-Related Telecommuting

Directive 21-1: Personal Income Tax Guidance for Employees who Telecommuted in 2020 due to the COVID-19 State of Emergency, Mass. Dept. of Rev. (4/30/21). Following its adoption of a permanent administrative rule on COVID-19 pandemic-related telecommuting and the sourcing of income for residents and nonresidents [see State Tax Matters, Issue 2021-10, for more details on this rule], the Massachusetts Department of Revenue (Department) has issued a directive to “assist individuals who telecommuted in 2020 because of the COVID-19 pandemic with the preparation of their 2020 personal income tax returns.” The directive generally explains the rules applicable to: URL: https://www.mass.gov/directive/directive-21-1-personal-income-tax-guidance-for-employees-who-telecommuted- in-2020-due-to-the-covid-19-state-of-emergency URL: https://dhub.blob.core.windows.net/dhub/Newsletters/Tax/2021/STM/210312_4.html

1. Employees filing a 2020 Massachusetts nonresident tax return who worked in Massachusetts prior to the Massachusetts COVID-19 state of emergency, but began working remotely from a location outside Massachusetts due to a “pandemic-related circumstance,” (i.e., “non-resident telecommuting employees”), and 2. Residents who worked in another state prior to the Massachusetts COVID-19 state of emergency but began working remotely from a location within Massachusetts due to a “pandemic-related circumstance” (i.e., “resident telecommuting employees”).

State Tax Matters Page 9 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. The directive stipulates that it “does not apply to the sourcing of wage income of employees earned from a new job that commenced after March 10, 2020.”

The guidance generally concludes that employees filing a 2020 Massachusetts nonresident tax return who worked in Massachusetts prior to the Massachusetts COVID-19 state of emergency and who later telecommuted from locations outside Massachusetts due to a defined “pandemic-related circumstance,” must continue to source their wages earned from such subsequent employment to Massachusetts. Additionally, employees filing a 2020 Massachusetts nonresident tax return who, prior to the Massachusetts COVID-19 state of emergency, apportioned their wages to Massachusetts pursuant to 830 CMR 62.5A.1(5)(a) “must determine the amount of their wages that is Massachusetts source income based on either the percentage of their work days spent in Massachusetts during the period January 1 through February 29, 2020, or the apportionment percentage properly used to determine the portion of their wages from that employer that constituted Massachusetts source income as reported on their 2019 Massachusetts personal income tax return.”

Furthermore, for 2020, resident telecommuting employees who worked in a state other than Massachusetts prior to the Massachusetts COVID-19 state of emergency and subsequently telecommuted from Massachusetts due to a defined “pandemic-related circumstance” will be eligible for a credit for taxes paid to that other state “to the extent allowed under M.G.L. c. 62, § 6(a) if the other state applies similar sourcing rules.” The directive also states that individuals who spent more than 183 days in, and maintained a permanent place of abode in, Massachusetts during 2020 are considered Massachusetts residents for such year, regardless of whether the 183-day threshold was exceeded because of a pandemic-related circumstance. Please contact us with any questions.

— Bob Carleo (Boston) Alexis Morrison-Howe (Boston) Managing Director Principal Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Ian Gilbert (Boston) Tyler Greaves (Boston) Senior Manager Manager Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Income/Franchise: New York: Comments on Updated Draft Proposed Corporation Franchise Tax Rules are Due by August 2

Draft Proposed Amended New York State Article 9-A Business Corporation Franchise Tax Regulations, Part 1, Part 2, and Part 3, N.Y. Dept. of Tax. & Fin. (4/28/21); Draft Proposed Amended New York State Article 9-A Business Corporation Franchise Tax Regulations, new Part 10, N.Y. Dept. of Tax. & Fin. (4/28/21). The New York

State Tax Matters Page 10 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. State Department of Taxation and Finance (Department) released combined updates to previously posted draft proposed amendments to New York Article 9-A State Business Corporation Franchise Tax Regulations, Parts 1, 2 and 3 covering definitions, nexus, income and capital, capital losses, prior net operating loss conversion subtraction, and net operating losses – many of which are “minor editorial and consistency edits.” The updates also include draft proposed regulations addressing accounting periods, which had not been previously posted. Regarding nexus, some notable updates include: URL: https://www.tax.ny.gov/pdf/bus/ct/parts-1-through-3-april-2021.pdf URL: https://www.tax.ny.gov/pdf/bus/ct/special-entities-april-2021.pdf

• Adding to the list of activities deemed insufficient to subject a foreign corporation to tax activities that are typically engaged in by banking corporations, based on activities included in the bank tax regulations (under prior law), and • Clarifying that if all members of a unitary group are exempt from taxation because of P.L. 86-272, then the unitary group is not required to file a combined report.

The updates also

1. Incorporate recent legislative changes regarding the treatment of repatriated income and global intangible low-taxed income (GILTI); 2. Clarify the rules for capital losses sustained in a non-captive real estate investment trust (REIT) filing year if an entity ceases to qualify as a REIT; and 3. Revise an example to show the interaction of “separate return limitation year” (SRLY) and Internal Revenue Code (IRC) section 382 limitations.

Additionally, the Department explains that this draft “continues to assume that the separate accounting election for corporate partners will be repealed and the nexus thresholds for certain foreign limited partners will be increased as a result;” however, it states that it is still studying these changes and “has yet to make a final determination.” If it is decided to maintain the separate accounting election and current nexus thresholds, “those changes will be separately circulated for review” – as such, the Department is explicitly requesting feedback on this topic.

The Department also released updates to its previously posted (from May 2020) draft proposed amendments to New York Article 9-A State Business Corporation Franchise Tax Regulations, new Part 10, containing previously posted special rules for qualified New York manufacturers, corporate partners, New York S corporations, REITS, regulated investment companies (RICs), and domestic international sales corporations (DISCs). According to the Department, in addition to minor editorial changes and consistency edits, the updates include:

• Inclusion of a definition of “goods” for purposes of a qualified New York manufacturer; • Clarifications of what constitutes manufacturing activities; • Clarification of the business apportionment factor (BAF) computation for corporate partners computing tax under the aggregate method;

State Tax Matters Page 11 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. • An added example of the tax computation for corporate partners using the entity method; and • Clarification of the sourcing of GILTI for New York S corporations.

Moreover, the Department explains that it is currently reviewing the need for special rules for real estate mortgage investment conduits (REMICs).

Collectively – for all these new draft proposed amendments to New York Article 9-A State Business Corporation Franchise Tax Regulations – the Department states that it does not anticipate that many substantive changes will need to be made before the formal promulgation process begins. Accordingly, “if there are comments that have not yet been submitted or proposed changes have not been made but you believe are necessary, we strongly encourage such feedback be submitted during this comment period so that the Department may consider them before the formal promulgation process begins.” Comments on these proposals are due to the Department by August 2, 2021. Please contact us with any questions.

— Don Roveto (New York) Jack Trachtenberg (New York) Partner Principal Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Mary Jo Brady (Jericho) Ken Jewell (Parsippany) Senior Manager Managing Director Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Joshua Ridiker (New York) Senior Manager Deloitte Tax LLP [email protected]

Income/Franchise: New York City: Investment Management Company Owes GCT on Gains Derived from Sale of LLC Interest

Decision No. TAT (E)16-9(GC), N.Y.C. Tax App. Trib. (3/12/21). The New York City Tax Appeals Tribunal (Tribunal) affirmed an administrative law judge’s determination, which held that an investment management company having no activities in New York City (City) owed City general corporation tax (GCT) on its capital gains from the sale of its minority interest in a limited liability company (LLC), because under the facts, it was a limited partner receiving City-source income from this flow-through partnership entity that was doing business in the City. The company unsuccessfully claimed that such taxation violates the Due Process and Commerce Clauses of the US Constitution as it was not engaged in a unitary business with the LLC and did not have

State Tax Matters Page 12 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. sufficient nexus with the City for such tax imposition. The Tribunal explained that the City’s imposition of GCT on such a capital gain satisfies the Due Process Clause if there is “some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax…and the income attributed to the State for tax purposes must be rationally related to the taxing State” – concluding that both of these requirements are satisfied under the facts in this case. That is, the investment management company has nexus with the City by reason of its partnership interest in the LLC, and the value of the capital gain on the company’s sale of its interest in the LLC’s business is “rationally related” to its business activities, all of which were conducted in the City. The Tribunal commented that it could “see no other sources of value for the gain,” and the company’s stipulation that it paid GCT on its share of the LLC’s “partnership income,” constituted an admission of all of the relevant facts necessary to establish that it had nexus with the City. Please contact us with any questions. URL: https://www1.nyc.gov/assets/taxappeals/downloads/pdf/169DEC0321.pdf

— Don Roveto (New York) Jack Trachtenberg (New York) Partner Principal Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Mary Jo Brady (Jericho) Ken Jewell (Parsippany) Senior Manager Managing Director Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Joshua Ridiker (New York) Senior Manager Deloitte Tax LLP [email protected]

Income/Franchise: Ohio: Judge Dismisses Lawsuit Involving Pandemic-Related Telecommuting and Local Income Taxes

Case No. 20CV004301 (Civil Division), Court of Common Pleas, Franklin County, Ohio (4/27/21). A county court judge recently dismissed a lawsuit challenging the validity of Ohio legislation enacted in 2020 [see H.B. 197 (2020) for details on this new law] that generally treats employees who report to a temporary worksite (including those working from home) during the COVID-19 pandemic emergency period as working at their principal place of work for Ohio municipal income tax withholding purposes – holding that the Ohio General Assembly possesses the authority to enact such legislation. Specifically, the underlying suit challenged the authority of Ohio’s General Assembly to “legislatively limit, coordinate and regulate municipal taxing authorities in their respective treatment of employees working remotely under the exigent circumstance of

State Tax Matters Page 13 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. the COVID-19 pandemic.” According to the judge, the Ohio General Assembly “has long regulated municipal taxing authority, both temporally and geographically, even before the exigent circumstances of the COVID-19 pandemic” and as a general principle, “Ohio courts have interpreted the Ohio Constitution to allow the General Assembly to regulate municipal taxation where necessary to police taxation among municipalities.” URL: https://www.gongwer-oh.com/public/134/BuckeyeDismissal.pdf URL: https://www.legislature.ohio.gov/legislation/legislation-documents?id=GA133-HB-197

The petitioners in this case have since filed an appeal. Additionally, note that similar lawsuits challenging the 2020 legislation have been filed in other Ohio localities. Moreover, pending state legislation [see pending Ohio H.B. 157], if enacted, would revise some of the provisions at issue. Please contact us with any questions. URL: https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA134-HB-157

— Dave Adler (Columbus) Courtney Clark (Columbus) Managing Director Partner Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Matt Culp (Columbus) Paige Fitzwater (Columbus) Manager Manager Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Gross Receipts/Other Miscellaneous: Oregon: Proposed Permanent Corporate Activity Tax Rule Addresses Unitary Group Filing

Proposed Permanent OAR section 150-317-1020, Or. Dept. of Rev. (4/27/21). Similar to its temporary corporate activity tax (CAT) rule [see Temporary OAR section 150-317-1020, Or. Dept. of Rev. (2/22/21) for details on Oregon’s current temporary rule], the Oregon Department of Revenue has filed proposed CAT rule changes regarding filing requirements for unitary groups to provide guidance for taxpayers who meet the unitary group inclusion requirements for multiple unitary groups. Specifically, the proposal directs taxpayers meeting the criteria for inclusion in more than one unitary group to file with the unitary group that reports the greatest amount of commercial activity, after exclusions. The proposed amendments also clarify that the exclusion of intercompany receipts between unitary members only applies if the members are part of the same unitary filing group. Additionally, the proposed revisions to the rule modify reference to OAR section 150-317-1025 for changes made by legislation enacted in 2020 [see H.B. 4202 (2020) and previously issued Multistate Tax Alert for more details on these law changes] related to unitary groups with non-US members. Comments on the proposal are due May 25, 2021, and a virtual public hearing is scheduled for the same day. Please contact us with any questions. URL: https://secure.sos.state.or.us/oard/viewRedlinePDF.action?filingRsn=47375 URL: https://secure.sos.state.or.us/oard/viewReceiptPDF.action?filingRsn=46932

State Tax Matters Page 14 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. URL: https://olis.oregonlegislature.gov/liz/2020S1/Measures/Overview/HB4202 URL: https://www2.deloitte.com/us/en/pages/tax/articles/technical-amendment-bill-passes-and-permanent-rules- finalized.html?id=us:2em:3na:stm:awa:tax:050721&sfid=7011O0000038lByQAI

— Scott Schiefelbein (Portland) Sara Clear (Minneapolis) Managing Director Manager Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Sales/Use: Kansas: New Law Imposes Economic Nexus on Some Remote Sellers and Marketplace Facilitators

S.B. 50, Governor veto overridden by House and Senate on 5/3/21. Beginning July 1, 2021, new law imposes “post-Wayfair” sales and use tax collection and remittance requirements in Kansas on some remote sellers and marketplace facilitators that exceed an annual $100,000 threshold of cumulative gross receipts from sales sourced into Kansas. Specifically, under the new law, out-of-state retailers must collect Kansas sales and use taxes if their annual cumulative gross receipts from sales sourced into Kansas exceed $100,000. Furthermore, a marketplace facilitator must collect Kansas sales and use tax if its sales of property or taxable services sourced into Kansas, on its own behalf or on behalf of one or more marketplace sellers, annually exceeds $100,000. Such marketplace facilitators may be eligible for a waiver if they demonstrate, to the satisfaction of the Kansas Department of Revenue (Department), that substantially all of their marketplace sellers already are collecting and remitting taxes to the Department; if such waiver is granted, the taxes levied generally shall be collectible from the marketplace seller. The legislation also permits impacted marketplace facilitators to contract with certain marketplace sellers to have the marketplace seller collect and remit any applicable Kansas sales and use taxes. URL: http://www.kslegislature.org/li/b2021_22/measures/sb50/

— Collin Koenig (Kansas City) Lindsay McAfee (San Francisco) Manager Senior Manager Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

State Tax Matters Page 15 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. Bill Lowenstein (Kansas City) Rick Heller (Parsippany) Senior Manager Managing Director Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Sales/Use: West Virginia: New Law Creates Exemption for Machinery & Equipment Rental Among Commonly Owned Entities

S.B. 34, signed by gov. 4/28/21. New law creates a West Virginia sales and use tax exemption for the rental or leasing of certain heavy equipment or machinery among some commonly owned companies, including among those companies with at least 50% qualifying common ownership. In doing so, the new law effectively expands upon similar existing exemptions for certain services performed by one corporation for an entity with at least 50% common ownership or control. Under the new law, leases of heavy equipment or machinery among corporations, partnerships, or limited liability companies generally are exempt from West Virginia sales and use tax when the entities are members of the same control group or are related taxpayers as defined in Internal Revenue Code section 267. Please contact us with any questions. URL: https://www.wvlegislature.gov/bill_status/bills_history.cfm?INPUT=34&year=2021&sessiontype=RS

— Louisa Matthews (Pittsburgh) Joe Garrett (Birmingham) Managing Director Managing Director Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

John Paek (Atlanta) Principal Deloitte Tax LLP [email protected]

Sales/Use: Wisconsin DOR Issues Guidance and Reminders on State Tax Treatment of Virtual Currency Transactions

Wisconsin Tax Bulletin, No. 213, Wis. Dept. of Rev. (4/21). The Wisconsin Department of Revenue (Department) recently issued virtual currency guidance for Wisconsin sales/use, income/franchise, and withholding tax purposes “to inform or remind taxpayers of the tax treatment” – commenting that more individuals and businesses are investing in or using virtual currency these days. In doing so, the Department explains that virtual currency, such as digital currency and cryptocurrency, “is a digital representation of value

State Tax Matters Page 16 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. that functions as a unit of account, a store of value, and a medium of exchange.” For state sales tax purposes, the Department provides that the sales price from the sale of virtual currency is not taxable because “the virtual currency represents an intangible right.” However, when virtual currency is redeemed for a taxable product, the transaction is completed and the retailer’s Wisconsin sales or use tax liability accrues at that time wherein “the tax is computed on the value of the consideration received by the seller, measured in US dollars as of the date and time that the virtual currency is received.” URL: https://www.revenue.wi.gov/WisconsinTaxBulletin/213-04-21-WTB.pdf

Regarding the state income and franchise tax treatment of virtual currency, the Department states that Wisconsin generally follows the Internal Revenue Service for the tax treatment of transactions involving virtual currency. The Department explains that virtual currency is intangible property that is treated for Wisconsin tax purposes similar to other types of intangible property, and Wisconsin taxpayers must report income, gains, expenses, and losses as required under the Internal Revenue Code. The Department cautions that acquiring, receiving, selling, sending, or exchanging virtual currency “may result in a taxable event,” and explains that taxpayers must keep records for all virtual currency transactions to correctly report their basis, gains/losses and income/expenses. According to the Department, “taxpayers who do not properly report virtual currency transactions on their tax returns may be audited and held liable for the tax, penalties, and interest.” The Department also explains that a business receiving virtual currency for the sale of goods or services generally must report gross sales revenue “valued at the virtual currency’s exchange price at the time of sale.” Please contact us with any questions.

— Linda Joers (Milwaukee) Jeremy Blodgett (Milwaukee) Managing Director Senior Manager Deloitte Tax LLP Deloitte Tax LLP [email protected] [email protected]

Axel F. Candelaria Rivera (Milwaukee) Senior Manager Deloitte Tax LLP [email protected]

Multistate Tax Alerts

Throughout the week, we highlight selected developments involving state tax legislative, judicial, and administrative matters. The alerts provide a brief summary of specific multistate developments relevant to taxpayers, tax professionals, and other interested persons. Read the recent alerts below or visit the archive. Archive: https://www2.deloitte.com/us/en/pages/tax/articles/multistate-tax-alert- archive.html?id=us:2em:3na:stm:awa:tax

State Tax Matters Page 17 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. California Governor signs A.B. 80 relating to PPP loans On April 29, 2021, California Governor Gavin Newsom signed A.B. 80, addressing modified conformity to federal income tax provisions relating to loans forgiven pursuant to the Coronavirus Aid, Relief, and Economic Security Act (Public Law 116-136) (“CARES Act”), the Paycheck Protection Program and Health Care Enhancement Act (Public Law 116-319) (“Enhancement Act”), the Paycheck Protection Program Flexibility Act of 2020 (Public Law 116-142) (“Flexibility Act”), or the Consolidated Appropriations Act, 2021 (Public Law 116- 260) (“CCA”). A.B. 80 is now California law and applies to taxable years beginning on or after January 1, 2019. URL: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202120220AB80

This Multistate Tax Alert summarizes these provisions under A.B. 80. [Issued April 30, 2021] URL: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-mta-california-governor-signs-ab-80- relating-to-ppp-loans.pdf

California Legislature proposes A.B. 71, relating to taxation of GILTI and repatriation income On April 29, 2021, the Assembly Committee on Housing and Community Development passed, by a 5-2 vote, A.B. 71, relating to taxation of global intangible low-taxed income (“GILTI”) and certain repatriation income. A.B. 71 was first introduced on December 7, 2020, and was passed by the Assembly Committee on Revenue and Taxation on April 20, 2021. A.B. 71 faces additional procedural steps and possible revisions, including consideration by the Senate, and has not yet been enacted into California law. URL: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202120220AB71

The provisions under the Corporation Tax Laws and the Personal Income Tax Laws differ: while A.B. 71 would not provide apportionment factor relief for the inclusion of GILTI for corporate franchise/income tax purposes, there is a provision that would allow a taxpayer to petition the California Franchise Tax Board for alternative apportionment for personal income tax purposes.

This Multistate Tax Alert summarizes notable provisions from the version of A.B. 71 amended as of March 25, 2021. [Issued April 30, 2021] URL: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-mts-california-legislature-proposes- a-b-71-relating-to-taxation-of-gilti-and-repatriation-income.pdf

Idaho enacts a pass-through entity-level tax election On April 15, 2021, Idaho Governor Brad Little signed House Bill 317 (“H.B. 317”) into law instituting an elective pass-through entity-level tax. As a response to the $10,000 cap on the federal individual income tax deduction for state and local taxes that was enacted as part of the Tax Cuts and Jobs Act, H.B. 317 permits certain pass- through entities (PTEs) to elect to pay Idaho income tax at the entity level. This bill is effective retroactively to January 1, 2021. Under the new law, such an election may be made for any taxable year by filing the election with a timely filed original return for that taxable year.

State Tax Matters Page 18 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. This Multistate Tax Alert summarizes these new provisions under H.B. 317. [Issued April 29, 2021] URL: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-mta-idaho-enacts-pass-through- entity-level-tax-election.pdf

Kansas Legislature overrides Governor veto to enact significant indirect and income tax law changes On May 3, 2021, the Kansas State Legislature voted to override Governor Kelly’s veto of Senate Bill 50 (“KS SB 50”) imposing sales/use tax collection requirements as of July 1, 2021 on marketplace facilitators and remote sellers who exceed the $100,000 sales threshold. The bill also amends income tax law regarding conformity to certain Tax Cuts and Jobs Act provisions, corporate return due dates, and net operating loss carryforward provisions. URL: http://www.kslegislature.org/li/b2021_22/measures/documents/sb50_enrolled.pdf

This Multistate Tax Alert summarizes the more significant provisions of KS SB 50. [Issued May 5, 2021] URL: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-mta-kansas-legislature-overrides- governor-veto-to-enact-significant-indirect-and-income-tax-law-changes.pdf

Montana pending legislation modifies corporate apportionment factor, overhauls individual income tax law, and eliminates numerous tax credits On April 23, 2021, the Montana legislature passed Senate Bill 376, which provides for a double-weighted sales factor for corporate income tax apportionment purposes. On April 27, 2021, the Montana legislature also passed Senate Bill 399, which substantially revises the individual income tax law and eliminates numerous state tax credits, including some available to corporate taxpayers. The enrolled bills are currently awaiting signature or veto by the Governor. URL: https://legiscan.com/MT/bill/SB376/2021 URL: https://legiscan.com/MT/text/SB399/2021

This Multistate Tax Alert summarizes the provisions under these enrolled bills. [Issued April 30, 2021] URL: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-mta-montana-pending-legislation- modifies-corporate-apportionment-factor-overhauls-individual-income-tax-law.pdf

Texas Comptroller proposes additional provisions potentially impacting the treatment of research and development activities The Texas Comptroller of Public Accounts (Comptroller) recently published proposed regulatory amendments with the Office of the Texas Secretary of State to provide guidance on the franchise tax research and development (“R&D”) activities credit and the sales/use tax R&D exemption. The publishing of the proposed amendments triggers a 30-day public comment period (i.e., by May 14).

State Tax Matters Page 19 of 20 Copyright © 2021 Deloitte Development LLC May 7, 2021 All rights reserved. This Multistate Tax Alert supplements our Multistate Tax Alert issued on April 22, 2021, by providing a summary of several proposed provisions impacting the Comptroller’s treatment of R&D activities. URL: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-multistate-tax-alert-texas- comptroller-proposes-new-treatment-of-research-and-development-activities.pdf

[Issued April 30, 2021] URL: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-mta-texas-comptroller-proposes- additional-provisions-potentially-impacting-the-treatment-of-research-and-development-activities.pdf

Washington enacts legislation imposing new excise tax on capital gains On May 4, 2021, Governor Jay Inslee signed into law Senate Bill 5096 (“WA SB 5096”), which imposes a new excise tax on long-term capital gains earned by individuals from the sale or exchange of certain capital assets. URL: http://lawfilesext.leg.wa.gov/biennium/2021-22/Pdf/Bills/Senate%20Passed%20Legislature/5096-S.PL.pdf

This Multistate Tax Alert summarizes the more significant provisions of WA SB 5096. [Issued April 28, 2021] URL: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-multistate-tax-alert-washington- pending-bill-would-impose-new-excise-tax-on-capital-gains.pdf

This document contains general information only and Deloitte is not, by means of this document, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This document is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this document.

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