Articles Posted in States

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(Note this originally appeared in March 26, 2018, edition of State Tax Notes)

Nearly every state that imposes a corporate income tax includes a sales factor in its apportionment formula. Generally, the sales factor in computed by comparing a taxpayer’s “in-state” sales to its total sales. Determining in-state sales of tangible personal property is a straightforward concept—good shipped to a customer’s location are included as in-state sales only in the state of the customer’s location. It is more complicated to determine an in-state sale regarding the provision of multistate services or licenses of intangibles. Historically, states looked to a taxpayer’s costs of performing the service of licensing the intangible. Some states have become critical of this cost-of-performance method and replaced it with a market-based method of computing in-state sales.

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In “California Seeks Input on Clean Energy Equipment Tax Exemption,” an article that originally appeared in Law360, Carley Roberts, Robert P. Merten III and Jessica N. Allen summarize the sales and use tax exemption’s scope and qualifying requirements, the 2017 legislative changes to it, the CDTFA’s proposed amendments and why stakeholders may want to participate in the IPM process.

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TAKEAWAYS

  • New initiative seeks to eliminate Proposition 13 protection for commercial and industrial property by requiring fair market value reassessments at least every three years
  • Initiative seeks to add a $500,000 tangible personal property tax exemption for all taxpayers and a full exemption for taxpayers with less than 50 California employees.

Initiative 17-0055 seeks to put two significant changes to California’s property tax system before voters in November—(1) the elimination of Proposition 13 protection for commercial and industrial properties in favor of reassessment at least every three years and (2) the addition of a tangible personal property tax exemption of $500,000 for all taxpayers and a full tangible personal property tax exemption for taxpayers with less than 50 California employees. Proponents of the Initiative claim these revisions are needed to raise funding to support California schools.

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TAKEAWAYS

  • It is estimated that about $65 million annually would be collected from the commercial real estate industry under the Housing for All tax.
  • It is estimated that about $150 million annually would be collected from the commercial real estate industry under the Universal Childcare for San Francisco Families tax.
  • The election presents commercial landlords with the prospect of a massive tax increase from the current 0.3% rent tax, though the Housing for all Measure is clearly the less burdensome of the two.

There will be competing commercial rent tax measures on San Francisco’s June 2018 ballot. The “Housing for All” measure would impose a new 1.7% tax on commercial rents in San Francisco, effective January 1, 2019. The “Universal Childcare for San Francisco Families” measure would impose a new 3.5% tax on commercial rents (1% on rents from warehouses) in San Francisco (also operative January 1, 2019). Both measures specify that only one measure can be adopted, and that if both measures secure sufficient votes for passage, the measure with the most votes will prevail. If either of these measures were to be adopted it would be in addition to San Francisco’s existing 0.3% gross receipts tax on rentals.

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State and local real estate transfer taxes have become larger planning concerns for investors in U.S. real property, particularly in gateway cities like New York, Los Angeles and San Francisco. This article by colleagues Craig A. Becker, Richard E. Nielsen, Breann E. Robowski and  Andrew J. Weiner describes a recent expansion of the scope of California real estate transfer taxes.

The full text of this article can be read on page 19 of AFIRE News, 2017 Issue 3.

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(This article originally was published by Law360 on October 10, 2017.)

States historically have had one major impediment to their ability to collect sales tax—the decision in Quill Corporation v. North Dakota to uphold a physical presence test standard for determining nexus.[1] Since the Quill decision, states have applied various approaches to limit or even eliminate Quill’s physical presence nexus standard. These approaches included lobbying Congress to provide federal legislation that would redefine nexus, enacting state “click-through” nexus statutes, and taking aggressive audit positions that limit the applicability of physical presence nexus.

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(This article originally was published by Law360 on October 7, 2017.)

On Sept. 16, 2017, California Governor Jerry Brown signed Assembly Bill (A.B.) 131 into law,[1] which takes effect immediately and makes various changes to the Taxpayer Transparency and Fairness Act of 2017 enacted on June 27, 2017.[2] The Act overhauled the California State Board of Equalization (BOE) and created two new tax agencies.

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On September 16, 2017, California Governor Jerry Brown signed Assembly Bill (A.B.) 131 into law, making various changes to the Taxpayer Transparency and Fairness Act of 2017 (Act) enacted on June 27, 2017. The Act overhauled the California State Board of Equalization (BOE) and created two new tax agencies.

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(This article originally was published by Law360 on September 7, 2017.)

On Aug. 28, 2017, in California Cannabis Coalition v. City of Upland, the California Supreme Court held local taxes imposed by taxpayers via initiative are subject to less stringent requirements than taxes imposed by local governments pursuant to Proposition 218.[1] This opinion has far-flung ramifications on how local taxes can be imposed in California.

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