KPMG reports: Florida, Massachusetts, Washington State

KPMG This Week in State Tax—produced weekly by the KPMG State and Local Tax practice—focuses on recent state and local tax developments.

• Florida: Several taxpayers have asked a Florida appeals court to reverse the dismissal of a case involving the interpretation of the state’s income-producing activity/costs of performance (IPA/COP) rule that applied to the taxpayers’ receipts from sales of services. The trial court concluded that under the plain language of Florida’s IPA/COP rule, receipts are sourced based on the transactions and activities of the taxpayer, not of the taxpayer’s customer. The court also found that the Department of Revenue’s inconsistent interpretation of its own rule likely violated Florida’s taxpayer bill of rights. After the decision was released, the Department of Revenue asserted that the taxpayers failed to comply with certain statutory security requirements that, if not adhered to, deprived the court of subject matter jurisdiction over the suit. The court recognized that dismissal would be a harsh result given that the Department of Revenue did not raise this issue until more than three years after the case was filed. Nevertheless, the trial court dismissed the case and the taxpayers are now challenging that dismissal.
• Massachusetts: The Department of Revenue issued a working draft technical information release (TIR) addressing the 2023 legislation that requires all financial institutions and business corporations to apportion their income to Massachusetts for corporate excise tax purposes using the receipts or sales factor only, and revises the method used by financial institutions to source receipts from investment and trading assets and activities. The working draft TIR confirms that these changes are effective for tax years beginning on or after January 1, 2025. Under the legislation, the effective date was simply January 1, 2025.
• Washington State: The U.S. Supreme Court denied certiorari in a case challenging the constitutionality of the Washington State capital gains tax as an impermissible property tax on income (versus an excise tax on ownership), which was upheld last year by the Washington State Supreme Court. Although the U.S. Supreme Court has declined to hear the dispute, the fate of the capital gains tax may be decided by voters, as efforts to repeal the tax via a ballot measure are underway. 

Read a January 2024 report prepared by KPMG LLP