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TWIST - This Week in State Tax

11.14.2022 | Duration: 2:18

Summary of state tax developments in Georgia and Wisconsin and a multistate update on certain income tax-related ballot measures.


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Podcast overview

Welcome to TWIST for the week of November 21, 2022, featuring Sarah McGahan from the KPMG Washington National Tax state and local tax practice.

First up today are two decisions from the Colorado Court of Appeals. In the first, the court held that Colorado’s income tax code incorporates retrospective federal changes, despite a departmental regulation to the contrary. The dispute involved two individual taxpayers who filed an amended return for the 2018 tax year claiming a refund of Colorado income taxes related to a federal tax change in the CARES Act. The Department had issued an Emergency Rule, which later became permanent, stating that federal statutory changes enacted after the end of a taxable year do not affect a taxpayer’s Colorado tax liability for that taxable year. As such, under the rule, the taxpayers would not be entitled to apply the CARES Act change, which was enacted in 2020, retroactively to the 2018 tax year. The court concluded that the language that the Department used in its Emergency Rule did not appear in the plain language of the state income tax code and read words into the statute that were not present.

In the second decision, the court held that a subsidiary was an includable corporation required to be included in the taxpayer’s Colorado unitary combined group for the tax years at issue. Under Colorado law, the term “includable C corporation” means any C corporation which has more than twenty percent of its property and payroll as determined by the state’s sourcing rules assigned to locations inside the United States. The court rejected the taxpayer’s position that it had to have more than 20 percent of both its property and payroll in the U.S. to be an includable corporation. Instead, the court found the Department’s position convincing, which was that “more than 20 percent” meant a single aggregate number representing combined separate calculations of the property and payroll factors.

Next, Wisconsin is currently offering a time-limited unclaimed property voluntary disclosure program for businesses, organizations, and governmental units that are not in compliance with Wisconsin’s unclaimed property laws to voluntarily come forward to report and remit unclaimed property without late fees or penalties. The program is available from February 1, 2022 through February 28, 2023 and eligible businesses must apply in order to initiate participation.  To be eligible to participate, an unclaimed property holder must have unclaimed property to report from any of the five most recent reporting periods and must not have been audited for unclaimed property since July 1, 2016, or have received a notice of audit. In addition, the holder cannot have a balance on their unclaimed property holder account.

Finally, in sales tax news, the Wyoming Supreme Court held that certain roadside services provided by a vehicle towing and recovery company were not services for the “repair, alteration, or improvement of tangible personal property” and were not subject to the state’s excise tax.  The issue before the court was whether jumping-starting, unlocking a vehicle, or replacing a flat tire with a vehicle’s spare tire sufficiently altered or improved a customer’s vehicle so that these services were subject to tax. Relying on the plain language meaning of the terms “alter” and “improve,” the court concluded that these services did not alter or improve the vehicles.


Georgia: Safe Rider Fee Subject to Sales Tax

The Georgia Tax Tribunal recently addressed whether a ride sharing company was required to collect sales tax on a “safe rides fee or booking fee” that was imposed on certain trips facilitated through the company’s app. The separately stated flat fee was charged to a rider and paid over to the company directly to recover the costs of improving the safety of the company’s platform by conducting driver background checks, developing safety features in the app, and other efforts. The issue before the Tribunal was whether the fee was included in the Georgia sales tax base. Under Georgia law, sales tax is imposed on the “sales price” of goods and services. The definition of “sales price” is broad and generally means the total amount for which property or services are sold without any deduction for expenses. The company asserted that under a departmental regulation governing taxicabs, it was only required to collect sales tax on fares related to transportation. In addition, in the company’s view, the safety or booking fee was a distinct and identifiable charge to recover costs of certain non-taxable services and was therefore not part of the sales price of a ride.  The Tribunal rejected the company’s assertions, noting that Georgia’s definition of sales price was broad and captured fees related to non-taxable services that was part of the total consideration paid for a ride service. Further, none of the specific exclusions from the definition of sales price captured the costs the company was recovering. The issue of whether the safety or booking fee was part of the sales tax base stemmed from an earlier dispute in which the Tribunal determined that the company was considered a taxicab headquarters operator required to register as a dealer for sales tax purposes. Please contact Ben Cella with questions on Uber Technologies, Inc. v. Crittenden.


Wisconsin: Guidance Issued on Taxability of NFTs

The Wisconsin Department of Revenue is the latest jurisdiction to release guidance on the taxability of non-fungible tokens (NFTs).  The October 2022 Wisconsin Tax Bulletin explains that the sale or purchase of a non-fungible token may be taxable if the underlying product, good, or service is taxable in the state. Three examples provided are the sale or purchase of an NFT that entitles the purchaser to download music or movies, to gain admission to a sporting event, or to acquire a tangible piece of artwork. All three examples are subject to tax as the sale of a specified digital good, admission, or item of tangible personal property, respectively.  Please stay tuned to TWIST for more NFT updates.


Multistate: Income Tax Ballot Measures in Massachusetts and Colorado Approved by Voters

On November 8, 2022, voters in Colorado and Massachusetts showed their support for certain income tax-related ballot measures. In Colorado, voters approved a measure that reduces the state’s income tax rate applicable to individuals and corporations. Specifically, Proposition 121 reduces the current 4.55 percent corporate and personal income tax rate to 4.40 percent, retroactive to tax years commencing on or after January 1, 2022. Under current law, individual itemized and standard deductions are limited for Colorado purposes for individuals with taxable income of $400,000 or more. The limit is $12,000 for taxpayers filing single returns and $16,000 for taxpayers filing joint returns. Another Colorado measure that was approved, Proposition FF, raises additional taxes to support school meal programs by reducing to $300,000 or more the income threshold under which the limits apply.

In Massachusetts, voters approved a controversial constitutional amendment (Question One) that increases the flat individual income tax rate from 5 percent to 9 percent on income above $1 million. The rate increase is effective for taxable years beginning on or after January 1, 2023. The additional revenue generated will be used for quality public education and for the repair and maintenance of roads, bridges, and public transportation. Under the Massachusetts Constitution, all income must be taxed at a unform rate, hence the need for voters to approve the amendment.

The tax rate increase applies to individual owners of pass-through entities, including S Corporations that are already subject to various entity level taxes. Massachusetts requires S corporations to pay the non-income measure of the corporate excise tax on either taxable tangible personal property or on net worth, as well as the income measure of the corporate excise on any income that is taxable for the S Corporation federally. In addition, S corporations with at least $6 million, but less than $9 million, in gross receipts are required to pay a tax on income at a rate of 2 percent, and S corporations with $9 million or more in gross receipts are required to pay a tax on income at a rate of 3 percent.

California voters were not inclined to increase income taxes, as Proposition 30 was defeated. This measure would have imposed an additional 1.75 percent tax on annual personal income in excess of $2 million for each taxable year beginning on or after January 1, 2023.  Please stay tuned to TWIST for additional income tax rate changes.

Meet our podcast host

Image of Sarah McGahan
Sarah McGahan
Managing Director, State & Local Tax, KPMG US

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