Key Takeaways
- SALT Effects of Tariffs
- Md. Court strikes down ad tax provision
- NJ updates its nexus standards
- Tax credits in NJ and UT
Welcome to this edition of our roundup of state tax developments. The State Tax News and Views is published biweekly. Consider the Eide Bailly State & Local Tax team for your state tax planning, compliance, and incentive needs.
Bundled Transactions Present Sales Tax Challenges for Payment Processors - Thomas J. Leonardo, Tax Notes ($):
Payment processing companies generally facilitate electronic transactions, such as payments by credit card or digital wallet, between businesses and customers. They serve as intermediaries to help ensure the quick, secure transfer of funds from a customer’s account to the merchant.
Payment processing services come in several forms, including pure payment processing, payment processing software solutions with added functionality, and marketplace facilitators (MPFs). Some types of payment processing arrangements may incorporate features that are classified as software or otherwise taxable services. It is essential for companies to understand that the user-based functionality of their offerings and invoicing procedures directly affects sales tax treatment in some states.
Target Practice: When Does Virtual Presence Satisfy Substantial Nexus? - Michael J. Bowen, Lauren A. Ferrante, and Lorie A. Fale, Tax Notes ($)
"There is nothing new under the sun, but there are new suns.” With that in mind, we turn to the critical question regarding the proper test for determining the conditions through which an out-of-state retailer has substantial nexus with a taxing state post-Wayfair. [...] What constitutional framework should be used to analyze the question of substantial nexus under a given set of circumstances?
The knee-jerk reaction is to conclude that, given the explosion of technology-based marketing approaches, a new constitutional test is needed. We question that conclusion. In many ways, the newer forms of mobile marketing tools are merely updated versions of age-old marketing efforts.
The knee-jerk reaction is to conclude that, given the explosion of technology-based marketing approaches, a new constitutional test is needed. We question that conclusion. In many ways, the newer forms of mobile marketing tools are merely updated versions of age-old marketing efforts.
The State and Local Tax Effects of Tariffs - Glenn C. McCoy Jr, Tax Notes ($):
Accounting for tariffs can have significant impacts on a business's state sales and use tax (SUT) obligations. One of the most important issues is whether tariffs should be included or excluded from the SUT base of the imported product.
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Property taxes can also be affected by tariffs. Although tariffs do not directly affect the assessed value of real property, they can affect the cost of building construction and renovation materials, which might increase the assessed value.
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Businesses have options when choosing how to treat tariffs for tax and accounting purposes. For income tax purposes, tariffs are usually factored into the cost of acquiring property, but that is not the only option available to taxpayers.
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Property taxes can also be affected by tariffs. Although tariffs do not directly affect the assessed value of real property, they can affect the cost of building construction and renovation materials, which might increase the assessed value.
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Businesses have options when choosing how to treat tariffs for tax and accounting purposes. For income tax purposes, tariffs are usually factored into the cost of acquiring property, but that is not the only option available to taxpayers.
State-By-State Roundup
Alabama
Alabama Cities Challenge State's Uniform Tax Collection System - Michael J. Bologna, Bloomberg Tax ($)
Alabama’s Simplified Sales and Use Tax system faces a constitutional challenge from cities and school districts that allege the tax collection mechanism shortchanges them by allowing retailers with a physical presence in the state—including giants such as Amazon and Walmart—to remit taxes at a lower rate.
The cities of Tuscaloosa and Mountain Brook, as well as Tuscaloosa City Schools, filed suit Tuesday in the Circuit Court of Montgomery County against the Alabama Department of Revenue. The suit asks the court to invalidate portions of the tax system and require merchants with a “substantial nexus” in the state to collect and remit conventional state and local taxes, rather than the uniform 8% rate permitted under the SSUT.
The cities of Tuscaloosa and Mountain Brook, as well as Tuscaloosa City Schools, filed suit Tuesday in the Circuit Court of Montgomery County against the Alabama Department of Revenue. The suit asks the court to invalidate portions of the tax system and require merchants with a “substantial nexus” in the state to collect and remit conventional state and local taxes, rather than the uniform 8% rate permitted under the SSUT.
California
California FTB Submits Regs for Services, Intangibles for Approval - Paul Jones, Tax Notes ($):
California’s Franchise Tax Board has submitted for final approval its proposed amendments to rules for sourcing sales of services and intangibles.
The amendments will modify Cal. Code Regs. tit. 18, section 25136-2, which dictate how businesses should source their sales of services and intangibles to California under the state’s market-based sourcing regime.
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The goal of the amendments is to provide greater clarity and simplicity, including for businesses that provide asset management and professional services, as well those making sales to the government. Notable elements of the amendments include allowing professional service providers that sell a given service to over 250 customers to simply use the customers’ billing addresses to source the receipts, with an exception for customers that make up a large amount of the taxpayer’s total sales. Another is the inclusion of language that would allow receipts from sales of asset management services to be assigned to California proportionate to the average value of interest in the assets that belongs to investors and owners domiciled in the state. Another is that sales to the federal government for which specific sourcing isn’t possible could be sourced to California based on the ratio of the state’s population relative to the United States.
The amendments will modify Cal. Code Regs. tit. 18, section 25136-2, which dictate how businesses should source their sales of services and intangibles to California under the state’s market-based sourcing regime.
...
The goal of the amendments is to provide greater clarity and simplicity, including for businesses that provide asset management and professional services, as well those making sales to the government. Notable elements of the amendments include allowing professional service providers that sell a given service to over 250 customers to simply use the customers’ billing addresses to source the receipts, with an exception for customers that make up a large amount of the taxpayer’s total sales. Another is the inclusion of language that would allow receipts from sales of asset management services to be assigned to California proportionate to the average value of interest in the assets that belongs to investors and owners domiciled in the state. Another is that sales to the federal government for which specific sourcing isn’t possible could be sourced to California based on the ratio of the state’s population relative to the United States.
Florida
Fla. Court Rules 50% Property Transfer Resets Tax Cap - Carolina Bolado, Law 360 ($):
A Florida appeals court ruled Wednesday that the transfer of 50% ownership of a commercial property constituted a change of ownership under state law, making the property ineligible for the 10% annual cap on any increase in assessed value for property tax purposes.
Florida's Third District Court of Appeal reversed a judgment in favor of Piper Industrial Complex LLC and Carsco Group LLC, which together own a non-homestead commercial property in Miami-Dade County, and said the state law requires the property be assessed at current "just value."
Florida's Third District Court of Appeal reversed a judgment in favor of Piper Industrial Complex LLC and Carsco Group LLC, which together own a non-homestead commercial property in Miami-Dade County, and said the state law requires the property be assessed at current "just value."
Maryland
Maryland Ad Tax Provision Falls to First Amendment Challenge (2) - Perry Cooper, Bloomberg Tax ($);
Maryland can’t keep businesses from passing on its embattled digital advertising tax to customers, after the Fourth Circuit said Friday that the restriction is unconstitutional.
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The law’s “pass-through provision” at issue prevents businesses subject to the tax from directly passing the levy to customers “by means of a separate fee, surcharge or line item.” The parties stipulated early on that other means of explaining increased prices to account for the tax were allowed.
That didn’t save the provision. The invoice is the obvious place for a consumer to look when wondering why prices went up, the court said. “If companies pass on the cost of the tax, they must do so in silence—keeping customers in the dark about why prices have gone up and thereby insulating Maryland from political responsibility,” it said.
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The law’s “pass-through provision” at issue prevents businesses subject to the tax from directly passing the levy to customers “by means of a separate fee, surcharge or line item.” The parties stipulated early on that other means of explaining increased prices to account for the tax were allowed.
That didn’t save the provision. The invoice is the obvious place for a consumer to look when wondering why prices went up, the court said. “If companies pass on the cost of the tax, they must do so in silence—keeping customers in the dark about why prices have gone up and thereby insulating Maryland from political responsibility,” it said.
Montana
Montana Offers One-Time NOL Adjustment for 2024 Filers - Kennedy Wahrmund, Tax Notes ($):
The Montana Department of Revenue has highlighted a recent legislative change to address differences between state and federal net operating loss carryovers, giving certain taxpayers a one-time opportunity to adjust their 2024 income tax returns.
S.B. 544, enacted in May, allows a transition adjustment when a taxpayer’s Montana NOL carryforward at the end of 2023 differs from the taxpayer's federal NOL carryforward amount. Under the new law, the adjustment can reduce state taxable income for the 2024 tax year, with any unused portion eligible to carry forward for up to seven years.
New Jersey
New Jersey Creates New Credit for Manufacturing Investment - Matthew Pertz, Tax Notes ($):
New Jersey will redirect half a billion dollars in economic development tax credits to a new program designed to spur capital investment from manufacturers.
Gov. Phil Murphy (D) signed A. 5687 on August 13. It passed the Assembly on a 65-9 vote and the Senate on a 39-0 vote on June 30.
The bill establishes a new tax credit for new manufacturing, equal to the lesser of 0.1 percent of an eligible business’s total capital investment multiplied by the number of new full-time jobs, or 25 percent of the total qualified investment.
Gov. Phil Murphy (D) signed A. 5687 on August 13. It passed the Assembly on a 65-9 vote and the Senate on a 39-0 vote on June 30.
The bill establishes a new tax credit for new manufacturing, equal to the lesser of 0.1 percent of an eligible business’s total capital investment multiplied by the number of new full-time jobs, or 25 percent of the total qualified investment.
For additional questions please contact Matt Carlson, Eide Bailly
Taxpayers Face Tough Choices Under NJ's New Nexus Rules - Smitha Chintamaneni & Bill Schenkelberg, Law 360 ($):
On June 16, the New Jersey Division of Taxation finalized their regulations for determining nexus resulting from a company's internet activities, which now include some provisions similar to those asserted by the Multistate Tax Commission as going beyond protected solicitation.
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New Jersey is the second state, after New York, to finalize regulations that follow the MTC's updated 2021 guidance. In February 2022, California issued a technical advice memorandum adopting the MTC's guidance..
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New Jersey is the second state, after New York, to finalize regulations that follow the MTC's updated 2021 guidance. In February 2022, California issued a technical advice memorandum adopting the MTC's guidance..
New York
New York ALJ: T-Mobile Sub's Bundled Service Fees Are Taxable - Cameron Browne, Tax Notes ($):
A T-Mobile subsidiary owes sales tax on mandatory federal regulatory surcharges it passed through to its customers because they were part of a taxable bundled service, a New York administrative law judge has determined.
In an August 7 decision in Matter of T-Mobile Northeast LLC, Administrative Law Judge Kevin R. Law of the New York Division of Tax Appeals determined that a T-Mobile USA Inc. subsidiary was responsible for approximately $1.8 million in assessed taxes related to sales tax imposed on recovered Federal Universal Service Fund (FUSF) fees because the fees were part of a bundled mobile telecommunication service plan subject to tax.
In an August 7 decision in Matter of T-Mobile Northeast LLC, Administrative Law Judge Kevin R. Law of the New York Division of Tax Appeals determined that a T-Mobile USA Inc. subsidiary was responsible for approximately $1.8 million in assessed taxes related to sales tax imposed on recovered Federal Universal Service Fund (FUSF) fees because the fees were part of a bundled mobile telecommunication service plan subject to tax.
Utah
Utah Renewable Energy Systems Tax Credit (RESTC) Updates - Colette Sutton, Eide Bailly:
The Renewable Energy Systems Tax Credit (RESTC) provides incentives for installing renewable energy systems on residential and commercial properties. The credit amount depends on the technology type and whether the installation is residential or commercial.
Under HB 264 (2025 legislative session), the RESTC will expire for:
- All non-solar residential renewable energy systems, and
- All commercial renewable energy systems that are completed and placed in service after January 1, 2028.
With the phase-out date set, starting your project earlier means you can still take advantage of the available credits. Between state incentives and federal programs, you could save thousands — but only if your system is installed and operational before the deadlines.
Under HB 264 (2025 legislative session), the RESTC will expire for:
- All non-solar residential renewable energy systems, and
- All commercial renewable energy systems that are completed and placed in service after January 1, 2028.
With the phase-out date set, starting your project earlier means you can still take advantage of the available credits. Between state incentives and federal programs, you could save thousands — but only if your system is installed and operational before the deadlines.
Wisconsin
AG Asks Wis. High Court To Skip Travel Co.'s PL 86-272 Claim - Michael Nunes, Law 360 ($):
[...] Attorney General Josh Kaul urged the Wisconsin Supreme Court to not hear the case and leave in place a lower court ruling upholding the travel agency's more than $1,500 income tax assessment, plus penalties and interest. In that decision, an appeals court rejected the travel agency's claim that it was protected by P.L. 86-272, a federal statute that restricts states from taxing business income when a company's only economic activity in that state is soliciting orders of tangible personal property.
ASAP had contracted with travel agents in Wisconsin, selling them access to its website on which it sold vacation packages. ASAP argued that P.L. 86-272 protections extend to companies that sell services and not just tangible personal property. That interpretation, the attorney general said, is flawed and hasn't been adopted by any court.
ASAP had contracted with travel agents in Wisconsin, selling them access to its website on which it sold vacation packages. ASAP argued that P.L. 86-272 protections extend to companies that sell services and not just tangible personal property. That interpretation, the attorney general said, is flawed and hasn't been adopted by any court.
Tax Bites: Tips, Tricks and Opportunities in SALT
Matt Carlson, Senior Manager, Eide Bailly:
We’ve all heard about the Big Beautiful Bill and are still working through the implications of it, but have you heard about State & Local Incentives and their beneficial impacts on your growing business?
One of the relatively new programs to highlight is the JobsOhio Relocation Incentive Program. This program is designed to attract STEM and technical talent to Ohio by offering up to $225,000 to recruit out-of-state hires. Eligible companies can receive up to $15,000 per new qualified hire who relocates to Ohio and establishes Ohio residency. If your business is hiring new employees that don’t fit these requirements, the JobsOhio Job Creation Tax Credit is also available, which offers a refundable credit as a percentage of a company’s new payroll.
Most states have similar incentive programs to support economic development, so if your business is experiencing growth or has plans to grow in the coming years, please contact our team to explore the great opportunities available!
One of the relatively new programs to highlight is the JobsOhio Relocation Incentive Program. This program is designed to attract STEM and technical talent to Ohio by offering up to $225,000 to recruit out-of-state hires. Eligible companies can receive up to $15,000 per new qualified hire who relocates to Ohio and establishes Ohio residency. If your business is hiring new employees that don’t fit these requirements, the JobsOhio Job Creation Tax Credit is also available, which offers a refundable credit as a percentage of a company’s new payroll.
Most states have similar incentive programs to support economic development, so if your business is experiencing growth or has plans to grow in the coming years, please contact our team to explore the great opportunities available!
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