Corporate Tax Update – March 2023

By Celine Park

Listed below are notable State Corporate Tax updates as of March 2023 that may be relevant to business and estate planners, categorized by state.

Florida

On March 1, a Florida circuit court ruled in favor of a group of taxpayers who disputed the proper interpretation of the state’s rule on sourcing service receipts. Under Fla. Admin. Code Ann. 12C-1.0155(2)(l), which provides that “other” receipts are sourced to Florida based on the costs of performance (IPA/COP rule), the taxpayers provided financial technology services and sourced their income. To note, the COP Rule stipulates that “other sales” are attributed to Florida if the “income producing activity is performed in Florida, based on costs-of-performance.” However, the Department of Revenue’s auditors interpreted the rule differently, assuming that income-producing activity associated with the sale of services occurred in Florida when the taxpayer’s customer was in the state. This resulted in assessments for out-of-state taxpayers and a refund for one Florida-based company. In rejecting the Department’s interpretation, the court cited the plain language of the IPA/COP rule and its recent decision in Target Enterprise, Inc. v. Florida Department of Revenue, where a Florida trial court approved the use of cost-of-performance sourcing for corporate income tax, rejecting the state’s attempt to use market-based sourcing. Taxpayers cannot be taxed by Florida on their receipts.  The court noted that the Department’s interpretation contradicted the rule’s plain language and expressed concern over the Department’s inconsistent application of the rule. The court emphasized that ambiguous tax laws should favor the taxpayer and further noted that the Department’s approach may violate the state’s Taxpayers’ Bill of Rights.

Minnesota

On March 1, the Minnesota Department of Revenue updated its website with additional information on marketplace providers. Since October 2019, an out-of-state marketplace provider is required to collect and remit Minnesota state and local sales tax if its total sales are 200 or more retail sales or more than $100,000 in retail sales shipped to Minnesota over the prior 12-month period. To note, when calculating the threshold, the provider must include all marketplace provider sales and facilitated sales, and should not include sales where the purchaser is buying for resale. The purchaser must give the provider an exemption certificate claiming a resale exemption. The website also outlines requirements of marketplace provider collection, verifying that they are subject to sales tax audits.

Montana

On March 13, Senate Bill 124 was signed into law, mandating that all apportionable income will be sourced to Montana via a single receipts factor beginning for tax years after December 31, 2024.

Louisiana

On March 16, the Louisiana Department of Revenue, the Louisiana Uniform Local Sales Tax Board, and the Commission for Remote Sellers (RSC) submitted the Act 685 Report to the Legislature regarding the feasibility of creating a centralized processor of state and local sales and use tax and the potential for distributing local sales and use tax revenues on a daily basis. Required under Act 685 of 2022, the report expands the authority of the RSC to collect non-remote sales and use tax on behalf of state and local sales tax collectors that contract with the RSC to do so. Currently, the RSC collects state and local tax for sellers without a physical presence in Louisiana only. The report discusses Louisiana’s current sales tax collection practices in comparison to those in Colorado, Alabama, Alaska, and Arizona, all of which are centralizing collection. The report notes that unifying various aspects of tax administration will optimize benefits for taxpayers and governmental entities. The feasibility of distributing sales and use tax revenues to local collectors on a daily basis is uncertain, given the necessary reconciliations required for accurate collection. The report concludes by suggesting a centralized state and local sales and use tax processor and combined state and local sales and use tax return are feasible in Louisiana, given the state’s current collection tools. The report highlights the need to determine which combination of functions will best suit the needs of Louisiana taxpayers and emphasizes the benefits of unifying various aspects of tax administration, as seen in the unified state and local tax base in each of the states examined.

Texas

Starting from March 14, the Texas Comptroller will retroactively apply amendments to 34 TAC §3.591, incorporating language to determine where a taxable entity performs a service and removing the invalidated “receipts-producing, end-product act” test. There will be no changes to other provisions of 34 TAC §3.591.