Larry's Tax Law

Last week, we reported on Maryland’s new gross receipts tax on revenues derived from digital advertising services (the “Tax”), the first of its kind in the nation.  Affected taxpayers and tax practitioners alike can breathe a sigh of relief—the Tax will not apply to tax years beginning before 2022.  Additionally, the broadcast news industry secured a significant victory by obtaining an exclusion from the Tax.

Background

During the COVID-19 pandemic, the federal government enacted three major pieces of legislation to provide financial relief to individuals and families.  The American Recovery Plan Act (“ARPA”), the most recent legislation, provides the third round of Economic Impact Payments (“EIPs”), also referred to as stimulus payments (and “recovery rebates” in the acts), to millions of Americans.

Maryland recently enacted the nation’s first tax on digital advertising.  The new tax, the Digital Advertising Gross Revenues Tax (the “Tax”), became law on February 12, 2021. 

The Tax has been surrounded by controversy from the very moment it was introduced in the Maryland House of Delegates.  In fact, a lawsuit to prevent the Comptroller of the Treasury of Maryland from enforcing the Tax was recently filed by a group of affected taxpayers.

In the wake of the coronavirus pandemic, companies in wide-ranging industries across the country have unprecedented numbers of employees working from remote locations.  In a prior post, we discussed numerous issues that may arise from this new normal of teleworking, including tax, labor and employment, liability, and business registration implications. 

In this post, we drill down a bit further with respect to employers’ state tax reporting and payment obligations that may result from having employees working remotely in states other than where the employers maintain physical offices.  This is especially relevant in metropolitan areas that straddle multiple states, like here in Portland, Oregon.

When we thought times were bad enough with the COVID-19 pandemic and widespread social unrest in our country, the West Coast, including the Pacific Northwest, was struck with unprecedented wildfires and massive windstorms, taking lives, destroying property and rendering the air quality throughout the region unhealthy.  On September 16 and 17, the Internal Revenue Service announced good news for many taxpayers residing in Oregon. 

In News Release OR-2020-23 and News Release IR-2020-215, the IRS announced that, due to the wildfires and windstorms striking Oregon, the deadline for certain Oregonians to file returns and make tax payments will be extended to January 15, 2021.

More than six months into the coronavirus pandemic, and approximately four months since the IRS issued Notice 2020-32, it is looking increasingly likely that taxpayers will not be permitted to deduct business expenses funded with Paycheck Protection Program (“PPP”) loan proceeds that are ultimately forgiven.  It is terribly late in the game not to have finality on the issue, especially with the third quarter 2020 estimated tax payments due on September 15 (next week).     

Background

As we previously discussed, PPP loans authorized by the CARES Act may be forgivable, in whole or in part, if taxpayers use the proceeds for qualifying expenses (namely, payroll, benefits, mortgage interest, rent, and utilities).  Unlike other debt that is forgiven, PPP loan amounts forgiven pursuant to the CARES Act do not constitute cancellation of debt income.

Earlier this year, the Idaho Supreme Court, in Noell Industries, Inc. v. Idaho State Tax Comm’n, --- P.3d ---- (2020), ruled that gain from the sale of membership interests in a limited liability company that had business operations in Idaho by a taxpayer domiciled outside of Idaho was not business income.  As a result, the gain was not taxable in Idaho.

The court, in a 3-2 decision, upheld the district court’s reversal of the Idaho Tax Commission’s determination to tax the income.  The sharks were circling the taxpayer, ready to attack, but the majority of the justices on the Idaho Supreme Court intervened, saving the taxpayer from a savage death (or at least a boatload of taxes).

During the first special session of 2020, the Oregon legislature passed House Bill 4212 (“HB 4212”).  Governor Kate Brown (the “Governor”) signed HB 4212 into law on June 30, 2020. 

HB 4212 extends the time periods that apply to court proceedings, including those in the Oregon Tax Court (“Tax Court”), to provide relief to litigants who may be impacted by the COVID-19 pandemic.

On July 21, 2020, the Chief Justice of the Oregon Supreme Court (the “Chief Justice”) issued Order No. 20-027 (the “Order”) to facilitate the implementation of HB 4212.  In this post, we address the impact that HB 4212 and the Order may have on Tax Court cases.

Taxpayers with cases pending in either the magistrate or regular division of the Tax Court may be able to utilize these extended time periods.  Additionally, taxpayers may still have the ability to initiate or continue Tax Court proceedings if they missed the time period for doing so originally, including appealing adverse determinations to the magistrate division, regular division, or even the Oregon Supreme Court.

During the special session, the Oregon legislature passed House Bill 4202 (“HB 4202”), which Governor Kate Brown signed into law on June 30, 2020.  The legislation, which makes several technical and policy changes to the Oregon Corporate Activity Tax (the “CAT”), becomes effective on September 25, 2020.

The Oregon Legislative Revenue Office estimates that the modifications to the CAT resulting from HB 4202 will cost the state approximately $500,000 per year in lost tax revenue for each of the next six years.  The CAT was projected to raise approximately $1 billion per year in tax revenue.  Consequently, assuming these projections turn out to be accurate, the revenue losses attributable to HB 4202 should amount to less than one-tenth of 1 percent.

HB 4202 brings good news to farmers and provides some clarity for a small subset of Oregon taxpayers.  Unfortunately, the legislature did not repeal the CAT, and our lawmakers’ curiosity was not enough to cause them to look closely at the law and make the monumental changes that many taxpayers have been pleading for these past months.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act waives the requirement that taxpayers take required minimum distributions (“RMDs”) for 2020 from IRAs, 401(k) plans and other defined contribution plans.  Taxpayers who already took 2020 RMDs may be able to return them to their retirement plans or IRAs and avoid paying income tax on the distributions.  The timing, however, is critical.

Notice 2020-51, issued by the IRS last week, provides needed clarity about this provision of the CARES Act.