2019 Year-End Tax Guide

THE MARCUM 2019 YEAR-END TAX GUIDE | www.marcumllp.com

While a state may conform to the Internal Revenue Code under the TCJA, applying the federal changes to state returns and determining how adjustments need to be presented is extremely complex.

States vary drastically in the sections with which they completely conform, partially conform or completely disallow. As very few states conform identically to TCJA, and issues of state conformity can be particularly complex, taxpayers must carefully evaluate how state treatment of federal tax reform affects their business. For individual income tax, states have largely chosen not to conform to IRC §199A (Qualified Business Income (“QBI”)). State conformity to the TCJA is further complicated by the silence of many states with regard to how the federal changes affect state tax returns. In many cases, specific guidance regarding the TCJA is not available, and taxpayers are able to rely only upon the states’ Internal Revenue Conformity guidance as published to date. While a state may conform to the Internal Revenue Code under the TCJA, applying the federal changes to state returns and determining how adjustments need to be presented is extremely complex. To further complicate matters, some states have provided conformity guidance after the due date of the returns, resulting in returns that were filed with the best information then available but now needing to be amended. SALES TAX ECONOMIC NEXUS Wayfair On June 21, 2018, the United States Supreme Court, in a 5-4 decision, ruled in favor of South Dakota and its economic nexus provisions for sales tax collection. The statute upheld by the Court in South Dakota v. Wayfair, Inc. requires remote retailers with annual in-state sales exceeding $100,000 or 200 separate transactions to collect and remit sales tax. In the 18 months since then, many states passed similar statutes that create specific dollar or transaction thresholds

that establish economic nexus. Florida and Missouri are the two remaining states that have a state sales tax, but have not set a dollar or transaction threshold for nexus. As a result of many taxpayers now registering with states for the first time, we expect to see an increase in nexus questionnaires being sent to taxpayers by state authorities. The questionnaires may be targeted to determine if the taxpayer has nexus for other taxes in the state, or if the taxpayer had sales tax nexus prior to the Wayfair decision. MARKETPLACE FACILITATOR The term “marketplace facilitator” varies state-to-state in terms of what qualifies under the definition. Under the rules generally, if a business sells goods and services through an online “marketplace,” the marketplace is required to collect and remit sales tax on behalf of the business. Common marketplaces that fall under the ambit of state marketplace facilitator rules include popular vendors such as Amazon, E-bay, and Walmart. While Washington State led the way in establishing the precedent for marketplace facilitator laws, throughout 2019, many other states have passed statutes that will be effective by January 1, 2020. The marketplace facilitator rules ease the burden on companies that utilize online marketplaces for sales, but they don’t eliminate all of the risks. Complications can still occur when a company utilizes multiple platforms, its own website, or fulfillment services provided by the marketplaces to facilitate sales. (Continued)

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