2020 Year-End Tax Guide

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States are likely to become more aggressive in identifying tax payers who should be filing. “ ”

Taxpayers who were slow to respond to the Wayfair decision had a small window of time for non-compliance; however, now, two years later, the potential exposure is much larger. The longer these rules go unaddressed, the larger the exposure grows. If a taxpayer never files a return, the statute of limitations never begins, so a state has the ability to audit a company from the first day the taxpayer had nexus.

These issues become an immediate concern for taxpayers because of the COVID-19 pandemic. States are likely to become more aggressive in identifying taxpayers who should be filing sales taxes , in order to help make up for lost revenue during the crisis. Once contacted by a state about delinquent filings, taxpayers are generally no longer allowed to pursue voluntary disclosure agreements and are, therefore, subject to penalties on uncollected sales taxes and a longer look-back period. Texas On December 20, 2019, the Texas Comptroller of Public Accounts adopted an economic nexus provision. In addition to the date physical presence was first established in Texas and the date the taxpayer first obtained a Texas use tax permit, taxpayers will now also be subject to Texas franchise tax as of the first date on which the taxpayer had Texas gross receipts in excess of $500,000. Oregon On May 16, 2019, Oregon Governor Kate Brown signed legislation establishing the Oregon Corporate Activity Tax (“CAT”), effective beginning tax year 2020. The Oregon CAT, imposed in addition to the state’s existing businesses excise and income tax, is imposed on businesses for the privilege of doing business in Oregon. Taxpayers with taxable Oregon commercial activity in excess of $1 million are obligated to remit the CAT at a rate of $250 plus 0.57% of their taxable Oregon commercial activity exceeding the $1 million threshold. New York State and New York City On April 3, 2020, New York State Governor Andrew Cuomo signed into law a provision that decouples the state from specific provisions of the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, including the CARES Act amendment to IRC § 163(j) increasing the amount taxpayers can deduct as an interest expense for the 2019 and 2020 tax years. On September 22, 2020, the New York City (NYC) Department of Finance issued a Finance Memorandum addressing the ramifications of its decoupling from certain provisions of the CARES Act. Currently, New York City has decoupled from the business interest deduction and net operating loss carryback rules detailed in the Act.

STATE AND LOCAL TAX UPDATES Following is a summary of recent tax law changes in selected states, for 2019, 2020 and 2021: California On June 29, 2020, California Governor, Gavin Newsom, passed Assembly Bill No. 85 into law. The law established that for tax years 2020 through 2022, taxpayers will not be allowed to utilize Net Operating Loss deductions generated in prior tax years and will only be allowed to utilize up to $5 million in general business Credits. Additionally, on September 9, 2020, Governor Newsom also signed SB 1447, which provides a credit against personal and corporate income taxes for each taxable year beginning on or after January 1, 2020, and before January 1, 2021, for qualified small business employers that increase their net employment. Florida Beginning on January 1, 2020, Florida decreased the state sales tax rate imposed on commercial real property rentals from 5.75% to 5.50%. Tennessee Beginning on October 1, 2020, remote sellers and marketplace facilitators are required to collect and remit Tennessee sales tax if their annual sales into Tennessee exceed $100,000. Tennessee has reduced its economic nexus threshold from $500,000 to $100,000 as part of an effort to increase revenue generated from its sales and use tax.