Employee Benefits Blog

Posts tagged State and local taxes

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Wayfair Court Decision and its Dramatic Impact on Your Sales and Use Tax Requirements

On June 21, 2018, the Supreme Court of the United States handed down a historic decision in the sales and use tax nexus case South Dakota v. Wayfair, Inc. The ruling overturns historical requirements upheld in previous cases that called for the existence of a true “physical presence” before a state could impose sales and use tax collection obligations on a taxpayer. Taking its place is a much lower and vague threshold known as “economic nexus.” This decision is one of great significance, making it far more likely that many businesses will be required to register and collect sales and use tax in jurisdictions where they have not been required to do so in the past. It is imperative that business owners and managers who oversee sales and use tax compliance become aware of just how unfettered states are under the new standards – both in terms of enforcing existing rules and imposing new ones.

Posted Under: State and local taxes

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Proposed Regulations Will Shut Down Most End Runs around New State Tax Deduction Limits

One of the features in December’s Tax Cuts and Jobs Act (“TCJA”) that gathered the most attention and disagreement was a section that capped the deductibility of state and local taxes at $10,000. Almost immediately, some new state and local tax arrangements began cropping up that seemed designed to offer taxpayers the ability to circumvent this new TCJA limitation. (Some such programs already existed, but overall they saw dramatically increased activity.) As a result, the Treasury Department warned early this summer that it planned to issue regulations curbing what it saw as abuse of these programs. Last week, it followed through by issuing REG-112176-18, the topic of this article.

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State impact

Most states base their tax structures on the federal rules – but do so in different ways. About a third of the states use “rolling conformity,” which means their rules automatically adopt federal law changes like the Tax Act, with no action needed by their legislatures to accomplish it. (Often certain carve-outs are not conformed, though, so if the rule changes involve those areas, conformity is not complete.) Slightly more states conform to the federal rules as written as of a certain date, and those states will have to decide whether to conform or not – until they do, any changes to the federal rules are ignored. A few states’ tax structures are not based on federal income at all – they make their own rules.