State & Local Tax: Possible tax changes ahead
State & Local Tax Update: Possible tax changes / decreases ahead
States considering tax relief due inflation
According to the Tax Foundation, nearly 3 dozen states are enacting or considering some form of tax relief to help combat the growing prices for gas, food, and rent - as inflation continues to rise at the fastest pace economists have seen in the last 40 years.
The push stems from significant state cash reserves - between a quicker than expected economic rebound in 2021 and the $350 billion infusion of stimulus funds they received from Congress last year. While the Biden administration has restricted states from using relief funds to directly subsidize tax cuts, many governments are passing tax cutting legislation as a work around.
Below is a summary of some of the proposed and enacted laws for Pennsylvania and contiguous states to be aware of:
- Relief payments – Delaware is set to begin sending out $300 "relief payments" to adult residents of the state in May 2022. Legislation passed in April established the 2022 Delaware Relief Rebate Program to provide resident individual income taxpayers a one-time, retroactive, refundable income tax credit in the amount of $300. Within 6 months of the enactment of legislation, the department of Finance in collaboration with the Department of Technology Information (DTI), must establish a process to identify adult Delaware residents who did not file a 2020 DE tax return so they can receive the $300 relief rebate directly or apply for one.
- Unclaimed property change – This is proposed legislation to force unclaimed property holders into an audit when they fail to complete the Department of Finance compliance review. If signed into law, it would make applicable unclaimed property holders subject to a more rigorous Dept of Finance audit rather than a more routine Secretary of State audit. Companies that receive notification to enter an unclaimed property VDA will need to quickly assess the risks and benefits of entering the program versus a DOF audit.
- State Work Opportunity Tax Credit – New legislation created a nonrefundable state income tax credit for up to 50% of the federal Work Opportunity Tax Credit (WOTC) claimed by an employer for wages it paid or incurred for a qualified individual employed in the state of Maryland. Maryland noted that WOTC has the same meaning as defined in IRC section 51. Maryland also specified that unused WOTC or portions of it cannot be carried over to another tax year for utilization.
- Expansion of sales tax exemptions - On April 1, 2022 several laws were enacted to expand a list of items that qualify for the sales and use tax exemption for medical devices and products. The list includes blood pressure items, diabetic care items, items related to baby care needs, products in the cessation of tobacco use, and hygienic products. For a full list of specific items reference laws; SB 488, HB 1151, SB 316, HB 492, and SB 571.
- Extension of Business Alternative Income Tax deadlines – The New Jersey Division of Taxation (NJ DOT) has extended several important deadlines for the New Jersey Business Alternative Income Tax (NJ BAIT). The NJ BAIT is an elective pass-through entity (PTE) tax implemented to help offset the $10,000 limitation on the federal deduction for state and local taxes established under IRC Section 164(b)(6), referred to as the SALT cap.
New Jersey DOT extended due dates for the following NJ BAIT filings from March 15, 2022 to June 15, 2022:
- 2021 PTE election
- 2021 Form PTE-100 tax return
- 2021 Form PTE-200-T extension of time to file
- 2021 revocation forms
- 2022 estimated payments
- COVID 19 test kits subject to sales tax - NJ DOT has stated that retail sales of COVID-19 test kits are subject to the state's sales tax because they contain an exempt reagent and other taxable components. However, they specified that COVID-19 kits purchased directly by the federal or state government are exempt from the sales and use tax.
- Amendments to the Pass-Through Entity Tax - On May 6, Governor Kathy Hochul signed legislation that amends the recently enacted changes to the state pass through entity tax (PTET).
The most important changes made by the amendment include:
- An extension on electing into the PTET. Eligible partnerships and S corporations that missed the March 15, 2022 deadline for electing into the PTET now have until September 15, 2022 to make the election.
- For PTET elections made after March 15, 2022 and before June 15, 2022 a mandatory tax payment of 25% of the required annual payment must be made with the election. If the election is made after June 15th, 2022 and before September 15, 2022 then a payment of 50% of the required annual payment must be made.
- NYC enacts a Pass-Through Entity tax – On April 9, 2022 New York City established an elective PTE tax. Any eligible NYC partnership or eligible NYC resident S corporation that makes an annual election to be taxed under NYS PTE tax may make an election to be taxed under the NYC PTE tax for the same tax year for which the NYS election is made.
- Gas tax suspension – Governor Kathy Hochul has announced that starting in June the state will suspend some of its state gas taxes through the end of 2022. This is predicted to save families and businesses an estimated $585 million.
- Proposed Corporate Net Income tax decrease - To make Pennsylvania more business-friendly, Governor Tom Wolf has called for gradually lowering the state's corporate tax rate to 5% from 9.99%. This is contrary to the position of some of his political peers in the PA legislature, who are instead calling for the corporate tax rate to be raised. At the current rate of 9.99%, Pennsylvania has one of the highest corporate tax rates in the country and currently the potential decrease is merely a proposal.
- Campaign promise to eliminate state cellphone tax - Attorney General Josh Shapiro, who is running for governor, has proposed eliminating Pennsylvania's 11% cellphone tax, expanding a property tax, and rent rebate program and providing a $250-per-vehicle gas tax refund. The gas tax refund would be paid for with unused pandemic relief money.
This is a summary of some of the pertinent state and local tax changes, mostly taxpayer friendly, that are either proposed or recently enacted. We will continue to monitor these and other upcoming tax law changes to keep you aware of tax news you need to know.
Please contact your Herbein tax consultant at firstname.lastname@example.org if you have questions regarding the contents of this tax alert.