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Monthly Multistate Tax Report

State Tax Changes Taking Effect January 1, 2025, Frazier & Deeter

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Arkansas

The Arkansas Supreme Court has affirmed the circuit court’s grant of summary judgment to a corporate taxpayer, resulting in a substantial income tax refund. The taxpayer’s business was selling retail motor-fuel products and convenience-store items. To fund a spin-off of the taxpayer, the taxpayer’s new parent made a $650 million distribution to the existing parent using the proceeds from borrowed funds received from the taxpayer. The taxpayer then paid the interest expense on these borrowed funds. The taxpayer had allocated 100% of these interest expenses to Arkansas, its domicile state, and requested a refund. Because existing Arkansas law adopted the standard UDITPA definition of “business income” and “nonbusiness income” (Ark. Code Ann. 26-51-701), the court focused on the nature of the taxpayer’s business when determining whether activity is “business income” under the traditional transactional and functional tests. The court decided that the spin-off transactions and activity were not made in the regular course of the taxpayer’s business and the spin-off was not the acquisition, management, and disposition of property that constituted integral parts of the taxpayer’s regular business. (Hudson v. Murphy Oil USA, Inc., Ark. S. Ct., Dkt. No. CV-24-8, 12/12/2024.)

Georgia

The Georgia Department of Revenue (DOR) Nov. 25 issued a letter ruling on the application of sales and use tax to transactions involving prewritten computer software. The DOR ruled that the sale of prewritten computer software, delivered in a tangible medium (USB Keys) and picked up by a customer in Georgia, is subject to Georgia sales and use tax. The DOR also clarified that Georgia does not have a Multiple Point of Use (MPU) tax exemption, thus the sale of the software-loaded USB Keys is taxable, even if the software is ultimately used outside of Georgia. [Ga. Dep’t of Revenue, Letter Ruling SUT-2024-02, 11/25/24]

The Georgia Department of Revenue (DOR) Dec. 13 proposed a rule on digital products, goods and codes. The proposal addresses the sales and use taxation of specified digital products, other digital goods and digital codes. A remote public hearing will be held on Dec. 19 at 10:00 am. Comments on the proposed rule are due by Dec. 19. [Ga. Dep’t of Revenue, Reg. Section 560-12-2-.118, 12/13/24]

The Georgia Department of Revenue (DOR) issued information on the income tax changes. The information includes: 1) the state’s tax law conformity to federal changes in the Internal Revenue Code (IRC) for tax years 2021 to 2024; and 2) the adoption of House Bills and Senate Bills, their effective dates, and how they conform to the IRC. [Ga. Dep’t of Revenue, Income Tax Federal Tax Changes, 12/01/24]

Illinois

The Illinois Department of Revenue has issued a compliance alert to increase participant compliance in the Department’s direct pay permit program (DPP). Many participants are not in compliance with the record-keeping, filing, and payment requirements for purchases made under DPP. The Department will issue a notice of direct pay annual review to taxpayers reminding them of reporting obligations, and effective January 1, 2025, participants must complete an annual review of all transactions for the previous calendar year and submit confirmation of the review, no later than March 31, of the following calendar year. If the taxpayer was in business for less than 12 months during the calendar year, or part of the calendar year is under an active audit, the annual review must be conducted for the short-year period not under audit. Participants are responsible for filing Form ST-1-X (Amended Sales and Use Tax and E911 Surcharge Return) for any filing period where a transaction was incorrectly taxed. Failure to comply may result in a $6,000 penalty for the transactional review reporting period. (CA 2025-01, Ill. Dept. of Rev., 12/10/2024.)

The Illinois Department of Revenue has issued an informational bulletin to all persons who, in the ordinary course of business, lease or rent tangible personal property. Effective January 1, 2025, they are considered retailers subject to Illinois’ sales and use tax laws, in accordance with the Retailers’ Occupation Tax Act, and must register with the Department and pay tax on their lease or rental receipts. Leases of tangible personal property are considered sales at retail, and those who lease or rent property from Illinois businesses have tax itemized on receipts. Beginning January 1, 2025, taxpayers may use Form CRT-61 (Certificate for Resale) to claim an exemption on purchases of merchandise that will be leased or rented if the lease or rental of that item is subject to retailers’ occupation tax. Although tax does not apply to receipts prior to January 1, 2025, any amounts received on and after that date are subject to tax, including amounts received on contracts in place prior to January 1, 2025. The change does not impact leases or rentals of items that must be titled or registered with the state, such as motor vehicles. (Illinois Dept. of Rev. Info. Bulletin No. FY 2025-15, 12/01/2024.) 

City of Chicago

Chicago officially raised the personal property lease tax (sales tax) tax rate from 9% to 11% effective 1/1/25. This impacts sellers of software-as-a-service to customers in Chicago.

Maine

Maine Revenue Services has issued a notice discussing a recent law change affecting taxpayers engaged in the business of leasing or renting tangible personal property and/or electronically-transferred products. Beginning January 1, 2025, state sales tax is imposed on each periodic lease or rental payment paid by the lessee. For leases in effect, entered into, or renewed on or after January 1, 2025, lessors are required to charge and collect Maine sales tax from the lessee on each lease or rental payment. The notice also covers the sale price of payments; purchases for resale; prewritten computer software; automobiles, trucks, and vans; exemptions; and limited refund provisions. (Notice to Lessors of Tangible Personal Property: Maine Shifting to “Lease Stream” Sales Taxation Effective January 1, 2025, Maine Revenue Services, 12/01/2024.) 

Michigan

The Michigan Department of Treasury has issued a release updating the description of the procedures and standards governing the alternative apportionment relief provisions in parts 1 and 2 of Michigan’s Income Tax Act and in the Michigan Business Tax Act in response to the Michigan Supreme Court’s opinion in Vectren Infrastructure Services Corp. v. Department of Treasury , 999 NW2d 748, 512 Mich 594 (2023). (Michigan Revenue Administrative Bulletin No. 2024-24, 12/17/2024, replacing Michigan Revenue Administrative Bulletin No. 2018-28, 12/19/2018)

New York

L. 2024, S885 (c. 672), effective 04/21/2025, expands the definition of a hotel for sales tax purposes to include short term rental units. A short term rental unit is a short-term residential rental unit that is “an entire dwelling unit, or a room, group of rooms, other living or sleeping space, or any other space within a dwelling, made available for rent by guests for less than thirty consecutive days, where the unit is offered for tourist or transient use by the short-term rental host of the residential unit.” The law also specifies the persons who are required to collect the tax, in addition to adding provisions on remitting and collecting the tax, and registration requirements.                                                                     

Oregon

The U.S. Supreme Court has denied a request to review an Oregon Supreme Court decision which held that an out-of-state tobacco manufacturer removed itself from the safe harbor of P.L. 86-272 when its representatives went beyond soliciting orders in Oregon on behalf of wholesalers by taking prebook orders. The question presented to the court was whether P.L. 86-272 immunity applied for a company when it engages in otherwise protected activities in Oregon to solicit requests for orders from retailers if it also sends successfully solicited retailer requests for orders to wholesalers (i.e., the company’s customers) for wholesalers to accept and process, and, if ultimately fulfilled, to be fulfilled by the wholesaler from the wholesaler’s own inventory of product that it previously purchased from the company (i.e., the wholesaler makes the sale to the retailer). (Santa Fe Natural Tobacco Co. v. Dept. of Rev., Or. S. Ct., Dkt. No. SC S069820, 06/20/2024, cert. denied, U.S. S. Ct., Dkt. No. 24-551, 12/16/2024.)

South Carolina

The South Carolina Department of Revenue has issued a revenue ruling to explain the tax credits for rehabilitating certified historic structures qualifying for the federal credit and historic residential structures located in South Carolina. S.C. Code Ann. § 12-6-3535(A) provides a nonrefundable tax credit of 10% against state income taxes and license fees, for taxpayers who qualify for the federal income tax credit for making qualified rehabilitation expenditures for a certified historic structure located in South Carolina. Taxpayers can elect to take a 25% South Carolina credit instead of 10%, but the 25% credit is limited to $1 million for each certified historic structure. S.C. Code Ann. § 12-6-3535(B) provides a nonrefundable income tax credit for taxpayers who are not eligible for the federal credit. The credit is for 25% of the rehabilitation expenses for a certified historic residential structure located in South Carolina. The ruling discusses eligible properties, the application fees, certification of additional work and provides answers to the most frequently asked questions. (South Carolina Revenue Ruling No. 24-6, 12/16/2024.)

Tennessee

The Tennessee Department of Revenue has issued a letter ruling that states that a successor taxable entity in an IRC § 368(a)(1)(F) reorganization assumes the tax attributes of its predecessor taxable entity including items such as net operating losses (NOLs) and tax credits. While, NOLs and tax credits, may generally only be claimed by the taxable entity that incurred the losses or generated the credits, there is an exception if the predecessor taxable entity merges into a taxable entity with no activity, assets or liabilities prior to the merger. (Tennessee Letter Ruling No. 24-09, 11/05/2024.)

The Tennessee Department of Revenue has updated its taxability matrix to reflect the Streamlined Sales and Use Tax Agreement as amended through October 8, 2024. The matrix indicates that a remote seller who is registered to collect sales tax in Tennessee has an obligation to remit consumer’s use tax on its own property such as catalogs and samples delivered into Tennessee. (Tennessee Taxability Matrix, Tax Administration Practices, 12/30/2024.)

Contributors

Brian Strahle, Partner and National Practice Leader, State & Local Tax

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