California

The California Governor’s Office of Business and Economic Development (GO-Biz) released guidance on the California Competes Tax Credit (CCTC). The CCTC is an income tax credit available to businesses that want to locate in California or stay and grow in California. The guidance discusses: 1) which type of business entity qualifies for the CCTC; 2) the time frame for applying for the CCTC; 3) additional information, including webinars and resources relating to the CCTC. [Cal. Governor’s Office of Bus. and Econ. Dev., California Competes, 12/01/24] 

Illinois

1. The Illinois Department of Revenue (DOR) issued an informational bulletin to retailers filing Form ST-1 (Sales and Use Tax and E911 Surcharge Return) which provides, effective January 1, 2025, that retailers previously obligated to collect and remit Illinois use tax on retail sales sourced outside of Illinois, and made to Illinois customers, are now subject to destination-based retailers’ occupation tax. This change affects retailers with any kind of physical presence in Illinois making sales that are sourced outside of Illinois-to-Illinois customers. For destination-based sales, retailers must register a tax site for each jurisdiction (i.e., city or county) where it has made a sale or plans to make sales. 
   • For out-of-state retailers, the IL DOR will change their registration status from use tax to retailers’ occupation tax, if applicable. 
   • Illinois retailers should already be registered to remit retailers’ occupation tax. 
   • Marketplace facilitators must ensure they collect and remit the proper retailers’ occupation tax for sales on behalf of the retailers. [IL DOR Info. Bulletin No. FY 2025-10, 11/01/2024] 
2. The IL DOR Sept. 17 issued a letter in response to a request for a private letter ruling (PLR) on the tax sourcing of tangible personal property sales. The DOR ruled that sales of products delivered to third-party distributor warehouses or storerooms within Illinois would be considered sales within the state, regardless of whether the distributor subsequently moves the goods outside the state. Conversely, sales of products delivered to third-party distributor warehouses or storerooms outside of Illinois would only be considered sales within the state if the distributor moves the goods into the state. [IL DOR, Gen. Info. Letter ST-24-0028-GIL, 09/17/24] 
3. The IL DOR issued a PLR on sales factor apportionment. The DOR determined that temporary interruption in Illinois of shipment from another state to other states or to a foreign country in which the taxpayer is not subject to tax will not cause the sale to be thrown back to Illinois. [IL DOR, Private Letter Ruling IT 24-0001-PLR, 08/22/24] 

Louisiana

Louisiana will adopt flat income tax rates for individuals and corporations next year after Governor Jeff Landry recently signed legislation. 

• HB 10 replaces Louisiana’s three-bracket income tax system with a flat 3% rate and increases the standard deduction to $12,500 for individual filers and $25,000 for married joint filers and heads of households. The retirement income exemption doubles to $12,000. 
• Another bill, HB 2, creates a flat corporate income tax rate of 5.5%, a middle ground between the current 3.5% lowest rate and 7.5% highest rate, but higher than Landry’s original plan to bring it down to 3.5% for all corporate filers. HB 3 repeals the corporate franchise tax. 
• To fund the tax cuts, lawmakers approved a sales tax hike from 4.45% to 5% for five years starting July 1, 2025 and dropping to 4.75% in 2030. 
• HB 8 expands the sales and use tax base to include digital products starting Jan. 1, 2025, covering items like audiovisual works and specific software services. 

Under HB 6, Louisiana will schedule a statewide vote on March 29, 2025, on amendments enumerated in HB 7, to budget and tax provisions of the state constitution. 

Minnesota

The Minnesota tax court held that the taxpayer’s income from services was properly sourced to Minnesota. Humana Pharmacy Solutions, Inc. (“HPS”), one of the taxpayer’s subsidiaries, entered into an agreement with Humana Insurance Company (“HIC”), another subsidiary of the taxpayer. Under that agreement, HPS provided a wide range of services and required HIC to pay HPS for providing those services, as well as to reimburse it for amounts HPS paid to participating pharmacies. The court found the application of the cascading rules in MN Stat. § 290.191, subd. 5(j) does not limit receipt of services for attribution purposes to “direct customers” of the taxpayer; rather, the determination of who received services is fact specific. Based on the record, the court concluded that the taxpayer failed to support its claims that any portion of the receipts at issue was provided only to and received only by HIC at locations outside Minnesota. The taxpayer also failed to support its claims that HIC ordered any services other than the pharmacy benefit management (PBM) services from HPS from locations outside of Minnesota or that HPS (as opposed to some third party) billed for any services other than the PBM services to HIC’s office outside of Minnesota. [Humana MarketPoint, Inc. v. Commissioner of Revenue, Minn. Tax Ct., Dkt. No. 9570-R, 11/21/2024] 

Oregon

The U.S. Supreme Court has been asked to review an Oregon Supreme Court case 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 is whether P.L. 86-272 immunity applies 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. filed, U.S. S. Ct., Dkt. No. 24-551, 11/15/2024] 

Pennsylvania

The Pennsylvania Supreme Court reversed the en banc decision of the Pennsylvania Commonwealth Court that ruled that the taxpayer was entitled to a refund of corporate net income tax. The taxpayer challenged Pennsylvania’s 2014 cap on net loss carryover deductions, which allowed corporations to carry forward net operating losses (NOLs) from prior years but only up to the greater of $4 million or 25% of the company’s 2014 net income. Citing the decision in General Motors v. Commonw., 265 A3d 353  (2021), the en banc court held that the Pennsylvania Supreme Court’s decision in Nextel Communications of the Mid-Atlantic, Inc. v. Commonw., 171 A3d 682  (2017), cert. denied, 138 S. Ct. 2635 (2018), applied retroactively to taxes that were collected before the 2017 decision in Nextel. Here, the Pennsylvania Supreme Court has held that General Motors was incorrectly decided because the General Motors majority analyzed only the first factor and failed to analyze all three factors in the Chevron test to determine whether Nextel should apply retroactively. The factors in Chevron all support prospective-only application of Nextel, and due process does not require the Commonwealth to refund the corporate net income taxes that the taxpayer paid in 2014. [Alcatel-Lucent USA Inc. v. Commonw., PA S. Ct., Dkt. No. 8 MAP 2023, 11/20/2024] 

Texas

Online business and technology groups are opposing a proposed change to Texas’s sales tax on data processing that would broaden the definition of data processing as applied to direct and ancillary services that have emerged since the tax was implemented in 1987. Comptroller Glenn Hegar has said the regulatory update isn’t a change in the tax but rather a clarification of the responsibilities of online marketplaces and the retailers who use their services. Under the proposal, marketplaces must collect and remit taxes on the fees they charge third-party sellers for data services; it states, “Marketplace provider services may be included in taxable data processing services when they involve the computerized entry, retrieval, search, compilation, manipulation or storage of data or information provided by the purchaser or the purchaser’s designee.” Tech trade association Internet Works called the proposal a “major tax policy shift” that would force small and medium-sized marketplaces to “implement costly overhauls to their systems.” The association’s members include eBay, Etsy, Yahoo! and others. [https://www.sos.texas.gov/texreg/archive/September132024/Proposed%20Rules/34.PUBLIC%20FINANCE.html#93] 

Virginia

1. When a purchaser directs a Virginia dealer to ship retail merchandise to a third party outside of Virginia, the purchaser is considered to have taken constructive possession of the property in Virginia. Such sales do not qualify for the interstate commerce exemption for sales tax because the initial transfer of possession to the retail property occurs in Virginia. See P.D. 87-51 (2/27/1987), P.D. 93-217 (11/2/1993), 96-63 (4/24/1996), 98-187 (11/10/1998) and 00-52 (4/14/2000). It is highly likely that there are many companies not sourcing sales to Virginia according to this guidance. [https://www.tax.virginia.gov/laws-rules-decisions/rulings-tax-commissioner/24-100] 
2. The Virginia Court of Appeals Nov. 12 affirmed the trial court’s judgment in favor of taxpayer, finding that the Virginia Department of Taxation (VDOT) overtaxed taxpayer for tax years 2013 through 2015 by requiring taxpayer to combine its apportionment factors with those of another company, in which taxpayer held a minority interest. The court held that this violated the U.S. Constitution’s Due Process and Commerce Clauses because taxpayer (and the company it held a minority interest in)  did not operate as a unitary business. The evidence showed that the two businesses were not functionally integrated, did not have centralized management and did not achieve economies of scale. The court rejected the VDOT’s arguments that taxpayer failed to follow proper procedure, that taxpayer took an operational role in the minority interest business and that state law required taxpayer’s income from its minority held business interest to be apportioned. [VA Dept. of Taxation v. FJ Mgmt., Inc., VA. Ct. App., No. 0701-23-2, 11/12/24] 
3. A home furnishings and furniture retailer should have collected sales tax on its lump sum fee for delivery and assembly of its products, given the retailer incorrectly classified the assembly charges as exempt installation charges. The retailer’s assembly made the tangible personal property that it sold fully functional, charges for assembling tangible personal property sold are not part of installation, and assembly charges are not excluded from the sales price. Additionally, the retailer’s single charge for delivery and assembly constitutes services provided in connection with the sale of home furnishings and are taxable as part of the sales price. [VA Public Document Ruling No. 24-99, 10/03/2024] 

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