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Multistate Tax Update

Ohio Governor John Kasich’s administration has released additional details regarding the expanded list of services that would be subject to the state sales tax under the Executive Budget proposal. Those services the administration deems to be connected to the essentials of life, such as medical care and education, would continue to be tax exempt. The budget would reduce the state sales tax rate from five and a half percent to five percent while subjecting to sales tax a number of services that are not currently subject to sales tax. If adopted, the proposal would add roughly $53 billion to the sales tax base in fiscal year 2015. Governor Kasich’s plan also includes a 20 percent income tax cut across the board.

The following services are among those that would be subject to the state sales tax if the Executive Budget proposal is adopted:

  • Accounting services
  • Architectural, engineering and related services
  • Legal services
  • Debt counseling
  • Packing and crating
  • Investment counseling
  • Loan broker fees
  • Lobbying and consulting
  • Mailroom services
  • Parking lots and garages
  • Property sales agents (real estate or personal)
  • Public relations and management consulting
  • Real estate management fees
  • Real estate title abstract services
  • Service charges of banking institutions
  • Software programming
  • Tickertape reporting (financial reporting)
  • Tax return preparation
  • Advertising agency fees (other than ad placement)

Click here to view the full list of taxable services under the proposal.

Click here for highlights of the governor’s new Executive Budget.

Connecticut – Amazon to collect sales tax in Connecticut

Connecticut Governor Daniel P. Malloy announced on February 4, 2013 that the State of Connecticut and Amazon have entered into an agreement for Amazon to begin collecting the state’s 6.35 percent sales tax on merchandise purchased on Amazon’s website by consumers in the state. Such collection efforts will begin on November 1, 2013. The state expects to collect $8 million in sales tax for fiscal year 2014 and between $13 million and $15 million during fiscal year 2015.

At the same time, Governor Malloy also announced that over the next two years, Amazon would invest $50 million in the state and create hundreds of new full-time jobs.

“All in all, this is a win for our state’s taxpayers, our main street retailers, and our workforce,” Governor Malloy said in a statement. “Amazon’s multi-million dollar investment and the hundreds of jobs that will come with both the construction and operation of their future facility will unquestionably boost our local economy. Their agreement to begin collecting revenue is a great step, but federal action on this issue is still necessary.”

Paul Misener, Amazon vice president, Global Public Policy, said in an announcement that he “look[s] forward to working with Governor Malloy toward passage of the legislation now being considered by Congress that would finally resolve the sales tax issue, level the playing field for all retailers, protect state’s rights and allow states to collect the revenue owed.”

Current federal law follows a 1992 U.S. Supreme Court case (Quill Corp. v. North Dakota) which held that companies selling merchandise online cannot be required to collect sales taxes if they lack a physical presence – such as a distribution center – in that state. This case specifically noted that Congress can overrule this decision through legislation.

Connecticut now joins 15 other states where Amazon has begun collecting, or has pledged to begin collecting, sales tax on merchandise sold to customers residing in such states. The other states joining Connecticut include: California, Indiana, Kansas, Kentucky, Massachusetts, Nevada, New Jersey, New York, North Dakota, Pennsylvania, South Carolina, Virginia, and Washington.

Michigan – Guidance issued describing procedure to define a unitary business group

Under Michigan’s Corporate Income Tax (CIT), a unitary business group is two or more United States “persons” who satisfy both a control test and one of two alternate relationship tests.

Revenue Administrative Bulletin 2013-1 elaborates on a number of issues pertaining to the control test and alternate relationship tests. Among the matters upon which it provides additional guidance are:

  • What is the control test under the CIT?
  • What are controlled groups of entities?
  • How do voting agreements affect the control test?
  • What special considerations exist in applying the relationship tests?
  • What factors should be weighed in determining whether either relationship test is met?

Revenue Administrative Bulletin 2013-1 also provides many useful illustrative examples demonstrating the application of various tests and definitions to hypothetical scenarios.

Click here to view Revenue Administrative Bulletin 2013-1.

For additional information regarding these subjects or any other multistate tax issues, please contact:

David M. Kall

Susan Millradt McGlone

Jeremy J. Schirra

Multistate Tax Services

Businesses must be vigilant and careful in managing their state and local tax liabilities and exposures. We understand this can be a daunting task. McDonald Hopkins Multistate Tax Services provides a broad range of state and local tax services including tax controversy, tax evaluation, tax planning, and tax policy. With professionals who have worked both inside and outside government agencies, our multistate tax team leverages its knowledge and experience to help clients control their complex multistate taxes.

Carl J. Grassi, President
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© 2013 McDonald Hopkins LLC All Rights Reserved. This Alert is designed to provide current information for our clients, friends and their advisors regarding important legal developments. The foregoing discussion is general information rather than specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your legal advisor before using this discussion as a basis for a specific action.