Tax News Brief: 2024 Second Quarter

Welcome to Weaver’s Specialty Tax Services quarterly newsletter. This newsletter covers the top issues across our Specialty Tax Services, including State and Local Tax (SALT), Fixed Asset, Tax Provisions, and Transaction Tax Advisory.

Explore all of the tax content or narrow your focus to specialized tax area that is important to you:

©2024

State and Local Taxes

California Allows 100% Foreign Dividend Income in Sales Factor for Water’s Edge Returns

The California Office of Tax Appeals (OTA) allowed a water’s-edge filer to include 100 percent of its foreign dividend income in the California sales factor denominator. The OTA recently denied the California Franchise Tax Board’s request for rehearing in the Appeal of Microsoft Corporation and Subsidiaries (OTA Case # 21037336), making the July 2023 decision final. This decision could provide refund opportunities for water’s-edge filers with foreign dividend income.

Florida Reduces Rental Sales Tax

Florida reduced its state sales tax on the total rent charged for renting, leasing, letting, or granting a license to use real property from 4.5 percent to 2 percent, effective June 1, 2024. Rental charges, paid on or after June 1, 2024, for rental periods of December 1, 2023 through May 31, 2024, are subject to 4.5 percent state sales tax, plus any applicable discretionary sales surtax. Rental payments made prior to June 1, 2024, that entitle the tenant to occupy the real property on or after June 1, 2024, are subject to 2 percent state sales tax, plus any applicable discretionary sales surtax.

Illinois Tax on Remote Sellers Challenged as Unconstitutional

An online pet medication seller appealed an assessment of more than $1.3 million in Illinois retailers’ occupation tax (ROT), use tax, and interest for remote sales made to Illinois customers. PetMeds argued that the assessment discriminates against interstate commerce in violation of the Commerce Clause and creates an undue burden on out-of-state retailers in violation of South Dakota v. Wayfair, Inc.

Fuel Taxes

Maryland’s Tax System Conversion Causes Fuel Tax Return Delays

Maryland’s tax system conversion delayed the generation of the January-February fuel tax returns. The January returns were mailed out on March 22, 2024. Due to the delays, any accrued penalty and interest will be abated. Taxpayers that receive a notice of penalties and interest related to December through February period returns should email MFTReturns@marylandtaxes.gov. Once the taxpayer receives the new return pages in the mail, they should attach the worksheet and schedules to the return and mail together. They should not mail them separately.

IRS Looks at Superfund Export Tax Refund Claims

The Internal Revenue Service (IRS) is enforcing the provisions of IRC Section 4662(e)(3) on which party can claim a refund of tax paid on exported taxable chemicals and what support is required for these claims. Under this section, the exporter of taxable chemicals may claim a credit or refund of the Federal Chemical Superfund Tax to the extent the original taxpayer waives its claim to the credit or refund and the exporter has proof of export. Taxpayers need to have all statutorily required documentation necessary to substantiate a claim for credit or refund of tax paid on chemicals that are exported from the United States.

Read Weaver’s full article here

False Claims for Fuel Tax Credits Makes the IRS’s Dirty Dozen List

The IRS warned taxpayers to watch out for improper claims of Federal Fuel Tax Credits in its annual Dirty Dozen list of tax scams. Fuel taxes are rarely seen on the Dirty Dozen, but there has been an uptick in examination activity and issuances of IRS notices related to these and other fuel-related credits.

Read Weaver’s full article here

Fixed Asset Advisory

Section 179D Benefit Boost for Prevailing Wages Starts in 2023

Beginning in 2023, the IRC Section 179D Energy Efficient Commercial Building Deduction received a major boost with the Inflation Reduction Act. Notably, the deduction amount increased to $5.00 (and higher with inflation adjustments) per square foot if prevailing wage and apprenticeship standards were met and the building was 50 percent or more energy efficient. To allow for a transition period, any construction project that commenced prior to January 30, 2023 may be able take the higher deductions without meeting the prevailing wage and apprenticeship programs. These buildings will be wrapping up construction in 2023, 2024 and perhaps some not until 2025.

Tax Provisions

Companies Should Adequately Assess Tax Positions for FIN 48 Reserve

Companies with little to no federal tax liability often fail to spend adequate time analyzing their tax positions for FIN 48 purposes. These “tax positions” are those taken in a past tax return or that the company expects to take on a future tax return. FIN 48 requires companies to analyze and report these tax positions and determine whether a particular tax position will more likely than not be sustained in an IRS dispute. A company with net operating losses (NOLs) or any other deferred tax assets established because of an uncertain tax position need to carry a FIN 48 reserve and accrue penalties and interest for the FIN 48 reserve on a quarterly basis.

Transaction Tax Advisory

IRS Proposes Guidance on Stock Buyback Tax

The IRS proposed guidance on the enacted 1 percent excise tax on corporate stock repurchases. The newly proposed guidance generally follows Notice 2023-2, published on January 17, 2023, which provided initial guidance on the application of the tax. The proposed regulations would impact publicly traded domestic corporations and certain publicly traded foreign corporations that repurchase their stock or whose stock is acquired by certain affiliates. As guidance develops, taxpayers should be aware of the excise tax and consider how it may apply to seemingly benign situations.