PwC | US State Income Tax Digest

Welcome to the US State Income Tax Digest. We highlight significant income and business tax legislation, regulatory adoptions, judicial decisions, and administrative guidance. We hope that you find the digest valuable and look forward to your feedback.

Featured article: Louisiana enacts major tax changes in special session

A package of bills approved by the Louisiana State Legislature in special session and signed by Governor Jeff Landry (R) on December 5 includes significant tax changes, including for income, franchise, and sales and use taxes.

Among the changes are the repeal of the corporate franchise tax, imposition of a flat corporate income tax, significant credit changes including inventory tax credit repeal, imposition of sales and use tax on digital products, software-as-a-service, and information services, and the repeal of 84 sales and use tax exemptions and exclusions. (See H.B. 2, H.B. 3, H.B. 8, and H.B. 10.)

Click here for PwC’s Insight on this legislation.

Observation: The legislation, taken together, furthers Governor Landry’s stated goal of raising the stature of Louisiana’s tax structure and policy nationally by removing barriers to investment in Louisiana while limiting tax expenditures and expanding the consumption tax base to help maintain fiscal balance. The franchise tax repeal, corporate income tax rate simplification, and optional bonus depreciation and amortization will be a benefit for many Louisiana business taxpayers. However, the credit limitations and repeals, especially for the inventory tax credit, as well as the expansion of the sales and use tax base to many business-to-business transactions may have a significant business tax impact.

Actions to consider: Taxpayers should consider modeling the cumulative impact of the corporate income tax and credit changes and franchise tax repeal on their business tax liability. Taxpayers also should consider the potential impact of sales and use tax base expansion on their obligations as sellers and purchasers of newly taxable goods and services, as these changes generally are effective January 1, 2025.

Massachusetts: Practical implications of single-sales factor apportionment adoption for corporate filers

For tax years beginning on or after January 1, 2025, all corporations, financial institutions, individuals, trusts, and estates doing business in Massachusetts and at least one other state must apportion their net income and, in the case of corporations, determine their non-income measure tax liability, using a single-sales factor apportionment formula.

In addition, H.5077, enacted on December 4, prescribes an alternative apportionment method for those taxpayers whose sales factor is inapplicable that could apply an evenlyweighted formula using a taxpayer’s property and payroll factors to apportion.

Click here for PwC’s Insight on these developments.

Michigan provides guidance on alternative apportionment for the MBT, corporate income tax, and income tax

The Michigan Department of Treasury on December 17 issued a Revenue Administrative Bulletin (RAB 2024-24) addressing the procedures and standards governing the alternative apportionment relief provisions in parts 1 and 2 of Michigan’s Income Tax Act (MITA) and in the Michigan Business Tax (MBT) Act in response to the Michigan Supreme Court’s opinion in Vectren Infrastructure Servs Corp v Dep’t of Treasury, 512 Mich 594 (2023).

The bulletin includes when a taxpayer must submit a request to Treasury to use an alternative apportionment formula, what a taxpayer must submit, who has the burden, and the standard of proof that must be met before an alternative apportionment method will be applied, among other issues.

Pennsylvania Supreme Court rules against retroactive application of NOL “cap” remedy

In a 4-3 decision, the Pennsylvania Supreme Court concluded that its 2017 decision in Nextel – that a “cap” on the allowable net loss carryover deduction violated the Pennsylvania Constitution’s Uniformity Clause – should apply only prospectively. 2 PwC Four justices joined the majority opinion, with two of them filing concurring opinions. Two justices filed a concurring and dissenting opinion agreeing with the majority on the result, and one justice filed a dissenting opinion.

[Alcatel-Lucent USA Inc. v. Commonwealth of Pennsylvania, No. J-20-2024, 11/20/24]

Click here for PwC’s Insight on this decision.

San Francisco voters approve significant changes to business taxes

San Francisco (the City) voters on November 5 approved Proposition M, which significantly alters the City’s Business Tax rules. While deemed “revenue neutral over time” on an individual taxpayer basis, many taxpayers will see significant increases or decreases in their San Francisco Business Tax liabilities as a result of this tax measure passing.

Major changes to the San Francisco Business Tax include increased tax rates for both the Gross Receipts Tax (GRT) and Homelessness Gross Receipts Tax (HGRT), greatly reduced rates for the Overpaid Executive Tax, a shuffling of business categories from 14 to seven, updated apportionment weighting (generally from either 100% payroll or 50% payroll/50% sales weighting to 75% sales/25% payroll weighting), and potential changes to sales factor sourcing.

Click here for PwC’s Insight on these changes.

Read full article here.

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