State and Local Business Tax Insights and Updates

Tennessee

Tennessee Senate Passes $1.9 Billion Business Tax Cut, Law to Create Tax Refund for Tennessee Businesses

Last fall, a coalition of businesses contacted the state to contest the legality of Tennessee’s 90-year-old franchise tax and demanded a refund. In response, Tennessee Governor Bill Lee proposed $1.2 billion in refunds plus ongoing $410 million in tax breaks. Since going through the Senate, the amounts are now $1.56 billion and $395 billion in ongoing tax cuts. The potential lawsuit stems from concerns that the franchise tax violates a U.S. Constitution’s Commerce Clause provision, and a similar case from Maryland in 2015 did not help the situation.

The proposal has faced backlash and scrutiny from lawmakers with questions arising about the circumstances of the bill. The result of the back and forth will be significant tax cuts for businesses in Tennessee.

Michigan

Michigan Court of Appeals Rules Reduced Individual Income Tax Rate Temporary for 2023

The Michigan appeals court affirmed a trial court's ruling that an inflation-based income tax cut in the state is temporary, not permanent. The court rejected arguments from residents, lawmakers, and business groups that the tax cut set a new permanent rate, stating that the statute didn't indicate such legislative intent. The decision upholds a December ruling by the Michigan Court of Claims. The plaintiffs may appeal to the state's high court, as indicated by the Mackinac Center Legal Foundation, which represents them. The Michigan Department of Treasury stated it would continue to administer the law as per the court's ruling.

Update to Michigan Treasury Online Compliance Portal

The Department of Treasury is updating their web portal to allow same day payments, scheduling of future payments up to one year, and automatic payment card/ACH information through its My Wallet feature. The changes are set to take effect on April 13, 2024.

New York

New York City Business Corporation Tax Threshold increased to $1.128 million

The Commissioner of Finance is mandated to review tax deriving receipts thresholds annually to determine if a corporation is considered to be generating receipts from activity within the city for Business Corporation Tax purposes. If the Consumer Price Index (CPI) changes by 10 percent or more since January 1, 2022, or since the last adjustment by the Commissioner, the thresholds must be adjusted accordingly. The Commissioner has determined that the CPI has changed by 10% or more since January 1, 2022. Therefore, the thresholds for corporations and unitary groups have increased to $1,128,000 for tax years starting on or after January 1, 2024.

Additionally, for corporations within a unitary group meeting specific ownership criteria, the receipts threshold has increased to $11,000. However, to be considered as deriving receipts from activity within New York City, members of the group must collectively meet the increased threshold of $1,128,000. These thresholds will remain unchanged until the Commissioner reviews the CPI change again and adjusts the thresholds accordingly.

New York City Reinstates Tax Credit for Emerging Biotech

Through bill Intro 1070-A, New York City has revived a tax credit aimed at supporting emerging biotechnology companies in the city. The legislation, reinstates lapsed tax credits against various taxes for city-based biotech firms, with a yearly cap of $3 million. The credit will apply to tax years from January 2023 to January 2026, and the allocation among eligible taxpayers will be determined through a rulemaking process by the city Department of Finance. The move is part of efforts to bolster the city's life sciences industry, valued at $5.3 billion and employing approximately 20,000 people. The reinstatement of the credit was anticipated in the city's fiscal 2024 budget, and its revival aligns with state legislation signed by Governor Kathy Hochul in May, granting the council authority to revive the incentive.

The Qualified Emerging Technology Company (QETC) program in New York City offers tax credits to companies with annual product sales of $10 million or less, meeting specific criteria. Eligible companies must be engaged in emerging technologies or have significant research and development (R&D) activities. To claim the Biotechnology Tax Credit, companies must meet further requirements such as having 100 or fewer full-time employees, with a majority based in New York City, and meeting certain revenue and R&D expenditure ratios. The tax credit includes percentages of R&D property costs, qualified research expenses, and high-technology training expenses, capped at $250,000 per year. QETCs can claim this credit for three consecutive tax years and may receive refunds for unused portions or apply them to future tax liabilities. Combined group filings are also eligible for the credit, computed separately and applied to the combined tax liability. Detailed definitions and instructions are provided by the NYC Department of Finance Biotechnology Tax Credit Application.

Texas

Texas Franchise Tax No Tax Due Threshold Increased to $2.47 million

Texas Senate Bill 3 has increased the no tax due threshold to $2.47 million and filers below this threshold are not required to file a No Tax Due Report but would still file the Public Information or Ownership Information Report.

Additionally, new veteran-owned businesses are not required to file a No Tax Due report for the initial five-year period of their business.

Temporary Relief for Taxpayers Impacted by Texas Wildfires

This winter, Texas experienced its largest wildfire on record. The fires ravaged parts of more than 60 counties, spreading to more than a million acres. Businesses impacted by the wildfires can request an extension of time to file their sales tax, franchise tax, and excise tax returns.

In response to the economic conditions caused by the fire, the State has also temporarily waived motor fuels tax on clear diesel in the affected counties. There are typically two types of diesel sold in Texas, dyed diesel and clear diesel. Clear diesel is for use in on-highway vehicles and is subject to motor fuels tax, dyed diesel is used for off-road vehicles and equipment and is not subject to fuels tax. Additionally, If tax was paid on clear diesel but the fuel was used for off-highway equipment during the period of February 23,2024 to March 22, 2024, motor fuels tax may be subject to a refund.

Other State Tax News

Indiana and Wyoming Remove Transaction Count from Economic Nexus Standards

The recent changes in economic nexus rules have seen Indiana and Wyoming amend their tax laws, eliminating transaction count thresholds that online vendors found burdensome. Indiana and Wyoming now require remote vendors to collect tax only if their gross sales surpass $100,000. Utah's similar bill failed due to funding limitations. Transaction thresholds disproportionately affect small retailers. Wyoming expects easier compliance with simplified rules. Retailers affected by the threshold changes must decide whether to continue tax collection based on anticipated sales.

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