TWIST - This Week in State Tax

Colorado House Bill 24-1134, which has passed both chambers of the legislature, would make changes to Colorado’s combined reporting rules. if enacted, effective for tax years beginning from and after January 1, 2026, the current “three out of six test” for combination would be repealed. Under this test, the combined group includes only those members of an affiliated group of C corporations as to which any three of six enumerated criteria have been in existence in the tax year and the two preceding tax years. The bill notes that this test has been difficult for taxpayers and the Department of Revenue to apply and has created unnecessary tax compliance challenges. From the effective date forward, an affiliated group of C corporations, wherever incorporated or domiciled, that are members of a unitary business would file a combined report as a combined group. Another section of the law that is not revised provides that a combined report does not include any C corporation that conducts business outside the United States if 80 percent or more of the C corporation’s property and payroll is assigned to locations outside the United States. However, recall that effective for tax years beginning on or after January 1, 2022, a combined group includes any C-corporation member that is incorporated in a foreign jurisdiction for the purpose of tax avoidance.

House Bill 24-1134 also reaffirms that Colorado has required the use of the so-called “Finnigan” rule since 2022. The bill provides that the numerator of the combined group apportionment factor includes amounts sourced to the state for the combined group's unitary business, regardless of the separate entity to which those factors may be attributed, and the denominator of the factor includes amounts associated with the combined group's unitary business wherever located. Please contact Amanda Bennett with questions. 

The Nevada Tax Commission has proposed a new regulation addressing the requirements for remote sellers and marketplace facilitators to collect sales and use tax that have been in place since October 1, 2019. The proposed new section of the Nevada Administrative Code first defines several key terms that are not defined in the law, such as “marketplace,” “listing of products for sale,” and “facilitate.”  The proposed regulation also adopts a definition of a “delivery network company” and provides that a delivery network company will be deemed a marketplace facilitator if it otherwise meets the definition set forth in the statute. There are numerous examples of how to compute the thresholds year over year and what sales marketplace facilitators and marketplace sellers must report on their returns. Certain issues not addressed in the marketplace facilitator statutes are the acceptance of coupons, discounts, and exemption certificates. Under the proposed regulation, coupons and other discounts offered by remote sellers, marketplace sellers and marketplace facilitators are retailer discounts, which reduce the sales price and thus the taxable amount of the sale. The proposed regulation also addresses customer returns and which party, the marketplace facilitator, or the marketplace seller, refunds the sales tax to the customer. With respect to exemption certificates, the marketplace facilitator is responsible for obtaining and maintaining exemption certificates when the marketplace facilitator makes or facilitates an exempt Nevada retail sale on behalf of a marketplace seller. There may be instances where an item is being sold that is subject to a tax other than or in addition to Nevada sales tax; the proposed regulation does not address this situation, but it does recommend that such sellers reach out to the Department of Taxation for guidance. Please contact Sarah McGahan with questions. 

The Tennessee Department of Revenue recently issued Notice #24-05 addressing the franchise tax property measure repeal. A webinar was also held to educate practitioners and businesses on the processes and procedures for filing amended franchise tax returns and refund claims. A playback of the webinar is posted on the Department’s website, and the Department has also started a list of FAQs. Recall, under SB 2103/HB 1893 the property measure of the franchise tax has been repealed for tax years ending on or after January 1, 2024. Going forward the franchise tax will be calculated based only on a taxpayer's net worth. The legislation allows taxpayers to request a refund of the difference between the tax paid using the property measure and the tax that would have been owed based on net worth for the applicable tax year(s). Importantly, the Notice addresses franchise tax filing requirements for the 2023 tax year. Specifically, for returns filed for tax years ending on or before December 31, 2023, taxpayers must complete Schedule G (reporting the property measure) and calculate franchise tax based on the greater of Schedule F net worth or Schedule G property. Taxpayers who pay franchise tax based on schedule G property may then request a refund of franchise tax pursuant to the refund procedure set forth in the notice.

Refund claims filed pursuant to the refund procedure set forth in the notice must be filed between May 15, 2024, and November 30, 2024. It is highly recommended that taxpayers review the notice, view the playback of the webinar, and read the FAQs for specific details as to the filing of amended returns and refund claims. One point to note is that it is “strongly recommended” that such filings occur electronically in the Department’s TN TAP system. The notice provides additional guidance on the documentation that may be required, the process for filing any lawsuits related to the franchise tax, and other important details, particularly with respect to outstanding tax debts which will be offset against the refund.  The FAQs make clear that a claim for refund related to the Schedule G property measure should not include refunds based on other issues. In terms of timing, the FAQs note that refunds will be processed as quickly as possible. Processing will take longer if a taxpayer submits a refund claim on paper, fails to amend all required returns prior to submitting a refund claim form, or is asked to submit additional supporting information, such as a balance sheet, and does not promptly respond. Please contact John Harper or Taylor Sorrells with questions on Tennessee franchise tax refunds.