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Federal legislation: Mobile Workforce State Income Tax Simplification Act of 2013 seeks to limit states’ ability to require withholding and tax employee income

The Mobile Workforce State Income Tax Simplification Act of 2013 (the “Workforce Simplification Act”) was introduced in the House of Representatives on March 13, 2013. The Workforce Simplification Act would limit a state’s ability to tax a worker’s wages unless the employee was present and performed duties in that state for more than 30 days during a calendar year.

For an employer to determine whether withholding would be applicable to an employee, the following would apply:

  • The employer may rely on an annual determination made by its employee of the time expected to be spent in various states unless the employer has actual knowledge to the contrary or the employer and employee collude to evade tax.
  • Employer records of an employee’s location maintained in the ordinary course of business would not negate an employer’s ability to rely on the employee’s annual determination described in the first bullet point unless the employer maintains a system that tracks where the employee performs work on a daily basis (in such case, the employer must rely on that system’s data).

In instances where employees work in more than one state on a given day, wherever the employee performs the most duties in one day is the state that receives credit for that employee’s work day. However, an employee’s locale while in transit would not be considered in determining the location of an employee’s duties. Also, if an employee works both within his or her state of residence and in one other state, that employee’s duties for the day will be deemed to be performed in the nonresident state.

Professional athletes, professional entertainers and certain public figures are excluded from the definition of “employee” for purposes of the Workforce Simplification Act.

At this time, it is unclear whether the Workforce Simplification Act will become law. However, it is clear that states are placing increased emphasis on the determination of where an employee is working in order to ascertain if withholding should take place.

Click here to read the text of H.R. 1129.

Oregon: Corporate tax information may become public record and available online

Legislators in Oregon recently introduced House Bill 3161. On its face, House Bill 3161seems harmless. However, if enacted, the ramifications of this bill could be significant. House Bill 3161 would require most corporations doing business in Oregon to file a tax disclosure statement with the Oregon Secretary of State. Such tax disclosure statements would be considered public records. In addition, the bill directs the Oregon Secretary of State to make the tax disclosure statements available online in a searchable database. The monetary penalty for noncompliance is presently undetermined and under consideration. However, a noncompliant corporation would have its name listed as a noncompliant corporation.

Under the proposed legislation, the information that would be required to be disclosed includes:

  • The name of the corporation
  • The state excise or income tax liability
  • The name of any corporation that owns more than 50 percent of the corporation
  • Total receipts of the corporation or consolidated group
  • Sales apportionment factors of the corporation or consolidated group
  • Total business income apportioned to the state

Click here to read the text of HB 3161.

Massachusetts: Transfer of medical equipment subject to sales tax

On March 13, 2013, the Massachusetts Department of Revenue (“DOR”) ruled that the transfer of mobile medical laser eye equipment by a corporation to a medical service provider located in Massachusetts was a lease or rental of tangible personal property subject to sales tax instead of a nontaxable service requiring the use of the property by the service provider. The DOR also ruled that any services provided by the corporation’s technicians to the physicians who operate the equipment are exempt from sales tax if separately stated on the invoice.

Massachusetts imposes a sales tax on any retail sales made in Massachusetts of tangible personal property. The definition of a “sale” includes any transfer of title or possession, or both, including a lease or rental of tangible personal property for consideration. The determination of whether the transaction is a taxable lease or rental of tangible personal property or a nontaxable service requiring the use of the property by the service provider depends upon whether possession of the property is transferred to the lessee. Possession is deemed to have passed to the lessee whenever the property is under the lessee’s control or direction.

Even though the corporation provided a technician to provide certain services related to the equipment to the medical service provider, such as delivery, installation, calibration (before and after each use), disassembling, removal, and any other assistance requested by the physicians, the DOR determined that it was the physicians of the medical service provider who were responsible for using, directing and controlling the equipment in administering the laser procedures to patients, not the corporation’s technicians. Therefore, the medical service provider satisfied the requirements for possession of the equipment, which caused the transaction to be classified as a lease or rental of tangible personal property subject to sales tax.

Massachusetts: Freight insurance charges subject to sales tax

A multi-national supplier of test equipment and information technology solutions headquartered in Massachusetts requested a ruling from the Massachusetts Department of Revenue (“DOR”) about whether separately stated freight insurance charges invoiced to a Massachusetts customer are subject to Massachusetts sales tax.

In this case, the ruling turned on whether a freight insurance charge is a transportation charge. The DOR’s current policy is to exclude transportation charges from the sales price subject to the sales tax provided that the charge:

  1. Reflects a cost of preparing and moving the goods to a location designated by the customer.
  2. Is separately stated on the invoice to the customer.
  3. Is set in good faith and reasonably reflects the actual costs incurred by the vendor.

On March 27, 2013, the DOR ruled that a freight insurance charge is not a transportation charge and is subject to Massachusetts sales tax. The DOR explained that freight insurance charges are not a component of preparing and moving the goods from the vendor to the customer. Instead, such charges protect against the economic loss resulting from the damage to or loss of the goods.

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

David M. Kall
216.348.5812
dkall@mcdonaldhopkins.com

Susan Millradt McGlone
216.430.2022
smcglone@mcdonaldhopkins.com

Jeremy J. Schirra
216.348.5444
jschirra@mcdonaldhopkins.com

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.

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