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Maryland: Gas tax increase passed, indicating anticipated passage of Federal Marketplace Fairness Act

On May 16, 2013, Maryland Governor Martin O’Malley signed into law H.B. 1515. The bill includes revisions to the state’s gas tax that will become effective on July 1, 2013. This law will replace the current flat gasoline tax rate of 23.5 cents per gallon to a rate that is indexed to increase with inflation. It also includes set future gas tax increases that are contingent on whether Congress passes the Marketplace Fairness Act of 2013 (the “Fairness Act”) or a similar act.

The Fairness Act would allow states to tax out-of-state business’ remote sales. The passage of H.B. 1515 means that Maryland has joined the increasing number of states that are demonstrating their intentions to readily collect taxes on remote sales upon the potential enactment of the Fairness Act. In fact, the Maryland Legislature’s Fiscal and Policy Note on H.B. 1515 echoes the sentiment of many states regarding sales taxes on remote purchases:

“[a]s the magnitude of online purchases has grown significantly, the inability of states and local jurisdictions to require remote sellers to collect sales tax has led to an erosion of state and local sales and use tax bases and also created an unlevel playing field for ‘brick and mortar’ businesses.”

As many states face budget shortfalls, the Fairness Act is viewed as a ticket to help remedy future budget imbalances.

Other recent state developments reflecting a hopeful outcome for the Marketplace Fairness Act

Other states, in addition to Maryland, are passing legislation and making promises to their citizens in hopes that the Fairness Act will be enacted into federal law. For example, on May 15, 2013, Wisconsin Governor Scott Walker issued a letter to the state’s members of Congress stating that in the event the Marketplace Fairness Act becomes federal law he will use the additional revenue “to provide individual income tax relief [to] Wisconsin’s taxpayers.” Additionally, the Ohio Legislature is finalizing its budget bill, H.B. 59, which includes § 757.50, expressing “the intent of the General Assembly to enact conforming legislation upon the enactment of the federal ‘Marketplace Fairness’ legislation.” These states are anticipating, and even depending on, using the federal Fairness Act to help rescue or augment their state budgets.

State Revenue and the Marketplace Fairness Act

The Fairness Act was recently passed in the U.S. Senate and is currently undergoing fierce scrutiny in a Republican-controlled House of Representatives. In the event of the Fairness Act’s passage, Maryland state analysts project an increase of more than $200 million in revenue from the online sales taxes within the first few years of the law’s promulgation. A University of Tennessee study estimated states lost more than $12 billion in 2012 from forgone sales tax revenues. Make no mistake, all indications point to additional states passing legislation similar to what recently passed in Maryland, which indicates a willingness to collect sales tax revenue from out-of-state vendors in the event the Fairness Act (or similar legislation) is made into federal law. 

Click here to read the text of H.B. 1515.

The Marketplace Fairness Act of 2013 was also covered in prior Multistate Tax Updates.

California: Senate approves partial legislative fix for retroactive tax on QSBS assessments

On May 30, 2013, California Senators approved a bill (S.B. 209) that would provide a partial legislative fix for retroactive tax assessments that may be imposed on as many as 2,500 California investors who benefited from an unconstitutional income tax exclusion from the sale of Qualified Small Business Stock (QSBS) during tax years 2008 and later.

The purpose of the bill is to provide some relief to California taxpayers who have or will be receiving tax assessments from the Franchise Tax Board if they benefited from the QSBS exclusion, which was struck down by a state appellate court (Cutler v. Franchise Tax Board, Cal. Ct. App., No. B233773, August 28, 2012), in tax years that are still open under the statute of limitations.

Click here for more background on this state appellate court case, the underlying legislation and the QSBS exclusion.

The version of the bill approved by the Senate contained some amendments that were introduced on May 24, 2013, which reduced the amount of gain that could be excluded from the sale of QSBS from 50 percent to 38 percent and deleted the partial restart of the QSBS exclusion. The amended bill also requires that the Franchise Tax Board waive all penalties and interest for taxes assessed as a result of the Cutler decision.

Under the amended proposed legislation, California taxpayers receiving assessments for previously excluded QSBS gain would be required to pay one-fourth of those assessments and California taxpayers seeking refunds for previously denied QSBS exclusions would only receive a refund of 38 percent of the tax that was paid on such gain.

S.B. 209 passed 34-3, on a bipartisan vote. The bill now moves on to the Assembly. 

Click here for the full text of S.B. 209.

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

Multistate Tax Services

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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