Washington: State grants $8.7 billion in tax breaks to Boeing, aerospace industry
From a tax perspective, November has been a good month for Boeing. Lawmakers in the State of Washington have been hard at work securing the production of Boeing’s next-generation 777X airplane in the state. In effort to secure Boeing’s future production, lawmakers passed an incentive package containing nearly $9 billion in tax breaks to the aerospace industry, including extending aerospace tax breaks through 2040 that were set to expire in 2024. This deal “is notable for being the biggest package ever in history,” according to Greg LeRoy, Executive Director of Good Jobs First in a recent Washington Post article. Good Jobs First is a Washington D.C. advocacy group that tracks state subsidies provided to companies.
According to a report recently issued by Good Jobs First on state tax subsidy megadeals, over the last 35 years, a total of $64 billion in “giant” state subsidies have been doled out by states to various companies. In the report, “giant” subsidies are those subsidies in excess of $75 million in value. Boeing’s deal would represent 14 percent of the historical $64 billion in giant subsidies, marking it as a substantial and unprecedented amount, the greatest subsidy granted to a single company. As an aside, New York and Michigan top this historical tax subsidy megadeal list in terms of total megadeal dollars. While Ohio is merely above the average in terms of total megadeal dollars, it would be tied for the third highest in terms of quantity of megadeals over the last 35 years.
In order for Washington lawmakers to induce Boeing to produce the 777X plane in the state, the general assembly passed H.B. 2088 and Sub. S.B. 5952.
H.B. 2088 provides for many aerospace incentives, including funding for increasing aerospace-related student enrollments at community and technical colleges by one thousand full-time equivalent students, providing funds to local governments in order to assist in paying for the cost of preparing an environmental analysis that advances environmental permitting activities in and around current and future large aerospace manufacturing sites, funding the building of an aerospace training center, and providing funds for upgrades and equipment for developing a composite wing incumbent worker training program at an existing center. These incentives exclude various tax incentives, which are provided for under Sub. S.B. 5952.
Sub. S.B. 5952 extends aerospace tax preferences through 2040 under certain circumstances, including income and sales tax exemptions, but such tax preferences were tailored specifically to Boeing’s planned activities.
Initial public reaction to the incentives has been largely mixed, with many skeptical of the public benefit provided by this deal. However, state lawmakers have recognized the importance of the aerospace industry and Boeing to the state’s economy. Additionally, it is being reported at the time of publication of this article that Boeing may move its production out of Washington despite the enactment of these new tax incentives due to a contract dispute with its machinist union.
If your business is planning significant overhauls, expansion of production or other business sites, or similar activities, state tax incentives are certainly worth considering. However, it is important to present your planned activities to state lawmakers appropriately and in advance in order to potentially secure the greatest benefit. Thus, it is important to have experienced advisors work through the process with you and your business.
Ohio: New guidance to employers providing benefits to same-sex married employees
On November 14, 2013, the Ohio Department of Taxation (“Department”) issued an information release (EW 2013-1) which has guidelines for employers that provide benefits to employees married in jurisdictions that recognize same-sex marriage.
Under federal laws, certain employer-provided benefits are excluded from an employee’s gross income for federal income tax purposes. However, many of these exclusions only apply when the benefits are provided to the employee or certain dependents of the employee (referred to as federal tax dependents). If an employer provides benefits to an individual that is not a federal tax dependent of the employee, such as a same-sex spouse before the U.S. Supreme Court made its ruling in United States v. Windsor, then the fair market value of the benefits provided must be included in the employee’s gross income for federal income tax purposes.
Following the U.S. Supreme Court’s ruling in United States v. Windsor (which struck down Section 3 of the Defense of Marriage Act (DOMA) on grounds that the federal interpretation of "marriage" and "spouse" to apply only to heterosexual unions is unconstitutional under the Due Process Clause of the Fifth Amendment), the Internal Revenue Service issued Revenue Ruling 2013-17 and Notice 2013-61, and the Department of Labor issued Technical Release No. 2013-04. This guidance provided that the marriage of same-sex individuals validly entered into in a state whose laws authorize such marriage, even if the married couple is domiciled in a state that does not recognize the validity of such same-sex marriage, will not be recognized for federal income tax purposes and employee benefit purposes.
However, under Section 11, Article XV of the Ohio Constitution, Ohio does not recognize a marriage between individuals of the same sex. Therefore, employers must include the fair market value of any employer-provided benefits provided to the same-sex spouses of employees and any dependent children of those spouses as income for Ohio income and school district income for employer withholding tax purposes. Employers are required to determine employees’ Ohio taxable gross earnings amounts in a manner consistent with this guidance. Such amounts must also be used in determining the employer’s liability for withheld Ohio income and school district income tax.
Click here to read the full text of EW 2013-1.
Missouri: Departing from the national trend, Missouri enables same-sex married couples to file joint tax returns
Last week, Missouri Governor Jay Nixon signed Executive Order 13-14 (the “Order”). The Order explicitly grants same-sex married couples equal footing with heterosexual married couples as far as the option to file a joint return in the state. This is an unprecedented move in two key ways.
First, this move is very progressive. Missouri has become the first state to declare that same-sex married couples may file joint state tax returns. Second, which makes the progressiveness of the Order even more surprising, Missouri currently does not recognize same-sex unions. In fact, an amendment to Missouri’s constitution mandates that for a marriage to be valid in the state, it must be between a man and a woman. Thus, the Governor is conferring (or attempting to confer) a right to those couples who were legally married in states that recognize same-sex marriage that similarly situated couples within the state of Missouri do not have the ability to enjoy. In addition, the Order is at odds with Missouri’s constitution.
Most states that have provided advice on the issue of joint filing of state tax returns for same-sex married couples, such as Ohio, mandate that such same-sex couples who file a joint federal tax return separate each individual’s earnings reported in their joint federal return on a special state tax form. Similar to Missouri, Ohio has a constitutional amendment that only recognizes marriage between a man and a woman.
Due to the conflict between the governor’s Order and Missouri’s constitution, it is unlikely that this is the last time the governor’s Order makes headlines. Nonetheless, Missouri is unlikely to be the lone state to embrace the filing of joint state tax returns for same-sex married couples, only the first.
The Multistate Tax Update will continue to follow developments in the wake of the Court’s ruling in United States v. Windsor, as well as Revenue Ruling 2013-17 (holding, in part, that: (1) “husband” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes such a marriage; and (2) a marriage of same-sex individuals that was validly entered into in a state whose law authorizes the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages). These holdings have only begun their ripple effect throughout the United States at both the federal and state levels. To be sure, a multitude of state legislation, rulings, guidance, and litigation will continue to ensue as a result. If you have questions on how these holdings or other developments may affect you or your business, please contact us.
For additional information regarding these subjects or any other multistate tax issues, please contact:
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.
** Due to the holiday next week, we will not issue the Multistate Tax Update. Happy Thanksgiving!