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Board of Directors
BPAA State Policy Update - May 21
Michael Best Stratagies
5/24/2018 10:22:00 AM
Amazon's fight with Seattle over head tax foreshadows battles to come in other cities
- If Seattle's bitter public fight with Amazon over a new tax on employees is a sign of the future for cities vying to become the company's next headquarters, there's a take-home message: You can push Amazon, but you have to be prepared for it to push back — hard. On Monday, Seattle's city council unanimously passed a measure that will require companies with revenues of more than $20 million a year pay an annual $275 tax per employee despite strong pushback from Amazon — the city's largest employer — and other large businesses including Starbucks. The vote came after weeks of hearings, demonstrations, heated public meetings and a threat by Amazon to stop construction of its newest Seattle tower and to pull out of leasing another. The dispute ended in something of a draw Monday. For Seattle, the initial result should be another $45 million in the city's coffers each year to build low-cost housing and to aid the homeless — problems many in the city feel have been exacerbated by the influx of thousands of highly-paid tech workers at Amazon who have driven up rents and pushed out lower income residents.
: Bloomberg client news reports, “Maryland Enacts Laws to Avoid Hikes Under Federal Tax Law” – Tweaks to Maryland's law on personal income tax exemptions and other changes to counteract the new federal tax code will save residents nearly $3 billion in increased state taxes over the next five years, Gov. Larry Hogan (R) said. The bills will deliver “relief to Maryland's beleaguered, long-suffering taxpayers,” he said in a statement May 15 after signing the bills. The bills were written in response to an analysis from the Maryland comptroller's office on the impact of changes to state and local tax bills as a result of the 2017 federal tax act (Pub. L. 115-97). The comptroller's office estimated that while 71 percent of Maryland taxpayers would pay less in federal taxes under the new rules, about 23 percent of Maryland taxpayers would see their state and local taxes increase without changes to the state's tax laws. Personal Exemption: S.B. 184, now Chapter 575, clarifies that despite changes in federal rules, Maryland taxpayers may take a personal exemption for state income tax purposes. The state estimated that without the state personal exemption, about 92 percent of all returns in Maryland would see an increase in state taxes under the new federal rules. The bill also requires the Board of Revenue Estimates to review and update its report on the impact of the federal tax law and submit an updated report to the governor and General Assembly by Dec. 15. Standard Deduction: S.B. 318, now Chapter 577, would increase Maryland's maximum standard deduction to $2,500 for single taxpayers and $5,000 for couples filing jointly. The bill would take effect July 1 for tax years 2018-20. Earned Income Tax Credit: S.B. 647, now Chapter 611, would expand the state's earned income tax credit for individuals between the ages of 18 and 24 years old without qualifying children. General fund revenue is expected to decrease by $7.5 million in fiscal year 2019 due to the expansion of the credit, according to a fiscal note accompanying the bill. The bill will take effect July 1 and applies to tax year 2018 and beyond.
“California Governor Wants Tax Overhaul, Can’t Get It”
- California Gov. Jerry Brown (D) plans to offer a framework for a state tax overhaul, but won’t push a proposal through before his term ends in December because he doubts lawmakers would support major changes this year. “I think it will be very hard to get any bill passed, but I think we can put out a framework that will enable the next governor to handle the problem as he sees fit,” Brown said May 11. Brown said he has asked Department of Finance Director Michael Cohen to prepare various frameworks for tax changes that would position future lawmakers and governors to act if the political will exists. Overall, the governor is proposing a $137.6 billion general fund budget for the 2018-19 fiscal year, Cohen told reporters. The total state budget including federal funds and special funds would be $199.3 billion. Revenue has been higher than projected throughout the year, creating a surplus of $8.8 billion, Cohen said. Lawmakers are debating the governor’s budget plan and are proposing various ways to spend the surplus, including a $1 billion boost in health care spending to expand Medicaid to young undocumented immigrants, offer a refundable tax credit for health care premiums, and fund more medical students. They must approve the budget plan and send it to Brown by June 15. Brown must sign the package by July 1, and can use his line-item veto authority to eliminate items he opposes.
: Bloomberg client news reports, “Federal Tax Workaround Passes California Committee” – The newest proposal from a California lawmaker to get around the $10,000 cap on federal deductions for state and local taxes passed its first committee test with little debate. A.B. 2217, by Assembly Revenue and Taxation Committee Chair Autumn Burke (D), passed 7-0 on May 14 and now moves to the Assembly Appropriations Committee. Under the bill, California nonprofit organizations, school districts, community colleges, and colleges and universities that serve students who receive state grants could buy Golden State Credits from the California treasury for 90 cents. They would sell the credits for $1 to any interested buyers. Those who buy the credits would get a state tax credit equal to 80 percent of their purchase amount, and the purchases would be considered a charitable donation for federal tax purposes. The program is called the Bridget “Biddy” Mason Golden State Credit Program, named for a former slave who became a landowner and businesswoman in Los Angeles and who founded the city's First African Methodist Episcopal Church in 1872. Darien Shanske, a law professor at the University of California, Davis School of Law, and Daniel Hemel, an assistant professor at the University of Chicago Law School, helped craft the proposal and testified in support. The SALT cap in the 2017 federal tax act (Pub. L. No. 115-97) makes it more difficult for states to raise revenue and deals a blow to families that relied on the deduction, Hemel said. The federal law also makes it more difficult for nonprofit organizations to attract charitable contributions because it eliminated personal exemptions and deductions for dependents while doubling the standard deduction, which will result in fewer people itemizing, Hemel said. Burke's bill blunts all three of these impacts, he said. “I think it can and will be a model for the other states,” Hemel said.
: Bloomberg client news reports, “California Issues Publication on Vending Machine Food Sales” – The California Department of Tax and Fee Administration issued a publication on the sales and use taxability of food sales made through vending machines. The publication includes information on: 1) permitting requirements and exceptions to the general rule; 2) applying and reporting tax from vending machine sales; 3) calculating tax; and 4) applying for temporary permits.
“Seattle passes a smaller version of the 'Amazon tax'”
- A controversial proposal that will tax big businesses in Seattle to alleviate the city's homelessness and affordable housing problems was approved Monday. The Seattle City Council passed it unanimously in a 9-0 vote. The final package, however, is almost half the size of the original proposal, which never garnered a veto-proof majority on the council. It was publicly opposed by Amazon -- the city's largest private sector employer -- and 131 other businesses. The newly passed ordinance, which takes effect in January 2019, will impose a "head tax" on the city's highest grossing businesses. The tax will amount to $275 a year per full-time employee in Seattle. It would raise roughly $47 million a year on average and expire after five years, according to the Council. That's down from the $75 million a year the original proposal would have generated by imposing a $540 head tax per employee for the next few years, after which it would be converted to a 0.7% payroll tax. The only companies affected by the new ordinance would be those generating $20 million or more of annual revenue in the city. That's roughly 3% of businesses in Seattle, or 585 employers, according to the Council's estimates.
“Pennsylvania’s Top Court Hears Philly Soda Tax Dispute”
- The fate of Philadelphia’s 1.5-cent per ounce tax on sweetened beverages lies in the hands of the state’s highest court. The Pennsylvania Supreme Court heard argument May 15 on whether the city’s tax violates the state’s Sterling Act, a statute that prevents local governments from levying sales tax on goods already taxed by the state. After generating more than two years of noisy protests, the tax prompted few questions from the court’s seven justices, who focused their questions on how the tax differs from the state’s existing 6 percent tax on retail sales. A coalition of business owners, retailers, and industry groups sued to stop the tax, which went into effect Jan. 1, 2017. Led by the American Beverage Association, which represents beverage makers such as Coca-Cola Co. and PepsiCo Inc., the coalition is appealing Pennsylvania’s Commonwealth Court’s June 2017 decision to uphold the tax. The case has the potential to eliminate the tax, which has been under fire since Philadelphia Mayor Jim Kenney (D) first pitched the idea more than two years ago. When the Philadelphia City Council passed the tax in June 2016, Philadelphia became the nation’s first major city to tax sweetened beverages. An increasing number of jurisdictions have since adopted similar taxes on soda, including Seattle and San Francisco. Opponents of the tax say it’s illegal and hurts local businesses. Supporters of the tax say Philadelphia has the right to levy it, and it brings in desperately needed revenue for parks, libraries, and recreation centers. More than a dozen friend-of-the-court briefs, both for and against, have been filed in the case.
: : Bloomberg client news reports, “Indiana Enacts Federal Conformity Bill With $150M Tax Bump” – Pass-through entities could see a tax increase from an IRC conformity law passed quickly in a special session and signed the same day by Indiana Gov. Eric Holcomb (R). H.B. 1316, signed May 14, would raise about $150 million in new revenue over the next three years, mostly from adopting the 2017 federal tax act's (Pub. L. No. 115-97) limits on pass-through entity excess-business losses. The law also decouples from other parts of the federal act that would have increased taxes on corporations. A previous bill would have adopted federal laws on net operating losses, limitations on net interest deductions, and inclusion of global intangible low-taxed income—known as the GILTI tax—that would have raised roughly $339 million over three years. But those changes were ditched, proponents said, because these types of taxes either had never been collected by the state before or interfered with Indiana's overall goal of having one of the lowest corporate income tax rates in the country. Indiana's current rate sits at 6 percent but is set to periodically decline to 4.9 percent by July 2021. In addition, the bill tweaked several parts of the state tax code by: eliminating the sales tax for library book sales, allowing businesses to carry forward state economic development credits from 2017 to 2018, permitting the Indiana Department of Revenue to waive interest and penalties for a short period on new taxes created by the new federal tax law, and broadening the state education savings account (529) system to include some K-12 expenses.
“Vermont Legislature passes tax rate hike despite veto threat, goes home”
- Democrats brushed off Gov. Phil Scott's veto threats this weekend to pass bills that would allow property tax rates to rise. There was no tarrying in Montpelier while lawmakers attempted to hammer out a compromise with the Republican governor who demands no rise in taxes and fees. There was no compromise. Perhaps it was the bitter taste from last year's negotiations — no one was ultimately happy with the compromise that resolved Scott's first budget veto in 2017 — that led the Democratically-controlled House and Senate to barrel toward adjournment. This year, lawmakers ended up with a lower tax rate increase than had been anticipated, and they approved a tax bill that expands the tax exemption for Social Security income, which was one of Scott's priorities. Still, under the bill that passed this weekend, the average homestead education property tax rate would rise by 2.6 cents, while the non-residential tax rate would rise by 5.5 cents. Democrats argue that these increases reflect the higher school budgets that voters approved this spring. Not good enough, the governor declared in a speech early Sunday morning. He called the budget "unacceptable" because it requires "new and higher taxes."
: Bloomberg client news reports, “Illinois Issues Publication on Pass-Through Entity Income” – The Illinois Department of Revenue issued a pass-through entity publication on the corporate, individual, and trust income tax implications of distributions from partnerships, S corporations, and fiduciaries to partners, shareholders, and beneficiaries. The publication provides information for pass-through entities and members of pass-through entities, including: 1) allocation of business and nonbusiness income to Illinois; 2) pass-through withholding payments; 3) personal property replacement income tax; 4) reciprocal state information; and 5) relevant forms.
FOOD & BEVERAGE
"Vigo food & beverage tax passes Legislature”
- The Indiana General Assembly on Monday passed House Bill 1242, which includes language authorizing a Vigo County food and beverage tax that would be used to help build and maintain a downtown Terre Haute convention center. The bill, passed during the one-day special session, allows Vigo County to adopt up to a 1 percent food and beverage tax, which would apply to restaurant meals. The tax would raise an estimated $1.2 million to $2.1 million annually. The food and beverage tax would have to be approved by the Vigo County Council. Before that happens, Vigo County commissioners “plan to go through an educational phase in partnership with the Capital Improvement Board [CIB]” to explain the tax and how it would be used, said Rachel Leslie, of RJL Solutions, who was at the Statehouse along with all three Vigo County commissioners. Mayor Duke Bennett also attended the session to support the bill. Public meetings will be conducted before the Vigo County Council considers the tax, she said. The bill provides that the tax rate may not exceed 1 percent, and it specifies that the revenue from the tax shall be distributed to the Capital Improvement Board and may be used by the board only for the acquisition, construction, improvement, maintenance, or financing of the following: (1) a convention center, (2) a facility that is used or will be used principally for convention or tourism-related events or the arts (3) way-finding improvements.
Will sports gambling return in Oregon? Lottery 'very interested' following Supreme Court ruling
” – The Oregon Lottery was already planning to introduce betting on virtual sports soon. But a ruling Monday by the U.S. Supreme Court has opened the door for states to unveil legal betting on real games, too -- the type of wagering that bettors in this state once enjoyed for nearly two decades. In a case brought by New Jersey, which has sought to allow sports gambling at racetracks and casinos, the court struck down the Professional and Amateur Sports Protection Act, a 1992 law that prohibited state-run sports gambling. It could create wide-ranging ramifications for professional leagues and the NCAA, which has long opposed sports betting to the point it does not hold championship events in states that allow it.The Oregon Lottery was already planning to introduce betting on virtual sports soon. But a ruling Monday by the U.S. Supreme Court has opened the door for states to unveil legal betting on real games, too -- the type of wagering that bettors in this state once enjoyed for nearly two decades. In a case brought by New Jersey, which has sought to allow sports gambling at racetracks and casinos, the court struck down the Professional and Amateur Sports Protection Act, a 1992 law that prohibited state-run sports gambling. It could create wide-ranging ramifications for professional leagues and the NCAA, which has long opposed sports betting to the point it does not hold championship events in states that allow it.
Sports Gambling In New York? Don’t Bet On It Right Away
Both Gov. Andrew Cuomo and Assembly Speaker Carl Heastie on Monday threw cold water on the push to allow sports gambling in the state’s casinos, saying the push to do so comes late in the legislative session. “We haven’t reviewed it and it’s nothing that we’ve talked about with the Legislature,” Gov. Andrew Cuomo said at a news conference in New York City. “We passed casino gaming as you know, but there’s been no discussion beyond that.” Noting the session ends in at the end of next month, Cuomo said he was doubtful there would be “any action this year” on the issue. Heastie, too, was similarly measured. “We haven’t had a chance to discuss it as a conference. We have to really look at it,” he told reporters at the Capitol in Albany. “Gambling is something that for members of the Assembly we don’t take lightly. Anything that expands it, we want to take a really hard look at it.” Republican Sen. John Bonacic on Monday in a statement said he was confident the Legislature could act on the bill as the Supreme Court ruled Monday that states could legalize sports betting. Even with the end of session looming, time can be funny in Albany, with issues being agreed upon not just in a matter of days, but hours.
FOOD & BEVERAGE
Things to know about Oklahoma's new liquor laws
” – Alcohol consumers will notice several changes beginning Oct. 1. A larger variety of products, more beverages sold cold and strong beer options are some of the differences resulting from the passage of State Question 792. Here are a few of those changes: Liquor stores will be able to sell refrigerated beer and wine. Grocery stores and gas stations will not be allowed to sell liquor. Grocery stores and gas stations will be able to sell chilled beer stronger than 3.2 percent alcohol by volume. Many 3.2 alcohol products eventually will be restocked with the company's standard strength products. Wine and spirits stores will be able to sell items other than alcohol, as long as those sales don't exceed 20 percent of monthly sales. Wine and liquor stores will be able to refrigerate their beers. Beer in grocery stores and convenience stores can be up to 8.99 percent alcohol by volume, and wine can be up to 15 percent. Liquor stores will be able to sell beer greater than 8.99 percent alcohol by volume and wine greater than 15 percent.
Prevailing wage ban stalls on path to the Legislature
” – A petition campaign to repeal wage protections for workers on government construction projects has been halted. That leaves time for the Michigan Supreme Court to hear a challenge to the question filed by construction worker unions. Patrick Devlin is with the Michigan Construction and Building Trades Council. The Supreme Court order came less than an hour before a state board was going to certify the petition campaign and send the question to the Legislature. “It’s the first time in a long time that I’ve had a smile on my face coming to Lansing," Devlin said. "So, this is great news. It’s a great day for the men and women of the construction industry. So, we’re very happy.” The petition campaign is led by business groups and non-union construction companies. A spokesman says the people who signed petitions deserve to have their signatures counted. Amber McCann, press secretary for the state Senate Republicans, says GOP lawmakers are poised to vote to repeal the prevailing wage if and when the question arrives at the doors of the Legislature. “Most senators know where they stand on the issue,” she said. The Senate voted to repeal the prevailing wage law in 2015, but that stalled due to the threat of a veto by Governor Rick Snyder. A petition initiative cannot be vetoed.
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