Summary of state tax developments in Colorado, Iowa, Texas and West Virginia.
The first development we are covering today is the Colorado Department of Revenue recently proposed an 11-page rule addressing the state’s relatively new retail delivery fee. The proposed rule addresses various aspects of the new fee, including but not limited to, application of the fee to certain types of retail sales, presentation of the fee on an invoice, types of sales not subject to the fee, and administration and enforcement of the fee by the Department. A virtual hearing on the proposed rule will be held on November 3, 2022.
In Iowa, the Iowa Department of Revenue recently announced that the state’s corporate income tax rate applicable to income exceeding $100,000 will be reduced to 8.4 percent effective for tax years beginning on or after January 1, 2023. The rate reduction results from legislation enacted earlier this year that implemented a formula for reducing the corporate income tax rate if net corporate income tax receipts exceeded $700 million for the immediately preceding fiscal year. This process will continue each year until the rate is 5.5 percent on all corporate income.
In Texas, a Travis County district court judge issued two orders related to aspects of the rules addressing the Texas Research and Development Activities Credit and the Qualified Research sales tax exemption. In the orders, the judge struck down the requirement that taxable entities must establish by clear and convincing evidence that they qualify for the research sales tax exemption or are entitled to the research and development activities credit. In addition, the judge ruled that revised rules published in October 2021 may not be applied retroactively.
Finally, an ALJ for the West Virginia Office of Tax Appeals concluded that a company operating a franchised tax preparation service was not providing professional services and was therefore required to collect sales tax. The West Virginia Code of Regulations lists numerous service providers that perform activities recognized as “professional,” as well as guidance to determine whether an unlisted activity falls within the “professional” classification. Notably, services rendered by certified professional accountants are included in the list of exempt professional services, but tax preparation services are not. The Tax Commissioner has discretionary authority when determining whether an unlisted activity is “professional” and will consider the level of education required for the activity, the nature and extent of nationally recognized standards for performance, licensing requirements on the state and national level, and the extent of continuing education requirements. The ALJ concluded that the taxpayer’s employees, who were not CPAs, were not performing professional services.
The Colorado Department of Revenue recently proposed an 11-page rule (Rule 43-4-218) addressing the state’s relatively new retail delivery fee. Recall, a retailer or marketplace facilitator making a retail delivery to a Colorado customer on or after July 1, 2022, must collect the $0.27 fee from the purchaser, and remit the fee to the Department. The proposed rule addresses various aspects of the new fee, including but not limited to, application of the fee to certain types of retail sales, presentation of the fee on an invoice, types of sales not subject to the fee, and administration and enforcement of the fee by the Department. Certain of the information in the proposed rule has been issued by the Department in FAQs, such as the confirmation that retail sales delivered by the U.S. Postal Service and shipping companies are subject to the fee.
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