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The 2019 EY Homebuilder Tax Director Roundtable
State and local tax update
6 May 2019
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Disclaimer
Page 2
► EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US.
► This presentation is © 2019 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party.
► Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP.
► This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer’s facts and circumstances.
► These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.
► Neither EY nor any member firm thereof shall bear any responsibility whatsoever for the content, accuracy, or security of any third-party websites that are linked (by way of hyperlink or otherwise) in this presentation.
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las VegasThe 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
State and local tax issues
Carl JosephErnst & Young LLP
Todd CarperErnst & Young LLP
Page 3
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
State tax policy overview1
California developments3
State income and franchise tax developments 4
States' responses to Tax Cuts and Jobs Act (TCJA)2
Today’s agenda
Page 4
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Revenue outlook
► US Census Bureau: total state and local tax revenue increased 7.0% from Q3 2017 to Q3 2018*► Taxes from property, corporate and individual income, and sales and gross receipts were up 4.6%
► Corporate net income collections up 20.3%► Individual income tax collections increased 6.8%► General sales and gross receipts tax collections only grew by 3.1%
► Urban Institute reports “another stellar quarter” – Q2 2018**► Preliminary FY18 data: total state tax revenue to exceed $1 trillion for the first time► However, revenue growth was uneven among states and across revenue sources► Much of the growth came from double-digit growth in individual income taxes over three consecutive quarters,
mostly due to state conformity to TCJA base expansion and other onetime factors ► Several states (e.g., KS, IL) facing revenue shortfalls at the end of FY17 enacted significant tax changes that will
increase revenue
* US Census Bureau, Quarterly Summary of State and Local Government Tax Revenue: 2018 Q3, December 18, 2018. https://www.census.gov/library/publications/2018/econ/g18-qtax3.html** Lucy Dadayan, State Tax and Economic Review, 2018 Q2: Another Stellar Quarter of State Revenue Growth, But the Pace is Slowing Down, Urban Institute, December 18, 2018, https://www.urban.org/research/publication/another-stellar-quarter-state-revenue-growth-pace-slowing-down
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
State tax policy environment
► Expect state legislative sessions in 2019 to actively focus on taxes► All state legislatures in session ► 20 new governors► Many states still have to address conforming to TCJA► Economic development impact/opportunity► Nexus expansion in response to Wayfair’s elimination of the “physical presence” requirement ► Tax relief vs. need for funding state services and infrastructure improvements ► Impact of federal trade policies on state economies
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
States that changed:► Alaska► Illinois► Kansas► Maine► Michigan► Nevada► New Mexico► Wisconsin
2019 governors by party
Which party controls the governor’s mansion in each state?
AK
HI
ME
VTNH
MANY
PANJ
DEWV
NC
SC
GA
FL
ILOHIN
MIWI
KY
TN
ALMS
AR
LATX
OK
MOKS
IA
MN
ND
SD
NE
NMAZ
COUT
WY
MT
WA
ORID
NV
CAVA
MD
States with Democratic governors in 2019
Source: MultiState Associates.
CT
MD
VT
RI
NH
NJ
DE
MA
26
0
23
States with Republican governors in 2019
States with independent governors in 2019
Page 7
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
States that changed:► Alaska► Colorado► Maine► Michigan► Minnesota► New Hampshire► New Mexico► New York
2019 state legislatures by party
Which party controls the legislatures in each state in 2019?
AK
HI
ME
VTNH
MANY
PANJ
DEWV
NC
SC
GA
FL
ILOHIN
MIWI
KY
TN
ALMS
AR
LATX
OK
MOKS
IA
MN
ND
SD
NE
NMAZ
COUT
WY
MT
WA
ORID
NV
CAVA
MD
States with Democratic control of Senate and House
CT
MD
VT
RI
NH
NJ
DE
MA
31
1
18
States with Republican control of Senate and House
States with independent control of Senate and House
Page 8
Source: MultiState Associates.
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
States that changed:► Alaska► Colorado► Illinois► Kansas► Maine► Michigan► New Hampshire► Nevada► New Mexico► New York► Wisconsin
2019 one-party control by state
Which states have one political party control of the executive and legislative branches?
AK
HI
ME
VTNH
MANY
PANJ
DEWV
NC
SC
GA
FL
ILOHIN
MIWI
KY
TN
ALMS
AR
LATX
OK
MOKS
IA
MN
ND
SD
NE
NMAZ
COUT
WY
MT
WA
ORID
NV
CAVA
MD
States with complete Democratic control
CT
MD
VT
RI
NH
NJ
DE
MA
23
16
14
States with complete Republican control
States with split party control
Page 9
Source: MultiState Associates.
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Governors’ tax proposals: what’s on the table
Economic nexus
TCJA conformity and decoupling
Closing loopholes
Tax reform
Opportunity zone benefits
Opioid tax
Property tax relief
Single sales factor
Real-time sales tax collection
Taxing services
Combined reporting
Severance tax
Market-based sourcing
Digital goods
Sports betting
Expanding credits
Individual income tax relief
Gas tax increase
Page 10
Taxing marijuana
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
2019 state regular legislative sessions
AK
HI
ME
VTNHMA
NYCT
PA
WV
NC
SC
GA
FL**
ILOHIN
MIWI
KY
TN
AL**MS
AR
LA***TX
OK*
MOKS
IA
MN
ND
SD*
NE
NMAZ
COUT
WY
MT
WA
ORID
NV*
CAVA
MD
As of February 18, 2019
RI
NJ
DE
DC
Source: Ernst & Young LLP analysis of state laws.
Key:
► Most sessions ... except:
* Begins in February
** Begins in March
*** Begins in April/May
► Approximate session ends
February/MarchAprilMayJune/JulySeptember, November/December2020
► California and Maine begin in December 2018
NJDE
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Today’s agenda
State tax policy overview1
California developments3
State income and franchise tax developments 4
States' responses to Tax Cuts and Jobs Act (TCJA)2
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Corporate tax base changes for major provisions in TCJA, 2018–27
Business provision % change in federal corporate tax baseOnetime transition tax on un-repatriated foreign earnings +9.0%Net interest expense limitation (30% of adjusted taxable income (ATI)) +6.4%Modification of net operating loss deduction +5.3%Global intangible low-taxed income (GILTI) inclusion +5.5%
Deduction for GILTI (2.6%)Amortization of research and experimental expenditures +2.9%Repeal of domestic production activities deduction (Internal Revenue Code (IRC) §199)
+1.9%
Limit deduction of fringe benefits +0.7%Limit like-kind exchanges of personal property +0.5%Base erosion and anti-abuse tax (BEAT)* 0.0%Increased expensing under IRC §179 (0.3%)Small-business accounting method reform and simplification (0.8%)Foreign-derived taxable income (FDII) (1.7%)Bonus expensing (IRC §168(k)) (1.8%)Move to territorial system of taxation (5.9%)Total change in federal corporate taxable income from major provisions** +19.1%
Source: Ernst & Young LLP analysis incorporating Joint Committee on Taxation (JCT) revenue estimates* BEAT is a minimum tax and does not impact the regular tax base.** Total reflects only major provisions shown in this table.
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Federal States
Corporate tax rate reductions States have own rates
Special 20% pass-through entity (PTE) deduction Potentially impacts minority of states tied to federal “taxable income” for personal income tax (PIT) purposes
Limitation in deduction of business interest expense that exceeds 30% of adjusted taxable income State conformity (uncertain application to state filing groups)
Fully expensed investments Two-thirds of states opted out of bonus depreciation
Broadened tax base includes repeal of IRC §199 domestic production deduction
State conformity (although many states already opted out of the domestic production deduction)
Limit net operating loss (NOL) deductions Most states have their own NOL provisions
Amortization of research and experimental expenditures State conformity
Potential state impact of business tax reform provisions
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Potential state impact of international tax reform provisions
Federal States
100% dividends-received deduction (DRD) for foreign dividends; reduced domestic DRD percentages Most states have their own DRDs
Transition tax on “deemed” repatriated earnings One-quarter of states tax some portion of Subpart F income and/or foreign dividends
Tax on GILTI earned by foreign subsidiaries Likely state conformity (but constitutional limitations)
Deduction of 50% of GILTI income Partial state conformity (but “special deduction” linkage issues)
Reduced tax on FDII of US corporation Partial state conformity (but “special deduction” linkage issues)
BEAT Separate tax base not in federal taxable income; states don’t conform
Longer amortization schedule for foreign research and experimentation (15 years) Likely state conformity (but constitutional issues)
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
States' reactions to the TCJAas of December 31, 2018
Proposal StatesIRC conformity update bills Enacted: AZ, FL, GA, HI, ID, IN, IA, KY, ME, MI, NE, NC, OR, SC, VT, VA, WV, WI
IRC §965 (transition tax on accumulated foreign earnings)
Enacted: GA, ID, IN, ME, NJ, NY, NC, OR, UT, WI Proposed: KS, MD, MN (vetoed)Guidance: AL, AR, AZ, CA, CO, CT, FL, GA, IL, IN, IA, LA, ME, MD, MA, MI, MO, MT, NE, NJ, NY, NYC, NC, ND, OK, OR, PA, RI, TN, UT, VT
IRC §245A (future foreign DRD), §250 (FDII/GILTI deduction), §951A (GILTI)
Enacted: GA, HI, ID, IN, ME, MA, NJ, NY, NC, SC, WIProposed: IL, KS, MN (vetoed), NY Guidance: CT, IN, KY, MI, NY, NC, ND, VT
30% business interest expense limitation (IRC §163(j))Enacted: CT, GA, IN, NJ, SC, TN, WIProposed: MI (vetoed), MN (vetoed), NYGuidance: KY
PTE deduction limitation (IRC §199A)Enacted: CT, DC, HI, IN, KY, ME, MT, NJ, OR, SC, WI (decoupled), IA (allowed) Proposed: MN (vetoed)Guidance: MT, VT
Bonus depreciation (IRC §168(k)) Enacted: CT, FL, IA, KY, ME, OH, PA, WI — all decoupledProposed: NY, TN (coupled)
State and local tax (SALT) cap workaround/charitable contribution in lieu of tax
Enacted: CT, NJ, NY, ORProposed: CA (vetoed), DC, ID, IL, MD, RI, VT, WA
Carried interest fee Enacted: NJ (contingent effective date)Proposed: CA, IL, NJ, NY, RI
Employer payroll tax Enacted: NY
New entity-level tax on PTEs Enacted: CT, WI Proposed: AR, CA, MI (vetoed), NJ, NY
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Virginia’s TCJA conformity legislation
► HB 2529/SB 1372 (enacted February 15, 2019) – updates Virginia’s date of conformity to the IRC to December 31, 2018, effective for taxable years beginning on and after January 1, 2018
► Modifications: ► Corporate taxpayers: net GILTI inclusion (IRC §§951A, 250) subtracted from federal taxable income for determining
Virginia taxable income (i.e., GILTI not taxed in Virginia) (Virginia Department of Taxation Tax Bulletin 19-1)► Individuals can’t make the same subtraction; GILTI (without IRC §250 GILTI deduction) still subject to Virginia
individual taxation ► Corporate and individual income taxpayers: business interest deduction limitation under IRC §163(j) applies but
taxpayers get an additional 20% deduction for disallowed business interest ► Separate Virginia carryforward computations required?
► Additional TCJA provisions applicable for tax year 2018 and thereafter, include: ► Changes to the NOL provisions (i.e., 80% income offset limitation, no carryback, unlimited carryforward)► Increases to the IRC §179 small-business expensing► Changes to cash method of accounting
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Recent state tax department guidance
► Idaho – temporary regulation amends water’s-edge combined reporting treatment of dividends to avoid double taxation of income under IRC §965 (transition tax) and GILTI (IRC §951A)
► Missouri – guidance on GILTI and FDII ► Nebraska – Department of Revenue issues guidance on state income tax treatment of IRC §965 income► New Jersey – Division of Taxation releases guidance on GILTI and published a list of answers to questions about the
taxation of IRC §965 transition tax income and IRC §951A GILTI income for individuals and pass-through entities► New York state – Department of Taxation and Finance includes apportionment guidance on GILTI in its 2018 tax
return instructions, issues TSB-M-19(1)C on the treatment of IRC §965, GILTI, FDII for businesses and TSB-M-19(1)I on the treatment of IRC §965 and GILTI for individuals and fiduciaries
► Oklahoma – Tax Commission has proposed an amended regulation to clarify that, in line with previously issued guidance, IRC §965 income and GILTI will be considered dividend income for purposes of 68 Okla. Stat. §2358(A)(4)(b)
► Pennsylvania – guidance on GILTI and FDII► Philadelphia – guidance on IRC §965, GILTI, FDII and IRC §199A
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Today’s agenda
State tax policy overview1
California developments3
State income and franchise tax developments 4
States' responses to Tax Cuts and Jobs Act (TCJA)2
Page 19
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
California budget for 2019–20
► New California Governor Gavin Newsom unveiled his $209 billion state budget for the 2019–20 fiscal year on January 10, 2019. ► Asked about the split-roll measure near the end of his nearly two-hour budget press conference,
Newsom said he has supported the split-roll concept in the past but hopes that the initiative “anchors a conversation” about other tax increases.
► This includes sales tax on services, which he indicated he had discussed with proponents. He acknowledged the difficulties of large-scale tax reform.
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
California budget for 2019–20
► The budget includes a federal tax conformity package intended to raise $1 billion in 2019–20.
► The budget proposes more than doubling the existing earned income tax credit and renaming it the Working Families Tax Credit, funded by federal conformity.
Federal conformity proposal to raise revenue
► According to proposed trailer bill language, the conformity items will relate to: ► Elimination of NOL carrybacks► Limitations on fringe benefit deductions► Limitations on like-kind exchanges► Limitations on and losses for noncorporate
taxpayers► Technical termination of partnerships► Elimination of separate 338 elections► Others
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
California budget for 2019–20
► The budget assumes that the California Department of Tax and Fee Administration’s implementation of the U.S. Supreme Court’s Wayfair decision began April 1, 2019. It estimates that the new collections will bring in $219 million in 2018–19 and $554 million in 2019–20.
► The budget proposes that the Franchise Tax Board create a penalty on California residents who do not have health insurance and do not enroll in the state’s Covered California program.
Wayfair implementation Individual mandate
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Initiative and legislative developments
Split-roll initiative► The initiative that will appear on the November 2020 ballot would require property tax reassessment
of California commercial and industrial property at fair market value (FMV) least once every three years.► Not residential or agricultural► Includes a limited exemption from the reassessment requirement if the market value of all property owned by
the taxpayer in the state and used for business operations totals less than $2 million, and a limited small-business exception
Assembly Constitutional Amendment 1 (ACA 1)► ACA 1, by Assemblywoman Cecilia Aguiar-Curry (D-Winters). This constitutional amendment would
lower the voter threshold for the approval of local bond and special tax measures from two-thirds to 55%
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Market sourcing
California still has not finalized or clarified its market sourcing rules:Most recently, on Friday, May 18, 2018, the California Franchise Tax Board (FTB) held its third Interested Parties Meeting (IPM) to continue ongoing discussions for the next round of proposed amendments to its market-based sourcing rules promulgated under California Code of Regulations (CCR), Title 18, Section 25136-2. The following topics were raised at the IPM:► Introduction of five simplifying rules for sales of services to businesses and government entities► Introduction of proposed “predominance” rule► Looking to US population and geographic areas► The FTB has not proposed an effective date for this round of changesThe FTB intends to hold a fourth IPM in 2019, potentially with significant changes; however, a meeting was postponed and none are currently scheduled.
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Hot issues we are seeing in California audits
► Corporate audits► Market sourcing► Distortion and the Distortion Committee► Water’s-edge filing vs. worldwide combined► Credit assignment
► Partnership audits► Business vs. nonbusiness► Sale of property
► What are you seeing?
Page 25
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Today’s agenda
State tax policy overview1
California developments3
State income and franchise tax developments 4
States' responses to Tax Cuts and Jobs Act (TCJA)2
Page 26
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Economic/Geoffrey nexus: nonfinancialAs of March 22, 2019
* But see J.C. Penney case, which requires a physical presence
AK
HI
ME
VTNHMA
CT
PANJ
DEWV
NC
SC
GA
FL
ILOHIN
MIWI
KY
TN*
ALMS
AR
LATX
OK
MOKS
IA
MN
ND
SD
NE
NMAZ
COUT
WY
MT
WA
ORID
NV
CAVA
MD
NYC
Physical presence not required
Physical presence required
No guidance
For purposes of this map, whether physical presence is not required is based on statutes, regulations, administrative pronouncements and decisions (i.e., rulings from state supreme courts, state appeals, state circuit and district courts, tax appeal board opinions and administrative-level decisions).
RI DC
Page 27
Source: Ernst & Young LLP analysis of state laws.
NY2015
effective date
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Economic/MBNA nexus: financial institutions As of March 22, 2019
AK
HI
ME
VTNHMA
CT
PANJ
DEWV
NC
SC
GA
FL
ILOHIN
MIWI
KY
TN*
ALMS
AR
LATX
OK
MOKS
IA
MN
ND
SD
NE
NMAZ
COUT
WY
MT
WA
ORID
NV
CAVA
MD
NYC
* PA is limited to a bank, a trust company or a savings bank that is subject to either the Bank Shares Tax or Mutual Thrift Institutions Tax. ** NYC applies only to credit card banks.
RI DC
Physical presence not required
Physical presence required
No guidance
For purposes of this map, whether physical presence is not required is based on statutes, regulations, administrative pronouncements and decisions (i.e., rulings from state supreme courts, state appeals, state circuit and district courts, tax appeal board opinions and administrative-level decisions).
Source: Ernst & Young LLP analysis of state laws.
NY2015
effective date
Page 28
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Expansion of combined reportingAs of March 22, 2019
AK
HI
ME
VTNHMA
CT
PANJ***DE
WV
NC
SC
GA
FL
ILOH*IN
MIWI
KY***
TN*
ALMS
AR
LATX
OK
MOKS
IA
MN
ND
SD
NE
NMAZ
COUT
WY
MT
WA
ORID
NV
CAVA
MD
NYC
RI CT
Combined reporting/consolidated return required prior to 2004
Combined reporting/consolidated return adopted for 2004 or later
Combined reporting legislation proposed in 2018
Separate return state
No income tax
DC
For purposes of the Commercial Activity Tax (CAT)** Limited to big-box retailers before 2020; adopted on a larger scale beginning January 1, 2020*** Combined reporting starts in 2019Source: Ernst & Young LLP analysis of state laws.
NY2015
effective date
Page 29
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Conformity to IRC (corporate income tax)As of March 22, 2019
AK
HI
ME
VTNHMA
CT
PANJ***DE
WV
NC
SC
GA
FL
ILOHIN
MIWI
KY***
TN*
ALMS
AR
LATX
OK
MOKS
IA
MN
ND
SD
NE
NMAZ
COUT
WY
MT
WA
ORID
NV
CAVA
MD
NYC
RI NJ DE
Fixed
Rolling
Selective
No income tax
DC
► Generally, CA selectively incorporates certain specific provisions of the IRC as of 1/1/2015.
► IA currently conforms to the IRC as of 1/1/2015, but updates IRC conformity to 3/24/2018 for tax years beginning on or after 1/1/2019. For tax years beginning on or after 1/1/2020, IA becomes a rolling conformity state.
► MI conforms to the IRC as of 1/1/2018 (or at the option of the taxpayer, as in effect for the current tax year).
► TX conforms to the IRC as of 1/1/2007.
► NJ and PA arguably could be classified as “rolling” in many instances.
► MD is “rolling,” but if IRC changes impact MD income tax revenues > $5 million, then conformity is generally deferred one year.
Page 30
Source: Ernst & Young LLP analysis of state laws.
NY2015
effective date
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
2000: states with a three-factor formulaAs of March 22, 2019
AK
HI
ME
VTNHMA
CT
PANJ
DEWV
NC
SC
GA
FL
ILOHIN
MIWI
KY***
TN*
ALMS
AR
LATX
OK
MOKS
IA
MN
ND
SD
NE
NMAZ
COUT
WY
MT
WA
ORID
NV
CAVA
MD
NYC
DE
Three-factor formula
Single sales factor formula
No income tax
* Some additional states were in the process of phasing in a single sales factor apportionment formula.
Page 31
Source: Ernst & Young LLP analysis of state laws.
NY2015
effective date
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
2019: states with a three-factor formulaAs of March 22, 2019
AK
HI
ME
VTNHMA
CT
PANJ
DEWV
NC***
SC
GA
FL
ILOHIN
MIWI
KY
TN**
ALMS***
AR
LATX
OK***
MO**KS
IA
MN
ND
SD
NE
NM**AZ**
COUT
WY
MT
WA
ORID***
NV
CA***VA**
MD*
NYC
* MO – SSF will be mandatory in 2020.** Single sales factor is either electable or being phased-in.*** Different apportionment rules apply to certain industries.
Three-factor formula: equal weighting
Three-factor formula: unequal weighting
Single sales factor formula
No corporate income tax
DC
DE*
RI
NJ
Page 32
Source: Ernst & Young LLP analysis of state laws.
NY2015
effective date
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
2000: sourcing of multistate service revenueAs of March 22, 2019
AK
HI
ME
VTNHMA
CT
PANJ
DEWV
NC
SC
GA
FL
ILOHIN
MIWI
KY
TN
ALMS
AR
LATX
OK
MOKS
IA
MN
ND
SD
NE
NMAZ
COUT
WY
MT
WA
ORID
NV
CAVA
MD*
NYC
Source to state where greater portion of income producing activity performed (“all or nothing”)
Source to state to the extent services performed in state (“to the extent of” or “direct”)
Source to state where benefit of service received (“benefit” or “market”)
No income tax
DE
RI
DC
Page 33
Source: Ernst & Young LLP analysis of state laws.
NY2015
effective date
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
2019: sourcing of multistate service revenue As of March 22, 2019
AK
HI
ME
VTNHMA
CT
PANJ 2019effective date
DEWV
NC
SC
GA
FL
ILOHIN
MIWI
KY
TN
ALMS
AR
LATX
OK
MO2020
effective dateKS
IA
MN
ND
SD
NE
NMAZ
CO2019
effective date
UT
WY
MT
WA
ORID
NV
CAVA
MD*
NY City
Source to state where greater portion of income producing activity performed (“all or nothing”)
Source to state to the extent services performed in state (“to the extent of” or “direct” )
Source to state where benefit of service received (“benefit” or “market”)
No income tax
RI
MA
NJ
Years indicate when market-based sourcing takes effect.
DC
DE
Page 34
Source: Ernst & Young LLP analysis of state laws.
NY2015
effective date
The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Wisconsin PTE entity-level tax election
► SB 883 (enacted December 14, 2018) allows pass-through entities (PTEs) to elect to be taxed at entity level at the 7.9% corporate tax rate. ► PTEs include partnerships, limited liability companies and tax-option corporations (e.g., S corporations).
► Owners in the PTE are allowed an exclusion for the investor’s distributive share of income subject to the new PTE tax.► The PTE owner cannot claim a credit for taxes paid by the electing PTE.
► If the election is made, the PTE will compute and situs its income as if the election were not made.► If the election is made, the PTE may not claim losses or tax credits except for the credit for taxes paid
to other states.► The election may be made for taxable years beginning in 2018 for tax-option corporations and 2019
for all other PTEs.► The election must be made by the due date, including extensions, of the return.
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Kentucky
► HB 354 (enacted March 26, 2019) – “cleans up” various provisions adopted in 2018 through HB 487► Income tax
► Updates IRC conformity for 2018 to IRC as of December 31, 2017; for 2019 and forward, Kentucky adopts IRC as of December 31, 2019
► For IRC §179 expensing, updates to IRC as of December 31, 2003 ► Limited liability entity tax (LLET) modifications► Combined reporting changes include “combined group” definition change, exclusion of certain countries from “tax haven”
classification, water’s-edge basis reporting with intercompany receipts eliminated and 80/20 test adoption► Shortens consolidated group election to 48 months (from 96 months)► Bank franchise tax sunsets after 2021
► Sales tax► Marketplace provider nexus provisions, applicable beginning July 1, 2019► Changes to several exemptions
► Incentives changes, including changes to recycling credit► Prevents certain Department of Revenue guidance from being made public
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The 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las VegasThe 2019 EY Homebuilder Tax Director Roundtable | 6 May 2019 | Four Seasons Hotel Las Vegas
Questions?
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