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On June 18, 2019, the State of Maine enacted Legislative Document 1819, House Paper 1296, An Act to Harmonize State Income Tax Law and the Centralized Partnership Audit Rules of the Federal Internal Revenue Code of 1986

Proposed House bill brings state income tax standards to the digital age

On June 3, 2019, the US House of Representatives introduced H.R. 3063, also known as the Business Activity Tax Simplification Act of 2019, which seeks to modernize tax laws for the sale of personal property, and clarify physical presence standards for state income tax nexus as it applies to services and intangible goods. But before we can catch up on today, we need to go back in time—great Scott!

A common pitfall for inbound sellers is applying the same concepts used to adopt “no tax” positions made for federal income tax purposes to determinations concerning sales and use tax compliance. Although similar conceptually, separate analyses are required for each determination.

Last week, in addition to The Eagles Greatest Hits (1971-1975) album becoming the highest selling album of all time, overtaking Michael Jackson’s Thriller, the IRS issued Notice 2018-67—its first formal guidance on Internal Revenue Code Section 512(a)(6).

The recent Tax Cuts and Jobs Act includes many sweeping tax law changes, some of which left taxpayers scrambling at the end of 2017 to maximize tax saving opportunities. While the dust settles on tax reform at the federal level, the whirlwind at the state level is just beginning, with many unanswered questions.

Read this if you work at a renewable energy company, developer, or other related business. 

When entering into agreements involving tangible long-lived assets, an asset retirement obligation can arise in the form of a legal obligation to retire the asset(s) at a certain date. In the alternative/renewable energy industry, these frequently present themselves in leases for property on which equipment (i.e., solar panels) is placed. In the leases there may be a requirement, for example, that at the conclusion of the lease, the lessee remove the equipment and return to the property to its original condition.

When an asset retirement obligation is present in a contract, a company should record the liability when it has been incurred (usually in the same period the asset is installed or placed in service) and can be reasonably estimated. The fair value of the liability, typically calculated using a present value technique, is recorded along with a corresponding increase to the basis of the asset to be retired. Subsequent to the initial recognition, the liability is accreted annually up to its future value, and the asset, including the increase for the asset retirement obligation, is depreciated over its useful life.

As a company gets closer to the date the obligation is realized, the estimate of the obligation will most likely become more accurate. When revisions to the estimate are determined, the liability should be adjusted in that period.

It is important to note that this accounting does not have any income tax implications, including any potential increase to the investment tax credit (ITC).

These obligations are estimates and should be developed by your management through collaboration with companies or individuals that have performed similar projects and have insight as to the expected cost. While this is an estimate and not a perfect science, it is important information to share with investors and work into cash flow models for the project, as the cost of removing such equipment can be significant. 

Recording the liability on the balance sheet is a good reminder of the approximate cash outflow that will take place in the final year of the lease. If you have any questions or would like to discuss with us, contact a member of the renewable energy team. We’re here to help.

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Asset retirement obligations in alternative/renewable energy

Read this if your agency is involved with COVID-19 vaccination distribution.

Although states have already created COVID-19 vaccination plans, your state can still implement critical strategies to improve your distribution plan. In October 2020, the Centers for Disease Control (CDC) released the Interim Playbook version 2.0, providing a key framework for states and jurisdictions to build their COVID-19 vaccine distribution plans. The federal government asked that immunization programs in each state plans based on this model. The Playbook contains 15 sections of planning elements for states to consider in the development of their plan. Completing a plan of this extent while simultaneously trying to manage the pandemic has led some states to leave out or not thoroughly address critical components in their plans. 

The Kaiser Family Foundation (KFF) analyzed and collected common themes from each of the 47 state vaccination plans. Their analysis identified areas of weakness in the following areas of each plan: 

  • Priority populations for vaccinations in states 
  • Identifying networks of providers 
  • Developing data collection and reporting
  • Forming communication strategies

Each of the four areas each contained multiple findings, but since the vaccine has already started to roll out, some aspects of the plan cannot be revised. However, it is not too late to improve upon certain elements, especially for data collection and reporting, as well as communication strategies. 

The following recommendations for improvement of state plans are based on the findings from the KFF State COVID-19 vaccine distribution analysis report

States should identify a clear data reporting and collection plan that accounts for the COVID-19-specific data requirements.

According to KFF, an immunization registry or database has been included in 53% of the state COVID-19 plans; in the others it was an unclear component of the plan. The data collection process for COVID-19 vaccinations will be complex and unique due to a number of factors including the nature of a phased rollout, new provider enrollment and onboarding, storage requirements, multiple vaccines and doses, and off-site vaccination locations

Since a little over half of all states have arranged for either new systems or are developing or adding features to current immunization registries, states that are lacking a comprehensive approach could benefit from adopting elements present in the other plans. For example, some states detail how their current immunization system is being utilized for the COVID-19 vaccine, in addition to upgrading certain features in order to meet the anticipated increase in demand. 

Other states have also described their transition to the Immunization Gateway, a centralized technical infrastructure sponsored by the CDC Immunization Information Systems Support Branch, and led by the US Department of Health and Human Services Office of the Chief Technology Officer. The Gateway is securely hosted through the Association of Public Health Laboratories (APHL). States can review the data collection and reporting sections of other states’ plans to gain a greater understanding of how their plan can be improved by describing data reporting and collection processes.   

States should address racial and ethnic disparities in vaccine distribution and acceptance through targeted and evidence-based communication strategies. 

The KFF analysis of state COVID-19 plans indicated about 49% of state plans include specific mention of racial or ethnic minority populations in regards to communication. Communication plans need to include targeted strategies as minority populations and people of color have shown greater hesitation in receiving the vaccine, even if it is free and determined safe by scientists and federal authorities. The virus has had a disproportionate impact on communities of color and minority populations, and a lack of communication to these populations may continue to enhance these disparate health outcomes.

One way to improve a communication plan by addressing racial or ethnic minority populations would be by incorporating the National Standards for Culturally and Linguistically Appropriate Services (CLAS), specifically the standards for Communication and Language Assistance:

  • Offer language assistance to individuals who have limited English proficiency and/or other communication needs, at no cost to them, to facilitate timely access to all health care and services
  • Inform all individuals of the availability of language assistance services clearly and in their preferred language, verbally and in writing
  • Ensure the competence of individuals providing language assistance, recognizing that the use of untrained individuals and/or minors as interpreters should be avoided
  • Provide easy-to-understand print and multimedia materials and signage in the languages commonly used by the populations in the service area

A communication plan that considers the racial and ethnic minority populations most vulnerable to adverse health outcomes and have shown a lack of trust in the scientific community would be advisable in order to combat disproportionate negative outcomes from the COVID-19 virus in the future. 

A COVID-19 vaccine distribution plan is an important aspect of each state’s strategy to control the spread of the virus. In order to lead to effective vaccine distribution, it is vital for the plans to thoroughly address data collection, reporting, and tracking. It is also important to consider implementing a communication plan that incorporates strategies to reach racial and ethnic minority groups who might have been disproportionality impacted by COVID-19 as a way to improve your state’s health equity approach to COVID-19 vaccination efforts. By implementing these considerations, your state’s COVID-19 vaccine distribution plan could become more effective in improving the health outcomes of your population. 

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Two ways states can improve their COVID-19 vaccination distribution plans

Read this if you are a business owner or interested in upcoming changes to current tax law.

As Joe Biden prepares to be inaugurated as the 46th President of the United States, and Congress is now controlled by Democrats, his tax policy takes center stage.

Although the Democrats hold the presidency and both houses of Congress for the next two years, any changes in tax law may still have to be passed through budget reconciliation, because 60 votes in the Senate generally are needed to avoid that process. Both in 2017 and 2001, passing tax legislation through reconciliation meant that most of the changes were not permanent; that is, they expired within the 10-year budget window. Here is a comparison of current tax law with Biden’s proposed tax plan.

Current Tax Law
(TCJA–present)
Biden’s stated goals
Corporate tax rates and AMT

Corporations have a flat 21% tax rate and no corporate alternative minimum tax (AMT), which were both changed by the TCJA.

These do not expire.

Biden would raise the flat rate to the pre-TCJA level of 28% and reinstate the corporate AMT, requiring corporations to pay the greater of their regular corporate income tax or the 15% minimum tax (while still allowing for net operating loss (NOL) and foreign tax credits).

Capital gains and Qualified Dividend Income

The top tax rate is 20% for income over $441,450 for individuals and $496,600 for married filing jointly. There is an additional 3.8% net investment income tax.

Biden would eliminate breaks for long-term capital gains and dividends for income above $1 million. Instead, these would be taxed at ordinary rates.

Payroll taxes

The 12.4% payroll tax is divided evenly between employers and employees and applies to the first $137,700 of an individual’s income (scheduled to go up to $142,400 in 2020). There is also a 2.9% Medicare Tax which is split equally between the employer and the employee with no income limit.

Biden would maintain the 12.4% tax split between employers and employees and keep the $142,400 cap but would institute the tax on earned income above $400,000. The gap between the two wage levels would gradually close with annual inflationary increases.

International taxes (GILTI, offshoring)

GILTI (Global Intangible Low-Tax Income): Established by the TCJA, U.S. multinationals are required to pay a foreign tax rate of between 10.5% and 13.125%.

A scheduled increase in the effective rate to 16.406% is scheduled to begin in 2026.

Offshoring taxes: The TCJA includes a tax deduction for corporations that manufacture in the U.S. and sell overseas.

GILTI: Biden would double the tax rate to 21% and assess a minimum tax on a country-by-country basis.

Offshoring taxes: Biden would establish a 10% penalty surtax on profits for goods and services manufactured offshore and a 10% advanceable “Made in America” tax credit to create U.S. manufacturing jobs. Biden would also close offshoring tax loopholes in the TCJA.

Estate taxes

The estate tax exemption for 2020 is $11,580,000. Transfers of appreciated property at death get a step-up in basis.

The exemption is scheduled to revert to pre-TCJA levels.

Biden would return the estate tax to 2009 levels, eliminate the current step-up in basis on inherited assets, and eliminate the step-up at death provision for inherited property passed along by the decedent.

Individual tax rates

The top marginal rate is 37% for income over $518,400 for individuals and $622,050 for married filing jointly. This was lowered from 39.6% pre-TCJA.

Biden would restore the 39.6% rate for taxable income above $400,000. This represents only the top rate.

Individual tax credits

Currently, individuals can claim a maximum of $2,000 Child Tax Credit (CTC) plus a $500 dependent credit.

Individuals may claim a maximum dependent care credit of $600 ($1,200 for two or more children).

The CTC is scheduled to revert to pre-TCJA levels ($1,000) after 2025.

Biden would expand the CTC to $3,000 for children age 17 and under and offer a $600 bonus for children age 6 and under. It would also be fully refundable.

He has also proposed increasing the child and dependent care tax credit to $8,000 ($16,000 for two or more children), and he has proposed a new tax credit of up to $5,000 for informal caregivers.

Separately, Biden has also proposed a $15,000 tax credit for first-time homebuyers.

Qualified Business Income Deduction under Section 199A

As previously discussed, many businesses qualify for a 20% qualified business income tax deduction lowering the effective rate of tax for S corporation shareholders and partners in partnerships to 29.6% for qualifying businesses.

Biden would phase out the tax benefits associated with the qualified business income deduction for those making more than $400,000 annually.

Education

Forgiven student loan debt is included in taxable income.

There is no tax credit for contributions to state-authorized organizations that sponsor scholarships.

Biden would exclude forgiven student loan debt from taxable income.

Small businesses

There are current tax credits for some of the costs to start a retirement plan.

Biden would offer tax credits for businesses that adopt a retirement savings plan and offer most workers without a pension or 401(k) access to an “automatic 401(k)”.

Itemized deductions

For 2020, the standard deduction is $12,400 for single/married filing separately and $24,800 for married filing jointly.

After 2025, the standard deduction is scheduled to revert to pre-TCJA amounts, or $6,350 for single /married filing separately and $12,700 for married filing jointly.

The TCJA suspended the personal exemption and most individual deductions through 2025.

It also capped the SALT deduction at $10,000, which will remain in place until 2025, unless repealed.

Biden would enact a provision that would cap the tax benefit of itemized deductions at 28%.

SALT cap: Senate minority leader Charles Schumer has pledged to repeal the cap should Biden win in November (the House of Representatives has already passed legislation to repeal the SALT cap).

Opportunity Zones

Biden has proposed incentivizing - opportunity zone funds to partner with community organizations and have the Treasury Department review the program’s regulations of the tax incentives. He would also increase reporting and public disclosure requirements.
Alternative energy Biden would expand renewable energy tax credits and credits for residential energy efficiency and restore the Energy Investment Tax Credit (ITC) and the Electric Vehicle Tax Credit.


If you have questions about your specific situation, please contact us. We’re here to help.

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Biden's tax plan and what may change from current tax law

Read this if you are an employer looking for more information on the Employee Retention Credit (ERC).

The Coronavirus Disease 2019 (COVID-19) stimulus package signed into law by President Trump on December 27 makes very favorable enhancements to the Employee Retention Credit (ERC) enacted under the Coronavirus Aid, Relief and Economic Security (CARES) Act. 

Background

The CARES Act passed in March 2020 provided certain employers with the opportunity to receive a refundable tax credit equal to 50 percent of the qualified wages (including allocable qualified health plan expenses) an eligible employer paid to its employees. This tax credit applied to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages (including allocable qualified health plan expenses) taken into account with respect to each eligible employee for all calendar quarters in 2020 is $10,000, so that the maximum credit an eligible employer can receive in 2020 on qualified wages paid to any eligible employee is $5,000.

The ERC was for eligible employers who carried on a trade or business during calendar year 2020, including certain tax-exempt organizations, that either:

  • Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19; or
  • Experienced a significant decline in gross receipts during the calendar quarter.

If an eligible employer averaged more than 100 full-time employees in 2019, qualified wages were limited to wages paid to an employee for time that the employee was not providing services due to an economic hardship described above. If the eligible employer averaged 100 or fewer full-time employees in 2019, qualified wages are the wages paid to any employee during any period of economic hardship described above.

Updated guidance: ERC changes

The bill makes the following changes to the ERC, which will apply from January 1 to June 30, 2021:

  • The credit rate increases from 50% to 70% of qualified wages and the limit on per-employee wages increases from $10,000 per year to $10,000 per quarter.
  • The gross receipts eligibility threshold for employers changes from a more than 50% decline to a more than 20% decline in gross receipts for the same calendar quarter in 2019. A safe harbor is provided, allowing employers that were not in existence during any quarter in 2019 to use prior quarter gross receipts to determine eligibility and the ERC. 
  • The 100-employee threshold for determining “qualified wages” based on all wages increases to 500 or fewer employees.
  • The credit is available to state or local run colleges, universities, organizations providing medical or hospital care, and certain organizations chartered by Congress (including organizations such as Fannie Mae, FDIC, Federal Home Loan Banks, and Federal Credit Unions). 
  • New, expansive provisions regarding advance payments of the ERC to small employers are included, including special rules for seasonal employers and employers that were not in existence in 2019. The bill also provides reconciliation rules and provides that excess advance payments of the credit during a calendar quarter will be subject to tax that is the amount of the excess.
  • Employers who received PPP loans may still qualify for the ERC with respect to wages that are not paid for with proceeds from a forgiven PPP loan. This change is retroactive to March 12, 2020. Treasury and the SBA will issue guidance providing that payroll costs paid during the PPP covered period can be treated as qualified wages to the extent that such wages were not paid from the proceeds of a forgiven PPP loan.
  • Removal of the limitation that qualified wages paid or incurred by an eligible employer with respect to an employee may not exceed the amount that employee would have been paid for working during the 30 days immediately preceding that period (which, for example, allows employers to take the ERC for bonuses paid to essential workers).

Takeaways

For most employers, the ERC has been difficult to use due to original requirements that prevented employers who received a PPP loan from ERC eligibility and, for those employers who did not receive a PPP loan, the requirement that there be a more than 50% decline in gross receipts. In addition, those employers who qualified for the ERC and had more than 100 employees could only receive the credit for wages paid to employees who did not perform services.

It is important to note that most of the new rules are prospective only and do not change the rules that applied in 2020. The new guidance should make it easier for more employers to utilize the ERC for the first two quarters of 2021. The following types of employers should evaluate the ability to receive the ERC during the first and/or second quarter of 2021:

  • Those that used the ERC in 2020 (the wage limit for the credit is now based on wages paid each quarter and the credit is 70% of eligible wages);
  • Those that previously received a PPP loan;
  • Those that have a more than 20% reduction in gross receipts in 2021 over the same calendar quarter in 2019;
  • Those employers with more than 100 but less than 500 employees who have had a significant reduction in gross receipts (i.e., more than 20%)1

For more information

If you have more questions, or have a specific question about your particular situation, please call us. We’re here to help.

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Stimulus bill extends and expands the Employee Retention Credit