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Gov. Paul LePage has signed legislation (Ch. 1, Laws 2015) that updates Maine’s corporate income and personal income tax federal Internal Revenue Code (IRC) conformity date to December 31, 2014 (previously December 31, 2013). The change applies to tax years beginning on or after January 1, 2014. This includes conformity to the extender items enacted by the federal Tax Increase Prevention Act of 2014, except that Maine continues to decouple from the federal bonus depreciation provisions.

 

In addition, the legislation extends the Maine capital investment credit for taxable years beginning in 2014 with respect to depreciable property placed in service in the state. The credit is equal to 9% of the amount of the net increase in depreciation attributable to the depreciation deduction claimed by the taxpayer under IRC §168(k) with respect to property placed in service in Maine during the taxable year.

 

Maine tax forms and instructions for 2014 (including the credit worksheet) were developed with the expectation that the legislation would be enacted; therefore, no changes to the 2014 tax forms or instructions are required.

Billed as “middle class tax relief,” Arkansas Gov. Asa Hutchinson has signed legislation that lowers certain personal income tax rates for 2015, and then adjusts rates again (raises some, lowers some) along with the addition of certain bracket adjustment deductions for tax years beginning in 2016 and thereafter. The legislation also decreases the capital gain exemption from 50% to 40% beginning February 1, 2015.

 

For a side-by-side comparison, the 2014 rates, the 2015 rates, and the post-2015 rates are below (based on taxpayer’s net income):

 

2014 Tax Year2015 Tax YearPost-2015 Tax Years
$0 to $4,299: 0.9%$0 to $4,299: 0.9%$0 to $4,299: 0.9%
$4,300 to $8,399: 2.5%$4,300 to $8,399: 2.4%$4,300 to $8,399: 2.5%
$8,400 to $12,599: 3.5%$8,400 to $12,599: 3.4%$8,400 to $12,599: 3.5%
$12,600 to $20,999: 4.5%$12,600 to $20,999: 4.4%$12,600 to $20,999: 4.5%
$21,000 to $35,099: 6%$21,000 to $35,099: 6%$21,000 to $35,099: 6% (5% if net income is not more than $75,000)
$35,100 and over: 7%$35,100 and over: 7%$35,100 and over: 6.9% (6% if net income is not more than $75,000)

 

For tax years beginning on or after January 1, 2016, taxpayers with net income between $75,000 and $80,000 can also claim a bracket adjustment deduction in the following amount (based on taxpayer’s net income):

 

  • $75,001 to $76,000: $440
  • $76,001 to $77,000: $340
  • $77,001 to $78,000: $240
  • $78,001 to $79,000: $140
  • $79,001 to $80,000: $40

 

The rates apply for individuals, trusts, and estates, and are to be adjusted annually for inflation.

About half of the 46 U.S. jurisdictions that impose sales tax have laws on the books prohibiting the sale, possession, or use of sales suppression devices (also known as “zappers”) and “phantom-ware.” These software programs and hidden programming options are designed to underreport sales in the electronic records of electronic cash registers and other point of sale systems. This underreporting of sales results in the underreporting of sales tax and income tax.

 

A Tax Tips video features in-depth discussion of sales suppression devices and the penalties imposed for the prohibited conduct associated with them. CLICK HERE to view the video.

As CCH’s Tim Bjur has reported, the Massachusetts Department of Revenue has adopted final apportionment regulations implementing 2013 legislation that replaced cost-of-performance sales factor sourcing rules with market-based sourcing principles for assigning sales from transactions involving services and intangible property (see 830 CMR 63.38.1). The market-based sourcing rules take effect for tax years beginning on or after January 1, 2014. The regulations generally provide that sales from transactions involving services and intangible property are in Massachusetts if and to the extent that the taxpayer’s market for the sales is in Massachusetts. Rules are also established for determining whether and to what extent the market for a sale is in Massachusetts, reasonably approximating the state or states of assignment where such state or states cannot be determined by the taxpayer, and excluding the sale (i.e., throwout rule) where the state or states of assignment cannot be determined or reasonably approximated by the taxpayer.

 

In addition to addressing general sales of services, the regulations cover sourcing of various specific types of transactions involving the sale of services, including sales of:

 

  • In-person services;
  • Transportation and delivery services;
  • Professional services;
  • Services delivered by physical means; and
  • Services delivered by electronic transmission.

 

The regulations also cover sourcing for the license, lease, or sale of intangible property (including the license of sale of software and digital goods/services).

 

Several “reasonable approximation” rules are also included that apply when the state or states of assignment cannot be determined by the taxpayer using the applicable souring rules. “Throwout rules” (excluding sale from sales factor) are also added when the state or states of assignment cannot be determined using either the applicable sourcing rules or the reasonable approximation rules.

 

In addition, provisions have been added to clarify the application of existing regulations to taxpayers that are subject to combined reporting (e.g., expressly incorporating the Finnigan rule for combined reporting groups).

As CCH’s Tim Bjur has reported, the Massachusetts Department of Revenue certified that revenue growth has met the final threshold needed to lower the personal income tax rate from 5.20% to 5.15% beginning January 1, 2015. Under Massachusetts law, the state’s personal income tax rate for Part B income (which consists of income such as wages, pensions, business income, rents) is reduced by .05% if the inflation-adjusted growth in baseline taxes in the fiscal year ending June 30 of the previous year exceeds 2.5% and the inflation-adjusted change in baseline taxes for each consecutive three-month period between August and December of the previous year is greater than zero. The rate cannot drop below the minimum rate of 5%.

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