Maryland recently enacted the nation’s first tax on digital advertising. The new tax, the Digital Advertising Gross Revenues Tax (the “Tax”), became law on February 12, 2021.
The Tax has been surrounded by controversy from the very moment it was introduced in the Maryland House of Delegates. In fact, a lawsuit to prevent the Comptroller of the Treasury of Maryland from enforcing the Tax was recently filed by a group of affected taxpayers.
Oregon State Senator Fred Girod, a Republican from Stayton, Oregon (District 9), is sponsoring Senate Bill 787 ("SB 787"). If passed, SB 787 would repeal the Oregon Corporate Activity Tax (the "CAT"). So far, the bill does not appear to have much momentum behind it, but time will tell.
Cats have a "righting reflex," allowing them to twist in midair if they fall from a high place so that they can land upright on their feet. Because of this uncanny ability to potentially avoid disaster, it is often said cats have nine lives. Well, the CAT has avoided death in the Oregon Legislature already on a number of occasions. The question is whether the CAT can avoid another attempt to repeal it once and for all.
Senator Girod is a strong advocate for making a quality college education affordable for all students. He is not, however, a friend of the CAT. SB 787 is aimed at killing the CAT.
The Consolidated Appropriations Act, 2021
In a bipartisan effort, H.R. 133-116th Congress: Consolidated Appropriations Act, 2021 (the "Consolidated Appropriations Act, 2021") overwhelmingly passed both the House and the Senate on December 21, 2020. It is now on President Trump's desk awaiting his signature.
The Consolidated Appropriations Act, 2021, which spans almost 6,000 pages, once signed into law, will bring holiday cheer to many. The new law includes a huge variety of provisions aimed at assisting individuals and businesses during this time of need. One provision in particular is aimed at curing a wrong created by the Internal Revenue Service ("IRS") in Notice 2020-32.
More than six months into the coronavirus pandemic, and approximately four months since the IRS issued Notice 2020-32, it is looking increasingly likely that taxpayers will not be permitted to deduct business expenses funded with Paycheck Protection Program (“PPP”) loan proceeds that are ultimately forgiven. It is terribly late in the game not to have finality on the issue, especially with the third quarter 2020 estimated tax payments due on September 15 (next week).
Background
As we previously discussed, PPP loans authorized by the CARES Act may be forgivable, in whole or in part, if taxpayers use the proceeds for qualifying expenses (namely, payroll, benefits, mortgage interest, rent, and utilities). Unlike other debt that is forgiven, PPP loan amounts forgiven pursuant to the CARES Act do not constitute cancellation of debt income.
During the first special session of 2020, the Oregon legislature passed House Bill 4212 (“HB 4212”). Governor Kate Brown (the “Governor”) signed HB 4212 into law on June 30, 2020.
HB 4212 extends the time periods that apply to court proceedings, including those in the Oregon Tax Court (“Tax Court”), to provide relief to litigants who may be impacted by the COVID-19 pandemic.
On July 21, 2020, the Chief Justice of the Oregon Supreme Court (the “Chief Justice”) issued Order No. 20-027 (the “Order”) to facilitate the implementation of HB 4212. In this post, we address the impact that HB 4212 and the Order may have on Tax Court cases.
Taxpayers with cases pending in either the magistrate or regular division of the Tax Court may be able to utilize these extended time periods. Additionally, taxpayers may still have the ability to initiate or continue Tax Court proceedings if they missed the time period for doing so originally, including appealing adverse determinations to the magistrate division, regular division, or even the Oregon Supreme Court.
During the special session, the Oregon legislature passed House Bill 4202 (“HB 4202”), which Governor Kate Brown signed into law on June 30, 2020. The legislation, which makes several technical and policy changes to the Oregon Corporate Activity Tax (the “CAT”), becomes effective on September 25, 2020.
The Oregon Legislative Revenue Office estimates that the modifications to the CAT resulting from HB 4202 will cost the state approximately $500,000 per year in lost tax revenue for each of the next six years. The CAT was projected to raise approximately $1 billion per year in tax revenue. Consequently, assuming these projections turn out to be accurate, the revenue losses attributable to HB 4202 should amount to less than one-tenth of 1 percent.
HB 4202 brings good news to farmers and provides some clarity for a small subset of Oregon taxpayers. Unfortunately, the legislature did not repeal the CAT, and our lawmakers’ curiosity was not enough to cause them to look closely at the law and make the monumental changes that many taxpayers have been pleading for these past months.
As we reported last week, the Oregon Department of Revenue (“DOR”) scheduled a public hearing on June 23, 2020 to discuss the second set of temporary administrative rules relative to the Oregon Corporate Activity Tax (the “CAT”) that it intends to make permanent. The show (held telephonically) occurred as scheduled. Peter Evalds from our firm attended the hearing. A summary of the key comments and concerns raised by attendees from the business and tax community, as well as our own guidance with respect to the rules, is set forth below.
The Small Business Administration (“SBA”) continues its quest to provide guidance relative to the Paycheck Protection Program (“PPP”) enacted as part of the CARES Act and the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) enacted by Congress to provide clarification and remove some of the rigidity surrounding the PPP.
The PPP legislation and much of the guidance PPP borrowers have received to date is fraught with complexity and inconsistency. The SBA is doing its best, as Paul McCartney and John Lennon expressed in their hit song We Can Work It Out, to help PPP borrowers get through these trying times:
Try to see it my way
Only time will tell if I am right or I am wrong
While you see it your way
There’s a chance that we might fall apart before too long
We can work it out
We can work it out
In that vein, the SBA recently issued interim final rules (“IFRs”) focused on PPP loan forgiveness. Additionally, last week the SBA published a revised PPP loan forgiveness application (“Form 3508”), and a new short-form forgiveness application (“Form 3508EZ”).
The Oregon Department of Revenue (“DOR”) announced that it will be conducting a public hearing on June 23, 2020 to discuss a second set of temporary administrative rules relative to the Oregon Corporate Activity Tax (the “CAT”) that it intends to make permanent.
Due to the COVID-19 pandemic, the hearing will be held telephonically. The conference call will commence at 9:00 a.m. Pacific Time on June 23, 2020.
In a new temporary rule, the Oregon Department of Revenue (“DOR”) formalized its prior informal guidance relative to the assessment of penalties for failing to make sufficient estimated payments under Oregon’s Corporate Activity Tax (“CAT”). The temporary rule provides some relief to CAT taxpayers whose businesses are adversely affected by COVID-19.
Background
Pursuant to ORS 317A.137(2), a taxpayer must make estimated quarterly CAT payments. As discussed previously, ORS 317A.161(2) imposes a penalty on taxpayers who fail to make estimated payments equal to at least 80 percent of their CAT liability for any quarter during 2020.
The DOR announced in April that it would not assess penalties against a taxpayer for failure to make estimated CAT payments during 2020 if the taxpayer did not have the financial ability to make the estimated payments. The DOR further stated that it would honor a taxpayer’s good faith compliance efforts if the taxpayer documents those efforts.
Unfortunately, the DOR pronouncement about penalty abatement was contained in an email blast. Consequently, many taxpayers and tax practitioners were concerned about whether such an informal announcement could be relied upon, what actually constitutes “good faith compliance efforts” and how to document the efforts.
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Larry J. Brant
Editor
Larry J. Brant is a Shareholder and the Chair of the Tax & Benefits practice group at Foster Garvey, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; Washington, D.C.; New York, New York, Spokane, Washington; Tulsa, Oklahoma; and Beijing, China. Mr. Brant is licensed to practice in Oregon and Washington. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long-term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.
