Tax Law

State Net Capitol Journal – November 2, 2015; U.S. House of Representatives Passes Budget

Budget & Taxes

US House Passes Budget

The U.S. House has seen only disarray in recent weeks with the ouster of speaker John Boehner (R-Ohio) at the hands of his party’s far-right Freedom Caucus. But last Wednesday the chamber passed a two-year budget that would increase discretionary spending by $80 billion, boost military spending, hold down Medicare premiums, tighten eligibility requirements for Social Security, and raise federal spending caps and the debt limit, potentially averting a federal default this month and a government shutdown before the end of the year. As The New York Times reported, the passage of the complex, 144-page bill “was virtually guaranteed before many lawmakers had a chance to read the table of contents.”

The unlikely action had U.S. Senate Democratic leader Harry Reid of Nevada seeking to reassure the American people that nothing was amiss.

“What has happened is nothing that should be alarming; it shouldn’t be a surprise,” he said. “But it should be of interest to the American people: We did what we should be doing, sitting down and talking through our differences.”

But the deal drew the ire of many Republicans for breaking through the spending caps put in place with the passage of the Budget Control Act (BCA) of 2011, after a difficult summer of negotiations with President Obama.

“The greatest concerns we should have is since 2011 the BCA provided us with a real glide path to keeping spending in check, and we are now getting ready to completely destroy those caps,” said U.S. Sen. Tim Scott (R-South Carolina).

The National Governors Association, however, praised the deal, saying in a statement that it “creates longer-term certainty for the economies of our states and the nation” and “includes provisions to handle rising Medicare premiums.”

Ultimately the terms of the deal and loyalty to the outgoing speaker were enough to win the bill’s passage by a vote of 266-167, with 79 of the chamber’s 247 Republicans and 187 of its 188 Democrats supporting the measure.

The Wall Street Journal reported that Republican presidential hopeful U.S. Sen. Rand Paul (R-Kentucky) intended to block the bill’s progress in the Senate but that it was still likely to pass by the end of the week, with most of the chamber’s 44 Democrats expected to vote for it.

“We have before us a deal that removes the threat of catastrophic sequestration budget cuts for two years and allows our country to meet our financial obligations,” said U.S. Senate Assistant Minority Leader Richard Durbin (D-Illinois). (HILL, NEW YORK TIMES, WALL STREET JOURNAL)

States Seeking to Tax ‘The Cloud’

With retail sales of music CDs, DVD movies and computer software plummeting, state sales tax revenues have taken a hit. But at least a couple of states are looking to recapture that lost revenue stream by taxing consumers’ new source for such media: “the cloud.”

That desire has raised the question of whether the cloud is a source of tangible goods that should be subject to sales tax, services that should be subject to use tax or something else. That determination becomes complicated when it involves something like software that resides in the cloud and is never actually downloaded to the user’s computer.

“For states to be able to impose a tax, they have to have some jurisdiction over the entities they are taxing,” said David Shakow, a professor and tax expert at Fordham University. But he also said some states have decided with regard to the cloud that “there are electrons moving around there and that’s taxable.”

In Ohio, for instance, Tax Commissioner Joseph Testa issued an opinion last year stating that cloud-based business communication services are subject to the state’s 5.75 percent sales tax if the benefit of those services is received in Ohio. And Utah has imposed its 4.7 percent sales tax on cloud-based software for three years, with transactions between sellers and buyers located in the state taxable at the point of sale and local buyers responsible for remitting the tax if they purchase their software from a seller located outside the state.

But there’s a lack of consensus on the issue among the states. In contrast to Ohio and Utah, seven states - Florida, Georgia, Massachusetts, South Caroline, Tennessee, Virginia and Wyoming - have all deemed at least parts of the cloud exempt from taxation, according to Arthur Rosen, a Washington, D.C.-based tax law specialist.

According to Fordham’s Shakow, there’s at least potential for consensus, however.

“In theory, there is some logic to taxing cloud storage as leasing tangible personal property,” he said. That would make renting space in the cloud like renting a storage shed, a service on which some states impose a “use tax.” (STATELINE.ORG)

UT Targeting Tax Scofflaws’ Savings

Utah Sen. Wayne Harper (R) is apparently fed up with tax deadbeats in his state. Last month he persuaded the state Legislature’s Revenue and Taxation Interim Committee to unanimously approve his bill providing for automated searches for the bank accounts of delinquent taxpayers who’ve been issued liens by a court. The state’s current method of tracking down that information is time consuming and often unsuccessful, according to State Tax Commission Chairman John Valentine.

“The tax commission is spending a significant amount of time sending out paper that is useless on fishing expeditions,” he said. “We wasted the taxpayers’ dollars. We wasted the bank’s time.”

Harper’s bill would create an electronic database of all tax delinquents with liens against them, which would include identifying information such as their Social Security numbers, and require banks and credit unions to search that database once per quarter and notify the tax commission of any matches with their account holders.

“What this legislation allows us to do is narrow our scope of attack and go after those situations where we know there is an account in the bank and there is money in the account,” said Dee Talbot, the tax commission’s director of taxpayer services.

Some view the proposal as a Big Brother-like invasion of privacy. But Talbot said the database would only impact a small number of people.

“We’re not talking about everybody,” she said. “We’re talking about those who really are the recalcitrant individuals who refuse to work with us, refuse to set up repayment agreements.” (SALT LAKE TRIBUNE)

Budgets In Brief - November 2 2015

Severance tax exemption cost LA over $1B: LOUISIANA’s severance tax exemption on horizontal oil and gas drilling cost the state over $1.1 billion in revenue between fiscal years 2010 and 2014, according to a report by the state’s legislative auditor. The state is the only one of the top oil and gas producers that allows such an exemption (TIMES-PICAYUNE [NEW ORLEANS]). * PA spending big without budget: PENNSYLVANIA has spent $27 billion since July, despite the fact that the state has had no budget in place since then (PITTSBURGH TRIBUNE-REVIEW). * Gloomy Revenue forecast in WY: A revenue forecast issued last month projected that WYOMING would take in $617 million less than expected through June 2018. The Consensus Revenue Estimating Group attributed the projected losses to the struggling energy industry (KOTA NEWS [RAPID CITY]). * OK gov orders agency budget cuts: Because of falling revenues in her state associated with the oil industry slump, OKLAHOMA Gov. Mary Fallin (R) has ordered state agencies to cut nonessential expenses by 10 percent (OKLAHOMAN [OKLAHOMA CITY], LEXISNEXIS STATE NET)

- Compiled by KOREY CLARK

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