Read the summary from Crowe partners in federal, state, and local tax.
At the 2022 Crowe TXBizCon event, we heard from Scott Robertson and John Cooney, Crowe tax partners, on the latest in federal, state, and local tax. Read on for the highlights.
Update on status of the IRS
The IRS has been struggling to keep up with correspondence. It currently receives millions of pieces of mail each week – and that's with a majority of tax returns being filed electronically.
Call volume also has increased for the IRS, partly due to tax law changes and increasing complexity. It has been struggling with having enough capacity. Sometimes it's easier for taxpayers to get answers to their questions via mail.
The IRS is receiving funding under the Inflation Reduction Act of 2022 (IRA) and is expected to spend the money on audit enforcement, hiring agents, and updating technology for better correspondence, all of which will help address its current backlog.
Legislative updates and the IRA
A lot has happened in just a few years, which means legislation has shifted, too.
Recent legislation timeline:
- Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act)
- Enacted Dec. 20, 2019
- Shifted some of the timelines and contribution limits for retirement rules
- Very impactful legislation, but attention shifted away from it because of the pandemic a few months later
- Coronavirus Preparedness and Response Supplemental Appropriations Act
- Enacted March 6, 2020
- Families First Coronavirus Response Act (FFCRA)
- Enacted March 18, 2020
- Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
- Enacted March 27, 2020
- Changed the ability to deduct additional charitable contributions
- Consolidated Appropriations Act of 2021
- Enacted Dec. 27, 2020
- American Rescue Plan Act of 2021 (ARPA)
- Enacted March 11, 2021
- Infrastructure Investment and Jobs Act
- Enacted Nov. 15, 2021
- Employee retention credits (ERCs)
- Included updates to cryptocurrency reporting
- Inflation Reduction Act of 2022 (IRA)
- Enacted Aug. 16, 2022
The IRA is designed to reduce inflation. It's meant to invest in domestic energy production and manufacturing and to reduce carbon emissions by 40% by 2030. It also allows Medicare to negotiate prescription drug prices and extends the Affordable Care Act program.
The IRA also includes specific tax provisions that:
- Extend the Affordable Care Act health plan premium assistance program through 2025
- Impose an excise tax on stock buybacks
- Increase funding for IRS tax enforcement
- Expand energy incentives
- Impose a corporate minimum tax
State and local tax update
Comptroller staffing shortages
The Texas Comptroller's office is experiencing significant staffing challenges, which leads to the organization losing institutional knowledge. Newer auditors are not as familiar with the industries, resulting in complex implications for businesses. Leaders must be careful when it comes to the language they use during audits, as newer auditors might not be as familiar with industry language and could misinterpret the information presented to them.
Nexus challenges and Wayfair reporting
Nexus is the level of contact at which a taxing jurisdiction may impose its will on a taxpayer. It used to be necessary to have physical nexus (contact), but in 2018 the U.S. Supreme Court decided that economic nexus could count toward taxation.
Software as a service (SaaS) and digital goods
States are moving toward taxing more service-oriented businesses, including more of the tech industry. Currently, SaaS is taxable in approximately half of the states, meaning SaaS providers in those states need to charge a tax on the services they provide.
Texas franchise tax apportionment
In March 2022, the Texas Supreme Court ruled in favor of Sirius XM. This decision reinforces Texas' cost-of-performance methodology for apportioning sales of services, overturning a decision by the Texas Court of Appeals that had imposed a market-based sourcing approach. Texas' current regulations have language consistent with the Supreme Court's decision and current Texas statute.
Taxpayers using a market-based sourcing approach, especially those providing SaaS services processed by employees or servers outside the state, should consider the impact of not using a cost-of-performance approach on their current- and previous-period filings.