Localities Look to Hit Retailers with Corporate Income Tax

As if sales tax wasn’t enough for online retailers, some states are working to make retailers pay corporate income tax as well.

The amount of corporate income taxed will be based on the retailer’s local economic activity, similar to how many assess sales tax.  Many of these new laws will kick in next year, giving retailers a Happy New Year gift of more forms to file, more money to shell out and more compliance traps to fall into.

Experts call it just another way states and other local governments look to squeeze revenue out of online retailers.

Some of the localities tweaking their corporate income tax based on nexus and annual activity include Hawaii, Oregon, Massachusetts, Pennsylvania, Washington and Texas.

• Hawaii, 200 or more transactions and $100,000 in gross income;
• Oregon (corporate activity tax, aka “CAT”), $750,000 or more in commercial activity;
• Massachusetts, more than $500,000 in receipts attributable to sources within the state;
• Pennsylvania has new guidance on adhering to a $500,000 standard for its corporate income tax.
  • Philadelphia has established a $100,000 threshold for its business income and receipts tax.
• Texas has proposed incorporating an economic nexus threshold of $500,000 in Texas gross receipts for the state’s franchise tax.
• Washington, on the bright side, reduced the threshold for its business and occupation tax to $100,000 in gross income.
  
  

Should we expect this trend to continue?  We asked Warren Averett, one of our trusted CPA partners, for their expert opinion and here is what they had to say:

“These states join a few others with economic thresholds already in place for income-based taxes like California and Michigan, and we expect that trend to continue to gain momentum as the state legislative sessions begin in the new year.”

Colleen Aldridge, CPA
Warren Averett, LLC

Now that you may be adding corporate income tax to your list of things to stay on top of and can expect more states to join in on the trend, let us take sales and use tax off your plate. Contact us to learn about the latest developments in sales-tax nexus and what they mean to you and your company.