Iowa corporate income tax rates remain unchanged for 2025
On Oct. 15, 2024, the Director of the Iowa Department of Revenue signed Declaratory Order 2024-01 regarding the state corporate income tax rate for tax years beginning on or after Jan. 1, 2025. Iowa law provides for rate reductions when certain revenue thresholds are met. Specifically, the corporate income tax rate will be reduced when the corporate income tax revenue threshold exceeds $700 million in the immediately preceding fiscal year. As the revenue threshold was not met for 2024, the corporate income tax rate will remain the same for 2025 as for tax years beginning in 2024, at a rate of 5.5% on income up to $100,000, and 7.1% on income over $100,000.
Louisiana enacts flat tax rate for corporate income tax; repeals corporate franchise tax
On Dec. 4, 2024, Gov. Jeff Landry signed into law omnibus tax reform legislation, making several changes to the state’s corporate income and franchise tax. House Bill 3 repeals the corporate franchise tax for franchise tax years beginning on or after Jan. 1, 2026.
House Bill 2 imposes a flat tax rate of 5.5% for Louisiana corporate income tax, in lieu of the current graduated rate structure of 3.5% to 7.5%. The new law also provides a standard deduction of $20,000 from Louisiana corporate taxable income. The rate change and standard deduction take effect for tax periods beginning on or after Jan. 1, 2025.
House Bill 2 also provides for immediate expensing of certain business deductions, including expenses under section 168(k) and section 174. For tax periods beginning on or after Jan. 1, 2025, taxpayers may elect to deduct 100% of expenses for qualified property placed in service, or research and expenditures paid or incurred in the current year. House Bill 2 clarifies that taxpayers may not deduct more than 100% of bonus depreciation or amortization in total. In subsequent periods, taxpayers are required to addback to federal taxable income any deductions for depreciation or amortization that previously were subtracted from Louisiana taxable income under the election for accelerating deductions under sections 168(k) and 174.
Finally, House Bill 2 repeals several tax credits that apply to the corporate income and franchise tax, and repeals the deduction for expenses disallowed from federal taxable income under section 280C.
For more information on changes to the Louisiana corporate income and franchise tax, please read our article, Louisiana enacts significant tax reform.
Massachusetts clarifies single sales factor apportionment
On Dec. 4, 2024, Massachusetts Gov. Maura Healey signed House No. 5077 which makes changes to the single sales factor apportionment formula. Previously, Massachusetts enacted single sales factor apportionment in lieu of three-factor double weighted sales apportionment for all taxpayers effective for tax years beginning on or after Jan 1. 2025.
House No. 5077 updates the single sales factor apportionment rule to correct an issue with factor drop out. As originally written, when a taxpayer had no sales factor (meaning there is no sales factor numerator or denominator), then the apportionment factor would default to 100% Massachusetts apportionment. House No. 5077 corrects this to clarify that when a taxpayer has no sales factor, the taxpayer’s Massachusetts apportionment will be measured by the taxpayer’s property and payroll factors instead. House No. 5077 provides examples for when the sales factor shall not be used to measure a taxpayer’s apportionment:
- Both the sales factor numerator and the denominator are zero;
- The denominator is less than 10% of one-third of taxable net income; or
- The commissioner otherwise determines that the sales factor is insignificant in producing income.
This rule does not apply to instances where the taxpayer’s Massachusetts sales factor numerator is zero, but the taxpayer does have a sales factor denominator. Please refer to our alert, Massachusetts passes comprehensive tax relief, for more information on the law enacted in 2023.
Michigan issues administrative guidance on net operating losses
On Dec. 4, 2024, the Michigan Department of Treasury issued Revenue Administrative Bulletin (RAB) 2024-23 providing examples of how to calculate federal taxable income, net operating losses and business losses for purposes of the Michigan corporate income tax. RAB 2024-23 provides commentary and several examples on these topics.
For purposes of calculating taxable income, the department explains that taxpayers must track federal-to-state temporary differences each year, such as bonus depreciation, as it relevant for calculating state taxable income in future years. Tracking federal and state differences in bonus depreciation is also necessary to determine Michigan state basis in the year of a sale of business assets for determining the amount of taxable gain.
With regard to net operating losses, the department clarifies that taxpayers are required to add back to federal taxable income any amount of federal net operating loss carryback or carryover that is deducted in federal taxable income that is included in the starting point of Michigan taxable income. If the taxpayer is filing a Michigan corporate income tax return on a unitary basis, the federal NOL of each member must be reported on Form 4897 on a proforma basis, and then aggregated for the combined group total on Form 4891.
For a Michigan corporate income business loss (BL), which is a loss generated in the state after all modifications to federal taxable income and after Michigan apportionment, RAB 2024-23 explains that Michigan BLs are carried forward for a period of ten years. In utilizing BLs to offset Michigan taxable income, a taxpayer must use the oldest BL first. Additionally, there may be instances where a member of a unitary business group (UBG) contributed to a combined group BL in a prior year and subsequently leaves the group. In that case, the member leaving the group will take its proportionate share of combined group’s BL. To determine each member’s proportionate share of the BL, the combined group’s BL carryforward is “multiplied by a fraction, the numerator of which is what would have been the BL of that member had that member filed a separate return, and the denominator of which is the sum of what would have been the separate BL of all members of the UBG if those members filed separate returns.”
Finally, the department emphasizes the importance of keeping sufficient records to support any items discussed within RAB 2024-23, including any modifications to federal taxable income, federal net operating loss deductions and Michigan business losses.
New Hampshire adjusts filing thresholds for business taxes
On Dec. 17, 2024 the New Hampshire Department of Revenue issued Technical Information Release TIR #2024-004 that adjusts the filing thresholds for the Business Enterprise Tax (BET) and the Business Profits Tax (BPT). For tax periods beginning on or after Jan. 1, 2025, the filing threshold for the BET is $298,000 in gross receipts or enterprise value tax base. For the BPT, the filing threshold is increased to $109,000 in gross business receipts. The Commissioner is required to biennially adjust the BET and BPT filing threshold amounts for inflation.
Pennsylvania issues guidance on related party income election
Pennsylvania issued guidance on the related party income election that previously was enacted by Senate Bill 654 on July 11, 2024. Senate Bill 654 provided an election for taxpayers to exclude from Pennsylvania taxable income certain intangible and interest income to the extent the income was paid by a related party who added back such expenses to Pennsylvania corporate income tax for the same tax period. The election for the income exclusion is in lieu of taking a credit for taxes paid by the related party reporting the amounts in Pennsylvania taxable income under 72 P.S. section 7401(3)1.(t)(1) and is effective for tax years beginning on or after Dec, 31, 2022. The guidance clarifies that the election must be made on an originally filed return (including extensions), and cannot be made on an amended return. The department acknowledges that, as the legislation was enacted in July of 2024, some taxpayers may have already filed their 2023 Pennsylvania corporate income tax returns using the credit for taxes paid. While taxpayers are not permitted to file an amended return to make the election, a taxpayer may file an appeal with the Pennsylvania Board of Appeals requesting relief to the extent the impacted taxpayer does not believe it is made whole by the statutory credit. Timely appeals will be reviewed on a case-by-case basis. For taxpayers who have not yet filed their 2023 Pennsylvania corporate income tax returns, the guidance provides details on how to make the election and report the required information on the return.
Pennsylvania makes changes to tax appeals procedure
On Oct. 29, 2024, Gov. Josh Shapiro signed Senate Bill 1051 making several changes to the state’s tax appeals process. Among the changes, the law provides that a taxpayer or the Pennsylvania Department of Revenue may request a settlement conference for matters in appeal with the Pennsylvania Board of Finance and Revenue (BFR). Either party may request a settlement conference by filing a written request within 30 days of a petition for appeals being filed. Additionally, either party may choose not to participate. Once a settlement conference is initiated, the BFR is required to appoint a settlement officer to preside over the conference. The settlement officer must be an impartial, third-party attorney licensed in Pennsylvania that has knowledge of the state’s tax law, but is not employed by the department or the Pennsylvania Treasury Department. The bill sets forth a timeline for the steps within the settlement conference process, and the bill’s fiscal note indicates that the settlement conference process is intended to replace the state’s current compromise authority of the department. The new settlement conference process is intended to provide an informal, confidential and expedited process aimed at reaching an acceptable resolution for both parties.
Separately, Senate Bill 1051 provides the department with authority to enter into closing agreements for tax liabilities owed by any person for all tax types that are administered by the department. Closing agreements approved by the department will be considered final unless it is demonstrated that fraud or a material misrepresentation of fact has occurred.
