Qualified business income deduction Tis is not under the heading of new
Oklahoma legislation; however, this discussion point arose this recent tax season. Beginning in 2018, there is a new federal level deduction of 20% of the qualified business income (QBI) from a partnership, S corporation or sole proprietorship or other limited sources. Does Oklahoma allow the QBI deduction in the computation of Oklahoma income tax? Per the OTC, this new deduction is not permitted in the calculation of an individual’s Oklahoma income tax. Oklahoma §2358 provides the methodology of calculating Oklahoma taxable income. Te federal adjusted gross income (AGI) does not include the QBI deduction—the QBI deduction is claimed after AGI. Te Oklahoma starting point is the federal AGI from which certain specified deductions are permitted—none of which are the QBI deduction.
Other deductions and credits First-time home buyers savings accounts
were created by SB 961. Tese accounts are designed for savings by taxpayers planning to purchase a residence for the first time. Beginning in 2020, taxpayers will be allowed a deduction for up to $5,000—or $10,000 for married filing jointly—for contributions to these accounts. A credit of up to $2,200 was created by HB 2759 for employers who hire persons with cybersecurity degrees. Employers must apply to the OTC to be certified as a qualified employer prior to claiming a credit.
Te exemption of sales of prosthetic devices and mobility-enhancing devices was broadened by removing the requirement that they be purchased under the federal Medicaid or Medicare programs. HB 1262 modified 68 O.S. Section 1357.6 to make this change. In contrast, HB 1144, which would have exempted sales of supplies for testing and treating diabetes, failed. Sellers with no physical presence
(and therefore lack traditional nexus) in Oklahoma, are classified as “remote sellers.” Effective Nov. 1, 2018, remote sellers with sales of $100,000 or more in Oklahoma are required by SB 513 to collect and remit tax beginning the next calendar month. Tis
is in accordance with the U.S. Supreme Court’s Wayfair ruling issued June 21, 2018. Marketplace facilitators that provide an online marketplace through which vendors sell (e.g., E-Bay or Amazon) remain subject to the $10,000 threshold to either collect tax (the most practical option) or comply with burdensome notification requirements contained in O.S. Sect 1392. Te exemption for sales of rolling stock (locomotives and railcars) used by railroads was extended to July 1, 2024, and was broadened to include leases and maintenance of these units. Senate Bill 18 amended O.S. Sect 1357.41 to change this provision.
Tire taxes were increased, mostly on
sales of tires larger than 19.5” diameter, as a result of SB 878 amending 27A O.S. Section 2-11-401.
Perhaps more interesting than what was passed in this session are bills that were introduced, but failed, to address anticipated issues:
• Restoration of the vendor’s compensation allowance: Sales tax compliance is costly to vendors, as illustrated by a PriceWaterhouseCoopers study that pegged the average cost of 3.09% of tax collected, with smaller vendors incurring costs of over 13%. In the past, Oklahoma allowed a vendor’s compensation allowance of 2%, later reduced to 1%, then totally eliminated in 2017.
• Statute of limitations restoration: Te 2016 legislature, dealing with the massive deficit, limited refunds of overpaid sales taxes to two years, in contrast to three years for underpayments. Oklahoma is the only state in the nation that does not provide equal periods for corrections of underpayments and overpayments.
• Sales tax exemption of groceries: Tis is perennial issue as almost every state provides an exemption or reduced tax rate for groceries.
• Corporate income tax apportionment: Only a few states continue to apportion income for multi-state corporations
using an equal weighting of property, payroll and sales.
• Sales tax exemption for casual sales: Oklahoma is one of only four states that does not provide a general exemption of casual sales. Currently, the sale of assets by a business are taxable, including the proportionate ownership of tangible personal property used in oil and gas wells.
• Reduction of interest rate charged on tax underpayments: Oklahoma’s 15% rate is the second highest in the nation.
• State licensees who owed tax to OTC would have faced different enforcement measures if HB 2477 had been enacted. Currently, the OTC is required to instruct state agencies not to renew licenses, but this bill would have required the OTC to use garnishments to collect amounts due. Governor Stitt vetoed this bill.
• Making the Earned Income Tax Credit refundable.
Looking forward to the 2020 session, it is likely that a renewed initiative will be undertaken to address many of the aforementioned issues that affect businesses, in particular small businesses, in a burdensome way.
1Joint Cost of Collection Study – 2004 – by
PricewaterhouseCoopers. Te JCCS was sponsored by Council on State Taxation and several retailers.
Gain an understanding of
Intermediate None 1 hour
July/August 2019 CPAFOCUS 15
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