State and local tax laws continue to evolve, impacting taxpayers in various jurisdictions. Below are some of the most significant recent updates on local tax changes and rulings in New York, Ohio, Pennsylvania, California, and Michigan.

New York: Real Property Transfer Tax and the Step Transaction Doctrine

In In the Matter of 150-02 Forest Hills, LLC, No. TAT(H) 20-18 (RP) and TAT(H) 20-19(H) (NYC Tax App. Trib., ALJ Div., Sept. 17, 2024), the New York City Tax Appeals Tribunal addressed the application of the step transaction doctrine to a series of real property transactions.

The case involved a joint venture restructuring in which a third party acquired a 40% interest in an entity owning real estate. The city argued that the transactions should be collapsed and treated as a taxable direct transfer of a 40% property interest. However, the Tribunal ruled in favor of the taxpayers, holding that only a 40% economic interest in the entity was transferred, making the transaction nontaxable under the Real Property Transfer Tax (“RPTT”).

Ohio: Court Ruling on Unlawfully Collected Local Income Taxes

In State ex rel. City of Rittman v. Spitler, Slip. Op. 2024-Ohio-5668, 2024 WL 4982524 (Ohio Dec. 5, 2024), the Ohio Supreme Court determined that the Wayne County Court of Common Pleas had jurisdiction over a class-action lawsuit concerning improper local income tax collections.

The city of Rittman had continued collecting an expired 0.5% local income tax from 2008 through 2021, despite the tax levy expiring at the end of 2007. While the city agreed to refund improperly collected taxes for 2022, it refused to issue refunds for prior years, citing statute of limitations concerns.

The court ruled that because the tax was unauthorized and illegal rather than an “overpayment” or “erroneous payment,” traditional tax refund claim deadlines did not apply, allowing affected taxpayers to pursue refunds in the Court of Common Pleas.

Pennsylvania: Philadelphia Wage Tax and the Dormant Commerce Clause

In Zilka v. Tax Review Bd. of Philadelphia, 304 A.3d 1153 (Pa. 2023), cert. denied (Jan. 13, 2025), the Pennsylvania Supreme Court upheld Philadelphia’s wage tax credit structure against a dormant Commerce Clause challenge.

The city allows a credit against the wage tax for income taxes paid to other municipalities but not for state income taxes paid to other states unless those taxes are credited against Pennsylvania state income tax. The court ruled that this framework did not violate the dormant Commerce Clause. The U.S. Supreme Court later denied certiorari, leaving the decision in place.

California: San Francisco’s Proposition M Overhauls Business Taxes

On November 5, 2024, San Francisco voters approved Proposition M, significantly restructuring the city’s business tax system. Key changes include:

1. Increasing the gross receipts tax to a maximum rate of 3.716%.

2. Shifting the apportionment formula to place more weight on sales location rather than payroll.

3. Raising the highest bracket of the homelessness gross receipts tax to 1.64% for taxable receipts over $1 billion.

4. Lowering the applicability threshold for the homelessness gross receipts tax from $50 million to $25 million, expanding the tax base.

5. Reducing the number of tax brackets for both the gross receipts and homelessness gross receipts taxes from 14 to 7.

6. Reducing the “overpaid executive tax” rate while broadening the tax base.

7. Raising the exemption threshold for the gross receipts tax, homelessness gross receipts tax, and overpaid executive tax to $5 million, exempting many small businesses.

8. Setting the commercial rents tax small business exemption at $2,325,000.

These updates significantly impact businesses operating in San Francisco, particularly those with high gross receipts and sales within the city.

Michigan: Detroit to Accept Cryptocurrency for Property Taxes

In a move toward modernization, the city of Detroit announced that it will begin accepting cryptocurrency for property tax payments starting in mid-2025. However, the Michigan Department of Treasury clarified in a November 20, 2024 notice that the city’s local income tax must still be paid in U.S. dollars.

This policy shift places Detroit among a growing number of jurisdictions exploring digital currency acceptance for tax payments while maintaining traditional payment methods for income tax compliance.

Conclusion

Recent changes in local tax laws reflect ongoing efforts to refine tax policies, enforce compliance, and modernize tax collection methods. Taxpayers and businesses should remain aware of these developments to ensure proper compliance and take advantage of any new opportunities or obligations arising from these updates.