New York Proposes Limits on Overdraft and NSF Fees
On January 23, 2025 the New York Department of Financial Services (NYDFS) announced proposed regulations to curb overdraft fees and insufficient funds fees charged by banks in New York. The proposed rules aim to protect consumers from what the NYDFS describes as “exploitative and deceptive banking fees.”
The proposed regulations would impose new limitations on a range of overdraft and NSF fee practices. Broadly, this includes restrictions on fees for small transactions, requirements for customer notification, and stricter transaction processing rules. Specifically, the proposed regulations include the following requirements:
Elimination of Overdraft Fees for Small Transactions. The proposed regulations would prohibit New York-chartered banks from charging overdraft fees on overdraft transactions of less than $20 or if the overdrawn amount is less than the fee itself.
Increasing Banks’ Customer Communication Obligations. Banks would be required to notify customers of a potential overdraft before charging them for it, and the fee must also be priced “reasonably.”
Limits on Serial Daily Fees and Reordering Transactions. The regulations prohibit charging more than three overdraft fees per day on a customer’s account, charging serial daily fees until an overdraft is repaid, and reordering incoming transactions to incur additional overdraft fees.
Ban on Authorize-positive, Settle-negative Overdraft Fees. Banks would be banned from charging overdraft fees in authorize-positive, settle-negative situations, which occur when a customer’s account no longer has enough money to cover a previously approved transaction by the time it is actually processed.
Limits on NSF fees. Banks would be limited to charging at most one nonsufficient funds fee (NSF fee), for a declined transaction. If the transaction is resubmitted, charging new NSF fees would be prohibited. If the transaction is “instantaneously or near-instantaneously” declined, no NSF fee would be permitted.
Putting It Into Practice: The NYDFS proposal follows the CFPB’s finalization of a rule intended to crack down on overdraft fees for banks with over $10 billion in assets (previously discussed here). While the CFPB’s rule applies only to large financial institutions, the NYDFS proposal would apply to state-chartered banks of all sizes. State and federal regulators in 2024 also engaged in various other overdraft fee-related rulemaking and enforcement (previously discussed here, here, and here). The NYDFS proposed regulations may influence other states to consider similar actions, which could lead to a complex patchwork of state-level overdraft fee rules. Banks in other states should closely monitor legislative and regulatory developments in their jurisdictions and assess the potential impact of any new rules on their operations and compliance strategies.
5 Trends to Watch: 2025 Futures & Derivatives
Regulatory Evolution in Digital Assets. President Donald Trump’s signing of the executive order “Strengthening American Leadership in Digital Financial Technology” revoked the Biden administration’s directives on digital assets and established a federal policy aimed at promoting the digital asset industry. This will likely lead to increased cryptocurrency trading and the creation of new digital assets. The establishment of more exchanges dedicated to these assets could enhance market accessibility and liquidity. Less restrictive regulations may also attract firms that previously operated overseas to establish a presence onshore.
Integration of Crypto with Traditional Finance. The integration of cryptocurrencies and digital assets with traditional financial instruments is expected to gain momentum. This may be characterized by the introduction of additional crypto-based ETFs and other crypto-based derivative products.
Adoption of Decentralized Finance Protocols in Derivatives Trading. The expansion of digital asset exchanges may drive the adoption of decentralized finance (DeFi) protocols in the trading of futures and derivatives. Traditional exchanges and financial institutions are likely to integrate DeFi solutions to provide innovative derivative products. This adoption may expand access to derivatives markets, allowing a broader range of participants to engage in trading activities while maintaining the security and efficiency offered by blockchain technology.
Tax and Legal Framework Reforms. As mentioned above, President Trump’s executive order suggests a less restrictive government approach to regulating digital assets. More favorable tax treatment of cryptocurrency trades could encourage greater participation from both individual and institutional investors. Additionally, potential reforms in legal frameworks may address existing challenges related to crypto mining, possibly overriding local restrictions to promote growth in this sector.
Harmonization of Global Regulatory Standards. As digital asset firms migrate onshore, there may be a push towards harmonizing global regulatory standards for digitally based futures and derivatives. This could emerge from the need to create a cohesive legal framework that accommodates cross-border trading of digital asset derivatives.
European Commission Clarifies Definition of “ICT Services” under DORA
The European Insurance and Occupational Pensions Authority recently published the European Commission’s response (Q&A 2999) on the question of which services fall under the definition of “ICT services” under Article 3(21) of the EU Digital Operational Resilience Act (DORA). This guidance was highly anticipated by the financial services sector to clarify the distinction between information communication and technology (ICT) services and financial services.
“ICT Services” Under DORA
The definition of “ICT services” is integral to determining the scope of services subject to DORA’s regulatory framework.
Article 3(21) of DORA defines “ICT services” to mean “digital and data services provided through ICT systems to one or more internal or external users on an ongoing basis, including hardware as a service and hardware services which includes the provision of technical support via software or firmware updates by the hardware provider, excluding traditional analogue telephone services”.
Q&A 2999
Q&A 2999 confirms that the definition of “ICT services” under DORA is intentionally broad and the onus is on a financial entity to assess whether the services it relies on are ICT services. Such assessment should be performed taking into account the general position referred to in Recital 63 of DORA, which specifies that DORA covers a wide range of ICT third-party service providers, including financial entities providing ICT services to other financial entities, and without prejudice to sectoral regulations applicable on regulated financial services.
Notably, Q&A 2999 provides that, in the case of financial services with an ICT component, the receiving financial entity should assess:
whether the services constitute an ICT service under DORA; and
if the providing financial entity and the financial services it provides are regulated under EU law or any national legislation of a Member State or of a third country.
If the answer to both items (a) and (b) above is yes, then the related service should be considered as predominantly a financial service, and not an ICT service within the scope of DORA.
Conversely, where the service provided by a regulated financial entity is unrelated or is independent from its regulated financial services, the service should be considered as an ICT service within the scope of DORA.
Conclusion
Q&A 2999 provides a timely clarification for financial entities receiving services from other regulated firms. Q&A 2999 explains that certain regulated financial services and ancillary activities remain out of scope and are not considered ICT services under DORA and, therefore, do not need to be included in internal registers of financial entities. This also applies to entities regulated in third countries. However, ICT services provided by financial entities that are unrelated to or independent of regulated financial should be classified as ICT services under DORA.
Q&A 2999 is available here.
As Predicted, Silicon Valley Bank Failure Will Test Fiduciary Duties of Officers and Directors Under California Law
Late last year, I wrote that the the Board of Directors of the Federal Deposit Insurance Corporation had voted unanimously to approve the staff’s request for authorization to file a suit against six former officers and 11 former directors of Silicon Valley Bank and its holding company, SVB Financial Group. I wasn’t surprised because over a year ago, I had pondered whether the possibility of litigation against the bank’s directors and officers. At the time, I observed that the litigation would likely involve California corporate law:
Because both First Republic Bank and Silicon Valley Bank are California corporations, California corporate law will likely be applied to suits against directors and officers. However, the situation is more complex in the case of Silicon Valley Bank because it was a subsidiary of a bank holding company incorporated in Delaware – SVB Financial Group. Therefore, the applicable law may depend upon whether the director or officer is sued in his or her capacity as a director or officer of the holding company or the bank.
On January 16, 2025, the FDIC as receiver filed its complaint in the U.S. District Court for the Northern District of California. According to the complaint the defendants held identical titles at the holding company. The complaint consists of three counts:
Gross negligence against both the director and officer defendants;
Negligence against the officer defendants; and
Breach of fiduciary duty against both the director and officer defendants.
With respect to the fiduciary duty count, the FDIC is alleging breaches of both the duty of care and the duty of loyalty. The alleged source of these duties is common law and as to the director defendants, Section 309 of the California Corporations Code.
Report Concludes SEC’s Whistleblower Program is a Resounding Success and Essential to Investor Protection
Success of the SEC Whistleblower Program
Benjamin Schiffrin, Director of Securities Policy at Better Markets, published a report titled The SEC’s Whistleblower Program Is Key to Protecting the Economy and Main Street Americans’ Wallets, which concludes that the SEC whistleblower program “has benefited investors by allowing the SEC to pursue enforcement actions resulting in more than $6 billion in monetary sanctions” and identify misconduct that the SEC might not otherwise uncover.
The report identifies additional indications of the success of the SEC whistleblower program:
Whistleblower disclosures result in the return of funds to harmed investors.
In FY 2024, the SEC received approximately 24,980 whistleblower submissions, and whistleblowers have filed over 100,000 disclosures since the inception of the program.
Taxpayers benefit from this critical enforcement tool without having to pay awards from appropriated funds. The awards are paid from the monetary sanctions that the SEC recovers from fraudsters.
Whistleblower confidentiality is a cornerstone of the SEC whistleblower program. Permitting whistleblowers to report anonymously through counsel protects whistleblowers from retaliation and “protects the ensuing investigation by preventing a company from learning that the SEC knows about the misconduct and possibly destroying evidence.”
SEC Whistleblower Program Key to Investor Protection
The report finds that the SEC is already underfunded and lacks the resources necessary to monitor the increasingly complex capital markets and “protect investors from potential misconduct at 33,000 regulated entities, 8,300 reporting companies, and 56,000 private funds.” If Congress forces the SEC to downsize the Division of Enforcement, the SEC would need more help in holding fraudsters accountable and therefore whistleblowers will continue to play a vital role in assisting the government in identifying and prosecuting misconduct. The violations that whistleblowers report to the SEC primarily concern manipulation, offering fraud, corporate disclosures, and crypto fraud.
Suggestions to Improve the SEC Whistleblower Program
Better Markets makes two suggestions to improve the SEC whistleblower program:
Do a Better Job of Communicating with Whistleblowers: “Many whistleblowers receive confirmation that the SEC received their tip and then never hear from the agency again. This makes it difficult for whistleblowers to know how to proceed . . . Communicating with whistleblowers is especially important because it can take years for the SEC to receive a tip, investigate, bring an action, obtain sanctions, and issue an award.”
Provide More Information to Enable the SEC to Understand the Benefits of the Whistleblower Program: “[T]he whistleblower program would benefit from the public’s greater understanding of the assistance that whistleblowers provide . . . and the value to the public of the whistleblower having identified the relevant misconduct.”
UPDATE: OMB Rescinds Memo Pausing Federal Financial Assistance, But White House Asserts Funding Freeze in Executive Orders Remains Effective
Go-To Guide:
On Jan. 27, the Office of Management and Budget (OMB) issued Memorandum M-25-13 pausing funding for financial assistance programs that “may be implicated” by President Trump’s recent Executive Orders. On Jan. 28, a U.S. District Court issued an “administrative stay” enjoining “implement[ation] of OMB Memorandum M-25-13 with respect to the disbursement of Federal funds under all open awards.” On Jan. 29, OMB rescinded the Memo, but the White House press secretary asserted this change “is NOT a rescission of the federal funding freeze.”
Despite the recission, programs will still be reviewed for consistency with “Administration Priorities.”
The administration may seek to terminate awards based on a provision in OMB’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) that may permit agencies to terminate financial assistance awards if they “no longer effectuate[] the program goals or agency priorities.”
Pauses in funding and any future terminations may be contrary to the Congressional Budget and Impoundment Control Act of 1974 (ICA) if the president does not follow its procedures.
On Jan. 27, 2025, OMB issued Memorandum M-25-13, entitled “Temporary Pause of Agency Grant, Loan, and Other Financial Assistance Programs.” The Memo directed every federal agency to “temporarily pause all activities related to obligation or disbursement of all Federal financial assistance, and other relevant agency activities that may be implicated by [President Trump’s] executive orders, including, but not limited to, financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal” effective at 5 p.m. EST on Jan. 28 (emphasis in original).
Lawsuits challenging the pause were immediately filed and on Jan. 28 the U.S. District Court for the District of Columbia enjoined the Trump administration from implementing OMB Memorandum M-25-13 for disbursements under open awards. The following day, OMB rescinded the Memo. The White House press secretary then issued a statement that the rescission of the OMB memo “is NOT a rescission of the federal funding freeze.” Due to this statement, a U.S. District Court judge in Rhode Island stated that he was inclined to grant a request for a temporary restraining order despite the recission of the OMB Memo.
Background
The Jan. 27 Memo stated that “[t]his temporary pause will provide the Administration time to review agency programs and determine the best uses of the funding for those programs consistent with the law and the President’s priorities.” After the initial Memo was distributed, federal agencies were directed to answer a series of questions about each program by Feb. 7, including (1) whether the program is a foreign assistance program, (2) whether the program includes “activities that impose an undue burden on the identification, development, or use of domestic energy resources,” including through the Inflation Reduction Act or Infrastructure Investment and Jobs Act, and (3) whether the funding “is implicated by the directive to end” diversity, equity, inclusion, and accessibility programs.
The Memo directed agencies to assign responsibility and oversight for each federal assistance program to a senior political appointee to ensure each program “conforms to Administration priorities.” It also instructed agencies to review pending Notices of Funding Opportunity (NOFOs) and other assistance announcements for consistency with “Administration priorities” and, “subject to program statutory authority,” to modify or withdraw announcements and cancel existing awards that conflict with those priorities “to the extent permissible by law.” The Memo indicated that agencies should initiate investigations “to identify underperforming recipients.”
The Memo would have impacted grants, cooperative agreements, loans and loan guarantees, and insurance programs, among other types of assistance, for programs ranging from the CHIPS Act to federal highway funding. On Jan. 28, OMB issued a Clarification Memo stating that “the pause does not apply across-the-board. It is expressly limited to programs, projects, and activities implicated by the President’s Executive Orders, such as ending DEI, the green new deal, and funding nongovernmental organizations that undermine the national interest.” Certain programs were specifically exempted, including Medicare, Social Security, “mandatory programs like Medicaid and SNAP,” and “[f]unds for small businesses, farmers, Pell grants, Head Start, rental assistance, and other similar programs.” The Clarification stated that if agencies are concerned that these specifically exempted programs “may implicate the President’s Executive Orders, they should consult OMB to begin to unwind these objectionable policies without a pause in the payments.”
The pause was immediately challenged in court—advocacy groups representing non-profits and small businesses filed a lawsuit in U.S. District Court for the District of Columbia on Jan. 28 challenging the pause under the Administrative Procedure Act. The same day, the judge issued an “administrative stay” enjoining the Trump administration “from implementing OMB Memorandum M-25-13 with respect to the disbursement of Federal funds under all open awards.” The Administration moved to dismiss the case on Jan. 30. A group of State Attorneys General filed a similar lawsuit in U.S. District Court in Rhode Island on Jan. 28.
After the court issued its administrative stay, on Jan. 29, OMB rescinded the Memo. The rescission memo states that any questions about implementing the president’s Executive Orders should be addressed to the appropriate agency’s general counsel. Following the recission, the White House press secretary stated that “This is NOT a rescission of the federal funding freeze” and that the president’s Executive Orders “on federal funding remain in full force and effect, and will be rigorously implemented.”
The “freeze” referenced in this statement appears to be a reference to certain Executive Orders pausing funding under various programs. For example, the “Unleashing American Energy” Executive Order provides that “[a]ll agencies shall immediately pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022 (Public Law 117-169) or the Infrastructure Investment and Jobs Act (Public Law 117-58)[.]” The “Reevaluating and Realigning United States Foreign Aid” Executive Order requires agencies to “immediately pause new obligations and disbursements of development assistance funds to foreign countries and implementing non-governmental organizations, international organizations, and contractors pending reviews of such programs.” Both Executive Orders require the funding pause pending review of these programs.
Because of the White House press secretary’s statement that the funding freeze had not been rescinded, the U.S. District Court judge in Rhode Island stated he was inclined to grant the State Attorneys General’s request for a temporary restraining order despite OMB’s recission of the Memo.
The rescinded Memo repeatedly referenced “Administration Priorities,” echoing a provision in 2 C.F.R. § 200.340 (the termination provision of OMB’s Uniform Guidance for federal financial assistance) that permits agencies to terminate an award if it no longer effectuates “program goals or agency priorities” “to the extent authorized by law.” When OMB amended the Uniform Guidance last year, it clarified that, if agencies want the option of terminating awards on this basis, agencies “must clearly and unambiguously specify” that in the award’s terms and conditions. Prior to the 2024 changes, 2 C.F.R. § 200.211 required agencies to “make recipients aware, in a clear and unambiguous manner, of the termination provisions in § 200.340, including the applicable termination provisions in the Federal awarding agency’s regulations or in each Federal award.” But before the Uniform Guidance revision, § 200.340(b) stated that “[a] Federal awarding agency should clearly and unambiguously specify termination provisions applicable to each Federal award, in applicable regulations or in the award” (emphasis added).
The “pauses” the Executive Orders require and any future funding terminations may be challenged under the Congressional Budget and Impoundment Control Act of 1974 (ICA) if the administration does not follow its procedures. An “impoundment” is any action or inaction by a federal government officer or employee that precludes obligation or expenditure of budget authority. The Constitution delegates the power of the purse to Congress, and the ICA says the President cannot unilaterally withhold funds from obligation. Funds are obligated when the agency has created a definite liability for the associated amount.
The ICA permits the president to temporarily withhold funds from obligation—but not beyond the end of the fiscal year—by proposing a “deferral.” Deferrals cannot be used for policy reasons. The president may also seek the permanent cancellation of funds for fiscal policy or other reasons, including the termination of programs for which Congress has provided budget authority, by proposing a “rescission” in a “special message” that explains the rationale for the recission. If Congress enacts the proposal, the funds would no longer be available. But if Congress does not enact the rescission within 45 calendar days of continuous session after the special message’s receipt, any withheld funds must be reapportioned and made available for obligation and expenditure. Only discretionary (not mandatory) funds are subject to recissions and deferrals.
OMB’s Jan. 28 Clarification Memo stated that the pause “is not an impoundment under the Impoundment Control Act.” It said that “[t]emporary pauses are a necessary part of program implementation that have been ordered by past presidents to ensure that programs are being executed and funds spent in accordance with a new President’s policies and do not constitute impoundments.”
Takeaways
Recipients and subrecipients with awards covered by Executive Orders that pause funding should look closely at the terms and conditions of their award agreements, agency-specific implementations of the Uniform Guidance (including appeal procedures for grant disputes, to the extent the agency has them), and the authorizing statute and any implementing regulations for the programs they are working on to evaluate their options if the government suspends or terminates their awards. To the extent possible, recipients and subrecipients should also try to limit costs that were not foreseeable prior to the “pause,” as agencies may later assert these costs are unallowable.
Tax-Advantaged ABLE Accounts for Individuals with Disabilities
According to a National Disability Institute report (available here), adults living with disabilities need 28% more income on average to achieve the same standard of living as those without disabilities. There are some tools designed to address this disparity, including Achieving a Better Life Experience (“ABLE”) accounts, a potentially overlooked but useful resource available through state-run programs for individuals with disabilities.
Almost all states and the District of Columbia have programs under which individuals with disabilities may open tax-advantaged accounts to pay for disability expenses. Significantly, up to $100,000 of the assets in an ABLE account are disregarded for purposes of the relatively low Supplemental Security Income (“SSI”) and Medical Assistance (“Medicaid”) resource limits.
Although ABLE accounts were first created over a decade ago, only about 170,000 individuals with disabilities have opened one. Those 170,000 represent a fraction of the approximately 8,000,000 individuals in the United States who are eligible to open ABLE accounts. Furthermore, starting in 2026, another six million individuals in the United States will become eligible to open an ABLE account.
The following is a brief summary of the eligibility requirements for opening an ABLE account, the key benefits of ABLE accounts, and other considerations for individuals who currently have, or are considering opening, an ABLE account.
Eligibility
An ABLE account may be opened by individuals (or their representatives) who are blind or have a disability if the blindness or disability occurred before the individual turned age 26 (which will be extended to age 46 effective January 1, 2026).
Blindness or a disability for purposes of ABLE account eligibility may be proven through one of the following methods:
Receiving SSI benefits;
Eligibility for SSI benefits where benefits are suspended due solely to excess income or resources;
Receiving disability insurance benefits (“DIB”);
Receiving childhood disability benefits (“CDB”);
Receiving disabled widow’s/widower’s disability benefits (“DWB”); or
A disability certification signed by a physician that certifies the individual is blind or has a physical or mental impairment that results in marked and severe functional limitations.
Conditions on the Social Security Administration’s list of “Compassionate Allowances Conditions” (available here) meet the requirements for a disability certification if the condition was present and produced marked and severe functional limitations before the individual turned age 26 (age 46 effective January 1, 2026).
A determination is done every tax year to determine whether the individual remains eligible for an ABLE account.
Benefits
ABLE accounts provide individuals with several critical benefits:
Up to $100,000 of the assets in an ABLE account are disregarded for purposes of SSI and Medicaid resource limits, which are relatively low.
Each year, an amount up to the annual per beneficiary gift tax exclusion may be contributed to an ABLE account (currently $19,000 for 2025 and adjusted annually). In 2025, for individuals who do not have contributions made to certain qualified retirement plans, up to an additional $15,650 may also be contributed to an ABLE account ($19,550 or $17,990 if the individual lives in Alaska or Hawaii, respectively).
Contributions may be made directly to an ABLE account by the ABLE account holder or by someone else, in which case the amount contributed is not taxable to the ABLE account holder.
An ABLE account holder may be eligible for a nonrefundable tax credit known as the Saver’s Credit for contributions made to an ABLE account. The credit is up to 50% of the first $2,000 contributed to an ABLE account—that is, an up to $1,000 tax credit—depending on an individual’s filing status and adjusted gross income during the applicable tax year. The credit is available for contributions made to an ABLE account in 2025. The credit was also available for 2021 to 2024, and if an ABLE account holder was eligible for the Saver’s Credit for any of those years but did not claim it on their tax return, they may be able to amend their tax return to claim the credit. Additional information on the Saver’s Credit from the Internal Revenue Service is available here.
Earnings are not taxable if distributions are used for “qualified disability expenses.” These are expenses that relate to the blindness or disability of the ABLE account holder and are for the benefit of the ABLE account holder in maintaining or improving their health, independence, or quality of life. This includes expenses related to the ABLE account holder’s education, housing, transportation, employment training and support, assistive technology and related services, personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, and funeral and burial expenses.
Considerations
Individuals with, or considering opening, an ABLE account should note the following:
An individual is not limited to opening an account with the ABLE program of the state in which they reside. A majority of states permit out-of-state residents to participate in their programs.
An individual may generally have only one ABLE account at a time.
ABLE accounts are subject to cumulative limits, which are set by each state’s ABLE program. The limits generally range from $235,000 to $550,000.
Some states’ ABLE account programs may have limited investment options. Programs generally include checking and savings account options, along with conservative to aggressive investment options.
Accounts are generally subject to an annual account maintenance fee, which may vary depending on whether physical or electronic confirmations and statements are requested.
An individual may not change their investment options more than two times in a calendar year.
A portion of earnings distributed from an ABLE account that is not used for qualified disability expenses may be taxable and subject to an additional 10% tax.
After an ABLE account holder passes away, a state may file a claim against the remaining assets in the ABLE account for the amount of medical assistance paid under that state’s Medicaid program after the ABLE account was opened. Claims are paid after all qualified disability expenses have been paid, including funeral and burial expenses. The amount of the claim is reduced by the amount of all premiums paid to the state’s Medicaid buy-in program.
Additional Resources
For more information, here are some additional resources:
Social Security Administration Spotlight on ABLE Accounts summary, available here.
Internal Revenue Service ABLE Accounts – Tax Benefits for People with Disabilities summary, available here.
Internal Revenue Service Publication 907 – Tax Highlights for Persons with Disabilities, available here.
Department of Labor Financial Education and Incentive summary, available here.
Links to state ABLE programs:
Alabama
Kentucky
North Carolina
Alaska
Louisiana
Ohio
Arizona
Maine
Oklahoma
Arkansas
Maryland
Oregon has two programs (links here and here)
California
Massachusetts
Colorado
Michigan
Pennsylvania
Connecticut
Minnesota
Rhode Island
Delaware
Mississippi
South Carolina
District of Columbia
Missouri
Tennessee
Florida
Montana
Texas
Georgia
Nebraska
Utah
Hawaii
Nevada
Vermont
Illinois
New Hampshire
Virginia has two programs (links here and here)
Indiana
New Jersey
Iowa
New Mexico
Washington
Kansas
New York
West Virginia
Wyoming
ASIC Continues Increased Scrutiny Into AFS Licensees For Hire
ASIC has accepted a court enforceable undertaking (CEU) from Private Wealth Pty Ltd (Sanlam) after it admitted that it failed to discharge its general Australian financial services (AFS) licensing obligations in connection with its authorised representatives.
ASIC’s investigation into Sanlam centred around its failure to adequately supervise the large number of corporate authorised representatives (CARs) and authorised representatives (ARs) operating under Sanlam’s AFS license. At one point, Sanlam had appointed 42 CARs and 71 ARs, including operators of online trading platforms and crypto-based investment products. In addition, some of the CARs managed large pools of investor assets and serviced large retail client bases.
ASIC stated that Sanlam’s internal frameworks were not adequately tailored to the specific risks associated with products offered through its AFS licence and were insufficient to supervise the number of CARs and ARs appointed. ASIC was particularly concerned that Sanlam’s representatives used its AFS licence to offer risky financial products to retail clients.
Under the CEU, Sanlam must appoint an independent compliance expert to review Sanlam’s systems, processes and controls in respect of the general AFS licensee obligations and to implement appropriate remedial action plans.
ASIC Action Against Lanterne
In April 2024, the Federal Court ordered that Lanterne Fund Services Pty Ltd (Lanterne) pay a $1.25 million penalty after failing to comply with the general AFS licensee obligations.
Similarly to Sanlam, Lanterne had appointed over 60 CARs and 205 ARs spanning a wide range of financial services businesses. Given the lack of any formal documented risk management systems and having only one full-time employee, ASIC Commissioner Alan Kirkland remarked that the compliance arrangements “were woefully inadequate for a business of this scale and posed significant risk to investors”.
In addition to the large penalty handed down, the Federal Court also ordered that Lanterne appoint an independent expert to review and report on Lanterne’s systems, processes and controls, and implement the expert’s recommendations.
What Should You Do?
These ASIC actions show that ASIC is focusing on AFS licensees that make available their AFS licence to product issuers by way of CARs. Accordingly, AFS licensees that appoint such authorised representatives should ensure that they review their procedures, risk management systems and resources to ensure they comply with the applicable obligations.
In addition, product issuers that rely on a CAR from an AFS licensee should ensure that their AFS licensee has appropriate procedures and sufficient resources in place as ASIC action against the licensee poses significant risks for the issuer’s business.
FINRA Publishes 2025 Annual Regulatory Oversight Report
On January 28, the Financial Industry Regulatory Authority (FINRA) published the 2025 update to its annual Regulatory Oversight Report.1 The report collects recent observations and findings from FINRA’s oversight programs – Member Supervision, Market Regulation and Transparency Services, and Enforcement – and provides FINRA member firms with a helpful resource to evaluate compliance on a number of cutting-edge topics. Through the report, member firms get to “see what FINRA sees” when it examines firms, conducts enforcement actions throughout the industry, and engages with firms throughout the year in providing regulatory guidance.
While FINRA’s report is not new, the 2025 edition is particularly noteworthy. First, it addresses new topics (like third-party risk/vendor management and extended-hours trading) and adds new findings and effective practices for prior topics. But more importantly, the report highlights practices and topics deemed important to FINRA. With Trump’s second administration in Washington and the likely change in regulatory priorities from federal securities regulators, coupled with the Supreme Court and other federal court decisions limiting the role of federal administrative agencies, FINRA may very well fill any vacuum of regulation. For these reasons, the topics deemed important to FINRA and the best practices that FINRA highlights and encourages may take on outsized importance. The report is not a list of enforcement priorities (which FINRA published through 2020), but it still provides a helpful window into the topics that FINRA is considering and, therefore, what member firms should similarly consider to the extent applicable to their business.
Using FINRA’s Regulatory Oversight Report
Given the wide range of business that FINRA member firms conduct, it is impossible to provide a one-size-fits-all document. Retail firms, for example, will find greater use for topics such as ACH transfer fraud, Regulation BI compliance, and issues relating to senior investors. Institutional firms and firms with trading execution businesses will make better use of guidance on the Market Access Rule and Regulation SHO bona fide market-making compliance. And all firms will benefit from observations on core compliance issues such as books and records, net capital, outside business activities and private securities transactions.
Regardless of the applicable topic, the report is organized as a helpful resource on the topics that it covers and the regulatory requirements applicable to them. A firm currently engaged in a particular subject business can evaluate whether it has experienced or considered any of the emerging threats that FINRA lists. It can conduct a gap analysis of the firm’s current supervisory systems and written supervisory procedures to see how the firm supervises the applicable business in the face of those threats. Members can review FINRA’s recent findings on topics from two perspectives: if the firm has experienced issues similar to a recent finding, it can evaluate the remedial steps taken and any new policies and procedures implemented. A firm not yet affected by a recent finding can ask “what if” and evaluate whether its supervisory and other systems are well-designed to address or prevent the issue. Further, armed with an answer to the age-old question of “What do other firms do here?,” a firm can critically assess the best practices highlighted by FINRA to determine whether the firm can and/or should implement any of them in its compliance and supervisory systems. Above all, the report provides a good opportunity to prompt informed discussion among applicable stakeholders in the organization and a helpful resource to lead that discussion.
New Topics Added to the Report
Described in greater detail below, FINRA added two new sections to the 2025 report to address third-party risks and extended hours trading. FINRA also added additional information addressing Generative artificial intelligence (AI).
Third-Party Risk Landscape. As noted in the report, cyberattacks on and outages at third-party vendors are on the rise. The report reminds firms that its supervisory obligations extend to activities and functions performed by third-party vendors. FINRA recommends effective practices to address third-party vendor risks, including:
maintaining a list of third-party vendor-provided services, systems and software components;
adopting supervisory controls and conducting risk assessments on the effects of a third-party vendor failure;
taking reasonable steps to help ensure that third-party vendors do not utilize Generative AI in a manner that would ingest the firm’s or customers’ sensitive information;
periodically reviewing third-party vendor tool default features and settings;
assessing third-party vendors’ ability to protect sensitive firm and customer non-public information and data; and
revoking a third-party vendor’s access with the relationship ends.
While it is unclear which specific regulatory requirement a firm needs to supervise with respect to the use of third-party vendors, it would certainly be prudent to take the steps described to avoid or minimize any service interruptions or other deficiencies that a third-party vendor might introduce.2
Extended Hours Trading. US securities markets trading outside of regular trading hours has become increasingly popular. The report reminds firms that offer extended hours trading to provide their customers with a risk disclosure statement that addresses extended hours trading under FINRA Rule 2265. The report also recommends effective practices to address risks associated with extended hours trading, including:
conducting best execution reviews that properly evaluate execution quality during extended hours;
reviewing customer disclosures to help ensure that the disclosures properly address extended hours trading risks;
establishing and maintaining appropriate supervision that addresses the unique risks of extended hours trading; and
evaluating operational readiness, customer support and business continuity planning associated with extended hours trading.
Focus on Generative AI. The report focuses on the risk of artificial intelligence and particularly notes how Generative AI can and is being used to further account takeovers and other forms of fraud. The report highlights a number of emerging cybercrime-related threats, including the use of Generative AI to provide fake content and to create malware that can constantly change to avoid detection.
Next Steps
We encourage firms to begin with the report’s table of contents to identify the topics most applicable to their business.
1 The full report is available at https://www.finra.org/rules-guidance/guidance/reports/2025-finra-annual-regulatory-oversight-report.
2 Separately, FINRA requested that its member firms provide FINRA with information about their vendors and banks by February 25, 2025.
Industry Leadership Changes in Washington, DC, and 2025 Priorities
As the 119th Congress begins, significant legislative shifts driven by leadership changes and industry demands will greet the banking industry. Sen. Tim Scott, R-S.C., will serve as chairman of the Senate Banking, Housing, and Urban Affairs Committee, and Rep. French Hill, R-Ark., a former community banker, was elected to lead the House Financial Services Committee. Both promise to bring a focus different from prior committee leadership.
In early January, Scott released his priorities for the Senate Banking Committee. Under his leadership, the committee will work on legislation to promote financial inclusivity and opportunity to responsibly advance affordable housing. There will also be renewed focus on increasing access to capital for entrepreneurs and small businesses, as well as a push to expand investment opportunities for retail investors. These priorities, and others laid out by Scott, will bring a renewed examination of regulatory proposals and careful oversight of financial regulators, particularly those left from the previous administration.
Across the Capitol, in the House Financial Services Committee, Hill has promised to “make community banking great again” and recently laid out a set of principles that he will adhere to as chair of the committee. These principles include regulatory fairness, regulator transparency, and rightsizing; promoting a healthy banking industry for institutions of all sizes; and improving access to funding and capital.
Similarly, President Donald Trump, his Cabinet nominees, and others appointed to lead federal regulatory agencies will drive change in the industry. On his first day in office, Trump issued an executive order that prohibits most federal agencies from issuing proposed rules until an administration-appointed agency head reviews the regulation. Although the executive order does not expressly exclude independent agencies such as the Consumer Financial Protection Bureau (CFPB), any Trump-appointed independent agency head would be likely to follow the order. And with Republicans in control of the Senate, it is projected that any nominees who require senatorial consent will be approved. Thus, this wave of Trump-appointed administrative leadership will probably issue new interpretations and rescind Biden-era rules and policy statements, including policies or guidance on various topics affecting bankers. While current CFPB Director Rohit Chopra has yet to tender his resignation to Trump, it is no secret that Trump administration officials strongly disagree with his aggressive regulatory practices and that his days leading the agency are numbered.
As the 119th Congress moves forward and the landscape of banking regulation shifts, industry leaders will need to stay agile and adaptable. With new leadership in both the Senate Banking Committee and the House Financial Services Committee, as well as the potential for significant changes in federal regulatory agencies under the new administration, 2025 promises to be a pivotal year. The focus on financial inclusivity, community banking, and regulatory fairness will reshape how the banking sector operates and interacts with policymakers. As these changes unfold, it will be essential for industry stakeholders to closely monitor legislative developments and regulatory shifts, ensuring they are well positioned to navigate the evolving environment and continue to meet the needs of consumers, businesses, and the broader economy.
President Trump’s Executive Orders and The Impact to Environmental Rules and Regulations
President Donald Trump began his first week in office by signing a multitude of Executive Orders “Orders,” some of which impact federal environmental laws or policies. Here is a partial list of the laws affected by the Orders:
Freeze funding from the Inflation Reduction Act and Infrastructure Investment and Jobs Act
Certain funding disbursements from the two laws are pending a 90-day review of spending recommendations. Certain funds may be released after consultation with the Office of Management and Budget.
60-Day Moratorium on New Rules
All agencies and departments must refrain from proposing or issuing new rules not yet published in the Federal Register.
Agencies must also postpone for 60 days the effective date for rules that have been published but haven’t yet taken effect.
Declare a National Energy Emergency
A groundbreaking measure that could unlock new powers to suspend certain environmental rules or expedite permitting of certain mining projects.
Offshore Drilling
Attempt to reverse Biden’s ban on offshore drilling for 625 million acres of federal waters.
Repeal of Tailpipe Pollution Regulations
Begin the repeal of Biden-era regulations on tailpipe pollution from cars and light trucks, which have encouraged automakers to manufacture more electric vehicles.
Rollback Energy Efficiency Regulations
Roll back energy-efficiency regulations for dishwashers, shower heads, and gas stoves.
Open the Alaska wilderness to more oil and gas drilling.
Restart reviews of new export terminals for liquefied natural gas (“LNG”).
This was paused by the Biden Administration in early 2024 to study the environmental impacts of LNG exports.
Offshore Wind Farms
Halt the leasing of federal waters for offshore wind farms.
Eliminate Environmental Justice Programs
Across the federal government. These programs were aimed at protecting poor communities from excess pollution.
PFAS Rule No Longer Listed as Under Review
A Pending Rule meant to set discharge limits on certain PFAS is no longer listed as being under review on the government’s regulatory calendar site.
The Review of Energy-Related Regulations and Rules
All agencies must conduct an “immediate review” of actions believed to “impose an undue burden” on the development and use of certain energy sources. The order calls for identification of any regulations, policies, guidance documents, or other materials that would negatively impact the development or use of oil, gas, coal, hydropower, biofuels, nuclear energy, or critical minerals.
Paris Agreement Withdrawal
Federal agencies, including the EPA, will need to submit a plan for how to “revoke or rescind policies” related to budgeting for or implementing aspects of the Paris Agreement.
Greenhouse Gas Working Group Disbanded
The Interagency Working Group on the Social Cost of Greenhouse Gases created during the Obama administration will cease operations.
Federal Hiring Freeze
Vacant federal civilian positions won’t be filled, and no new positions will be created. The freeze includes the United States Environmental Protection Agency. This Order also ends remote work for federal employees.
NO MORE CITY SALES TAX ON RESIDENTIAL RENTALS!
Beginning January 1, 2025, Arizona lessors will no longer be required to collect and remit city Transaction Privilege Tax (TPT) on residential rentals. Senate Bill 1131, Chapter 204, Laws 2023 amended Ariz. Rev. Stat. Ann. § 42-6004, which precludes cities from taxing residential rentals. This preclusion does not apply to health care facilities, long-term care facilities, or hotel, motel or other transient lodging businesses
What Is Changing?Under prior law, most cities taxed residential long term (30 days or more) rentals with rates varying depending on the local jurisdiction. This law standardizes and simplifies the tax landscape by prohibiting the imposition of TPT on residential rental income statewide, as residential rentals were already excluded from state and county TPT.
Who Is Affected?• Property owners currently paying TPT on residential rentals in cities and towns that taxed residential rentals.• Tenants should also see a reduction in overall costs as landlords can no longer pass the tax through to their tenants. What Does This Mean for Property Owners?After January 1, 2025, property owners will no longer be required to collect and remit TPT on residential rentals. Property owners should continue to collect and remit municipal TPT on residential rentals through December 31, 2024. If property owners are charging residential tenants for the cost of the TPT, this practice must stop on January 1, 2025.
Next Steps for Property Owners• Review current compliance requirements and ensure that all TPT filings and payments for 2024 are accurate and up to date.• Prepare for the transition by updating lease agreements, billing systems, and accounting practices to remove TPT charges passed through to tenants effective January 1, 2025.• Notify tenants of any changes in rent amounts, if applicable.
What to Expect from the ADORThe Arizona Department of Revenue will automatically cancel all TPT licenses that exclusively list Business Code 045 (Residential Rental) on the account. For licenses with other business activity codes, the residential rental code will be removed, but other business codes will remain active. Property owners do not need to take any action to close or cancel these TPT licenses. However, the cancellation of TPT licenses and/or business codes does not relieve taxpayers of any outstanding tax liabilities or filing obligations for periods before January 1, 2025.
Property Tax Legislation and Court Decisions
LEGISLATION1
Property Tax on Destroyed Property Must be Prorated (Laws 2024, chapter 34)County assessors are required to prorate the value of properties destroyed after they were valued for the year and county treasurers are required to prorate the tax bills.
Property Tax Refunds for Expenses to Mitigate Effects of Illegal Camping and Loitering (HCR 2023-2024)The Arizona Legislature authorized putting to the voters at the 2024 November general election, the approval of a law that would provide for city and county (when property is located in unincorporated county area) property tax refunds to owners who have incurred expenses to mitigate the effects of illegal camping, loitering, panhandling, public consumption of alcoholic beverages or the use of illegal drugs on their property when a city or county adopts or follows a policy declining to enforce such laws. The refund is limited to the city or county portion of the property tax paid (and does not include school taxes). This measure was approved by the voters, to begin in 2025. The purpose of this measure was to force cities and counties to enforce existing laws against camping, loitering, etc.
Taxpayers Are Entitled to Receive the Equity in their Property When Sold for Delinquent Taxes (Laws 2024, chapter 176)When a property is sold for delinquent property tax, the owner is entitled to request that the equity in their property over and above the delinquent tax amount be refunded to them rather than just losing their property in an action to foreclose.
Valuation of Golf Courses (Laws 2024, chapter 8). Golf course land is valued at $500 per acre, fairways and tees are valued based on the Department’s per hole cost, and improvements like clubhouses and other structures are valued based on replacement cost new, less depreciation. To obtain this favorable valuation treatment, the owner of the golf course must record a deed restriction that restricts the use of the property as a golf course for at least 10 years. This legislation provides that to continue to be valued as a golf course, the deed restriction must be refiled when the properties are split or combined. It also requires the owner to notify the county assessor within 30 days of converting any portion of the property to a different use.
Military Reuse Zone Status Renewed for Phoenix-Mesa Gateway Airport (House Joint Resolution 2001). Phoenix-Mesa Gateway Airport was formerly Williams Air Force Base and its status as a military reuse zone was renewed through October 19, 2031. There are both TPT and property tax incentives available for military reuse zones.
Department of Revenue Now Has Responsibility for Military Reuse Zones Laws 2024, chapter 43). The responsibility for designating military reuse zones and certifying taxpayers’ eligibility for military reuse zone incentives is transferred from the Arizona Commerce Authority to the Department of Revenue.
COURT DECISIONS
Mesquite Power, LLC v. ADOR, 2024 Ariz. LEXIS 179 (2024). Income From Power Purchase Agreement Is to Be Taken into Account when Valuing Electric Generation Plant.
While there is a statutory method the value electric generation plants (basically a cost approach), the statutory value cannot exceed its fair market value. Mesquite argued that the statutory value was indeed higher than the plant’s fair market value because the statutory value included the value of a power purchase agreement. Mesquite’s position was that the power purchase agreement was an intangible and under Arizona law intangibles cannot be taxed. The Arizona Supreme Court though observed that the power purchase agreement itself was not being valued but rather under an income approach, the income from that contract should be considered when valuing the plant and remanded to the Arizona Tax Court so the owner’s appraiser could recalculate the value of the facility taking the income from the power purchase agreement into consideration.
Agua Caliente Solar, LLC v. Arizona Dep’t of Revenue, 257 Ariz. 437 (Ct. App. 2024). Full Amount of ITC Attributable to Solar Plant Is to Be Used to Reduce the Plant’s “Original Cost” Although the Credits Had Not Yet Been Utilized.
Solar Generation Facilities are valued at 20% of their “original cost” with a reduction for the value of any investment tax credits applicable to the plant. Aqua Caliente though was not able to utilize the full amount of the ITC on its federal income tax return because it didn’t have sufficient taxable income to absorb the ITC. The Department took the position that since Aqua Caliente did not utilize the ITC, it was not entitled to use it to reduce the plant’s original cost. The Arizona Court of Appeals held that the value should be reduced by the value of federal investment tax credits not yet utilized.
South. Point Energy Ctr. LLC v. Arizona Dep’t of Revenue, 257 Ariz. 189 (Ct. App. 2024). Power Plant on Indian Reservation Subject to Property Tax.
South Point owned an electric generation plant located on the Fort Mohave Indian Reservation in northwest Arizona. The land was leased from the Indian Tribe under a ground lease approved by the BIA. South Point built the plant and owned it, but the Tribe owned the underlying land. South Point argued that under the 9th Circuit Court of Appeals decision in the Chehalis case, the state and county could not impose property tax on the plant because it became a permanent improvement to the land owned by the Tribe and Tribal property cannot be taxed. The Arizona Supreme Court in a prior decision refused to apply the Chehalis case and remanded to the Court of Appeals to consider an additional argument that under the Bracker balancing test, the state cannot tax the plant. In this decision, the Arizona Court of Appeals held that under Bracker, the plant was also subject to property tax because the: (1) extent of the federal and tribal regulations did not weigh in favor of implied federal preemption, (2) economic burden of the tax fell on the lessee rather than on the tribe, and (3) taxes were not impliedly preempted by federal law because the state had substantial interests that justified the tax.
San Diego Gas & Elec. Co. v. ADOR, 256 Ariz. 344 (App. 2023). (Review granted by Arizona Supreme Court.) Statutory Value for Electric Transmission Property Cannot be a Negative Value.
Electric transmission facilities are valued using a statutory cost approach with a reduction for accumulated depreciation. As a part of Federal Energy Regulatory Commission regulations, electric utilities must include as a part of accumulated depreciation, the future cost of removing the transmission lines. San Diego Gas & Electric included the accumulated cost of decommissioning, which reduced the statutory formula value below zero and used the negative amount to reduce the value of construction work in progress. the Court of Appeals held that the full cash value includes the accumulated depreciation of the future cost of removal but that the full cash value cannot be a negative value and that the negative amount cannot be used to reduce the value of construction work in progress.
Sales and Use Tax Legislation and Court Decisions
2024 LEGISLATION
Senate Bill 1370, Chapter 237. Youth Businesses (Lemonade Stands) Don’t Need Sales Tax Licenses. Persons under 19 no longer need a transaction privilege (sales) tax (TPT) license if their gross receipts don’t exceed $10,000 per year.
Senate Bill 2382, Chapter 142. Department of Revenue to Certify Third Parties for Sourcing City and County Transaction Privilege Tax (TPT). The Department of Revenue is required to certify third-party companies to provide sourcing services for purposes of sourcing city and county TPT by January 1, 2028 (extended from January 1, 2026 by House Bill 2909, below). Taxpayers that use certified sourcing services will not be liable for any additional tax due to sourcing errors.
House Bill 2875, Chapter 44, Electronic Funds Payments Deemed to be Made When Authorized. Taxpayers’ electronic funds payments will be deemed to be made on the date and at a time when the taxpayer successfully authorized an electronic funds transfer. The transfer must be evidenced by e-payment confirmation from their financial institution.
House Bill 2380, Chapter 33, Cities Can’t Audit Taxpayer Engaged in Business in More than One City, Unified Audit Committee Must Publish City Audit Guidelines. This legislation prohibits a city from auditing a taxpayer engaged in business in more than one city or town unless that city obtained prior approval from the Department. This bill also requires the Unified Audit Committee (composed of representatives from cities and the Department of Revenue) to publish uniform audit guidelines applicable to all cities and towns.
House Joint Resolution 2001, Military Reuse Zone Status Renewed for Phoenix-Mesa Gateway Airport. Phoenix-Mesa Gateway Airport was formerly Williams Air Force Base and its status as a military reuse zone was renewed through October 19, 2031. There are both TPT and property tax incentives available for military reuse zones.
House Bill 2634, Chapter 43, Department of Revenue Now Has Responsibility for Military Reuse Zones. The responsibility for designating military reuse zones and certifying taxpayers’ eligibility for military reuse zone incentives is transferred from the Arizona Commerce Authority to the Department of Revenue.
House Bill 2909, Chapter 221, Extended Third-Party Sourcing Date and Extends Exemption for Qualifying Forest Products Equipment. In order to give the Department of Revenue more time to certify third parties for sourcing city and county TPT, this bill extended the date from January 1, 2026 to January 1, 2028. Also extended the sales and use tax exemptions for the purchase of harvesting or processing qualifying forest products equipment through December 31, 2026. This bill was passed with an emergency clause, so it went into effect on June 18, 2024 when signed by Governor Hobbs.
COURT DECISIONS
9W Halo Opco, LP v. ADOR, No. 1 CA-TX 23-0003 (11-7-2024). Laundry Rental Business Not Engaged in Processing; Machinery and Equipment Used in Laundry Operations Not Exempt M&E. Taxpayer launders and sanitizes textiles (sheets, etc.) and rents them to entities in the healthcare industry. Taxpayer sought a refund of use tax paid on their purchases of the laundry equipment used in their laundry and sanitization activities. The Department of Revenue denied the refund claim and the taxpayer appealed. The Court reasoned that the term “processing” as is commonly understood within its ordinary meaning does not fall within the meaning of processing. In denying the taxpayer’s claim for refund, the Court relied upon the definition of “processing” contained in Moore v. Farmers Mut. Mfg. & Ginning Co., 51 Ariz. 378 (1938), which stated: “to subject (especially raw material) to a process of manufacturing, development, preparation for market, etc.; to convert into marketable form, as livestock by slaughtering, grain by milling, cotton by spinning, milk by pasteurizing, fruits and vegetables by sorting and repacking.”RockAuto, LLC v. Ariz. Dept. of Revenue (App 2024) (petition for review to Arizona Supreme Court pending); In-State Distributors Provided Nexus for Sales Tax Collection.
RockAuto is an internet seller of auto parts throughout the United States. It used local distributors to fulfill their internet orders. It had no physical presence in Arizona but had local distributors in the state that fulfilled RockAuto’s orders for orders to be shipped to Arizona customers. The Court of Appeals found that the local Arizona distributors acted on RockAuto’s behalf and constituted the sufficient physical presence requiring RockAuto to collect and remit the Arizona sales tax. It should be noted that the years at issue in this case were prior to Arizona’s adoption of economic nexus, so that the applicable test used in this case was “physical presence.”Dove Mountain Hotelco, LLC v. Arizona Dep’t of Revenue, 257 Ariz. 366 (2024). Compensation Received from a Hotel Rewards Program for Complimentary Stays is Subject to TPT. Marriott, as most hotels, has a loyalty marketing program that Dove Mountain, a Marriott branded hotel, participated in. The Marriott rewards program was administered by Marriott Rewards, LLC. When a guest would use points for a complimentary stay at Dove Mountain, Marriot Rewards would compensate Dove Mountain. The issue is whether that compensation was subject to the transaction privilege tax under the hotel classification. The Arizona Supreme Court held that the compensation for the complimentary stays was taxable.
City of Tucson v. Orbitz Worldwide, Inc., No. 1 CA-TX 23-0001, 2024 WL 123640 (Ariz. Ct. App. Jan. 11, 2024). (Memorandum decision. Review denied by Arizona Supreme Court.) Orbitz is Not an “Operator” of Hotels.
Tucson has an occupational license tax on persons that “operate or cause to be operated a hotel.” Tucson assessed Orbitz for that tax, but the Court of Appeals held that Orbitz was not subject to the tax because it did not operate or cause hotels to be operated.
Income Tax Legislation
Senate Bill 1358, Chapter 55. Can Request Arizona Withholding on Distributions from Pension and Retirement Accounts. A recipient of a distribution from a pension or retirement account may request that Arizona income tax be withheld and the distribution is treated as if it were a payment of wages by an employee for a payroll period.
House Bill 2379, Chapter 7. Internal Revenue Code Conformity. This is the annual bill that conforms the Arizona income tax statutes to the Internal Revenue Code as amended and in effect as of January 1, 2024. According to the Arizona Department of Revenue, there is no anticipated fiscal impact to the state General Fund since no enacted federal acts modified the U.S. IRC in 2023.
House Bill 2875, Chapter 44, Electronic Funds Payments Deemed to be Made When Authorized. Taxpayers’ electronic funds payments will be deemed to be made on the date and at a time when the taxpayer successfully authorized an electronic funds transfer. The transfer must be evidenced by e-payment confirmation from their financial institution.
House Bill 2909, Chapter 221. Caps Corporate Tuition Tax Credit at $135 Million Annually, Eliminated Inflation Adjusted Increase. Caps the aggregate dollar level of the Corporate Low Income Student Tuition Tax Credit at $135 million annually, beginning in FY25. Previously, the aggregate cap was $10 million to be increased annually 2020 through 2024 by set percentages and thereafter by the greater of 2% or the percentage of the annual increase in the Metro Phoenix consumer price index.
Other Tax Legislation
Senate Bill 1636, Chapter 242. Expands Definition of Jet Fuel. An excise tax is imposed on the retail sale of jet fuel. Jet fuel was previously defined based on reference to “crude oil.” This definition is expanded to include (a) aviation turbine fuel that consists of conventional and synthetic blending components that can be used without the need to modify aircraft engines and existing fuel distribution infrastructure; and b) jet fuels derived from coprocessed feedstocks at a conventional petroleum refinery.
House Bill 2909, Chapter 221. Department Can Assess and Collect Fees from Cities, Counties and Other Governmental Bodies to Pay for Department’s Tax System Modification. Provides that the amount to be charged to counties, cities, towns, Council of Governments and regional transportation authorities with a population greater than 800,000 for the Integrated Tax System Project, may not exceed $6,626,900 for FY25.
Allows Property Tax Districts to Issue Tax Anticipation Notes to Cover Qasimyar Refunds. Taxing jurisdictions, including school districts, that are liable for tax refunds in the Qasimyar v. Maricopa County litigation where the refunds would result in a property tax increase of 4% or more may issue tax anticipation notes that mature in four years to pay the refunds.