The New York State Department of Taxation and Finance issued an advisory opinion explaining that a corporation’s charges for access to its digital advertising platform are subject to sales tax.  The corporation provides digital advertising products to customers through an online management platform that allows customers to access a package of software tools to create, deliver, and manage digital advertising.  In addition, the corporation provides advertising placement services and consulting services to customers on how to optimize their digital advertising campaigns.  The corporation bills its customers a single charge for each advertising campaign, with no specifically identified charge for access to the platform.  The Department determined that providing access to the corporation’s software tools to create, deliver, and manage digital advertisements constitutes a taxable sale of prewritten software.  The Department also determined that, although advertisement placement services and consulting services are not taxable services, because the corporation invoices its clients a single non-itemized amount, sales tax is due on the total sales price charged.

Advisory Op. TSB-A-20(22)S, N.Y.S. Dep’t of Tax. & Fin. (June 30, 2020) (Published Nov. 6, 2020)

On October 27, 2020, the Sacramento Superior Court granted a writ of prohibition barring the California Department of Tax and Fee Administration (the Department) from applying  sales tax Regulation 1585 (Reg 1585) to bundled sales of cellular telephones and service by carrier-retailers.

  • Reg 1585 provides, in part, that sales tax on bundled sales of cellular telephones and service will apply to the “unbundled sales price” of the cellular telephone.
  • The decision is based on the ground that Reg 1585 conflicts with statutory definitions which require sales tax to be collected on consideration paid, not another measure of value.
  • In recent years, the Department has made several attempts to impute additional consideration to the stated sales price and require the collection of additional sales tax on many types of sales; if upheld on appeal, this decision represents a substantial win for taxpayers.

Read our full Legal Alert here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This Week’s Question: As of November 2020, which three states with sales taxes had yet to enact a marketplace facilitator sales tax collection law?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $20 UBER Eats gift card.

Answers will be posted on Saturdays in our SALT Weekly Digest. Be sure to check back then!

On November 16th and 17th, 2020, the Multistate Tax Commission’s (“MTC”) Nexus and Audit Committees met to consider several topics.  The biggest developments from these meetings are that: (1) the Nexus Committee shared their proposed, revised draft of its Uniform Sales and Use Tax Exemption/Resale Certificate – Multijurisdiction, which reflects the Wayfair decision and recent economic nexus laws; and (2) the Audit Committee approved revisions to their income tax audit manual.

Nexus Committee

During this meeting, the Nexus Committee discussed: (1) updates regarding Wayfair implementation, marketplace facilitator laws, and nexus law developments since its July 28, 2020 meeting; (2) tracking of voluntary disclosure case status and tax payments; and, most importantly, (3) updates to the Uniform Sales and Use Tax Resale Certificate – Multijurisdiction Form to reflect the Wayfair decision and the states’ subsequent economic nexus laws.

The primary role of the Nexus Committee is the oversight of the National Nexus Program, which provides a forum for 38 participating states to exchange information and manage a multistate voluntary disclosure program.  The Committee heard a presentation from the Director, noting that taxpayer participation in the voluntary disclosure program has soared after Wayfair.  The MTC received 208 voluntary disclosure applications in 2019 and expect to receive more than 300 by the end of 2020, which represents close to a 50% increase.

The Nexus Committee also discussed updates to the MTC’s Uniform Sales & Use Tax Exemption/Resale Certificate – Multijurisdiction form, which it has made available to taxpayers for decades.  It is a simple form that a seller registered in one state may use to claim the resale or ingredient/component part exemption when purchasing inventory tax-free from a supplier located in another state.  The seller would not be required to register in the other state if it did not have nexus.  A seller registered in multiple states can use this form to claim the exemption on a multistate basis.  37 states allow sellers to use this uniform certificate, albeit often with additional requirements.

The MTC is now updating the form to reflect the Wayfair decision and states’ new sales and use tax economic nexus laws.  The proposed draft of the revised form can be found here.  The MTC is requesting responses and revisions from the participating states by November 30th, 2020.  Any states that request to be removed or do not respond will be removed from the revised form.

Audit Committee

The Audit Committee met to approve edits to its income tax audit manual and multistate statute of limitations waiver extension. The Audit Committee oversees the MTC’s joint audits where MTC staff audit taxpayers on behalf of multiple states.  The program currently has 19 income tax audits and 29 sales tax audits in progress.

The MTC’s income tax audit manual is a 133-page document that details every aspect of an MTC audit—from the pre-audit stage through the transmittal of a completed audit report to the participating states.  It also provides a high-level discussion of state income tax concepts. It is not intended, however, to be a restatement of the laws of every state.  The audit manual was last updated in 2013.  Some of the approved changes relate to process, such as what happens when a taxpayer refuses to sign a waiver.   Other changes were made to sections of the manual that discuss concepts, like clarifying how Joyce applies when conducting a nexus investigation and the addition of throw-out.   A complete copy of the approved manual can be found here.

During the November 17th D.C. Council meetings, the Council marked-up the False Claims Amendment Act of 2020 and passed it on first reading by an 8-5 vote. The bill now moves to second – and final – reading as soon as December 1st.  If passed, the bill would expand the D.C. False Claims Act to tax matters above specified thresholds.  Opposition to the bill will need to sway two votes in order to defeat it on second reading.

The bill was criticized by multiple Councilmembers, who made the following points:

  • D.C. already has a framework to address tax abuses: the Office of the Chief Financial Officer and the tax fraud hotline, which allows people to report tax abuses.
  • Predatory private parties may bring frivolous lawsuits against D.C. taxpayers, as they did in Illinois.
  • The D.C. OCFO opposes the bill and the Multistate Tax Commission opposes applying state False Claims Acts to tax matters.  In particular, the OCFO is also concerned about the extent to which it can share tax information with those bringing claims.

Second reading in the Council will be held as early as December 1st.  If passed on second reading, the bill will then be sent to the Mayor to be approved or vetoed.  Like other D.C. bills, the bill will then be transmitted to Congress for a 30-day period of passive review.

For more information about combating this False Claims Act expansion, please contact the Eversheds Sutherland SALT Team.

The Texas Comptroller adopted an Administrative Law Judge’s decision affirming a sales and use tax assessment on a Texas-based marketing and advertising agency for “invoices for the time to create digital artwork.” According to the Comptroller, the artwork that the advertising agency “delivered to the third‑party printers was either finished art or preliminary art that became physically incorporated into finished art for advertising.” Therefore, the sales were taxable sales of tangible personal property, instead of nontaxable preliminary art.  Additionally, the Comptroller concluded that it was irrelevant whether the agency was involved in printing the artwork; the sales tax is due on creating the tangible personal property in Texas, not on printing the artwork in Texas.

In a rapidly escalating matter of concern to all District business taxpayers, the D.C. Council again will consider B23-35, the D.C. False Claims Amendment Act of 2020, which would expand the D.C. False Claims Act to tax matters above specified thresholds. The Council will review the committee mark-up tomorrow, November 17th. First reading would likely occur later in the day and, if approved, second (and final) reading could then occur during the first week of December. The bill would then be sent to the Mayor for consideration. The Council considered the bill early this year, but it faded from attention as COVID emerged.

The prior draft committee print barred application of the D.C. False Claims Act to tax matters unless: (1) the defendant’s District taxable income, District sales, or District revenue was at least $1 million for any of the taxable years subject to the action; and (2) the damages pleaded totaled at least $350,000. Taxpayers that exceed those thresholds, and ultimately found to have violated the Act, would then be subject to treble damages if B23-35 were adopted. Current District law excludes from the Act, “claims, records, or statements made pursuant to those portions of Title 47 of the District of Columbia Official Code that refer or relate to taxation.” D.C. Code Ann. § 2-381.02.

For more information about combating this False Claims Act expansion, please contact the Eversheds Sutherland SALT Team.

In this episode we discuss, “A Call for Clarity – New York Appeals Deadlines,” an article featured in Tax Notes and written by Ted Friedman, Counsel, Michael Hilkin, Counsel, and Peter Hull.

Two of these authors, Michael Hilkin and Peter Hull, join host Chris Lee, an Associate in the Atlanta Office, to discuss the state of procedural affairs in New York regarding COVID-19 and their call on Governor Andrew Cuomo (D) to provide clarity to taxpayers by issuing an executive order confirming that his prior executive orders tolling statutes of limitations apply to proceedings before both the state and city tax appeals agencies.

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