OCTOBER 23 – 26, 2018

Council on State Taxation (COST)

Annual Meeting

Eversheds Sutherland is pleased to sponsor the Council on State Taxation’s 49th Annual Meeting from October 23-26, 2018 in Phoenix, AZ. Join us for this informative program. Registration information can be found here.

Eversheds Sutherland SALT lawyers are presenting on several topics including:

  • What to Do About “Phantom Income” In Your Tax Base – Jonathan Feldman
  • All the Right Moves: Understanding and Communicating the State Tax Consequences of Corporate Expansion – Liz Cha
  • The Great “Discussion” – Jeff Friedman

We are also co-hosting the reception on Wednesday evening and look forward to seeing you in Phoenix.

The Pennsylvania Board of Finance and Revenue recently published a decision regarding the sourcing of receipts and property of a satellite television provider.  The Board held that the taxpayer’s receipts from sales of satellite television services were properly included in the taxpayer’s Pennsylvania numerator based on the location of subscribers in the state.  The Board held that the taxpayer failed to meet its burden of proof to show that a greater portion of its income-producing activities occurred outside the state under Pennsylvania’s cost of performance sourcing rules applicable to the tax year at issue.  Pennsylvania sourcing rules changed for tax years beginning after December 31, 2013 to require market-based sourcing for sales of services.

The Board also upheld the inclusion of orbiting satellites in the Pennsylvania property factor numerator.  On audit, the taxpayer’s property numerator was increased to include a percentage of the satellite values as shown on the taxpayer’s federal return, based on the percentage of subscription fees from Pennsylvania customers to subscription fees everywhere.  The Board upheld this adjustment to the property factor, which noted that the satellites were owned by the taxpayer and used in the state to provide satellite television service.  In re Dish DBS Corporation, Docket No. 1713444 (Pa. Bd. Fin. & Revenue May 14, 2018).

See our previous coverage of a similar South Carolina decision involving this taxpayer.


In re Dish DBS Corporation, Docket No. 1713444 (Pa. Bd. Fin. & Revenue May 14, 2018).

The Washington Court of Appeals upheld the denial of sales tax and B&O tax refund claims filed by Lowe’s Home Centers, LLC based on the bad debt deduction.  Lowe’s, a home improvement retail store with locations in Washington, entered into private label credit card (“PLCC”) agreements with two issuing banks.  Among the typical terms of the PLCC agreements, Lowe’s and the banks shared in profits and losses of the PLCC accounts.  Under those profit-sharing provisions, defaulted accounts reduced Lowe’s share of profits from the PLCC agreements and, therefore, were deductible under IRC § 166 for federal income tax purposes.  Due to the deductibility under IRC § 166, Lowe’s argued that it also qualified for the Washington bad debt deduction for sales and B&O tax purposes under R.C.W. § 82.08.37. The appeals court, however, found deductibility under federal tax law alone is not sufficient to qualify under the Washington bad debt statute.  Explaining that, per R.C.W. § 82.08.37, the bad debt must also be “on sales taxes previously paid” that are “written off as uncollectible” by the seller to qualify for a deduction under that provision.  Lowe’s relationship to the bad debts at issue in this case failed both of these requirements:  (1) the bad debts were not “directly attributable” to a retail sale on which sales tax was paid, but instead were attributable to Lowe’s separate, contractual profit sharing reductions with the banks; and (2) Lowe’s books and records did not reflect any written-off accounts that resulted in bad debt.  Accordingly, the appeals court concluded that Lowe’s was not entitled to a refund of sales or B&O taxes based on the bad debt deduction under R.C.W. § 82.08.37.


Lowe’s Home Center, LLC v. Dep’t Revenue, No. 50080-9-II (Wash. Ct. App. Sept. 5, 2018).

In interpreting an ambiguous statute allowing for a tax credit against the state’s financial institution excise tax (FIET), the Alabama Court of Appeals held in favor of the Department of Revenue’s interpretation. Alabama imposes a 6½% FIET on the net income of certain financial institutions. After deducting administrative charges payable to the Department, the Department is required by statute to distribute the FIET proceeds to the counties and municipalities in which the financial institution is located, with the remaining amount to the Alabama general fund. Taxpayers who make certain investments in designated areas of the state are eligible under Alabama Code § 41-9-218(1) for a credit against the “state-distributed portion” of the FIET due. The court stated that although the phrasing “state-distributed portion” of the tax credit statute was ambiguous, the various differing constructions by the taxpayer, the Department, and the lower court did “not stand on equal footing.” Because of the Department’s “expertise in matters of taxation,” the court held that the Department’s interpretation of the statute—that the “state-distributed portion” refers only to the FIET proceeds distributed to the state general fund—was entitled to deference. The court reasoned that even though the Department did not promulgate a rule or regulation interpreting the statute, the Department was entitled to deference because it applied the same interpretation “on its internal paperwork in making its final assessment” and before the circuit court and court of appeals, rather than just adopting the interpretation as a litigation position. Thus, the credit applied to reduce the FIET liability by only the amount of the FIET proceeds distributed to the state general fund, and not to the amount of the FIET proceeds distributed to the counties, municipalities, and the state as argued by the taxpayer.


Alabama Dep’t of Revenue v. Bryant Bank, CV-17-900699 (Ala. Civ. App. Sept. 14, 2018).

Reversing a judgment of the circuit court, the Alabama Court of Civil Appeals held that sales of prepaid authorization numbers that allow purchasers to access wireless services on cellular telephones are subject to the state’s sales tax. The court reasoned that during the 2008 through 2011 tax years at issue, the relevant sales tax statute treated a sale of a prepaid telephone calling card or prepaid authorization number as a taxable sale of tangible personal property.


Alabama Dep’t of Revenue v. Downing, No. 2170129, 2018 WL 3489917, at *6 (Ala. Civ. App. July 20, 2018).

On July 17, 2018, the Wisconsin Court of Appeals held that a taxpayer’s services qualified as taxable “laundry services” and were subject to Wisconsin sales tax.  The taxpayer entered into service agreements with clients and provided them contract cleaning services.  The taxpayer would hire its clients’ existing laundry department workforces as employees, who would then use the clients’ equipment to clean their laundry.  The procedures used to process the laundry would typically not change, and the employees would usually perform their duties in the same manner as they did when employed by the clients.  The court held that the taxpayer provided taxable “laundry services,” finding that the relevant statute was “about as clear and unambiguous as it gets.”  The court rejected the argument that the taxpayer instead engaged in nontaxable managerial and supervisory functions, concluding that these activities were for ensuring that the taxable laundry services were accomplished.  Interestingly, the clients did not have sales tax liabilities before contracting with the taxpayer, despite their laundry being cleaned by the same people using the same equipment.


Healthcare Servs. Group, Inc. v. Wisconsin Dep’t of Revenue, App. No. 2017AP567 (Wis. Ct. App. Jul. 17, 2018).

An Indiana taxpayer claimed net operation loss deductions (“NOLs”) on its adjusted gross income.  The NOLs were acquired by the taxpayer as part of a corporate acquisition.  The Indiana Department of Revenue did not dispute that the taxpayer was entitled to the NOLs, but limited the NOLs by an “asset ratio” based on the assets of the member of the acquired group that was doing business in the state.  The Department, in reviewing the audit adjustment, held that the application of the asset ratio was without any authority.  Therefore, the Department failed to meet its burden to support the additional limitation to the taxpayer’s NOLs and the audit adjustment was reversed.


LOF 02-20180708 (05/26/2018).

The California Court of Appeals affirmed a trial court’s holding that the California Franchise Tax Board can require interstate unitary businesses to use combined reporting, even though combined reporting is optional for intrastate unitary businesses. The taxpayer, a motorcycle retailer, argued that the differential treatment of interstate and intrastate business gave a direct commercial advantage to intrastate unitary companies and therefore discriminated against interstate commerce in violation of the Commerce Clause of the United States Constitution. The appellate court rejected the taxpayer’s argument and held that the legitimate state interest to accurately measure and tax all income attributable to California outweighed any possible discriminatory effect.


Harley-Davidson, Inc. v. California Franchise Tax Bd., Dkt. No. D071669 (Cal. Ct. App. Aug. 22, 2018).

The Alaska Superior Court denied the Alaska Department of Revenue’s (“DOR”) petition to enforce an administrative subpoena against Turo, Inc. (an out-of-state car sharing company), which sought all of the company’s business records from its inception in 2009 to 2017 in connection with an ongoing investigation regarding vehicle rental taxes. The court held that the subpoena was overly broad, lacked detail and encompassed too long a time period. Further, the court concluded, “the scope of the Tax Division’s authority to issue a subpoena is broader than the court’s ability to enforce the very same subpoena.” Although the court determined that Turo’s activities in Alaska – such as, allowing access to its website and mobile app in Alaska but not some other states, earning a percentage on each transaction, having users sign terms of agreement, and otherwise regulating transactions using its app in Alaska – were sufficient for personal jurisdiction, the court nevertheless lacked the authority to enforce the subpoena as enforcement under Alaska Stat. § 43.05.040 is only proper when the party that received the subpoena is an Alaska resident or was served the subpoena in Alaska. The court noted that the DOR might need to seek assistance from the courts in Delaware or California, where Turo is a resident. The court, however, reserved judgment on the issue of whether Turo is subject to Alaska’s Vehicle Rental Tax.


Alaska Dep’t of Revenue v. Turo, Inc., No. 1JU-18-580 CI (Alaska Sup. Ct., Jun 28, 2018).

The South Carolina Administrative Law Court ruled that the taxpayer was required to collect sales tax on its retail sales of prepaid cellular telephone service.  The taxpayer argued that its sales did not constitute “prepaid wireless calling arrangements,” which must be “sold in units or dollars which decline with use in a known amount.”  Because it sold unlimited plans, the taxpayer contended its sales did not meet this test.  The court disagreed, finding the statute to unambiguously subject prepaid plans to sales tax.  Although the taxpayer’s prepaid plans were unlimited, they were still subject to a known unit and known expiration date of 30 days.