This year’s TEI Audits & Appeals: State and Local Tax Controversy Program focuses on issues and practical techniques to resolve state tax controversies at the audit level. Sessions include:

  • Panel of state tax judges from around the country, moderated by Professor Richard Pomp
  • Negotiation strategies led by an expert negotiator
  • Writing workshop focused on protests and IDRs
  • Panel of department of revenue tax auditors

Featured session: How to Write a State Tax Protest and Response to State Tax IDRs Effectively

Legal Writing Works’ Kiko Korn will join Partner Tim Gustafson to present this interactive session that teaches tools for powerful persuasion and effective strategies for streamlining prose.

Register for TEI’s Audits and Appeals Seminar.

Valentine’s Day might have come and gone, but there’s still plenty of love to go around, and we just love Lucy, the adorable dog that belongs to Olga Tsipursky, Senior Manager of International Tax at Amazon.

However, Lucy is still looking for her own Ricky Ricardo, and in the spirit of Valentine’s Day, we thought we would give her a paw and feature her dating profile for our February Pet of the Month.

Name: Lucy Tsipursky
Nickname: Lucille
Breed: Tri-Colored Cavalier King Charles
Age: 6. I was basically born on Valentine’s Day (February 15), so I’m a hopeless romantic with a ton of love to give.
Ideal date: A coffee house. Just put a Starbucks puppuccino in my paws and I’m happy dog!
What does your typical weekday look like: I’m generally at the office with Olga first thing in the morning. I’ll join her for some tax meetings, but sometimes I’ll need to excuse myself for another project or important meeting – tracking down food. I’ll then make my rounds around the office, pick a target and stare them down for treats – you would be surprised at how high the success rate is.
Favorite activities: On the weekends, I love going for hikes, playing fetch in the parks (what Lucille doesn’t like a ball??), and lazy day snuggles with Olga when watching a movie.
Favorite outfit: My red Eversheds Sutherland Tax Hoodie of course!
Bad Habit: Olga would say it’s my snoring, but it’s probably how I twist and pull anytime I’m on a leash. I’m perfectly fine when I get to walk off-leash, so I think I should be allowed to walk without a leash all the time!
Special Talent: People tell me that I melt hearts everywhere I go and those who meet me tend to fall in love. I’m calm and friendly and apparently have a cute habit of letting my tongue stick out while sleeping. I think those are a few examples of some of my endearing qualities that hopefully some lucky pup will come to love!

We are thrilled to feature Lucy as our February Pet of the Month!

In 2020, state and local tax practitioners have witnessed the emergence of a new trend: the proposed taxation of advertising services and data usage. In this Bottom Line videocast, Charles Capouet and Samantha Trencs discuss:

  • the proposed Maryland tax on gross revenues from digital advertising services
  • potential expansions of the Nebraska and South Dakota sales taxes
  • proposals for new taxes on data and data mining in New York and West Virginia

Check out the videocast here.

On February 6, 2020, the Ohio Board of Tax Appeals held that a captive automobile financing company was not subject to commercial activity tax (CAT) on receipts that it earned in connection with three types of revenue streams:

  1. receipts from sales of retired leased vehicles,
  2. receipts from securitization transactions, and
  3. interest subvention payments.

Background: The CAT is a gross receipts tax imposed at a rate of 0.26% of a taxpayer’s total gross receipts. Tax is imposed on total gross receipts; deductions for costs of goods sold or other expenses incurred in producing the receipt are generally not allowed. While the term gross receipts is broadly defined, the statute imposing CAT contains a long list of receipts excluded from the definition of “gross receipts.” Among the exclusions are (i) receipts from the sale of a capital asset (as defined in IRC § 1221) or an asset used in the taxpayer’s trade or business (as defined in IRC § 1231), (ii) receipts constituting interest income, and (iii) receipts from the proceeds of a loan. Ohio Rev. Code Ann. § 5751.01(F)(2)(a), (c), and (e).

These three exclusions were the focus of Hyundai Motor Finance Co v. McLain. The Board held that the taxpayer’s receipts each qualified for exclusion, and thus, did not constitute “gross receipts” for the purposes of the CAT.

1) Sales of Retired Leased Vehicles
The taxpayer was in the business of leasing vehicles to consumers. At the termination of the leases, it sold the vehicles to third-parties, or at the lessee’s option, to the lessee. The Board agreed with the taxpayer that the leases were assets used in the taxpayer’s trade or business within the meaning of IRC § 1231 – notwithstanding the fact that the vehicles were available for purchase to the lessees. Therefore, receipts from disposition of the vehicles were excluded from the CAT under Ohio Rev. Code Ann. § 5751.01(F)(2)(c). In concluding that the assets were IRC § 1231 property, the Board relied on federal case law involving similar vehicle lessors and the fact that the vehicles were subject to depreciation under IRC § 167 (as IRC § 1231(a) requires).

2) Securitization Transactions
The second revenue stream at issue was the taxpayer’s receipts from the securitization of vehicle retail installment sale contracts (RISCs). The taxpayer transferred the RISCs to bankruptcy-remote entities, which issued notes backed by the RISCs as collateral. These securitization transactions are “secured financing” (not sales) for federal income tax purposes under IRC 1001 and IRS Technical Advice Memorandum (“TAM”) 9839001. The Board held that although “not binding,” the federal treatment of the transactions was “persuasive,” and therefore, the financing receipts were excluded from the CAT as proceeds of loans under Ohio Rev. Code Ann. § 5751.01(F)(2)(e).

3) Subvention Payments
Finally, the taxpayer received payments from manufacturers and dealerships for its role in special financing programs that provide below-market interest rates for RISCs and customer vehicle leases. Although the taxpayer identified the payments as “subsidy amounts” in its financial statements, the subvention payments are treated as interest for GAAP and federal income tax purposes. While remarking that the accounting and federal treatment of these payments was “not necessarily controlling,” the Board found them to be “persuasive” and held that the payments were for the use of money and properly excluded from CAT as interest under Ohio Rev. Code Ann. § 5751.01(F)(2)(a).

Hyundai Motor Fin. Co. v. McClain; Case No. 2015-785, Ohio Bd. Tax. App. (Feb. 6, 2020)

On February 20, 2020, the Maryland House of Delegates introduced HB 1628, which would reduce the sales tax rate from 6% to 5% and expand the base to tax almost all services. If passed, the bill would take effect January 1, 2021. This bill is sponsored by key members of House leadership, including the House Majority Leader, the Chief Deputy Majority Whip, and the Chairs of the Ways and Means, Economic Matters, and Appropriations Committees. The bill is currently assigned to the House Rules and Executive Nominations Committee.

The Eversheds Sutherland SALT Team will continue to follow HB 1628, along with Maryland legislators’ attempts to tax digital goods and digital advertising services.

During a hearing held on February 20, 2020, the South Dakota House of Representatives’ Taxation Committee approved an amendment to House Bill 1284, striking the proposed elimination of the sales tax exemption for advertising services. The bill’s sponsor, Representative Finck (Republican), introduced the amendment himself. He clarified that he did not intend to tax all advertising services. Rather, he thinks that there are certain services being misconstrued as “advertising” that should be subject to sales tax (such as website creation). He expressed his hope that this issue would be addressed in further discussions. Members of the Taxation Committee noted that a tax on advertising and business inputs would cause economic distortion, raise production costs, and place businesses at a competitive disadvantage. The bill, as amended, is now headed to the House of Representatives’ Transportation Committee for further discussion on its remaining provisions, which would create a road improvement priority fund.

Florida’s proposed tax on peer-to-peer car sharing companies, H.B. 377, cleared its first hurdle and passed the state House Ways and Means Committee on February 11. The bill would require car-sharing companies to collect a 6% sales tax on vehicle leases made through their platforms. Also, under the proposed bill, leases made through the company platforms will be subject to a $2 surcharge.

Missouri lawmakers have proposed H.B. 1957, which would require vendors engaging in business activities in Missouri with gross receipts from in-state sales of tangible personal property totaling $100,000 or more during a 12-month period to collect and remit use tax. The bill would also require marketplace facilitators that reach the economic nexus threshold by January 1, 2021 to collect and remit sales and use tax on behalf of third party sellers. A similar measure, S.B. 648 was also introduced in the state Senate.

On February 6, 2020, South Dakota Representative Finck introduced House Bill 1284, which would repeal the sales tax exemption for sales of advertising services. The South Dakota sales tax broadly applies to sales of services, unless specifically exempt. The bill has since been referred to the House of Representatives’ Taxation Committee. On Thursday, February 20th, the committee will hold a hearing on the bill at 7:45 a.m. Central. The hearing can be live streamed here.

On February 11th, West Virginia Delegate Cody Thompson (Democrat) introduced House Bill 4898, which would impose a general data mining service tax. The bill would require “commercial data operators” generating revenue from the use, collection, processing, sale, or sharing of West Virginians’ user data to pay the tax at the rate of one cent per dollar of value of user data. The Commissioner would be granted the authority to develop the method to calculate the value of user data.

A commercial data operator is “an entity acting in its capacity as a consumer online services provider or data broker that: (A) generates a material amount of revenue from the use, collection, processing, sale, or sharing of the user data; and (B) Has more than 10,000 unique monthly visitors or users in West Virginia for a majority of months during the previous one-year period.” “User data” is defined as “any information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked with an individual user, whether directly submitted to the commercial data operator by the user or derived from the observed activity of the user by the commercial data operator.” The bill would require each commercial data operator, at least every 90 days, to provide an assessment of “the economic value that the commercial data operator places on the data of its users,” along with identifying the types of data it collects from users and the ways that data is used.