The Washington Court of Appeals upheld the Washington Department of Revenue’s denial of a sales tax exclusion for trade-ins of software and hardware. GameStop provides customers with a trade-in credit for software and hardware and allows customers to apply these credits towards future purchases of software and hardware. The Department denied GameStop’s exclusion for two reasons: the Department relied on its interpretation of its regulation to conclude that software and hardware are “not of a like kind,” and GameStop violated the separate statement requirement on trade-in credits used for subsequent purchases. In reaching its decision, the court agreed with the Department’s interpretation of its regulation that “property of like kind” is based on the “nature of the property and its function or use,” because software and hardware do not perform the same function or use. The court also noted that “[w]e give great deference to the Department’s interpretations of its own regulations, especially where the legislature has silently acquiesced over a long period to the Department’s construction.” Wash. Dep’t of Revenue v. GameStop, Inc., 428 P. 3d 1269 (Oct. 30, 2018), withdrawn upon motion for reconsideration, No. 50409-0-II, 2019 WL 1247107 (Wash. Ct. App. Mar. 19, 2019).

The Alabama Supreme Court ruled that all software, including custom software, is tangible personal property subject to Alabama sales tax. The taxpayer filed refund claims for sales tax paid on computer software and accompanying equipment, claiming that an Alabama Department of Revenue regulation exempted these purchases from the sales tax as “custom software programming.” The Alabama Supreme Court affirmed the denial of the refund claim, reasoning that the purchases at issues were software and that “there is no distinction for Alabama sales-tax purposes between canned or custom software.” In the majority’s view, “[a]ll software is tangible personal property and thus subject to sales tax.” The court clarified, however, that the act of customizing the software for a particular user is a nontaxable service when separately invoiced by the vendor. One concurring opinion urged the legislature “to clarify how a transaction involving software and services is to be documented and invoiced.” However, the dissenting opinion noted that the majority had ignored the Department’s regulation because the taxpayer’s software fit within the stated definition of “custom software programming,” which includes “separately stated charges for modifications to a canned computer software program when such modifications are prepared to the special order of the customer.” Russell Cty. Cmty. Hosp., LLC v. State Dep’t of Revenue, No. 1180204, 2019 WL 2150922 (Ala. May 17, 2019).

On May 22, 2019, the Illinois Appellate Court held that the late filing of a boat tour business’ Amusement Tax protest was excusable. The Cook County Department of Revenue had violated the taxpayer’s procedural due process rights by “affirmatively misleading” it on the proper filing deadline. Cook County law requires that taxpayers protest assessments within 20 days from the mailing of the assessment. The auditor erroneously informed the taxpayer, by e-mail, that the protest was due on October 1, 2014, 20 days after the taxpayer’s receipt of the assessment. Relying on the auditor’s advice, the taxpayer filed its protest on that date, two days after the actual deadline. On review, the court held that the unambiguous ordinance began the 20-day window for the taxpayer to protest its assessment on the date the Department mailed the assessment. However, the court determined that the auditor’s incorrect advice, along with confusing documents from the Department, misled the taxpayer that the date of the assessment’s receipt was the trigger for the 20-day deadline. Thus, the court concluded that: (1) the Department violated the taxpayer’s procedural due process rights, and (2) the proper remedy was to deem the protest timely filed and address the merits. Mercury Sightseeing Boats, Inc. v. County of Cook, Nos. 16 CH 10775, 16 L 50566 (Ill. App. Ct. May 22, 2019).

Lawmakers in California have introduced bills set to generate $16.4 billion in new taxes and fees for the 2019-2020 legislative session. Last week, Eversheds Sutherland sponsored CalTax’s Board of Directors Meeting, which covered the Governor’s agenda, federal conformity, local tax initiatives, the pending litigation in San Francisco and some new statewide tax bills. To learn more about the pending tax legislation in California click here.


Pictured from left to right is Partner Tim Gustafson and CalTax President Rob Gutierrez.

The Colorado Supreme Court issued two decisions simultaneously holding that neither Oracle Corporation nor Agilent Technologies, Inc. were required to include in their combined income tax returns holding companies that did not meet the statutory definition of an “includable C corporation.” To be included in a combined return in Colorado, an affiliate must have more than twenty percent property and payroll in the United States. Because neither holding company owned property nor had employees, the holding companies were not includable in the combined returns of their affiliates. Further, the court held that an allocation of the holding companies’ income to the respective combined returns of Oracle and Agilent was not necessary to avoid abuse.

Dep’t of Rev. v. Agilent Technologies, No. 2019 CO 41 (Colo. 2019)

Dep’t of Rev. v. Oracle, No. 2019 CO 42 (Colo. 2019)


In a 5-to-4 decision, the US Supreme Court held that states retain sovereign immunity from private suits brought by individuals in courts of other states, and therefore, overruled its prior decision in Nevada v. Hall, 440 US 410 (1979). The decision arose from a longstanding dispute brought by an individual taxpayer against the California Franchise Tax Board (FTB) alleging abusive audit and investigative practices. By overruling Hall, the court ultimately held that the FTB is immune from the individual’s suit in a Nevada court. Writing for the majority, the Court acknowledged that “[b]ecause of our decision to overrule Hall, [the individual taxpayer] unfortunately will suffer the loss of two decades of litigation expenses and a final judgment against the [FTB] for its egregious conduct.” (Franchise Tax Bd. of California v. Hyatt, No. 17-1299, ___ U.S. ___, (2019))

In a case of first impression, a New York administrative law judge (ALJ) ruled that a corporate member of a disregarded limited liability company was not permitted to use a special apportionment rule for broker-dealers even though the disregarded entity was a registered broker-dealer.

Read the full article here.

Romeo Trencs was named after one of the greatest love stories of all time. So it is only fitting that he now finds himself wrapped up in another love story of epic proportions. Romeo’s owners, Eversheds Sutherland Associate Samantha Trencs and her fiancé Davis Jenkins, are planning for their wedding this August. 

Romeo, an apricot Toy Poodle, has been tasked with the all-important role of pup-of-honor and has taken his responsibilities quite seriously. He has been heavily involved throughout the planning process, but his favorite task by far has been the food tasting. While he was not able to convince his owners to choose bacon or salmon as the main course, he was happy to settle for one of his other favorites – beef sirloin.

Romeo is also an avid skier and has been hoping he could convince his parents to spend their honeymoon at one of his favorite ski resorts in either Vail, Colorado or outside of Toronto, Canada. However, Samantha and Davis have their hearts set on exploring elsewhere (and dog-free). Still, Romeo has his bags packed and lift pass ready to go just in case. 

We are thrilled to feature Romeo as our May Pet of the Month!

The Maryland Court of Special Appeals held that the Maryland Tax Court erred as a matter of law in ruling that none of the equipment purchased by a public utility company and used in transmitting electricity from a third-party power plant to the utility’s customers in Maryland qualified for a sales tax exemption applicable to property used in a “production activity.”  A “production activity” is defined by statute to mean, among other things, “processing” Tangible Personal Property (“TPP”) for resale.  The Court explained that within the utility’s transmission and delivery network, the voltage of the electricity (which is treated as TPP in Maryland) is stepped up and stepped down, as needed, to ensure that it travels long distances and is made available to the utility’s customers at a voltage that is appropriate for the intended residential or commercial use.  The Court concluded that “some degree of processing was required” between the point at which the utility received the electricity from the generating plant and the point of delivery to its customers, and that there was no rational basis for the Tax Court to rule that such activity does not fall within the statutory definition of a “production activity.”  Potomac Edison Co. v. Maryland Comptroller of the Treasury, Dkt. No. 1645 (Md. Ct. Spec. App. Apr. 29, 2019).

Eversheds Sutherland welcomed local guests into our New York office to meet Sacramento lawyers Tim Gustafson and Eric Coffill and learn about developments in California state tax. The group then went to see the Padres meet the Yankees (where the visiting team eked out a win).