In response to concerns that the District of Columbia needed to explore new or broadened revenue sources, the D.C. Council established D.C.’s Tax Revision Commission to comprehensively review the District’s tax code. The commission’s mandate is to make tax policy recommendations, and it began meeting in 2022 with the intent of making tax recommendations to the council and mayor. Throughout 2023, the commission met with tax and fiscal policy experts, as well as community and industry representatives. Based on these meetings, it drafted and released a list of proposals for review, including the creation of a data excise tax and business activity tax. The commission is scheduled to hold its next meeting on October 9 to finalize its recommendations.

In the September 2024 installment of “A Pinch of SALT” in Tax Notes State, Eversheds Sutherland attorneys Charles Kearns and Charles Capouet critique the commission’s recent tax proposals, noting that they are dubious and may be subject to legal challenges.

Read the full article 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: Which state’s Tax Court recently released an opinion holding that repatriation income under IRC Section 965 could be included in the apportionment formula?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On Tuesday, October 1, SALT Partner Jeff Friedman is pleased to present at the 2024 Midwestern States Association of Tax Administrators (MSATA) Annual Meeting, held in St. Louis, MO. Jeff will help cover significant, unusual and interesting SALT cases and developments.

For more information and to register, click 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: A lawmaker from which east coast state’s legislature recently proposed a bill that provides an income tax deduction for cash tips?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

This week, members of Eversheds Sutherland’s SALT team are pleased to present at the 55th Annual Council On State Taxation (COST) meeting in St. Louis, MO, covering key topics like Loper Bright’s impact on state tax authority and taxpayer deference, the MTC’s Joint Audit Program, and more.

Sessions and speakers include:

  • The MTC Audit Program – The Benefits and Detriments of the Program – Michele Borens
  • The Impact of Loper Bright on State Tax Authority and Taxpayer Deference – Jeff Friedman
  • Everything That is Old is New Again – The Push for Mandatory Worldwide Combined Reporting – Tim Gustafson
  • Say What? First Amendment Challenges to State and Local Taxes – Alla Raykin

Register here.

Meet the marvelous Mr. Momo! Donning a name fit for a (sleepy) god, this 2-year-old tabby cat reigns supreme in the home of Olivia Dibb, a SALT staff attorney based in Atlanta.

Olivia brought Momo (short for Morpheus) home after a serendipitous visit to see a group of foster kittens. Momo’s quick nap in Olivia’s lap sealed the deal, leading to a life of luxury filled with endless naps and an abundance of snacks. This mischievous kitty has a particular fondness for treats that are off-limits, like chocolate, always keeping Olivia on her toes.

When he’s not on a snack hunt, Momo is on a mission to open every closed door in sight, firmly believing in the mantra “sharing is caring.” His curiosity knows no bounds!

Welcome to the SALT Pet of the Month family, Momo! 

The Texas Comptroller of Public Accounts held its annual briefing in Austin on September 17 and provided taxpayers with updates regarding audit staffing shortages, pending litigation, recent guidance and related topics.

Solutions for a Texas-Sized Audit and Hearings Backlog

Audit Assistant Director Rosie Julius said that the agency continues to struggle with staffing issues due to increased hiring competition from oil and gas industry, consultancies and the IRS. The Comptroller is roughly 100 auditors short of its target staffing level and hopes to alleviate the problem with changes to its qualification requirements, hiring cycles and office-specific staffing targets. In the past five years, staffing levels at the audit division have fluctuated from a high of 589 to a low of 445, and the Comptroller’s audit volume targets do not change when staffing levels drop. Given the influx of new, inexperienced auditors, taxpayers are encouraged to reach out to audit supervisors if they experience service issues.

The Audit Division implemented the following procedures this year to help increase the efficiency of audits, such as:

  • Bringing forward assignments that use prior audit findings and error percentages to apply to current audit period. (Not available for assignments that were previously settled).
  • Redistributing audits from the Dallas and Houston offices to other offices with staffing ability (or remote auditors), but assigning local auditors for taxpayers that want field visits.
  • Using contract tax examiners for smaller audits. These 35 contractors have completed 1,055 assignments and refunds in FY 2024. Notably, these contractors have used personal email addresses and computers, which raised privacy concerns for some taxpayers.
  • Allowing auditors to approve or deny the research and development (R&D) credit rather than requiring all R&D credit issues to be handled by HQ staff. (Although HQ still appears to be heavily involved in many R&D cases).

The Audit Division is supported by the new Tax Resolution Section of the Hearings Division, which Senior Counsel for Tax Resolutions Matt Jones recently transferred to. This section also offers Independent Audit Review Conferences (IARC), which can help resolve audits before they are billed. The approximate turnaround time for a decision after an IARC is 90 days from the date of the conference but has been quicker recently due to the low volume of conferences.

Hearings and Tax Litigation General Counsel Jim Arbogast said that a number of R&D hearings are pending and his division is working on reducing the high amount of “aging” cases that have been pending over two years. Tax Hearings Attorney Supervisor Dan Neuhoff added that since September 2021, the number of total hearings has crept up to about 1,700 for a staff of 15 hearings attorneys and two supervisors. Tax Litigation Attorney Bree Boyett said that the Comptroller is willing to consider settlement offers from taxpayers interested in having a more expedient resolution to their cases and that approximately two thirds of cases are settled. 

Texas Tax Policy and Guidance

Tax Policy Director Jenny Burleson said that her division is issuing fewer private letter ruling (“PLR”) requests in favor of publishing more regulations in a timely manner. If a taxpayer really wants a PLR and is willing to wait, they should reach out to the tax policy division directly.

Direct Tax Team Lead Julian Daniels (J.D.) highlighted recent franchise tax developments, including the increase of the no tax due (NTD) threshold from annualized total revenue of $1 million to $2.47 million. See Tex. Tax Code § 171.002(d). The tax policy team also released two recent audit memos on benefits for the compensation subtraction (202310005M) and determining the statute of limitation when a taxpayer requests an extension for the report period (202408001M).

Indirect Tax Team Lead Julio Mendoza-Quiro also covered a myriad of guidance released by the Comptroller since the last annual briefing. Highlights include:

Rule changes:

  • Proposed Rule 3.330 (Data Processing Services), was published in the Texas Register on September 13, 2024 with significant revisions to the current rule, including the expansion of “data processing” to specified online services and revocation of the “essence of the transaction” test for data processing transactions in favor of an “ancillary” test. This proposed rule was also the subject of a recent op-ed by Comptroller Hegar. Eversheds Sutherland is closely monitoring Proposed Rule 3.330, with separate alerts forthcoming. The public comment period for this rule closes October 13, 2024.
  • Rule 3.334 (Local Sales and Use Taxes), was adopted and effective July 4, 2024 and is subject of a trial set for October 14, 2024. Some municipalities with processing facilities object to the sourcing provisions in the rule which prevent them from assessing local sales taxes on orders.

Memorandums:

Private Letter Rulings:

  • 202402021L – Stating that tax applies to lump-sum monthly rental charge covering the rental of equipment, software, leasehold improvements, and training services.
  • 202402023L – Holding that a taxpayer’s website analytics products and services are not information services, but rather taxable as data processing or as the sale or license of software. (See also 202402020L addressing the taxability of website design, marketing and consulting services).
  • 202407022L – Determining that materials incorporated into the construction of railroad tracks or roadbeds (“riprap”) are essential to the operation of locomotives and trains and are exempt from sales and use tax. This includes items such as sub-ballast, riprap, and steel and precast culverts.

Noteworthy Cases

Cases highlighted during this year’s annual briefing include:

  • Hibernia Energy LLC v. Hegar – The Supreme Court of Texas declined to review this case in which the state argued that a taxpayer’s gains the sale of oil and gas property, which it did not include on line 11 of schedule K of its federal partnership tax returns were reportable as income. This case is significant because it is the first to address how flow-through status for federal purposes is converted to taxable entity status for Texas franchise tax. 
  • Anadarko Petroleom Corp v. Hegar – A dispute regarding whether a $4 billion payment related to the Deepwater Horizon oil spill is a cost of goods sold for franchise tax purposes.
  • NuStar Energy LP v. Hegar – A case where the Comptroller’s position is that a taxpayer’s bunker fuel sales are sourced to Texas despite the fuel being purchased by out-of-state customers and a federal ban on the use of this fuel within 200 miles of the U.S. coast.
  • RJR Vapor v. Hegar – A dispute about whether a taxpayer’s pouches (VELO) containing nicotine isolate were taxable as a tobacco product.
  • Geo Group Inc. v. Hegar – A case concerning whether a for-profit prison company is an instrumentality of the state such that it is entitled to the government sales and use tax exemption.

Finally, Comptroller staff noted that future tax cases will be heard by Texas’ new Fifteenth Court of Appeals. The court has exclusive statewide civil intermediate appellate jurisdiction over appeals involving the State and its officers and challenges to the constitutionality of a state statute, such as a tax law. The court also has exclusive jurisdiction over appeals from the Texas Business Courts, involving cases dealing with business disputes valued at more than $10 million.

A Steady Economic Outlook

In his opening remarks, Comptroller Glenn Hegar noted that the state continues to have healthy cash reserves and rainy-day funds compared to peer states. Revenue Estimating Division Director Tetyana Melnyk reported that the economic growth for Texas is stable with slightly higher growth rates expected for 2024 and slightly lower than average growth rates expected for 2025. Inflation also helped Texas revenues by contributing approximately 18 billion in additional sales tax collections over the past three years. Texas’ sales tax inflation boost offset the impact of sales tax declines associated with the depletion of excess pandemic-related household savings, which appear to have been completely exhausted around March of 2024. Where any of Texas’ surpluses will make lawmakers amenable to taxpayer-friendly changes in the next legislative session remains to be seen and will be covered in next year’s Texas Comptroller Annual Briefing.

Coverage of Previous Briefings:

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: Earlier this year, the American Catalog Mailers Association (ACMA) successfully challenged California’s recent guidance on P.L. 86-272, modeled after the Multistate Tax Commission’s (MTC) revised P.L. 86-272 guidance. AMCA recently filed a motion for summary judgement in which other state to challenge a state regulation that is based on the MTC’s revised P.L. 86-272 guidance?   

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On Wednesday, September 18, Eversheds Sutherland attorneys Michele Borens, Jeff Friedman, Maria Todorova and Jeremy Gove will provide various SALT updates to TEI’s Seattle Chapter.

Sessions and speakers include:

  • Jeff Friedman – WA DOR update
  • Michele Borens, Jeremy Gove – To Pay or Not to Pay, That is the Question!
  • Jeff Friedman, Maria Todorova – Are You Gross? Net?
  • Michele Borens, Jeff Friedman, Maria Todorova – Uniformly Not Uniform

At long last, the California Franchise Tax Board (FTB) issued a Notice of Proposed Rulemaking today to amend FTB’s market sourcing regulation: California Code of Regulations, title 18, section 25136-2 (“Reg. 25136-2”). This is the latest step in a long journey that began over seven years ago, when FTB held its first interested parties meeting (IPM) on the subject in January 2017. After five additional informal IPMs, each with its own iteration of draft amendments, the governing three-member Board authorized the agency to begin the formal amendment process in September 2021. Now, three years later, that process begins.

The proposed amendments largely mirror those found in the draft circulated in advance of FTB’s last informal IPM in June 2021. Among other things, the amendments include simplifying presumptions for sourcing receipts from services related to real property, tangible personal property, and individuals, special sourcing rules for receipts from asset management services, and a special assignment rule for professional services provided to more than 250 customers. See our prior coverage (here and here) for additional information on the proposed amendments and background on the entire process. If adopted, the amendments will apply to taxable years beginning on or after January 1, 2024.

FTB will accept written comments on the proposed amendments until October 31, 2024. FTB also will hold a public hearing on the draft language if it receives a written request for a hearing at least 15 days prior to the close of the comment period.

From back-to-school shopping to packing lunchboxes, it’s clear the new school year has already begun! Let’s look forward to another season of growth and early mornings as we move into fall.

Amidst the excitement of the new school year, we gathered some photos from members of our Eversheds Sutherland SALT family. Join us in celebrating these young scholars and wishing them a successful year! 

1: Legal secretary Melissa Bragg’s daughters Madelyn (5th grade) and Emma (11th grade)

2, 4: Associate Cat Baron’s son Beau

3: Partner Jonathan Feldman’s son Micah (6th grade)

5: Counsel John Ormonde’s daughters Audrey and Betsy

6: Paralegal specialist Jaime Lane’s son Cooper (9th grade) and daughter Cassidy (7th grade)

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: Which state’s supreme court recently agreed to hear a case involving the denial of a sales and use tax exemption to a private correctional facility because it failed to establish that it was an agency or instrumentality of the state or federal government?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

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: Which state’s legislature recently concluded a special session by enacting property tax relief that caps local property tax growth and distributes property tax credits to school districts?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

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: Earlier this month, which east coast state enacted a law providing, among other things, tax credits for converting vacant office buildings into residential units?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Have you ever wondered what goes on behind the bench?  

Join us for the State & Local Tax Controversy Track of TEI’s 2024 Audits & Appeal Seminar.   This year’s seminar includes a panel of distinguished state tax judges moderated by Professor Rick Pomp. The judges will provide their perspective on state tax controversies and reactions to the arguments that they hear.

State Tax Judges Panel

  • Judge Cheryl Akin, California Office of Tax Appeals
  • Hon. Justin L. McAdam, Judge of the Indiana Tax Court
  • Matt Boch, Chief Commissioner of the Arkansas Tax Appeals Commission

Register now!

For more information, please contact: meetings@tei.org

The Massachusetts Appellate Tax Board (ATB) struck down a $17.9 million assessment and held that State Street Corp. (State Street), a bank holding company under the Bank Holding Company Act of 1956, was entitled to approximately $14 million in Massachusetts research tax credits because Massachusetts state tax provisions did not prohibit bank holding companies from benefiting from research credits.  

State Street filed combined reports, including within such reports two financial institutions: State Street Bank Trust Company and Charles River Systems, Inc. State Street ultimately claimed nearly $14 million in research tax credits on its combined return. The Massachusetts Department of Revenue (Department) audited State Street and determined that it was not entitled to claim such credits under Massachusetts law, asserting bank holding companies were taxed under a different provision than general business corporations and as such were ineligible for research credits.

The ATB rejected the Department’s argument, reasoning that the statute did not limit credit eligibility based on the type of business corporation claiming the credit. As such, the ATB determined that the research tax credit provided under G.L. c. 63, § 38M was available to bank holding companies, and therefore, State Street properly claimed the tax credit.

State Street Corp. v. Comm’r of Revenue, Docket No. C344139 (Mass. App. Tax Bd. Aug. 15, 2024).

California’s 2024 tax landscape seems darker than ever. A “no tax increase” budget that increases taxes. Precedential decisions without any precedential effect whatsoever. But don’t despair! Glimmers of hope remain as taxpayers push back at the agencies and courts make headway. On August 27, join Eversheds Sutherland attorneys Tim Gustafson and Eric Coffill as they discuss all things California tax in their second California tax developments webinar of the year.

There’s still time to register 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: The U.S. Department of the Treasury recently announced that this New England state would join the IRS Direct File program for the 2025 filing season.

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Massachusetts Appellate Tax Board (ATB) determined that a New Hampshire resident attorney, employed by a Massachusetts-based federal agency, was not entitled to a personal income tax refund for days he did not physically work in Massachusetts during the coronavirus pandemic.

In April 2020, Massachusetts implemented emergency regulation 830 CMR 62.5A.3, which required nonresident employees who worked remotely from March 10, 2020, to September 13, 2021, to compute their apportionment percentage in one of two ways, whichever resulted in lesser tax: 1) nonresident employees could apportion their income based on the percentage of work performed in Massachusetts in January and February of 2020; or 2) nonresident employees could apportion income based on their 2019 (pre-COVID-19) apportionment percentage, if they worked for the same employer. On his 2020 return, the taxpayer reported 260 days worked in Massachusetts and received a refund of $119. The taxpayer proceeded to file an application for abatement, seeking an additional refund of $3,919 on the basis that he only worked 54 days in Massachusetts during the 2020 tax year. The request was deemed denied, and the taxpayer appealed.

On appeal, the taxpayer argued that 830 CMR 62.5A.3 violated his rights under the Due Process and Commerce Clauses of the U.S. Constitution due to lack of taxable nexus with Massachusetts. In agreeing with the Commissioner’s determination, the ATB concluded that several states implemented similar rules during the pandemic (e.g., New York), the taxpayer’s employer did not change his duties or adjust his withholding, and the taxpayer did not question Massachusetts’ taxation of his income prior to the pandemic when he worked remotely two days per week. Notably, the ATB cited South Dakota v. Wayfair, stating that physical presence is no longer a touchstone of constitutionality, and as such, where there is sufficient nexus, the Due Process and Commerce clauses do not prevent Massachusetts from imposing an income tax on non-resident remote workers. Further, the ATB contrasted the issue before it to Comptroller Maryland v. Wynne, reasoning that even if another state had sought to tax the taxpayer’s income, he, unlike the taxpayer in Wynne, would have been entitled to a full credit under 830 CMR 62.5A.3.

Accordingly, the ATB determined that because Massachusetts continued to confer benefits such as police, fire, and road maintenance on the taxpayer’s employer in the state during the pandemic, the taxpayer was rightfully taxable by Massachusetts for the days he worked in New Hampshire.

Sakowski v. Commissioner of Revenue, Docket No. C347594 (Mass. App Tax Bd. July 8, 2024).

In one fell swoop, Loper Bright rebalanced the way in which federal courts will apply federal regulations and other administrative guidelines.

In his Board Brief for Tax Notes State, Eversheds Sutherland SALT Partner Jeff Friedman explains how the U.S. Supreme Court’s decision to reverse Chevron will have short-term and long-term consequences regarding the application of state tax regulations and other administrative guidance.

Many states never adopted Chevron deference in the first place. And those states that have adopted it, will now reconsider it.

Read the full article 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: Last week, the California Office of Tax Appeals released a decision saying that the process of making what substance for its customers was a taxable sale of tangible personal property?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

There’s still time to register! On August 13, join Eversheds Sutherland SALT attorneys Charles Capouet and Cat Baron for a review of the long-standing SALT Scoreboard publication and the important state tax cases from the first half of 2024. In addition to recapping case opinions, Charles and Cat will analyze case trends and compare 2024’s results to prior years’ case tallies. Register here.

On August 14 and 15, the Eversheds Sutherland SALT team is pleased to sponsor COST’s 2024 State and Local Tax Workshop for Technology Companies in Cupertino, CA. The two-day workshop will cover key state and local tax issues that technology companies are facing, such as state taxation of Digital Business Inputs, FITFA, sourcing, apportionment, streaming, marketplace facilitators, digital service taxes and much more. Eversheds Sutherland speakers and topics will include:

  • Jeff Friedman – Top 10 Income and Transactional Tax Cases Impacting the Tech Industry
  • Michele Borens – Escalating Burden of Gross Receipts Taxes and Local Taxes (Including Recent SF Activity) on Taxpayers
  • Charlie Kearns – The Creeping Sales and Use Tax – And Ways to Mitigate the Taxation of Business Inputs as States Expand Their Sales Tax Base to Digital Products and Services

You can find more information and register here.

In December 2023, the Financial Accounting Standards Board added significant income tax disclosure requirements to the already cumbersome and complex checklist of state tax financial statement disclosure rules.

In this installment of A Pinch of SALT published in Tax Notes State, Eversheds Sutherland attorneys Todd Betor and Jeff Friedman discuss the Financial Accounting Standards Board’s changes to the state and local income tax financial statement disclosure rules. Effective for public business entities for annual periods beginning after December 15, 2024, the consequences of these disclosures — and the potential confusion stemming from them — will further burden state tax professionals.

Read the full article here.

Eversheds Sutherland is proud to participate in TEI’s 2024 Audits & Appeal Seminar on the State and Local Tax Controversy Track, an essential 1.5 day event for in-house tax professionals.

The State and Local Tax Controversy Track will focus on state and local tax audit issues and strategies, including best practices to manage the controversy function. Additionally, this year’s programming will include a session comprised of former state department of revenue officials who will share their unfiltered view “from the other side.”  

Other sessions include:

  • Anticipating State Tax Audits and Controversy: Managing Audit Triggers and Aggressive Positions
  • Challenging Assessments and Filing Protests
  • State Tax Judges Panel – Hear from the Other Side of the Bench
  • Ethical Dilemmas Facing State Tax Professionals
  • Strategic Considerations for Managing your Audit and Litigation Portfolio
  • Tax Technology for State Tax Audits
  • Audit Therapy: An Interactive Discussion of Industry Personnel Sharing Experiences
  • Financial Statement Considerations of State Tax Controversies

Register now!

For more information, please contact: meetings@tei.org

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: The MTC recently amended their Commission Bylaws to effectively cap their membership fee for which state?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

New York continues to closely review the application of state sales tax to services performed using software platforms. 

Recently, two May decisions by the New York Tax Appeals Tribunal and the New York Division of Tax Appeals affirmed the Division of Taxation’s decision to tax service providers for the sales of prewritten computer software in Matter of Beeline.com Inc. and Matter of FacilitySource LLC, respectively.

In their quarterly column published by Law360, Eversheds Sutherland SALT attorneys examine recent developments in New York tax law. In this installment, Liz Cha and Madison Ball focus on two decisions from the Tax Appeals Tribunal and the Division of Tax Appeals concerning sales of prewritten computer software.

Read the full article 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: A bill recently passed the California Senate and was advanced to the Assembly that would provide for an income tax exemption for settlement payments from what type of natural disaster?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

In a 2020 article, the Eversheds Sutherland SALT team guided taxpayers on how to handle a Multistate Tax Commission (MTC) audit, providing an overview of the MTC’s Joint Audit Program and highlighting the differences between an MTC audit and a single-state audit. At the time, the article observed that “the MTC has been gaining in prominence and, arguably, effectiveness.” That is even truer four years later.

In the June 2024 installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Michele Borens and Cat Baron provide an update on the MTC’s Joint Audit Program and its latest developments.

Read the full article here.

Meet the newest members of our SALT Pet of the Month family – Scottie and Wallace! They belong to Audrey Pollitt, Editor in Chief of Tax Notes State.

Audrey’s wife, Alena, adopted Scottie (age 7) from an Alabama rescue before they met. Scottie is short for Damariscotta, a charming town in Maine where Alena spent her childhood summers at her family’s lakeside camp. Prior to adoption, Scottie was “Scramble” – a name to which she still responds if called in a thick Southern accent. Audrey and Alena later adopted Wallace (age 5), which seems to fit him perfectly, even if there’s no meaning behind it.

Scottie’s a Catahoula leopard dog and Wally’s a sato (Puerto Rican street dog). Audrey mistakenly called Scottie a Charleston Chew for quite some time before things clicked.

Scottie’s favorite food is chocolate, which has been highly problematic, while Wally’s favorite food is whatever happens to be on the table.

Beyond getting their paws on clandestine treats, the pair enjoy hiking, going to new dog parks (to ignore other dogs) and playing Scrabble. In addition, Wally punches into work around 6 p.m. every day, posting up at the windowsill to oversee and track all street activity. For all of his precision, they’ve never received a dime for his labor as neighborhood watch! Scottie has taken to tandem paddle boarding but chooses to forgo paddling. She prefers her humans do all the work!

Audrey and Alena are very grateful to have both of these pups filling out the Pollitt pack – Audrey may be the only member thereof who’s much for SALT, but they make everything else just a little less taxing. Welcome to the SALT pack, Scottie and Wallace!

The Washington Court of Appeals recently upheld the dismissal of a putative class action brought against four grocery store chains that collected sales tax on sales of 100 percent juice beverages. A taxpayer alleged that the grocers violated Washington’s Retail Sales Tax Act and Consumer Protection Act by wrongfully collecting sales tax on the exempt beverages. The court held that the taxpayer’s allegations were tantamount to a tax refund claim that could only be brought against the state Department of Revenue. Washington’s regulations provide that a taxpayer aggrieved by the amount of tax paid could not maintain “any action or proceeding” to recover paid taxes except against the state, and therefore the taxpayer could not bring an action against the grocers through creative pleading. Where a taxpayer seeks a refund of a tax already paid, the procedural requirements (to seek administrative remedies against the Department) remain the same no matter the reasoning presented in support of the claim.

Caneer v. Kroger, No. 85009-1-I (Wash. Ct. App. Div. 1, 2024).

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: Earlier this month, the Massachusetts Senate introduced an economic development bill that primarily provides tax incentives for what green industry?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Oregon Supreme Court recently held that an out-of-state tobacco manufacturer’s acceptance of prebook orders precluded it from availing itself of Public Law 86-272 protection against the imposition of the state’s corporate excise tax. In 1959, the U.S. Congress passed P.L. 86-272, which prohibits states from imposing a net income tax when the business’s only activity in the state is the solicitation of orders of tangible personal property. The orders must then be sent outside the state for approval and rejection, and, if approved, filled or delivered from a point outside of the state. 

The taxpayer argued that it was not subject to the Oregon tax because it had no physical presence in Oregon and only solicited sales of tangible personal property in the state. However, the court held that the acceptance of prebook orders took the company out of the safe harbor of PL 86-272. During the prebook order process, the taxpayer’s in-state sales representatives persuaded Oregon retailers to order the taxpayer’s products from wholesalers. The taxpayer’s representatives then delivered the signed orders to wholesalers who had already agreed, in advance, to “accept and process” orders transmitted by the taxpayer’s employees. Pursuant to incentive agreements, if a wholesaler failed to accept and process the prebook orders, it would lose future incentive agreement payments and be required to repay any payments already received. Because the wholesalers were contractually required to accept and process the prebook orders, the court viewed the actions of the sales representatives as more akin to making direct sales in the state, rather than the protected solicitation of orders that were subject to approval from outside of the state.

Santa Fe Nat. Tobacco Co. v. Or. Dep’t of Revenue, 372 Or. 509 (2024) (en banc).

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: Illinois recently enacted an omnibus tax package that includes, among other things, tax incentives for what high tech industry?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The New York Tax Appeals Tribunal held that a company’s fees related to sales of its labor procurement system were taxable sales of pre-written software.

Taxpayer, Beeline.com Inc., provides services to assist customers in gathering, organizing, managing and assembling their contingent labor force. As part of its service contracts, taxpayer grants its customers license to use its web-based application that automates many processes associated with labor management. The Department assessed the company under the theory that it was selling licenses to use pre-written software, which is taxed as a sale of tangible personal property.

In its analysis, the Tribunal first found that the taxpayer’s system constituted pre-written software. The Tribunal made such determination despite claims by petitioner that the platform could be customized for each particular customer’s needs and preferences, finding that in most circumstances there was limited or no customization. Further, the Tribunal found that, because the taxpayer’s customer agreements provided for licenses to use the software, the consideration paid to the taxpayer was for sales of software.

The Tribunal acknowledged that the primary function test should be applied when determining the taxability of services consisting of both taxable and non-taxable components. But, based on its determination that the transactions in question involved sales of pre-written software, the Tribunal declined to apply the true object test noting that it has “declined to apply a primary function analysis when considering the taxability of mixed bundles of tangible personal property and services.” In drawing this distinction, the Tribunal relied on the fact that retail sales of services are taxable only if enumerated, but sales of tangible personal property are taxable unless exempt.

Ultimately, the Tribunal found that vendor management software technology was the core element of the taxpayer’s business, and was neither ancillary nor incidental to the taxpayer’s services. And, as a result, the taxpayer was engaged in sales of taxable tangible personal property that is subject to sales tax.

Matter of Beeline.com Inc. (No. 829516) (05.02.24)

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: What state’s high court recently held that “pre-book orders” that resulted in the “facilitation of sales” within the state did not qualify as “solicitation of orders” and thus exceeded the protections of P.L. 86-272?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

In the latest episode of the SALT Shaker Podcast, Eversheds Sutherland attorneys Jeff Friedman and Jeremy Gove welcome UConn School of Law Professor Rick Pomp to discuss Jeff and Professor Pomp’s US Supreme Court cert petition in Ellingson Drainage, Inc. v. South Dakota Department of Revenue.

Jeff, Jeremy and Professor Pomp delve into the case’s background and its various implications, particularly focusing on the application of use tax. They also provide historical context on the relationship between sales and use taxes and explore how Ellingson may violate the external consistency doctrine. Additionally, they discuss the potential consequences of the South Dakota Supreme Court’s decision if left undisturbed by the US Supreme Court.

Their discussion ends with an overrated/underrated question: Are birthday parties overrated or underrated?

For questions or comments, email SALTonline@eversheds-sutherland.com. Subscribe to receive regular updates hosted on the SALT Shaker blog.

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The Third Circuit Court of Appeals upheld a District Court’s dismissal of a taxpayer’s challenge to New Jersey’s partnership filing fee under the tax comity doctrine. The partnership filing fee was enacted by New Jersey in 2002 to offset the costs of reviewing and auditing partnership tax returns. The fee is a flat fee computed based on the total number of partners in the partnership, $150 per partner up to a $250,000 maximum. The taxpayer sought to enjoin the fee alleging that the fee unfairly burdens companies with significant out-of-state operations in violation of the Commerce Clause.

New Jersey sought dismissal for two reasons: the Tax Injunction Act (TIA) and the doctrine of tax comity. The parties disputed whether the TIA applied, with New Jersey arguing that the fee was a “tax” for TIA purposes and the taxpayer arguing that the fee was a “fee” for TIA purposes and therefore outside the scope of the TIA. The District Court and the Third Circuit declined to resolve that question, ruling instead that the suit should be dismissed as a matter of comity under the Supreme Court’s decision in Levin v. Comm. Energy, Inc., 560 U.S. 413 (2010), because the fee was embodied in a “revenue affecting statute” involving matters of “state tax administration” and did not involve any fundamental right or classification that attracts heightened judicial scrutiny and because state courts were “better positioned” to craft a remedy in the event the fee were found to be unconstitutional. 

Energy Transfer LP v. John Ficara et al., No. 22-3347 (3rd Cir. Not Reported 2024).

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: The Supreme Court recently issued its opinion in Moore v. United States, No. 22-800. By which vote did the Court uphold the constitutionality of the section 965 transition tax?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Sometimes states intentionally favor domestic commerce, and sometimes they unintentionally discriminate against foreign commerce. In Kraft General Foods Inc. v. Iowa Department of Revenue and Finance, the US Supreme Court made clear that both are illegal. Because most states’ corporate income taxes conform to the Internal Revenue Code (IRC) to some degree, recent federal tax changes set the stage for unintentional (and unconstitutional) discrimination.

In this installment of “A Pinch of SALT” in Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman, Jeremy Gove and Chelsea Marmor analyze the IRC’s disparate capitalization requirements for domestic and foreign research and experimental (R&E) expenditures for tax years beginning in 2022. While the federal government is free to treat foreign commerce differently from domestic commerce, states and localities do not enjoy that same freedom. Thus, when states conform to the IRC and incorporate the federal tax system’s differing treatment of domestic and foreign R&E expenses, that conformity may violate the foreign commerce clause.

Read the full article here.

A New York appellate court denied a motor fuel distributor’s (Distributor) motor fuel excise tax refund request on motor fuel brought into the state and delivered to a fuel refiner, marketer, and transporter (Marketer) “pursuant to an exchange agreement … whereby either company was permitted to remove fuel product from the terminal of its counterpart in exchange for similar treatment at a different time and location by the other.” The court found that the Distributor failed to prove that the Marketer had instead paid taxes on the fuel and that the Distributor was thus entitled to a refund. 

The New York Department of Taxation and Finance (Department) audited the Distributor and assessed motor fuel excise tax on approximately 13.8 gallons of motor fuel that it brought into New York between May 2011 and February 2012 and later provided to the Marketer via the exchange transaction. The Distributor later paid the taxes under protest and sought a refund, arguing that the Marketer had instead paid the applicable taxes.

New York imposes the motor fuel excise tax on “the initial importer of motor fuel” into the state. The distributor-seller importing motor fuel into the state must give the purchaser a certification that it had paid, or assumed the responsibility to pay, the tax and passed that amount through to the purchaser in the purchase price. The purchaser would then claim a “tax paid” credit for the taxes on its returns to avoid double taxation.

To prove the Marketer had instead paid the motor fuel excise tax, the Distributor relied on the affidavit of the custodian of the Marketer’s returns during the months at issue. He stated that he had created a workbook that proved the Marketer had paid the taxes because it did not claim the tax paid credits on the motor fuel. The Department’s auditor gave live testimony that the Distributor had failed to demonstrate that the same fuel had been taxed twice, noting what he claimed to be “significant inconsistencies” between the Distributor’s and Marketer’s returns. Based on the evidence, the court held that “given the conflict between the evidence offered through [the parties’ affidavit and testimony], there was an ample basis for the Tribunal to conclude that petitioner failed to establish a clearcut entitlement to a refund.”

In re Global Cos. LLC v. New York State Tax Appeals Trib., 227 A.D.3d 1197 (N.Y. App. Div. 2024).

The Washington Court of Appeals held that the sales of pre-paid telephone airtime purchased from third-party cellular networks by a business (Taxpayer) and resold to individual customers and retailers were subject to the City of Renton’s municipal utility tax.

The utility tax was imposed on the privilege of conducting a “telephone business” within city limits, which was defined as “providing by any person of access to the local telephone network.” Renton Municipal Code 5-11-3(O) (2019). Under the city municipal utility tax, charges to “another telecommunications company” were not taxable. RCW 35A.82.060(1). A “telecommunications company” was an entity “owning, operating, or managing any facilities used to provide telecommunications for hire, sale or resale.” RCW 80.04.010(28). The Taxpayer was not a telecommunications company because it had no physical network facilities of its own.

The Taxpayer made a few arguments as to why its sales were not taxable. First, it argued that the municipal utility tax applied only to “telecommunications companies” because the statutory exception required charges to be imposed upon “another telecommunications company.” The Taxpayer argued that this exception “presume[s] the first taxed entity was also a telecommunications company.” The court rejected this argument because “if the legislature intended for the statute to apply exclusively to ‘telecommunications companies,’ it would have used only that term.” Further, the court held that the legislature’s use of the broader term “telephone business” “evince[d] an intent to grant taxing authority broader in scope than” telecommunications companies.

The court also disagreed with the Taxpayer’s argument that – even if its direct consumer sales were taxable – its wholesale business sales to retailers were exempt from tax as resales. The resale exemption provided that cities “shall not impose the fee or tax on … charges for network telephone service that is purchased for the purpose of resale.” RCW 83A.82.060(1). Reviewing the statutory terms, the court explained that for the exemption to apply, “it is the ‘access’ to a network that must be ‘purchased’ for ‘resale.’” The court explained that no resale occurred in these transactions because the Taxpayer—not the retailers—retained control over the end user’s access to a telephone network. The retailers were thus not selling access to the cellular networks to their customers.

TracFone, Inc. v. City of Renton, 547 P.3d 902 (Wash. Ct. App. 2024).

The California Supreme Court ruled that a corporation’s transfer of its ownership of two Los Angeles supermarkets to a trust that already owned 92.8% of the corporation’s stock was a “change in ownership,” permitting the revaluation of the supermarkets’ real property. Article XIII A of the California Constitution, added by Proposition 13, strictly limits increases in the assessed value of real property unless the property undergoes a “change in ownership.” However, there is no “change in ownership” when the transaction involving a legal entity that “results solely in a change in the method of holding title to the real property and in which proportional ownership interests of the transferors and transferees, whether represented by stock, partnership interest, or otherwise, in each and every piece of real property transferred, remain the same after the transfer.” The Court gave an example of the change in ownership exclusion: two individuals that own two equal shares of real property and then transfer those shares to a corporation in which they each own each shares. In this case, the taxpayers argued there was no change in no ownership because the trust, to whom the real property was transferred, already held all the corporation’s voting stock. But, the transfer resulted in nonvoting stockholders losing any interest in real property.The Court rejected the taxpayer’s argument, holding that a change to nonvoting stock ownership means the proportional ownership interests do not qualify for the exception to a change in ownership. Thus, the Court ruled that a change in ownership had occurred, and a revaluation was permissible.

Prang v. Los Angeles Cnty. Assessment Appeals Bd., 15 Cal. 5th 1152 (2024).  

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: Earlier this month, the US Supreme Court invited the Solicitor General to file a brief in which state tax case involving the denial of a resident’s request for additional credits for taxes paid to another state?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Meet June’s SALT Pet of the Month, Chester! Taking after three of his owners with a ‘C’ name, Chester (the Christmas present!) makes his home with Eversheds Sutherland Counsel, Charles Capouet.

The adorable nine-month-old Mini Bernedoodle keeps his family entertained and on their toes. When he’s not running around in the yard, Chester enjoys wrestling and playing fetch. During breaks from his shenanigans, he can be found refueling with his favorite snack, peanut butter.

Charles and his family are lucky to have a chum like Chester, even when he snacks on socks. Welcome to the SALT Pet of the Month club, Chester! 

On June 7, 2024, the Arizona Supreme Court held that reimbursements received by a hotel when participating in a hotel rewards program were subject to the Transaction Privilege Tax (TPT). The reimbursements were paid to the taxpayer when it provided a guest with a complementary hotel stay under the program. The rewards program required the taxpayer to pay a percentage of room revenues to fund the program. Guests accrued points by staying at participating hotels, spending money with affiliates, purchasing points, or receiving points as a gift.  Because the rewards points came from transactions upon tax had already been paid, the taxpayer argued that the reimbursements were akin to “post-tax” reserves or returns of capital and filed a refund claim for TPT paid between 2012 and 2016.

In finding the reimbursements were taxable gross income under the TPT, the Court relied primarily on the fact that the reimbursements were consideration for the sale of lodging. The Court also found that the taxpayer did not have control over the points credited to guest accounts and that there was no way to determine whether the reimbursements were sourced from the funds contributed by taxpayer. As such, the Court held that the reimbursements were not akin to “post-tax” reserves or returns of capital, and that the reimbursements were subject to the TPT.

Dove Mountain Hotelco, LLC v. Dep’t of Revenue, Ariz., No. CV-23-0176-PR (June 7, 2024).

Eversheds Sutherland Counsel Jeremy Gove and Chelsea Marmor are excited to cover sales tax topics at the Institute for Professionals in Taxation’s 2024 Annual Conference. The conference offers panels that cover a range of topics, including credits and incentives, property tax, sales and use tax, and state income tax. Chelsea’s panel will highlight the taxability of digital goods and digital products in 2024, and Jeremy’s panel will discuss how to manage audits.

Find more information here.

The NYU School of Professional Studies is hosting its annual Introduction to State and Local Taxation Conference, which explores the essentials of sales and use tax and multistate income tax, on July 22-23. Held in Times Square, this SALT school is taught by leading practitioners and is ideal for those who are new to SALT or those who want to brush up on the most important SALT topics.

The conference topics include:

  • Sales and use taxation:
    • The scope of tangible personal property and other key definitions
    • Taxation of information, data processing and other computer-related services
    • Marketplace sales tax collection
    • Exemptions and administration
    • Local sales and use taxes
    • Common audit issues
  • State corporate income taxation:
    • Determining the corporate income tax base
    • Conformity to the federal income tax base
    • The unitary business principle
    • Allocation and apportionment
    • The single sales factor
    • Filing methods, including combined reporting
  • Gross receipts taxes
  • State tax administration
  • And more

We hope to see you there! For more information, or to register, click here.

This week, the New York Court of Appeals agreed to hear Dynamic Logic’s appeal regarding the taxability of its services that measure the effectiveness of advertising campaigns. The state Tax Appeals Tribunal previously held that the services were taxable information services in part because of the primary function test. 

In this Law360 article, SALT Partner Liz Cha noted that the New York State Department of Taxation and Finance has been aggressive in its assessments of what services should be classified as taxable information services and that the case could provide some clarity on the primary function test.

“It’s been a while since the New York Court of Appeals has weighed in on applying the primary function test to the taxation of information services and additional guidance would be helpful in this area,” she said.

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: A new law in Connecticut expands a tax credit program for employers that make what type of payments?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

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: Which state’s Senate recently passed a bill establishing a hospital tax to further fund the state’s Medicaid program?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

California legislators released bill language addressing Governor Gavin Newsom’s “May Revise” to the state budget that includes the Governor’s so-called “apportionment fix.” If enacted, Assembly Bill 167 and Senate Bill 167 will suspend net operating losses for tax years beginning on or after January 1, 2024 and before January 1, 2027. Similarly, the legislation applies a $5,000,000 limit on most business tax credits for those same years. 

As expected, both bills contain language that retroactively changes California’s apportionment provisions by excluding factors from the apportionment formula if the related income is not taxed.

Read the full Legal Alert here.

The state tax landscape evolved at a significant pace during 2023, and there is no sign of a falloff in 2024. During the 2024 Federation of Tax Administrators’ Annual Meeting, SALT Partner Jeff Friedman will help review and provide his perspective on significant state tax policy developments. Find more information and register here.

In addition, SALT attorneys Eric Tresh and Laurin McDonald will present a state tax controversy update during the TEI Region 8 Conference on June 13, focusing on key developments and trends. Find more information and register here.

State efforts to obtain customer identifying information as part of digital goods audits have put a spotlight on data privacy concerns. State tax authorities often request customer names, addresses, telephone numbers, and even Social Security numbers and tax IDs, claiming this sensitive information is vital to determine how to source digital transactions.

In this article published by Bloomberg Tax, Eversheds Sutherland attorneys Eric Tresh and Chelsea Marmor discuss how digital sales tax reporting rules are raising data privacy concerns and analyze conflicts from the intersection of data privacy and tax.

Read the full article here.

In the newest episode of the SALT Shaker Podcast, Eversheds Sutherland Counsel Jeremy Gove takes a close look at San Francisco’s tax system with the help of Eversheds Sutherland Counsel John Ormonde and Bart Baer, Chief Tax Counsel for The California Taxpayers Association.

Jeremy, John and Bart review San Francisco from a tax perspective, specifically discussing its various gross receipts taxes, including the homelessness gross receipts tax, and overpaid executive gross receipts tax.

They discuss how these taxes affect the business tax climate in San Francisco, and the latest news affecting the city’s business tax system, including the reduction of in-office workers.

They also cover the current reform efforts in the city and impacts of these taxes at the local level.

Their discussion concludes with a breakfast themed overrated/underrated question – where does oatmeal fall on the spectrum of breakfast food?

Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

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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: What state legislature is currently considering a budget proposal that would cap corporate income tax credits and limit the use of net operating loss carryforwards for tax years 2024, 2025, and 2026?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The North Carolina Supreme Court affirmed a lower court ruling that a taxpayer was a manufacturer for purposes of the State’s Mill Machinery Exemption, and was therefore entitled to a sales and use tax exemption on its purchase of materials used to produce hot mixed asphalt (HMA).

North Carolina exempts manufacturing companies subject to a lower mill machinery privilege tax from higher sales and use taxes. During the years at issue, the taxpayer used between approximately 79% and 85% of the HMA it produced for various construction projects where it served as a contractor or subcontractor and sold the remaining HMA to customers. The Department of Revenue asserted that the taxpayer was a contractor, and not a manufacturer subject to the privilege tax, because it was “primarily engaged” in construction and commercial site work, and the majority of the HMA it produced was used in those projects, rather than sold to customers. The lower court found that there was no requirement under the governing statute that the taxpayer use the tangible personal property purchased to produce HMA for the “primary or principal purpose” of selling it to third parties to qualify for the exemption. Moreover, the lower court found that the taxpayer had produced “extremely large quantities” of HMA by utilizing a processes that the North Carolina Supreme Court described as manufacturing (i.e., “the producing of a new article or use or ornament by the application of skill and labor to the raw materials of which it is composed”). On appeal, the Supreme Court adopted the lower court’s reasoning and affirmed the ruling in a two-paragraph opinion.

N.C. Dep’t of Revenue v. FSC II LLC, No. 150A23, 2024 N.C. LEXIS 340 (May 23, 2024).

The Alabama Tax Tribunal held that a parent company could not use its losses to offset the income of a bank that it owned through an intermediate holding company for the purposes of the state’s Financial Institution Excise Tax (FIET). The applicable law allowed financial institution members of a commonly owned controlled group to file a consolidated return if each entity is a financial institution required to file an excise tax return in the state. The intermediate holding company did not do business in the state and was therefore not a “financial institution” eligible to file a consolidated return with the bank. Further, the intermediate holding company did not qualify under the alternative definition of a “financial institution” because it only owned the bank and was therefore not the parent of a “controlled group of corporations eligible to elect file a consolidated excise tax return.” The statute with the alternative definition of “financial institution” was subsequently amended to allow indirect ownership of a bank, but the amendment was not retroactive and therefore did not apply to the years at issue.

Ally Fin. v. State of Ala. Dep’t of Revenue, No. 20-659-LP, (Ala. Tax Trib. May 13, 2024).

SALT Partner Jeff Friedman is pleased to join Villanova University Charles Widger School of Law’s Second Annual State and Local Tax (SALT) Forum on June 6. Hosted by the Graduate Tax Program, the forum will help answer critical questions of what is taxable in the digital economy. Jeff’s panel will help attendees understand “it” — tangible personal property, a service, an intangible or something else?

Register and find more information here.

The Louisiana Court of Appeal held that online travel booking companies were not “dealers” required to collect sales taxes. The Louisiana Department of Revenue and various localities sued the booking companies for only collecting tax on the wholesale rate charged by the hotels rather than the retail rate charged to customers, which included a service fee. The court held that the booking companies were not liable for the additional tax because Louisiana Revised Statutes 47:301(14)(a) requires that the taxable furnishing of sleeping rooms be done “by hotels,” and the booking companies are not hotels. Further, the service fee charged by the booking companies was not a charge for an enumerated taxable service in Louisiana.

Robinson v. Priceline.com, Dkt. No. 2023 CA 0069, (La. Ct. App. 2024).

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: Previously, a law in South Dakota only permitted the sale of baked goods from an individual’s home to consumers. In its Spring Newsletter, however, the South Dakota Department of Revenue clarified that the sales tax also applies to another type of goods, which was recently permitted to be sold from an individual’s home to consumers. What type of goods is it?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

This week, SALT Counsel Chelsea Marmor will participate in a panel discussion during the Federal Bar Association’s 39th Annual Insurance Tax Seminar, held May 30 – 31. Join Chelsea as she helps cover multistate tax topics of interest, including recent developments impacting the insurance industry resulting from business changes and legislative activity. Topics to be addressed include nexus, filing obligations and sourcing of receipts for both direct and indirect tax purposes.

For more information, click here.

Meet May’s SALT Pet of the Month, Loki! This gentle giant, named after the mischievous Marvel character, makes his home with John Barnes, Senior Tax Director at T-Mobile.

True to his name, the two-year-old Great Dane keeps John and his family on their toes with plenty of playful antics. Loki loves to put his whole face in his water bowl, drink from the hose (pictured below!) and follow his humans around like a loyal shadow.

When he’s not relishing car rides, walks or a game of hide and seek, Loki can be found indulging in chicken jerky, peanut butter or even nibbling on his own front leg – sucking on it like a personal pacifier!

Determined to emulate a lap dog, Loki will try to sit in your lap and let you know when he’s had enough attention.

John and his family are lucky to have this kind fellow. Welcome to the SALT Pet of the Month club, Loki!


Click here to submit information and photos about your pet to be featured on stateandlocaltax.com!

The Georgia General Assembly’s 2023-2024 legislative session ended with several significant tax bills. Among them was a constitutional referendum to create a tax court in the judicial branch, a reduction of the individual and corporate income tax rates, and limitations on income tax credit carryforwards.

In this article published by Law360, Eversheds Sutherland attorneys Jonathan Feldman and Alla Raykin describe the Georgia legislation that is now set to go into law. They also highlight the legislation which would have suspended the data center sales tax exemption until Governor Brian Kemp vetoed it.

Read the full article 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: Which state’s governor recently vetoed a bill that would have raised income tax rates on the state’s highest earners and expanded the lower tax brackets?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

This week, SALT team members Jonathan Feldman, Maria Todorova and Laurin McDonald will present during COST’s 2024 Intermediate/Advanced Tax Schools, held in Atlanta. On May 21, Maria and Laurin will present The Corporate Income Tax Base and Advanced Domestic State Adjustments during COST’s State Income Tax School, while Jonathan will present an update on Manufacturing/Construction Sales and Use Tax Issues during COST’s Sales & Use Tax School on May 22.

In addition, Eversheds Sutherland’s Tax Practice is a sponsor of the TEI Region 10 44th Annual Tax Conference, held May 22-24 in Dana Point, CA. SALT Partners Jeff Friedman and Tim Gustafson will present Apportionment – SALT in the Wound.

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: Alabama recently enacted legislation that permits certain entities to make what type of election before the entities’ due date for filing the applicable income tax return?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On May 14, California Governor Gavin Newsom released proposed trailer bill language for the so-called “apportionment fix” introduced in his “May Revise” to the state budget last week (see our prior Legal Alert here). Incredibly, the bill would retroactively codify a provision that would overturn two important apportionment cases that allowed taxpayers to include receipts in the sales factor even if the related income was not included in the tax base. Making matters worse, the proposed legislation excuses the Franchise Tax Board (FTB) from complying with the state’s Administrative Procedure Act in promulgating regulations that implement this new apportionment statute – which is startling. 

Read the Legal Alert here.

On May 10, California Governor Gavin Newsom introduced his “May Revise” of the state budget. In addition to net operating loss deduction suspensions and tax credit usage limitations, one particularly concerning corporate tax-related proposal is a so-called “clarification” related to the apportionment factor. 

Read the full Legal Alert here.

Eversheds Sutherland’s SALT team is pleased to share that the first installment of their new Law360 column – NY Tax Talk – has published! Each quarter, the team will examine recent developments in New York tax law and provide an in-depth analysis in the column. In this installment, SALT attorneys Liz Cha and Jeremy Gove focus on two recent sales tax disputes in New York’s Appellate Division.

Read the full article here.

SALT Partners Todd Betor and Ted Friedman will help present a robust Spring Seminar for TEI Nashville on May 14. Topics include:

  • Todd Betor, Ted Friedman – What’s the Next Big Thing in SALT?
  • Todd Betor – Multi-Jurisdictional Transfer Pricing Considerations

In addition, Partner Maria Todorova will present a 2024 SALT Update: Legislation & Controversy at TEI Carolinas Chapter event in Charlotte, NC on May 16.

On May 8, 2024, the California Senate’s Revenue and Taxation Committee held a hearing on S.B. 1327, which would impose a 7.5% tax on data extraction transactions in California. The committee passed the bill by 4 votes to 1. 

Peter Blocker, Vice President of Policy at CalTax, testified in opposition to the bill. He indicated that it would raise operating costs for small businesses, increase costs for consumers, and be subject to legal challenges, including for violations of the Commerce Clause to the United States Constitution and the Internet Tax Freedom Act. He was the only witness to testify regarding the tax. The two witnesses who testified in support of the bill instead focused on issues related to local news.

Multiple committee members voted in favor of the bill despite expressing misgivings, including the impact on California’s budget deficit, the outcome of the ongoing litigation regarding Maryland’s digital advertising tax, and whether the tax credits to local newsrooms would be properly implemented.

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: The California Court of Appeal recently held that the purchase of “discounted” cell phones bundled together with wireless services were subject to payment of which tax on the cell phone’s full price?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On May 6, 2024, the San Francisco Controller and Treasurer released their proposed final tax reform ordinance language. To become effective, San Francisco voters will have to pass a measure on the November 5, 2024 ballot by a 50% vote. The changes would apply to tax years 2025 forward.

Read the full Legal Alert here.

On May 7, SALT Partner Todd Betor will present Mistakes Were Made: Considerations for Addressing Errors in Tax Filings for the 63rd Annual TEI Upstate New York Tax Conference in Buffalo.

In addition, Eversheds Sutherland is a sponsor of the STARTUP conference in Columbus, OH on May 7-8. Partner Maria Todorova will present Judicial Updates on May 7.

Finally, Eversheds Sutherland will help present TEI Denver’s state and local tax seminar on May 8. Speakers and topics include:

  • Jeff Friedman, Ted Friedman – State Tax Bronco Rodeo
  • Ted Friedman, Tim Gustafson and Chelsea Marmor – Empire State vs Golden State – What it means for your business
  • Jeff Friedman, Cyavash Ahmadi – What’s in Store: Recent Marketplace Developments
  • Tim Gustafson, Jeremy Gove – Transfer Pricing and Intercompany Transactions
  • Ted Friedman, Chelsea Marmor and Cyavash Ahmadi – Sales Tax Is Cooler
  • Jeff Friedman, Tim Gustafson and Jeremy Gove – No, Income Tax Is Cooler

On May 1, 2024, California Senator Steve Glazer, Chair of the Senate Revenue and Taxation Committee, unveiled another proposal to tax digital advertising. This time, Senator Glazer proposes to amend California Senate Bill 1327 to impose a 7.25% tax on “data extraction transactions in the state.”[1] This “data extraction transactions tax” (referred to as the “DETT”) would feel like a root canal as it would suffer from the same legal infirmities as Maryland’s controversial Digital Advertising Gross Receipts Tax.

So, what’s a data extraction?

“Data extraction transactions” means a transaction where a person:

  1. “sells user information or access to users to advertisers,” and
  2. “engages in a barter by providing services to a user in full or partial exchange for the ability to display advertisements to the user or collect data about the user.”

We know this is a re-branded digital advertising tax because the DETT proposal provides that digital advertising is per se taxable:

“Gross receipts shall be deemed to be derived from data extraction transactions if they derive from the sales of advertising services on a digital interface, including, but not limited to advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services that use personal information about the people to whom the ads are being served” (emphasis added).

Only the big guys pay the tax

The proposed DETT would apply to persons with at least $2.5 billion of gross receipts from data extractions transactions in California. During his press conference announcing the DETT, Senator Glazer said the high threshold was intended to limit the tax to only the largest companies engaging in data extraction transactions.

Apportionment and sourcing

Much like Maryland’s Digital Advertising Gross Receipts Tax, the DETT apportionment formula is the ratio of annual gross receipts from data extraction transactions (otherwise known as digital advertising) in California to annual gross receipts from data extraction transactions in the U.S. Gross receipts from data extraction transactions are sourced to California, i.e., assigned to the numerator of the formula, based on location of the user. For purposes of computing the numerator and denominator of the apportionment formula (but not the $2.5 billion threshold), “annual gross receipts in this state” includes the gross receipts of all members that are part of the same unitary group if multiple members of the group engage in data extraction transactions.

Exclusions

Finally, the DETT legislation contains three exclusions, which also add to its questionable legality. The DETT excludes “news media entities,” which are entities “primarily engaged in the business of newsgathering, reporting, or publishing or broadcasting articles or commentary about news, current events, or culture.” Just like Maryland’s Digital Advertising Gross Receipts Tax, this exemption creates First Amendment issues.  The DETT also excludes web hosting services and domain registration services from the definition of “data extraction transaction.”

Next steps

It is expected that Senate Bill 1327 will be heard in the Senate Revenue and Taxation Committee on May 8th, which would likely be the first of several hearings on the proposed DETT.

[1] The introductory caption and short title of the Senate Bill 1327 amendments characterize the DETT as a “Data Extraction Mitigation Fee,” yet the remaining substantive provisions characterize (and treat) the DETT as a “tax.”

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: The Washington Court of Appeals held that a county document recording surcharge was constitutional because it was not a property tax, but was instead which type of tax?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

AI can’t fix SALT! This week, SALT Partners Michele Borens and Jeff Friedman will present during TEI Region 9’s Annual Conference, held today through May 1. Michele and Jeff’s presentation will provide some relief for SALT professionals worried about being replaced by non-humans. They’ll discuss some of the craziness that accompanies state and local tax, including the inconsistent application of look-through apportionment, random application of forced combination/transfer pricing/business purpose, unpredictable sales and use tax characterizations of “tangible” personal property, and now-you-see-it/now-you-don’t tax exemptions.

In addition, SALT Partners Todd Betor, Jeff Friedman and Maria Todorova will each present during COST’s Spring Conference and Audit Sessions in Boston, held April 30 to May 3. You can still register to hear the latest on a variety of SALT topics, including states’ efforts to expand their reach on imposing taxes, navigating accounting challenges and combined reporting issues.

At the Spring CPE Event for the TEI Carolinas Chapter, SALT attorneys Jonathan Feldman and Laurin McDonald will present a SALT update on May 2. Jonathan and Laurin will provide a summary of important state tax cases and legislative developments.

Finally, our SALT team is excited to again support TeleStrategies’ Communications Taxation Conference, held in Tampa, FL from May 1-3, 2024. Liz Cha and Chelsea Marmor will provide an update on key litigation and controversies involving the taxation of telecommunications services, including the application of telecommunications taxes to hardware and software and more. Laurin McDonald and Alla Raykin will cover the complexities of gross receipts taxes, as well as new taxes and fees applicable to the communications industry.

Say hello to Agnes and Oscar, our April SALT Pets of the Month! This dynamic duo keeps Associate Madison Ball’s home full of fun!

Agnes is a 2-year-old Shih Tzu mix with special one-eyed vision. What she lacks in eyesight she makes up for in curiosity and affection! Agnes is happy to do pretty much anything – she just wants to be included. Surprisingly speedy, she always champions the race home against her parents.

Madison’s pet rabbit, Oscar, has managed to live well past his life expectancy. At least 15 years old, Oscar is a faithful companion, even if he has become a bit of a grouch in his old age. He enjoys his days rummaging under the bed while Agnes is running about the house. Oscar can be quite mischievous and is known to steal a piece of fruit if given the opportunity. Who can blame him? Fresh fruit is awesome!

Agnes and Oscar are a great pair of furry friends! Welcome to SALT Pet of the Month club.

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: Minnesota’s Senate Taxes Committee recently introduced legislation that would decrease which state tax rate by more than 1.5 percentage points?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Most often, state and local tax litigation follows the escalation of an administrative controversy — resulting from the denial of a protest or refund claim, or other tax agency determination. While there are times when litigation is the only remaining option, the decision whether or not to proceed with litigating a tax case is often a strategic one. Of course, prevailing in a dispute following a trial is an obvious potential benefit of litigation, but it is far from the only one.

In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Ted Friedman and Alla Raykin describe some of the advantages of litigating state and local tax matters, discuss opportunities and remedies available only through litigation, and highlight items to keep top of mind when pursuing litigation.

Read the full article 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: Alabama’s House Ways and Means Education Committee recently introduced a bill that would increase the simplified sellers use tax (SSUT) by 1.33% on which type of taxpayers?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

In the latest episode of the SALT Shaker Podcast, Eversheds Sutherland Counsel Jeremy Gove welcomes Tyler Henderson, Senior Tax Manager at Amazon, for a discussion about Tyler’s experiences as a SALT practitioner.

Tyler sheds light on his journey to his current position, including why he chose to enter the tax field, what he enjoys about his role and what drives him to serve in the educational sector, as well.

Jeremy and Tyler wrap up their conversation with an overrated/underrated question: How do you feel about re-watching TV shows?

Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

Listen now:

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On March 22, 2024, the Appellate Court of Illinois issued a split decision in a case involving local fuel taxes transferred by a fuel distributor to affiliates that operated gas stations in Cook County, Illinois. 

Under Cook County’s local fuel tax ordinance, distributors must pay a 6 cent per gallon tax on fuel sold to a “retail dealer,” which the ordinance defines as a person engaged in the business of selling gasoline or diesel fuel for use or consumption. Taxpayer was a fuel distributor that transferred gasoline and diesel fuel to affiliated and unaffiliated gas stations in Cook County. Taxpayer collected tax on fuel sold to unaffiliated stations but not on fuel transferred to affiliated stations. There were two types of affiliate stations: (1) stations owned by Taxpayer but operated by an affiliate (Buck’s) and (2) stations owned and operated by another affiliate (Buchanan South).

The County imposed tax on all of Taxpayer’s transfers to the affiliated stations. A Department ALJ upheld the assessment, but on appeal, the circuit court reversed in part, finding that only transfers to the second type of affiliated stations were taxable sales to a retail dealer. On further appeal, the Appellate Court of Illinois agreed with the circuit court, finding that transfers to the first type of affiliate station were not taxable, because the affiliate operating the stations, Buck’s, was not a retail dealer since Taxpayer was the owner of the stations and Buck’s did not ultimately receive the revenue generated from the gas stations. 

The Court, however, reached the opposite conclusion with respect to sales to stations owned by Taxpayer’s other affiliate, Buchanan South, since Buchanan South owned the stations.  The Court rejected Taxpayer’s argument that it did not owe tax because the companies had a “single unitary business model” and that the fuel tax was paid on all retail consumer purchases of fuel. The Court reasoned that the businesses were two separate entities and the local ordinance did not create different obligations for companies based solely on the intertwined nature of their business construction. Accordingly, the Court held that Taxpayer was responsible for paying tax on all fuel provided to its affiliate, including fuel that its affiliate could not sell due to evaporation or spillage. 

Buchanan Energy (N) LLC v. Cty. of Cook, 2024 IL App (1st) 220056 (Mar. 22, 2024).

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: Which state’s legislature recently passed a bill to exempt Social Security benefits from the state’s personal income tax?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Louisiana Board of Tax Appeals granted summary judgment to the taxpayer, holding that its sale of video-on-demand and pay-per-view are not subject to sales tax. A group of local parishes assessed the taxpayer on the theory that video-on-demand and pay-per-view are tangible personal property because the content was “perceptible to the senses,” and the content was temporarily stored on set-top boxes. The Board of Tax Appeals rejected this argument, concluding that the services fall within the exemption for necessary fees incurred with the service of cable television.

The Board agreed with the Louisiana Court of Appeals’ decision, Normand v. Cox Communications Louisiana, LLC, which also determined that video-on-demand and pay-per-view were not software, and therefore applied for Louisiana’s sales tax exemption for cable television service fees. 167 So.3d 156 (2014). Despite some factual distinctions in the Cox case, the Board stated that video-on-demand and pay-per-view are not “tangible personal property” merely by being perceptible, since that would mean all cable services—which are also perceptible—are tangible personal property, thereby rendering the cable services exemption moot. Furthermore, the Board stated that while content can be stored on set-top boxes, “the right to view the program can be severed from the perceptible manifestation of the program’s data.” Accordingly, the Board concluded that video-on-demand and pay-per-view were not taxable sales or rentals of tangible personal property.

DirecTV LLC v. City of Baton Rouge, Docket No. L01329 (La. Bd. of Tax Appeals Mar. 14, 2024).

The Florida First District Court of Appeal held that Florida’s annual corporate income tax net operating loss (NOL) deduction limit is the same as the federal limit. Verizon Communications Inc. (Verizon) accumulated federal and state NOLs upon its 2006 acquisition of MCI, Inc. ($15 billion federal and $267 million Florida NOLs) and 2011 acquisition of Terremark Worldwide, Inc. ($308 million federal and $238 million Florida NOLs). The Florida Department of Revenue (the Department) proposed to limit Verizon’s NOL usage from the acquired companies to an apportioned amount of the federal limit, noting that it would take Verizon 65 years to use its acquired Federal NOLs, and thus a similar result should apply for Florida purposes.

The court disagreed with the Department, finding that for Florida purposes the IRC § 382 limitation on utilizing acquired NOLs is the same as the pre-apportioned federal limitation. Florida’s NOL deduction limitation provided in Fla. Stat. § 220.13(1)(b)(1) allows an NOL deduction which is the same as the federal NOL limitation provided in IRC § 172. In addition to the statute, the court noted that the Department’s regulation “confirms the mirror federal and state deduction amounts.” Based on both the plain meaning of the statute and the Department’s own rule, the Court agreed with Verizon and concluded that the Florida NOL deduction limit is the same as the federal limit.

Florida Dep’t of Revenue v. Verizon Communications Inc., No. 1D2022-2096 (Fla. Dist. Ct. App., Feb. 28, 2024).

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: Which state’s legislature recently introduced a bill to tax private higher education endowments at a rate of 2% for each dollar over $1 billion?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Georgia General Assembly passed several significant tax bills during the 2024 legislative session. Among them was the creation of a tax court in the judicial branch, a reduction of the individual and corporate income tax rates, limitations on income tax credit carryforwards, and the suspension of the data center sales tax exemption. Bills that were considered but did not ultimately pass include limitations on the film tax credit. Because this is the final year of the two-year legislative session, any legislation not adopted this year will have to be re-introduced in the next legislative session.

Read the full Legal Alert here.

On April 1, 2024, the California State Assembly amended a digital advertising tax into A.B. 2829, formerly a property tax bill. As amended, A.B. 2829 would adopt the digital advertising tax effective January 1, 2025. The California proposal is similar to the Maryland Digital Advertising Gross Revenues Tax, which is currently the subject of litigation at the Maryland Tax Court. As the California proposal is similar to Maryland’s, it also likely violates the Internet Tax Freedom Act, Commerce Clause, Due Process Clause, and First Amendment.

As amended, A.B. 2829’s digital advertising tax would be imposed on the annual gross revenues of a person that are derived from digital advertising services in the state. Unlike Maryland, the tax would be imposed at a rate of 5%, rather than escalating rates based on global annual gross revenues. However, like Maryland, the tax would apply to only persons with at least $100 million in global annual gross revenue, even including revenues unrelated to digital advertising.

The tax base in A.B. 2829 is the same as Maryland’s: “digital advertising services,” which means “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.” The California proposal also excludes from the tax “advertisement services on digital interfaces owned or operated by or operated on behalf of a broadcast entity or news media entity.” Because there currently is no sourcing regime in A.B. 2829, it is impossible to determine when a digital advertising service would be taxable by California.

And much like the Maryland digital advertising tax, California would also prohibit taxpayers from “directly pass[ing] on the cost of the tax … to a customer who purchases the digital advertising services by means of a separate fee, surcharge, or line item.” Maryland’s pass-through prohibition is currently in litigation before the U.S. District Court for the District of Maryland. 

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: Which state’s Supreme Court Appellate Division recently ruled that a taxpayer’s fiber-optic cables did not qualify for an exclusion from real property tax?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On Wednesday, March 27, Eversheds Sutherland attorneys Eric Coffill and Chelsea Marmor will provide a coast-to-coast SALT update for the Tax Executives Institute (TEI) Philadelphia Chapter. During the SALT Committee Meeting, Eric and Chelsea will review case and legislative updates from both the East and West Coast. 

The Illinois Appellate Court affirmed the Illinois Tax Tribunal’s determination that aviation fuel sold to airlines and subsequently stored at O’Hare International Airport is not exempt from the Retailer’s Occupation Tax (ROT) because the fuel was not consumed solely outside of the state.

The taxpayer, an aviation fuel retailer, argued that its fuel was subject to an exemption for property temporarily stored in the state and subsequently used outside of the state because only 2% of the fuel was consumed in Illinois, with the remaining 98% of the fuel being consumed outside of the state. Relying on the statute’s plain language, the Court disagreed with the taxpayer and found that the entire use or consumption of the property at issue must be outside of Illinois. Accordingly, to qualify for the exemption, the purpose of the temporary storage must be for future transportation outside of Illinois for use or consumption solely and entirely outside of the state. The Court further explained that, pursuant to the Department’s regulation, it would have been proper to certify that a portion of the purchase of fuel qualifies for the exemption if the airlines were to have purchased the fuel, temporarily stored it in Illinois, transported a portion of it out of the state, and then used that portion in planes in another state. Because the taxpayer’s fuel was loaded on planes in Illinois and partly consumed in Illinois, the Court concluded that the fuel at issue did not qualify for the exemption.

American Aviation Supply, LLC v. Illinois Department of Revenue, 2024 IL App (1st) 230072.

The Missouri Administrative Hearing Commission held that real-estate investment trust (REIT) dividends from sources within Missouri are deductible from Missouri income.

The decision involved a REIT that generates income from mortgages secured by real property. The REIT made distributions of profits derived from sources within Missouri to its controlling interest holder. The controlling interest holder included those distributions in its federal taxable income, which was included in its parent’s federal and Missouri consolidated corporate income tax returns. The parent then deducted the REIT distributions on its Missouri consolidated corporate income tax returns as Missouri dividends pursuant to Mo. Rev. Stat. § 143.431.2. The Department disallowed the deduction and issued a notice of deficiency. The parent appealed. 

Neither “dividend” nor “corporate dividend” is defined by Missouri statute. Because Missouri’s income tax expressly incorporates terms from the Internal Revenue Code, the Commission looked at IRC Section 316, which “determines what constitutes a dividend” and Section 243, which “determines the circumstances under which dividends received by corporations may be deducted from federal income.” The Commission held that REIT dividends are dividends under Section 316, and nothing in Section 243 “transforms them into something else.” Further, as the Missouri statute provides that corporate dividends from sources within Missouri are deducted “to the extent included in federal taxable income”, the deduction is only applicable to dividends that are not deductible under federal law. Therefore, the REIT dividends, which were not deductible from federal income, are deductible from Missouri income if from a Missouri source.

Great Southern Bancorp, Inc. & Subsidiaries v. Director of Revenue, No. 21-1768 (MO AHC, Jan. 26, 2024).

In this episode of the SALT Shaker Podcast, Eversheds Sutherland Counsel Jeremy Gove welcomes back Sacramento SALT Partner Tim Gustafson for another California-focused conversation!

Tim and Jeremy base their discussion around a recent article Tim co-authored in Tax Notes State with Associate Sharon Kaur about the California FTB’s informal guidance.

Specifically, they delve into the work of the FTB, which administers the state’s corporate franchise and income taxes, and discuss its routine issuance of informal guidance on a broad array of topics and issues. Tim and Jeremy explore these topics, as well as the effect on taxpayers and practitioners.

Similar to the article, Tim and Jeremy also cover two 2023 decisions, Appeal of Minnesota Beet and American Catalog Mailers Association, examining how these decisions may affect current informal guidance and the issuance of guidance in 2024 and beyond.

The episode concludes with another edition of overrated/underrated – how do you feel about lettuce on sandwiches?

Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

Listen now:

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Delaware bears an outsized importance for corporate America. While there are a number of reasons to incorporate in Delaware, Eversheds Sutherland attorneys Jeff Friedman and Jeremy Gove describe a significant downside – an annual franchise tax for the privilege of doing so. This article, published in Bloomberg Law, describes this Delaware tax that generates $2.2 billion in revenues and is easily avoided. 

Read the full article 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: Which state’s appellate court recently rejected a single-subject rule challenge to the state’s single-sales factor apportionment?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Appellate Division, Third Department, affirmed the Tax Appeals Tribunal’s decision that a taxpayer was providing taxable information services for sales tax purposes.  The taxpayer provided services that measured the effectiveness of its customers’ advertising campaigns.  The services included providing a report analyzing surveys of customers/internet users, including a comparison of the client’s campaign results with industry specific benchmarking data from a database in which the taxpayer’s survey responses were aggregated and anonymized. The taxpayer also provided advice and recommendations for improving advertisement effectiveness.

The Appellate Division applied a rational basis standard of review and deferred to the Tribunal’s decision. First, the Appellate Division affirmed the Tribunal’s holding that the taxpayer provided information services and not consulting services because the primary function of the services was to collect and analyze information. Second, the Appellate Division affirmed the Tribunal’s holding that the services did not fall within the sales tax exclusion for information services furnishing information that “is not or may not be substantially incorporated in reports furnished to other persons” under Tax Law § 1105(c)(1), as portions of the taxpayer’s database data generally appeared in the reports furnished to customers.

Matter of Dynamic Logic, Inc. v. Tax Appeals Tribunal of the State of N.Y., 2024 NY Slip Op 01136, (App. Div.).

This week, Eversheds Sutherland is a proud platinum sponsor of Tax Executives Institute’s (TEI) 74th Midyear Conference at the Grand Hyatt Hotel in Washington, DC.

SALT Partner Michele Borens will present on Wednesday, March 20, covering the taxability of “X” as a service, including background and recent cases, sourcing and nexus considerations, and more.

For more information and to register, click 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: Which state’s supreme court recently ruled that a state statute allowing municipalities to tax nonresidents for work done outside of the municipality does not violate the federal Due Process Clause?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The California Franchise Tax Board (FTB) administers the state’s corporate franchise and income taxes. The California Legislature authorized the FTB to promulgate regulations in order to implement and interpret the governing statutes. Beyond issuing formal guidance, however, the FTB historically, and routinely, has issued informal guidance on a broad array of topics and issues for the purported benefit of taxpayers, tax practitioners, and FTB staff alike.

While taxpayers and tax practitioners have disagreed with certain conclusions presented in the FTB’s informal guidance over the years, the materials by and large have provided valuable insight into the agency’s varied positions and interpretations, particularly for taxpayer reporting purposes. Regarding the points of disagreement, a question until recently remained as to what effect, if any, was to be given to the FTB’s informal guidance by a tribunal adjudicating a corporate tax controversy matter.

Two 2023 decisions, Appeal of Minnesota Beet and American Catalog Mailers Association, offered differing answers to this question that may affect current informal guidance and the issuance of guidance in 2024 and beyond.

In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Tim Gustafson and Sharon Kaur examine the two decisions closely and identify their potential fallout.

Read the full article here.

While providing a new revenue opportunity for college athletes, name, image, and likeness (NIL) deals have exposed recipients to potential risks—including tax liability—outside the university bubble.

Since the US Supreme Court’s 2021 NCAA v. Alston ruling, college athletes have become eligible for paid endorsements and can monetize their athletic success outside of their school-funded scholarships and benefits.

In this article published by Bloomberg Tax, Eversheds Sutherland Partners Tim Gustafson and Baird Fogel, US sports practice lead, explain the complicated tax issues college athletes face when they sign lucrative NIL deals.

Eversheds Sutherland attorneys Charlie Kearns, Eric Coffill and Alla Raykin will speak during the 2024 ABA/IPT Advanced Tax Seminars held March 11 – March 15 in New Orleans, LA.

Their panel presentations will cover a variety of income and sales and use tax topics, including how to effectively work with the California FTB, navigate the expansion of sales and use tax bases to include digital goods and services, and sales tax technology through automation.

You can view the seminars’ program here and register here.

The Virginia General Assembly passed the 2024-2026 Biennium Budget (House Bill 30) that would expand the sales and use tax to “digital personal property” and certain digital “taxable services” as of January 1, 2025.

The General Assembly’s conference report resolved differences between the House and Senate budgets, respectively, on the sales tax treatment of business-to-business transactions. The House wanted a full exemption for business purchases of certain digital “taxable services,” but the Senate wanted to fully tax all purchases of such services. The conference committee reached consensus on the issue by sending Governor Glenn Youngkin a partial exemption for business purchases, where only business purchases of “software application services” would be subject to tax.

The legislation now goes to the governor for his 30-day review period, where he may approve the legislation as-is, offer amendments to the legislation, or veto or line-item veto the legislation. If the governor offers amendments, the legislation may be approved by the General Assembly by simple majority. Any veto or line-item vetoes by the governor would need to be approved super (two-thirds) majority of the General Assembly. The Eversheds Sutherland SALT team will continue to monitor the Virginia budget process at it continues to move forward.

On February 26, 2024, the Alabama Tax Tribunal (Tribunal) held that Huhtamaki Inc. (Huhtamaki), a packaging manufacturer, is not required to add back interest payments indirectly made to foreign affiliates through a U.S. parent company.

Under Alabama’s add-back statute, a corporation must add back otherwise deductible interest expenses directly or indirectly paid to a related member unless an exception applies. One such exception is the subject-to-tax exception, which allows a corporation to avoid adding back income if the corresponding item of income is subject to tax based on the related member’s net income by a foreign nation that has an income tax treaty with the United States. The statute further provides: “[t]hat portion of an item of income which is attributed to a taxing jurisdiction having a tax on net income shall be considered subject to a tax even if no actual taxes are paid on such item of income in the taxing jurisdiction by reason of deductions or otherwise.” Ala. Code § 40-18-35(b).

During the tax years at issue, Huhtamaki made several interest payments to its U.S. parent company, which then made payments to foreign affiliates in countries with an income tax treaty with the United States—a portion of such interest income was deductible in the foreign counties. The Alabama Department of Revenue (DOR) argued Huhtamaki failed to prove the exclusion to the add-back statute claimed for the interest deductions taken for the foreign affiliates on the Alabama return.

Citing to its 2022 decision in State of Alabama v. Pfizer., CV.-2022-901481-00, in which the Tribunal held that a corporation is not required to add back interest paid to a related entity as the recipient was subject to tax on that income in a foreign nation, the Tribunal rejected the DOR’s argument. Agreeing with Huhtamaki, the Tribunal held that the fact the foreign affiliates were allowed to deduct a portion of the interest payments in calculating their net income does not defeat Huhtamaki’s entitlement to the subject-to-tax exception. The Tribunal further noted that the DOR did not cite any legal authority, other than a European Commission letter, to dispute Huhtamaki’s entitlement to the exception. The Tribunal also rejected the DOR’s request to reconsider the holding in Pfizer.

Huhtamaki Inc. v. Ala. Dept. Rev., Ala. Tax Tribunal,Dkt. No. BIT. 19-890-JP (Feb. 26, 2024).

This year’s Georgia’s legislative session is quickly progressing, with some major tax legislation moving towards passage. Last Thursday, February 29, 2024 was “Crossover Day”—the 28th legislative day of 40 total legislative days—the day by which all bills must have passed one legislative chamber to cross over for consideration by the other chamber. Although there is an opportunity for tax provisions to be added to other bills later, bills that have not passed one chamber prior to Crossover Day are generally dead for this session. Georgia’s Constitution requires that all revenue related bills originate in the House, so the majority of bills still alive for the year now go over to the Senate Finance Committee for final passage by the Senate before the end of the session. The final (40th) legislative day, Sine Die, is on March 28, 2024.

Read the 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: Which state recently enacted an expansion to an income tax credit program that is used to encourage purchases of goods and services from vendors that hire workers with disabilities?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On February 22, 2024, a California Court of Appeal held that the Digital Infrastructure and Video Competition Act of 2006 did not provide the City of Lancaster with a private right of action to pursue franchise fees from non-franchise holder streaming video providers.

The Act regulates all “video service providers” and directs the Public Utilities Commission to issue state franchises authorizing the provision of video services in California.  The Act requires video service providers to pay a franchise fee to local governments for use of the public rights-of-way to construct and maintain their networks.  The City argued that the streaming video providers are video service providers under the Act and must obtain a franchise and pay the resulting franchise fees.

The Court of Appeal held that the Act did not provide a right of action for local governments to pursue franchise fees from non-franchise holders.  The court found that the Act only expressly authorizes a local government to bring an action concerning the underpayment or nonpayment of franchise fees against franchise holders.  Additionally, the court held that the legislative intent did not indicate the creation of an implied right to bring a legal action against any company the City believes should, but does not, hold a franchise.  Thus, the Court of Appeal concluded that the City was not authorized, expressly or impliedly, to bring action against the streaming video providers because they were not franchise holders.

City of Lancaster v. Netflix, Inc., et al., 99 Cal.App.5th 1093 (Cal. Ct. App. 2024).

The California Court of Appeal for the Third Appellate District held that the purchase of “discounted” cell phones bundled together with wireless services requires payment of sales tax based on the cell phone’s full price.

Plaintiffs purchased cell phones at a reduced cost, together with wireless services, in a “bundled transaction.” The bundled transaction included the taxable sale of tangible personal property, as well as non-taxable sale of wireless services. The Department imposed tax on the non-discounted value of the cell phone. In response, the plaintiffs challenged Regulation 1585 on the grounds that it (1) violated the Revenue and Taxation Code, and (2) was not adopted in compliance with the Administrative Procedures Act.

  • Compliance with the California Revenue and Taxation Code
    The parties agreed that only the purchase of the cell phone was taxable (and the wireless services were nontaxable), but disagreed on how to measure the payment (i.e., on the validity of Regulation 1585). Regulation 1585 defines “bundled transaction” as the retail sale of a wireless telecommunication device which contractually requires the retailer’s customer to activate or contract with a wireless telecommunications service for periods greater than one month as a condition of that sale. The court found that the regulation filled the gap of how to measure the portion attributable to the tangible personal property versus the service by “effectively attributing the portion of the contract price that is equivalent to the unbundled sales price to the cell phone, and the rest to the service.” Therefore, the court held, the regulation was not contrary to the California Revenue and Taxation Code.

    The court also looked at Regulation 1585’s history, noting that a regulation is likely correct if it has “consistently maintained the interpretation in question, especially if [it was] longstanding.” In supporting its conclusion in favor of the regulation’s validity, the court discussed how Regulation 1585 became operative in 1999 and had not been amended since.
  • Procedural Challenge to Regulation 1585
    The plaintiffs also contended that the regulation’s promulgation did not satisfy the requirements under the Administrative Procedure Act because the Department did not thoroughly discuss the economic impact the regulation would have on businesses. Nonetheless, the court concluded that the Department was not required to discuss the economic impact of retailers because there was substantial evidence in place to support that Regulation 1585 would not adversely impact businesses and individuals. And, the court held that the Department met all other procedural requirements set forth by the Administrative Procedures Act when promulgating Regulation 1585.
  • Application of Regulation 1585
    In applying the regulation, the court concluded that the carrier-retailers were not truly offering a discount on the cell phones because they were being compensated by the monthly payments in the bundled transaction. Therefore, the court held that sales tax should be applied on the full price of the cell phone.

Ultimately, the Court of Appeal held for the Department, finding that (1) the Department could allocate a portion of the contract price in a bundled transaction based on the full price of the cell phone, and (2) the regulation was adopted in compliance with the Administrative Procedures Act.

Bekkerman v. Cal. Dep’t of Tax & Fee Admin., No. C093763, 2024 Cal. App. LEXIS 128 (Ct. App. Feb. 27, 2024).

Introducing Winston, our esteemed SALT Pet of the Month for March! Named after former UK Prime Minister Winston Churchill, Winston is the beloved mate of Kevin Reddick, Senior Director of Tax at Home Depot.

Winston’s senior age and wardrobe full of bow ties may signal a calm, distinguished demeanor; however, this is mistaken! Winston has regular episodes of the “zoomies” and is able to jump to chest height on his humans. He will always bark hello to his canine neighbors and is enthusiastic about playing long games of fetch.

Although he’s a lively lad, Winston also enjoys snuggling. He will lay with his humans as they read, and take naps in his cozy dog chair that fits him perfectly. Winston also likes to paw-trol Kevin’s walk to his home office, ensuring he’s set up for success on work-from-home days. What a good boy!

It’s an honor to welcome you to the SALT Pet of the Month family, Winston!

Where do we go from here? Capital University Law School will host a symposium on March 6 to address the tax issues arising from increased remote work. Eversheds Sutherland Partner Charlie Kearns will help address the challenges from withholding for hybrid workforces and the revenue impact as individuals now routinely work outside the office.

Register here.

The Washington Court of Appeals upheld the constitutionality of a county document recording surcharge that financed affordable housing, eviction prevention, and housing stability services. A trade association of homebuilders challenged the surcharge as a property tax that violates the uniformity requirement of the Washington Constitution. The court held that the surcharge was a tax because its primary purpose was to raise revenue for a desired public benefit. However, the surcharge was not subject to the uniformity requirement because it was an excise tax, not a property tax. The document recording surcharge was not a property tax because it is not levied on property ownership, but rather on “the exercise of rights in and to property or the exercise of a privilege.”

Bldg. Indus. Ass’n of Washington v. State of Washington, No. 57502-7-II, (Wash. Ct. App. 2024).

On February 15, 2024, a New York state administrative law judge concluded that a winery “used” its property and qualified as a New York manufacturer under the state’s Qualified New York Manufacturer (QNYM) provisions, even though it had no employees at the winery and outsourced its land management operations to an independent land management contractor. 

The New York State Department of Taxation and Finance issued an assessment to the winery, asserting that it did not qualify as a QNYM. The QNYM program provides multiple benefits to corporate taxpayers in New York, including a 0% corporate franchise tax rate.  In order to qualify, taxpayers must satisfy at least one of two tests. The first test – at issue in this case – requires that taxpayers (1) be “principally engaged” in the production of goods by manufacturing, viticulture, etc., (2) owned at least $1,000,000 of qualifying property in New York, and (3) principally used the property in the production of goods by manufacturing, viticulture, etc. 

The Department argued that the winery was not entitled to the QNYM benefits on the basis that it did not principally use its qualifying property in the production of goods. But the ALJ rejected the Department’s argument that the taxpayer’s use of the third-party contractor was impermissible because nothing in the QNYM provisions suggested that property is not “used by” its owner if the owner contracts with a third-party to perform labor on or related to the property. The ALJ also rejected the Department’s argument that the property was not used in late December 2016 (and that the benefits were thus unavailable for that year). While the grapes were in a dormancy period at that time, it is still a “crucial part of the annual growth cycle for grapes.” 

In the Matter of the Petition of E. & J. Gallo Winery, DTA Nos. 830277, 850146 (N.Y. Div. Tax App. Feb. 15, 2024).

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: A Chancery Court in which state recently held that software licenses are intangible property, therefore the gross receipts from the sale of software licenses are not subject to tax under the state’s Business Tax Act?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On February 14, 2024, the California Office of Tax Appeals (OTA) denied the California Franchise Tax Board’s (FTB) request for rehearing in the Appeal of Microsoft Corporation and Subsidiaries (OTA Case No. 21037336). Microsoft is allowed to include 100 percent of its foreign dividend income in its sales factor denominator. This is a huge opportunity for similarly situated California water’s-edge taxpayers. 

Read the full Legal Alert here.

On January 25, 2024, the New York State Supreme Court Appellate Division ruled against the taxpayer, finding that the taxpayer’s equipment did not qualify for exclusion from real property tax. Taxpayer, SLIC Network Solutions, provides internet, telephone and cable television services via fiber-optic cables to customers throughout New York State. Under the State’s real property tax law, this type of equipment is taxed as “local public utility mass real property” “when owned by other than a telephone company.” Taxpayer argued that its fiber-optic cables are excluded from the definition of public utility mass real property because the cables are used in the “transmission of . . . cable television signals.” The Hearing Officer rejected this argument and the Supreme Court upheld the determination.

Real property equipment “used in the transmission of news or entertainment radio, television or cable television signals” is excluded from the definition of local public utility mass real property, however courts have interpreted the exclusion as applying to fiber-optic installations only if they are “primarily or exclusively used” for one of the excluded purposes. Accordingly, the taxpayer argued that the primary use of the fiber-optic cables was to provide cable television services and that its provision of internet and telephone services did not undermine that primacy. To support its argument, the taxpayer produced testimony and affidavits asserting the taxpayer’s extensive use of the cables for transmitting television signals as well as the significant company costs attributable to the television business. The Appellate Division agreed with the trial court that the taxpayer had not demonstrated its entitlement to the exclusion, since the taxpayer had not provided evidence showing the “ancillary nature” of the internet and phone services, or comparing the use of fiber-optic cables for cable television signals to the level of usage of the same lines for internet and telephone services.

Matter of SLIC Network Sols., Inc. v. N.Y. State Dep’t of Taxation & Fin., 2024 NY Slip Op 00342, (App. Div.).

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: Which state’s House recently proposed a bill that would limit property taxes on machinery used to manufacture critical materials?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On February 7, 2024, the South Dakota Supreme Court held that South Dakota’s use tax, as applied to the taxpayer, did not violate the Commerce or Due Process Clauses of the Fourteenth Amendment, despite some of the taxed equipment being used in South Dakota for only one day.

The taxpayer, a Minnesota-based company that specializes in installing drain tile for farming and government applications throughout the United States, completed drain tile projects in South Dakota using equipment that had been purchased in other states and on which the taxpayer had not paid sales tax in those states. The South Dakota Department of Revenue imposed a use tax on this equipment, including equipment used in South Dakota for as little as one day.

The taxpayer argued that the application of use tax was unconstitutional because the tax imposed was not fairly related to benefits the taxpayer received and was disproportionate to taxpayer’s activity in South Dakota. Specifically, the taxpayer contended that its use of equipment in South Dakota was “limited,” therefore the taxpayer did not receive benefits commensurate with the tax it paid. Additionally, the taxpayer argued that the tax was disproportionate in light of the fact that 90% of the taxpayer’s activities occurred outside of South Dakota.

Applying the four-part standard described in Complete Auto Transit, Inc. v. Brady, the South Dakota Supreme Court held the Department’s application of use tax to the taxpayer satisfied the Commerce Clause. The court held that the tax was fairly related to the benefits provided to the taxpayer because it enjoyed the same benefits as any other business present in the state and was free to use the equipment in state as often as it wanted. Moreover, the court found that the use tax statute was externally consistent and did not require that the equipment be “at rest” to be subject to the tax. Rather, the taxed activity was “simply an in-state use of equipment that was purchased outside the state without ever having paid sales taxes on the property.”

Ellingson Drainage, Inc. v. S.D. Dep’t of Revenue, 3 N.W.3d 417 (S.D. 2024).

A California appellate court held that Proposition 39, which mandated single-sales factor apportionment, did not violate the single-subject rule. In 2012, California voters enacted Proposition 39, which established a program to promote the creation of clean energy jobs. It funded the program by eliminating the option for taxpayers to apportion its California tax based on a three-factor apportionment formula, requiring instead single-sales factor apportionment. A Texas-based provider of credit score and credit reporting services paid tax to California pursuant to the single sales-factor method and filed a complaint for refund on the basis that Proposition 39 was invalid under the single-subject rule for ballot initiatives. The court held that Proposition 39 did not violate the rule because its purpose was to fund a clean energy job creation program by raising taxes on some multistate businesses. The proposition’s provisions were “reasonably germane” to this purpose because “they provided the mechanisms to raise tax revenues and direct them to clean energy job creation.” Plus, the provisions were “functionally related” because the apportionment formula change funded the clean energy jobs program.

One Technologies LLC v. Franchise Tax Board, 314 Cal.Rptr.3d 718 (Cal. Ct. App. 2023).

Taxpayer, a fleet management company, leases vehicles to businesses pursuant to a lease agreement that contains a terminal rental adjustment clause (“TRAC”) which is a clause that adjusts the amount of rent due under the lease at the end of the lease based on the value of the vehicle at that time. Depending on the vehicle’s value, the lessee may owe additional rent at the end of the lease or be entitled to a refund of rent previously paid. 

By statute, New York requires that sales tax be remitted on rent payments required by a vehicle lease at the beginning of the lease if the lease lasts more than one year. N.Y. Tax Law § 1111(i) The taxpayer remitted sales tax on the sum of the total estimated rent payments at the time the parties entered into the lease agreement. At the end of the lease, if the TRAC resulted in a refund of rent to the lessee, the taxpayer refunded the tax paid on that rent and took a credit on its New York sales tax returns. If the TRAC resulted in a payment of additional rent, the taxpayer remitted sales tax on that additional rent. After an audit, the Division of Taxation determined that the taxpayer could not take credits on its sales tax returns for sales tax it refunded due to the TRAC. The ALJ ruled in favor of the Division, stating that the taxpayer properly collected and paid the sales tax due at the beginning of the leases and that no statutory provision allows the taxpayer to take credits for sales tax refunds paid to its lessees.

The taxpayer appealed to the Tax Appeals Tribunal arguing that, inter alia, the TRAC provision is an integral part of the lease agreements and thus the lease end adjustments must be included when calculating taxable consideration. The Tribunal, affirming the ALJ, rejected the taxpayer’s argument reasoning that the statute “unambiguously” requires that the tax be paid at the beginning of the lease and that there was no legal basis for the sales tax to be refunded at the end of the lease. In support, the Tribunal pointed to the fact that during the 2022 legislative session the Legislature amended the statute to specifically allow sales tax refunds and credits for lease end adjustment on TRAC leases. The Tribunal stated that this change strongly support their conclusion “that such refunds and credits were not permitted by the version of the statute in effect during the period under review[.]”

In the Matter of the Petition of Gelco Corporation, DTA No. 829011 (Dec. 21, 2023).

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: A lawmaker recently proposed a bill that would provide tax relief for employers of tipper workers located in the state’s largest city – specifically during the time the city phases out the subminimum wage. In which state was the bill proposed?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

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: A recent bill introduced in which state proposes eliminating property from the state’s franchise tax calculation?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On February 5, 2024, the Offices of the Controller and Treasurer & Tax Collector for the City and County of San Francisco published a report outlining tax reform recommendations in time to inform a potential ballot measure for the upcoming November 2024 election. The report recommends significant changes to San Francisco’s gross receipts tax.

Read the full Legal Alert here. 

Meet George, our February SALT Pet of the Month!

This adorable pup belongs to Karen Dewalt, VP of Global Tax at The Home Depot. As a true golden retriever, George loves being close to his humans. He will often playfully bark for “uppies,” asking to sit on someone’s lap. You should enjoy it while you can, George – you won’t be lap sized for long!

George is also pawsitively loyal to both Karen and Notre Dame’s football team. On game days, he proudly dons his “Fighting Irish” jersey, showing off Notre Dame blue against his polished golden coat.

Welcome to the SALT Pet of the Month family, George! We’re happy to have you steal the show.

On February 9, Eversheds Sutherland Partner Liz Cha will present during the 2024 National Multistate Tax Symposium, held February 7-9 in Lake Buena Vista, FL. In its 20th year, the symposium will explore significant tax technical issues facing multistate tax professionals.

Liz’s panel will cover multistate income and franchise tax sourcing. She will help examine real-world sourcing scenarios within SALT income tax/franchise tax market sourcing rules and developments.

Over the past decade, data center incentives and exemptions increased in prevalence as states endeavored to attract more businesses in the growing and lucrative tech industry.

In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Scott Wright, Laurin McDonald and Alla Raykin lay out general considerations and risks with these incentives as well as provide a detailed chart of each state’s incentive provisions.

Read the full article 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: The governor’s budget of which state included a proposal to extend the net operating loss carryforward period from 5 years to 20 years?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

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: Which state’s Supreme Judicial Court held that a prescription drug company’s income should be apportioned on a “market member basis” to the location where the prescription drugs were received?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

We are eager to share our summary of SALT highlights from the past year, which was recently published in Tax Notes State.

2023 was an eventful year, and our Most Interesting State Tax (MIST) developments contain a mix of cases covering income tax, sales tax, and procedural issues.

With numerous states grappling with similar issues that grabbed our attention in 2023, what MIST developments can we expect in 2024 and beyond? The anticipation is killing us.

Read the full article 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: In California, a superior court invalidated certain guidance issued by the Franchise Tax Board because it constituted a regulation within the meaning of the state’s Administrative Procedure Act, but was not enacted in compliance with that act. Which federal law was the guidance related to?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

The Texas Court of Appeals for the Third District upheld the Comptroller of Public Accounts’ Franchise Tax apportionment rule as facially valid, including the provisions apportioning receipts to Texas where the seller ships or delivers property in Texas—regardless of whether the buyer is ultimately located in the state. 

The taxpayer, a company that transports and stores crude oil, argued that the apportionment regulation was facially invalid because it was contrary to the underlying statute. For purposes of the Franchise Tax, Texas statute provides that sales of tangible personal property are attributable to Texas “if the property is delivered or shipped to a buyer in [Texas,] regardless of the FOB point or another condition of the sale.” The taxpayer contended that the statute sourced sales to the buyer’s location. The taxpayer asserted that the apportionment regulation, 34 Texas Administrative Code Section 3.591, instead applied the tax on “transactions where the seller ships or delivers the property to the buyer in Texas, regardless of whether the buyer is located in state or out of state” (i.e., a “place of transfer” approach).

On review, the court concluded that the statute was unambiguous. The statute’s only “reasonable construction” was that “sales of tangible personal property are apportioned based on where that property is delivered or shipped” and, thus, “not where the buyer is ultimately located when they plan to use, sell, or otherwise dispose of the property.” While the apportionment statute was derived from model UDITPA language and the Multistate Tax Compact, the court opted not to follow other states’ interpretations because, as states took differing approaches, there was no “‘uniform’ implementation of the Multistate Tax Compact apportionment provision.”

NuStar Energy, L.P. v. Hegar, No. 03-21-00669-CV (Tex. Ct. App. Dec. 21, 2023).

On November 6, 2023, the Ohio Board of Tax Appeals determined that Aramark Corporation (“Aramark”) was not entitled to a refund of commercial activity tax (“CAT”) paid on management fees earned by the company in performance of certain cost-plus agreements. Aramark Corporation v. Harris, Case No. 2019-2975 (Ohio Bd. Tax App. Nov. 6, 2023).

Aramark is a food services, hospitality, facility services, and uniform services company. It provides a broad range of managed services to businesses and educational, healthcare, and government institutions. Some of Aramark’s services were provided pursuant to a “management fee” agreement where customers purchased food, supplies, and other items.  Even though Aramark purchases these items, its customers reimburse Aramark for the expenses. Aramark sought to exclude the gross receipts associated with these purchased items.

Under Ohio’s CAT, there is an exclusion from “gross receipts” for “[p]roperty, money, and other amounts received or acquired by an agent on behalf of another in excess of the agent’s commission, fee, or other remuneration.” Ohio Rev. Code § 5751.01(F). The code defines an agent as “a person authorized by another person to act on its behalf to undertake a transaction for the other.” Id. § 5751.01(P). “An agent may include ‘[a] person retaining only a commission from a transaction with the other proceeds from the transaction being remitted to another person.’” Ohio Rev. Code § 5751.01(P)(2).

The Ohio Board of Tax Appeals denied Aramark’s claim that it was acting as an agent on behalf of its clients. The Board explained that, pursuant to Ohio Supreme Court precedent regarding agency, Aramark “must be ‘endowed with authority,’ and such authority must be linked to the activities that generate the gross receipts.” Aramark at 6. The Board observed that the contractual language in one of the management fee agreements, expressly providing that Aramark was an independent contractor and acted as such in its day-to-day operations, was inconsistent with this precedent. Id. at 8. 

Governor Glenn Youngkin has issued his proposed Virginia 2024 – 2026 Budget Bill. The Budget Bill would make three notable changes to Virginia’s tax structure, all of which would take effect on January 1, 2025: (1) increase the sales and use tax rate; (2) expand the sales and use tax base to digital products; and (3) reduce the personal income tax rates. Virginia currently does not impose sales tax on downloaded or electronically accessed digital products and software.[1]

Sales and Use Tax Rate Increase. The Budget Bill would increase the state sales and use tax rates from 4.3% to 5.2%. This rate increase, plus the additional 1% sales and use tax imposed by local governments, would result a new total sales and use tax rate of 6.2%.

Sales and Use Tax Base Expansion. The Budget Bill would expand the sales and use tax base by: 

  • Including “digital personal property” in “tangible personal property,” with the former defined as “digital products delivered electronically, including software, digital audio and audiovisual products, reading materials, and other data or applications, that the purchaser owns or has the ability to continually access, whether by downloading, streaming, or otherwise accessing the content, without having to pay an additional subscription or usage fee to the seller after paying the initial purchase price”; and 
  • Expanding the base to enumerated “taxable service[s],” which include: “1. Software application services; 2. Computer-related services; 3. Website hosting and design; 4. Data storage; and 5. Streaming services.” However, the term does not include, “any service transaction where the purchaser or consumer of the service is a business, or any other service otherwise exempt [from sales and use tax].”

Eversheds Sutherland Observation: While details need to be worked out, the Budget Bill attempts to avoid taxation of digital business inputs in two ways. First, by characterizing “digital personal property” as “tangible personal property,” much of the existing Virginia sales and use tax law would apply to those transactions including, among other things, the resale exemption.[2] Second, the Budget Bill excludes business-to-business transactions involving “taxable services,” thereby avoiding tax pyramiding for Virginia businesses, including the commonwealth’s large data center market. 

Personal Income Tax Rate Reduction. The Budget Bill would also reduce the personal income tax rate by approximately 12% for all earning brackets for taxable years beginning on and after January 1, 2025. For example, the highest marginal rate would be reduced under the plan from 5.75% to 5.1%. 

The Eversheds Sutherland SALT team will continue to monitor the pending Virginia budget and update on any resulting tax changes.

[1] See Va. Code Ann. § 58.1-648(C), which excludes “digital products delivered electronically, such as software, downloaded music, ring tones, and reading materials” from the communications sales tax. This provision would be repealed as part of the Budget Bill proposals.  

[2] See, e.g., Va. Code Ann. § 58.1-602 (excluding from “retail sale” any “sale to any person for any purpose other than for resale in the form of tangible personal property or services [subject to sales and use tax]”; see also § 58.1-623 and V.A.C. 23 § 10-210-280 (relating to resale exemption certificates).

Good tax legislation. Bad tax legislation. Massive budget shortfall. A November general election around the corner. Curious agency guidance. And looming corporate tax appeal decisions. 2024 is shaping up to be a wild year for California tax.

Join Eversheds Sutherland attorneys Tim Gustafson and Eric Coffill on Thursday, January 25 for a discussion of what we’ve seen thus far on the California tax front and where the year may take us.

Register now!

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: Which state recently adopted final regulations to its business corporation franchise tax to implement reform that was enacted nearly a decade ago?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

2023 was a year of brisk activity in the state tax world. States remained focused on the digital economy, with numerous new tax proposals being offered in legislatures. Departments of Revenue were also busy issuing regulations and guidance—and in the case of New York’s corporate tax reform regulations, almost a decade in the making. State litigation dockets also continued to be active as they worked through heavy caseloads, issuing numerous income tax and sales tax decisions.

Throughout the year, the Eversheds Sutherland SALT team continued tracking and summarizing SALT developments – nearly 200 items were posted to this site. In addition, we continued discussing key cases and SALT trends through our SALT Shaker Podcast. (You can catch up on 2023 episodes here, and if you would like to receive all of our updates by email, please register here.)

The following selected developments exemplify interesting 2023 SALT trends. While the digital economy continued to take center stage from both a legislative and tax administration perspective, income tax disputes, and apportionment specifically, continue to remain a focal point of state tax controversies.

Digital Economy Tax Proposals

As with 2022, 2023 was yet again a busy legislative year with numerous jurisdictions discussing new ways to tax the digital economy, such as digital advertising taxes and social media taxes.

Digital Economy Sales Tax Decisions

It was not just the legislatures in 2023 focused on the digital economy, as several states issued decisions addressing the continually expanding digital environment in which we live.  We expect as many or even more of these type of decisions in 2024 as disputes work their way through litigation.

Regulations and Department Guidance

2023 was a busy year for Departments around the country as they promulgated and finalized long-awaited regulations, including the Texas Comptroller amending its sourcing regulations in light of the Texas Supreme Court’s 2022 decision in Sirius XM v. Hegar, and the New York Department of Taxation and Finance finally adopting regulations implementing the state’s 2015 corporate tax reform.

Income Tax and Apportionment

In 2023, income tax controversies continued to occupy a central role in state tax litigation around the country. Specifically, cases regarding apportionment, from cost of performance disputes to look through sourcing, highlighted litigation dockets. We do not anticipate this trend slowing down in 2024. 

Sales and Use Tax Cases

Sales and use tax cases continued to maintain its status as a leading focus of state tax disputes. 2023 also saw the role of class-action sales tax disputes and qui tam cases continue unabated.     

Constitutional Issues

In 2023, multiple jurisdictions issued decisions in favor of taxpayers on constitutional grounds, reinforcing the importance of raising constitutional claims during litigation.

On January 5, 2024, the DC Tax Revision Commission released its “Chairman’s Mark,” which lays out the Commission’s tentative proposals for changes to the District’s tax structure. The Commission released a package of 39 proposals. The total net package is estimated to be revenue neutral.

Read the full Legal Alert here.

We’re pleased to introduce Jackson, our first SALT Pet of the Month for 2024! Jackson is a spirited 3-year-old Bernedoodle, adored for his companionship by mom Betsy Weiler, Corporate Tax Lead at Zoom.

Jackson is named after Jackson Hole, Wyoming, in lieu of Betsy’s plans for a vacation home that were interrupted by the pandemic. While Betsy may have missed a home in the wilderness, she is never short on adventure with Jackson. The two have road tripped through Utah, Colorado, Wyoming, and Wisconsin, stopping along the way for skiing excursions and hikes.

When the young pup is not on an adventure, he enjoys a peanut butter-filled dog treat. Jackson is as determined to eat all the peanut butter as he is to finish a hike! It’s also the perfect treat to give him as it keeps him occupied for a long time!

In addition to his love of travel, playing fetch and peanut butter, he can’t help himself from trying to say hello to little ones in strollers. Jackson’s definitely gentle, but still a giant to them!

We are happy to have you, Jackson. Here’s to many more outings in the New Year!

On December 27, 2023, the New York Department of Taxation and Finance formally adopted long-awaited regulations implementing state corporate tax reforms that were enacted nearly a decade ago. Although the department solicited feedback from the public throughout the process that culminated in the rules’ formal adoption, there remain several rules that we are certain will cause irreconcilable disputes.

In addition to the reasonable disagreements taxpayers and the department will have over these regulations, the state’s legislative response to the Tax Cuts and Jobs Act is all but certain to lead to litigation.

Litigation at the state and city level generally follows the same process. In this article published by Law360, Eversheds Sutherland attorneys Jeff Friedman and Cyavash Ahmadi provide an overview of the litigation process and pose some questions worth thinking through before committing to New York tax litigation.

Read the full article 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: Which state recently announced that beginning January 1, 2024, sales, use, and excise tax payments, with the exception of quarterly payments, constitute an agreed liability by the taxpayer?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

On December 27, 2023, the New York State Department of Taxation and Finance officially adopted the business corporation franchise tax regulations it submitted to the State Register on August 9, 2023 – marking the final step in the State Administrative Procedure Act process to implement regulations regarding the state’s corporate tax reform that was enacted nearly a decade ago. 

Read the full Legal Alert here.

The Tennessee Chancery Court for the Twentieth Judicial District held that software licenses are intangible property and thus the gross receipts from their sale are not subject to tax under Tennessee’s Business Tax Act.

The taxpayer is a software company engaged in the business of selling and licensing software used for various corporate and back office tasks.

The Department issued tax assessments for years 2014 through 2018, contending that the taxpayer owed business tax on the gross receipts from software licensing—which the Department classified as a service subject to the business tax. Conversely, the taxpayer argued that its sales were not sales of services, but instead sales of intangible property and thus not taxable under the Business Tax Act.

The court agreed with the taxpayer, relying on the holding in Commerce Union Bank v. Tidwell, where the Tennessee Supreme Court held that the sale of computer software is the sale of intangible property. After the Commerce Union decision, the state legislature amended the state sales tax statute such that the sale of software would be treated as the sale of tangible property and thus subject to sales tax. Nonetheless—as the court noted—the legislature chose not to make similar changes to the Business Tax Act.

Applying strict statutory interpretation, the court held that the Commerce Union decision was still binding with regard to the Business Tax Act, classifying software as intangible property under that taxing regime. The court therefore held that sales of software licenses did not meet the definition of “services” under the Act because they involved the sale of intangible property. As a result, gross receipts from such sales are not subject to tax under the Business Tax Act. 

SAP America Inc. v. Gerregano, No. 20-1249-II, Davidson Cty. Ch. Ct. (Aug. 9, 2023).