Meet Hercules Mulligan, our January SALT Pet of the Month! Named after a character from the Broadway show “Hamilton,” Hercules lives with Dan Hopper, a SALT Associate in New York.

This adorable 4.5-year-old Boxer was adopted from a shelter in a Houston suburb. These days, Hercules is full of energy and loves chasing frisbees and taking nature walks through Central Park in NYC. His favorite treats are salmon skin and cheese. Despite sharing the name with a Greek hero, Hercules can be a bit skittish and skeptical, sometimes reminding his family of a cat. However, his bravery shone through when he recently alerted his family to an approaching black bear during a campfire outing. Kudos to courageous Hercules!

We are thrilled to welcome such a brave and heroic pup to the SALT family. Welcome, Hercules!

On January 8, 2025, a group of New York State Senators introduced S953, which proposes to increase the gross amount of GILTI under IRC § 951A included in the New York State business income base from 5% to 50%. This increase to corporations’ tax base is done by reducing the amount of GILTI excluded as “exempt CFC income” from 95% to 50%. A change to a 50% GILTI inclusion will put New York State on equal footing with New York City with respect to the amount of GILTI subject to tax. Presumably, New York State would continue to provide a sales factor denominator inclusion equal to the amount of GILTI included in business income – the inclusion going from 5% of GILTI to 50% of GILTI. The legislation does not change New York State’s nonconformity to the IRC § 250 deductions for GILTI and FDII. Those deductions are not included in calculating a corporation’s New York State business income bases.

Further, S953 proposes a graduated tax rate imposed on corporations starting in tax years beginning on or after January 1, 2026. This proposal raises the top rate from 7.25% to 14% for taxpayers with a business income base of more than $20 million. The rate is 8% for taxpayers with business income bases higher than $2.5 million and 12% for taxpayers with business income bases higher than $10 million.

As with most New York State tax legislation, the likelihood of either of S953’s proposals being enacted is generally dependent on whether they make it into the New York State budget legislation. The Eversheds Sutherland SALT team is monitoring S953, as well as all other New York State tax legislative proposals, and will continue to provide updates.

In his draft budget plan for Fiscal Year 2025-2026 released on January 10, 2025, California Governor Gavin Newsom proposed to bring financial institutions in line with most other corporate taxpayers when it comes to apportioning multistate income. Banks and “financial corporations” currently use a three-factor apportionment formula consisting of property, payroll and sales to apportion income. For California purposes, a financial corporation is a corporation that “predominantly deals in money or moneyed capital in substantial competition with the business of national banks,” except for a corporation whose principal business activity consists of leasing tangible personal property. (18 Cal. Code Regs. § 23183(a).) The governor’s proposal would replace the three-factor formula with the single sales factor formula that applies to most other multistate corporations. California’s special rules for computing a financial institution’s sales factor likely would remain the same. (See 18 Cal. Code Regs. § 25137-4.2(c).) The proposal is estimated to increase revenue by hundreds of millions of dollars each year.

The Washington Department of Revenue issued proposed guidance limiting the application of the multiple points of use (MPU) sales tax exemption for bundled software maintenance agreements.

The MPU exemption provides a retail sales tax exemption for the purchase of digital goods, prewritten computer software, remotely accessed prewritten computer software, digital automated services, and digital codes (MPU-eligible products) when those products will be concurrently available for use at one or more locations inside and outside of Washington.

The proposed guidance addresses retail sales in which a single nonitemized price is charged for the sale of a software maintenance agreement that provides both retail-taxable products, such as prewritten computer software updates, and non-retail-taxable products, like help desk services. These mixed element software maintenance agreements (MESMAs) are generally subject to retail sales tax, unless the retail-taxable products are a de minimis part of the agreement. The guidance aims to clarify how the MPU exemption applies to these agreements.

Under the proposed guidance, a MESMA that is otherwise subject to retail sales tax is eligible for the MPU if each of the following criteria is met:

  1. The MESMA includes one or more MPU-eligible products (e.g., prewritten computer software), and each MPU-eligible product is concurrently available for use inside and outside of Washington;
  2. The non-retail taxable products provided under the MESMA relate to the MPU-eligible product(s) of the MESMA (e.g., customer help desk support for the prewritten computer software); and
  3. The MESMA does not contain any retail-taxable product other than the MPU-eligible product(s) that are concurrently available for use inside and outside of Washington. 

The first of these criteria is particularly notable: if the MESMA includes an MPU-eligible product that is not made available outside of Washington, the entire MESMA is subject to retail sales tax. Take, for example, a MESMA that entitles a company to routine software updates and telephonic help desk support, with 40 of 100 users located in Washington, and to access to an online software self-help platform that is utilized by 5 IT staff in Washington. Because the self-help platform only has users in-state, the first criterion is not met. The third criterion likewise is not met because the self-help platform is not eligible for the MPU exemption. Thus, under the proposed guidance, the entire MESMA is subject to retail sales 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: Bills were introduced in the Michigan Senate that would increase the rate on sin taxes that apply to what type of activity?

    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!

    Apportionment formulas sometimes produce unfair results. To rectify the unfairness, taxpayers can (and should) use an alternative apportionment formula to apportion corporate income. In their article for TEI’s Tax Executive journal, Eversheds Sutherland attorneys Jeff Friedman and Sebastian Iagrossi focus on a troubling aspect of alternative apportionment— some states require pre-approval of an alternative apportionment formula. Pre-approval is not only bad tax policy, but it may also be illegal. 

    Read the full article here.

    The Arkansas Supreme Court held that a taxpayer’s interest expense is allocable to Arkansas resulting in a refund. This decision is an example of a taxpayer successfully arguing that it can fully deduct – rather than apportion – its interest expense in its state of commercial domicile. 

    Arkansas adopted the Uniform Division of Income for Tax Purposes Act (UDITPA). Pursuant to UDITPA, income and expenses are apportioned if they are, or are related to, business income. If, however, the income or expense constitutes, or relates to, nonbusiness income, the item is allocated to the taxpayer’s state of domicile. 

    The taxpayer, domiciled in Arkansas, was spun off from its parent company. As part of the spinoff transaction, the taxpayer incurred debt that was ultimately paid to its former parent company. On its originally filed Arkansas tax return, the interest expense related to this debt was deducted against its apportionable income. The taxpayer amended its Arkansas return to allocate (rather than apportion) the interest expense which resulted in a refund. The Arkansas Department of Finance and Administration (DFA) rejected the refund claim on the basis that the interest expense is properly classified as an apportionable expense. 

    The Supreme Court agreed with the taxpayer that the expense is properly allocable to Arkansas because the spinoff was an extraordinary, nonrecurring event. The court distinguished the spinoff debt from the taxpayer’s other borrowing. Interestingly, the court also rejected the DFA’s fairness argument – that it would be unfair to allow the taxpayer to allocate the deduction to Arkansas because the taxpayer apportioned the interest deduction on other states’ tax returns. The court concluded that “[i]t is not the role of this court to adjust Arkansas tax returns based on unfairness to Tennessee, Mississippi, or other states.” 

    Hudson v. Murphy Oil USA, Inc., 2024 Ark. 179.

    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: On November 5, 61% of voters in Charleston County, SC rejected a proposal to increase what 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 November 20, 2024, the Pennsylvania Supreme Court concluded that its decision to invalidate a limitation (or “cap”) on net operating loss (NOL) carryforwards should be applied prospectively only.

    The issue of whether to provide retroactive relief to taxpayers injured by the NOL cap arose based on two of its prior decisions:

    • In Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth, 171 A.3d 682 (Pa. 2017), the Court struck down the NOL cap as violating the Uniformity Clause of the Pennsylvania Constitution.
    • In General Motors Corp. v. Commonwealth, 265 A.3d 353 (Pa. 2021), the Court had held that Nextel applied retroactively. That decision is now reversed.

    The Court applied the three-factor Chevron test developed by the United States Supreme Court, see Chevron Oil Co. v. Huson, 404 U.S. 97 (1971). Under the Chevron test, when considering whether to apply a decision retroactively, courts must consider: (1) whether the decision in question established a new principle of law; (2) whether retroactive application of the decision would forward the operation of the decision; and (3) whether the relevant equities favor prospective application. Because the Court found that each of the three factors supported the prospective-only application of Nextel, the Court determined that the General Motors Court erred in applying Nextel retrospectively.

    Alcatel-Lucent USA Inc. v. Commonwealth of Pennsylvania, No. 8 MAP 2023.

    Members of our SALT team are pleased to join the NYU School of Professional Studies’ 43rd Institute on State and Local Taxation, held December 16-17, 2024 in New York City. The Institute will provide insightful updates, practical advice, and in-depth analysis of the latest developments and current issues in state and local taxation. The full agenda can be found here.

    Sessions featuring members of our team include:

    • Transfer Pricing – Should Form Control? – Maria Todorova
      • In this session, panelists will review the nuts and bolts regarding intercompany transactions and state transfer pricing audits and discuss the key issues and updates.
    • Overview and Preview of Federal Constitutional Issues – Jeff Friedman
      • In this session, panelists will provide a spirited preview of the most significant constitutional cases in state taxation over the past year as well as a preview of important cases to watch in the coming year.
    • TaxTok – The Timely New Name for “What’s Happening Everywhere Today” – Jeremy Gove
      • Like its social media kin, TaxTok is a platform for sharing and discovering short topics. In this session, expert “influencers” will provide a rundown of what you need to know about SALT developments affecting taxpayers.

    Eversheds Sutherland is a proud sponsor of the Institute on State and Local Taxation. We hope to see you there!

    On November 18, 2024, the New York Tax Appeals Tribunal (TAT) determined that Sunoco, Inc. (R&M) Combined Affiliates (Sunoco) was not entitled to include receipts from buy/sell agreements in its New York receipts factor because they were derived from inventory exchanges, not bona fide sales for monetary consideration.

    Sunoco refined and marketed oil, and entered into buy/sell transactions to alleviate costs associated with the transportation of oil to a customer’s location. Between 2007 and 2010, Sunoco included the sell side of these transactions in the denominator of its New York receipts factor on the basis that it constituted sales of tangible personal property to third parties for a price and, therefore, bona fide sales for purposes of calculating the company’s business allocation percentage (BAP). The New York Division of Taxation disagreed at audit.

    On appeal, the TAT determined that the buy/sell transactions constituted exchanges of inventory, followed by a sale to an end customer.  The TAT stated that the transactions were not sales for purposes of Sunoco’s BAP calculation, “as they lacked independent economic substance separate from the end customer sale” and that Sunoco “would not have agreed to sell oil in a buy/sell transaction unless oil was to be acquired in return.”  Further, the TAT held that net-out agreements demonstrated the buy/sell transactions were actually inventory exchanges and not bona fide sales for monetary consideration. Accordingly, the TAT denied the refund.

    In re Sunoco, Inc. (R&M) Combined Affiliates, No. 829399 (N.Y. Tax App. Trib., Nov. 18, 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: For tax years beginning after December 31, 2025, corporate franchise taxpayers that are part of a combined group in which jurisdiction will transition to the Finnigan method of 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!

    On Friday, December 6, 2024, the Texas Comptroller held a public hearing in Austin, TX regarding the proposed changes to the data processing regulation (section 3.330) published in the Texas Register on September 13, 2024. Several parties submitted written comments in response to the proposed regulation, including the Texas Taxpayers and Research Association (TTARA) and the Council On State Taxation (COST). Both TTARA and COST requested the public hearing.

    Eight individuals spoke during the hearing: two from TTARA, one from COST, two marketplace sellers, one representative from Dell Technologies, and two attorneys. The general undertone was that the Comptroller’s proposed rule exceeds to scope of the data processing statute, Texas Tax Code section 151.0035, and the expanding the statute is the legislature’s job, not the Comptroller’s.

    Several of the comments related to the proposed regulation’s preamble, specifically addressing:

    • The Comptroller claiming it has exclusive authority to interpret revenue laws;
    • The proposed regulation disavowing the essence of the transaction test in favor of the ancillary services test, when the essence of the transaction test was created by the Texas Supreme Court and the Comptroller does not have the power to overrule the Supreme Court; and
    • The notion that no one purchases data processing for its own sake, which multiple speakers highlighted as not being true and gave various examples of common data processing services that involve processing data.

    In addition to the comments targeting the preamble, multiple commentators also addressed:

    • The proposed regulation’s state and local sourcing provisions, with the speakers requesting additional clarity; and
    • The increased cost of doing business that the proposed change will impose on marketplace sellers.

    The Comptroller did not take questions and did not offer any comments in response to the testimony that was offered. The Comptroller concluded the hearing by stating that they are considering the written comments and the hearing testimony, and hope to publish the adopted version of the regulation in early 2025. The Comptroller also stated that the upcoming Texas legislative session may have an impact on the timing of the regulation’s implementation. Separately, legislation has been prefiled that would exempt payment processing services provided by marketplace providers.

    Members of our SALT team are looking forward to several presentations this week. Here are the highlights:

    California Tax Foundation’s 2024 Webinar Series

    On Tuesday, December 10, SALT Counsel John Ormonde will examine California local tax election results and identify potential trends in local tax policy. This session is part of the California Tax Foundation’s 2024 webinar series. Register here.

    TEI Ethics Webinar

    Also on December 10, SALT Partners Tim Gustafson and Dan Schlueter will explore ethical dilemmas facing state tax professionals as part of TEI’s second annual webinar series focused on ethics. Register here.

    2024 Georgia Department of Revenue and Tax Bar Liaison Committee Meeting

    On Wednesday, December 11, SALT attorneys Jonathan Feldman and Alla Raykin will discuss the establishment of Georgia’s new judicial branch tax court in an event hosted by the Tax Law Sections of the Atlanta Bar Association and State Bar of Georgia. Register here.

    2024 New Mexico Tax Law Symposium

    Also on December 11, SALT Partner Jeff Friedman will present a SALT litigation update during the 2024 New Mexico Tax Law Symposium. This day-long institute will focus on updates to New Mexico and federal tax law, equity considerations for tax practitioners, and the ethics of tax law practice.

    Please welcome our December SALT Pet of the Month, Rush! This six-year-old Collie resides with Jay Roberts, senior manager of international tax at Janus Henderson Investors, in the foothills of Denver, CO.

    This curious Collie got his name from his active personality, constantly running around as a puppy. He particularly enjoys going on hikes and camping with his family and has a penchant for Milk Bones. His only pet peeve is when the trash can is rolled up the driveway. Notably, this is the only time this Rush barks.

    At home, he has been known to stir up a bit of mischief. Rush is a huge foodie with a particular taste for Mexican food. One day, he found his way to a crockpot full of red chile beef when Jay was running an errand. When Jay returned, he discovered that Rush had eaten roughly three pounds of meat! As you can guess, Rush had quite a tummy ache, and Jay had to quickly come up with another plan for dinner. As for Rush, he would do it all over again, every single day of the week.

    We are pawsitively thrilled for Rush to join the SALT Pet of the Month family!

    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 a tax amnesty program offering penalty waivers for eligible 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!

    The New York Division of Tax Appeals (DTA) held that a taxpayer’s employment severance payment received over a year after her relocation out of the state was allocable to New York for personal income tax purposes.

    The taxpayer worked for a school in New York for 11 years before going on sabbatical leave and moving to Hawaii at the end of 2018. The taxpayer was terminated in June 2019 and she signed a separation agreement and release in February 2020 which provided for a severance payment. The severance amount was computed as a percentage of her salary plus health insurance costs.  The taxpayer testified that her severance package was intended to compensate her for the missed opportunity to work at another school for the school year and for a release of any known or unknown claims against the school.

    The DTA held that the severance was New York source income under Tax Law § 631 (b)(1)(F) as income received by a nonresident related to a business, trade, profession or occupation previously carried in New York, including termination agreements. Additionally, the taxpayer’s general release that listed a wide range of claims rather than a specific claim was in the nature of severance pay and not damages received in settlement of litigation.  Lastly, the DTA held that prior conflicting rulings were made before the legislative enactment of the above referenced subsection.

    Matter of Vora, Determination DTA No. 830987 (N.Y. Div. Tax. App. 2024).

    The Ohio Board of Tax Appeals held that automobile dealers were not subject to the Ohio Commercial Activity Tax (CAT) on their sales of motor vehicles because the purchase, receipt, and delivery of the vehicles took place entirely outside of Ohio. The Department of Taxation assessed the dealers, which were located in West Virginia, for the CAT. The Department claimed that gross receipts from its sales of motor vehicles to Ohio purchasers must be sourced to Ohio where the purchaser accepted the vehicle in West Virginia and then drove it to Ohio. The sourcing provision stated that the gross receipts from sales of tangible personal property are sitused to Ohio “if the property is received in this state by the purchaser.”  (Emphasis added.)

    The Board agreed with the taxpayer and held that the motor vehicle sale gross receipts were properly sitused outside of Ohio. The Ohio Supreme Court interprets the term “receive” to “include the taking of ‘delivery.’” Thus, if a person takes “delivery” of tangible personal property outside of Ohio, that person is “receiv[ing]” it outside of Ohio for CAT situsing purposes. The Board found the statutory language to be “plain and unambiguous.” Because the “entire vehicle sales transaction (i.e., purchase, receipt, and delivery)” occurred in West Virginia, the Board concluded that the Ohio customers “received” their vehicles in West Virginia, not Ohio.

    The Board also rejected the Department’s argument that the motor vehicle sales were sourced to Ohio pursuant to an additional sourcing provision: “In the case of delivery of the tangible personal property by motor carrier or by other means of transportation, the place at which such property is ultimately received after all transportation has been completed shall be considered the place where the purchaser receives the property.” Because the taxpayer had already delivered the vehicles to the customers in West Virginia, they “could not have been ‘delivered’ again once Ohio customers returned to Ohio.” In other words, “once [the automobile dealer] relinquished physical possession of the new or used car to the buyer in West Virginia, [the automobile dealer] could not again deliver physical possession of the vehicles for a second time by transportation or otherwise.”

    Straub Nissan LLC v. Harris, Case No. 2022-422 (Ohio Bd. Tax App. Oct. 23, 2024).

    On December 2, several members of our SALT team will present at TEI/IPT Silicon Valley SALT Conference on December 2.

    Speakers and topics include:

    • Michele Borens, Jeff Friedman, Charles Capouet – 2024 Litigation and Legislative Roundup
      • Jeff Friedman, Tim Gustafson – To Pay or Not to Pay, That is the Question!
      • Michele Borens, Liz Cha – Are You Gross? Net?
      • Michele Borens, Liz Cha – The Empire (State) Strikes Back: A New York Update for Non-New York Based Businesses
      • Jeff Friedman, Tim Gustafson and Charles Capouet – Uniformly Not Uniform

    In addition, members of our SALT team are pleased to present a SALT Day program for TEI’s Cincinnati-Columbus Chapter on December 5 in Grove City, OH.

    Speakers and topics include:

    • Jonathan Feldman, Tim Gustafson– Income Tax Update
      • Todd Betor, Alla Raykin– A Dash of SALT on the Deal: State and Local Tax Implications of Mergers & Acquisitions
      • Charlie Kearns, Madison Ball– Navigating remote work challenges: 2024 update and impacts in Ohio
      • Alla Raykin, Tim Gustafson–To Pay or Not to Pay, That is the Question!
      • Charlie Kearns, Madison Ball– Uniformly Not Uniform
      • Todd Betor, Jonathan Feldman– Accounting for SALT

    Find more information and register here.

    Finally, join SALT Partner Jeff Friedman for the TEI New York Chapter’s 61st Annual Tax Symposium. During the full-day program, Jeff’s panel will discuss best practices for managing SALT controversy. 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: Which Midwest state’s lawmakers proposed a bill to grant a tax credit to employers providing paid parental leave to their employees?

    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!

    Courts have formulated more than a dozen legal canons of statutory construction specific to tax.

    In the October 2024 installment of “A Pinch of SALT” in Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman, John Ormonde and Kelly Donigan examine the application of statutory construction principles to conflicts involving allocation and apportionment statutes.

    Because an income tax must contain an allocation and apportionment regime to comply with the due process and commerce clauses of the US Constitution, these regimes should be treated as imposition statutes and not exemptions or deductions.

    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: Colorado Governor Jared Polis wants to offer a film tax credit to attract what annual film festival to the 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!

    Paws up for our November SALT Pets of the Month, Ozzie and Harriet! This pair of domestic shorthairs live with Eversheds Sutherland Associate Megan Long, who adopted them from a local humane society.

    These kitties are extremely playful and inquisitive. Harriet (with tabby coloring) is particularly fond of playing with the laser pointer and scaling their cat tree. Ozzie (who dons orange fur) loves being held up to take in the breeze by the window. They both enjoy sunbathing, birdwatching, and, of course, Churu treats are the cat’s meow!

    At home, Ozzie also likes to watch television with his family, while Harriet enjoys having a chat with them. This dynamic duo of brother and sister have large personalities, with Ozzie being a cuddly people-pleaser and Harriet being a shy but independent and affectionate kitty.

    We are excited to add these purrfect additions to the SALT Pet of the Month family!

    In the aftermath of the US Supreme Court’s 1984 decision in Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., federal judges became exceedingly deferential to administrative agencies’ interpretations of apparently ambiguously drafted laws. As the impact of Chevron evolved, flaws in its holding became apparent across almost every area of law, including tax.

    After 40 years, the US Supreme Court issued the long-awaited reversal of Chevron in Loper Bright Enterprises v. Raimondo earlier this year. The overturning of Chevron should not surprise state tax practitioners, who have seen the deference accorded to state revenue departments diminishing. And, state legislatures have begun responding to Loper Bright by enacting laws that require de novo review of — not deference to — administrative agencies in a wide range of cases, including tax.

    In their article for Law360, Eversheds Sutherland attorneys Jonathan Feldman and Cyavash Ahmadi provide context and background to the Loper Bright decision and discuss how states played a role in Chevron’s demise.

    Read the full article here.

    Eversheds Sutherland attorneys Jonathan Feldman, Maria Todorova, Chelsea Marmor and Laurin McDonald will help present an update on significant state tax issues for southeastern states during COST’s Southeast Regional State Tax Seminar on November 14.

    Sessions and speakers include:

    • Discussion of State Tax Cases, Issues & Policy Matters to Watch – Maria Todorova, Chelsea Marmor
    • Uniformly not Uniform – Jonathan Feldman, Chelsea Marmor

    Register here.

    This time last week, our SALT team embraced the spooky spirit for Halloween!

    Take a look at some of the cutest and coolest costumes our team conjured up this year.

    We’d love to see your SALT family costumes too! Share them with us at SALTonline@eversheds-sutherland.com.

    1. Legal secretary Melissa Bragg’s daughter, Madelyn, took on the day as Thing 2.
    2. Executive assistant Debbie Manders’ grandson, Jamison, commemorated this Halloween as the Invisible Man.
    3. Counsel John Ormonde’s daughters, Audrey and Betsy, celebrated as a pair of dinosaurs.
    4. Partner Charlie Kearns’ daughter, Ella, dressed as Odette, the swan princess.

    On November 5, voters cast their ballots to determine who would fill a variety of federal, state, and local offices. Several states also considered tax related ballot initiatives. We describe some of the more significant ballot initiatives and their results.

    Sales Tax

    There were a few states with ballot initiatives that would exempt items from the state sales tax. For example, South Dakota’s Measure 28 would prohibit the imposition of the sales tax on “anything sold for human consumption, except alcoholic beverages and prepared food.” However, voters overwhelmingly rejected this measure with approximately 70% voting No.

    In Nevada, Question 5, which was put forward by the Nevada Legislature, will exempt the sale of child and adult diapers from the sales and use tax. Voters approved this measure with approximately 70% voting Yes. The exemption goes into effect on January 1, 2025 and expires on December 31, 2050.

    In California, San Diego County’s Measure G would increase the sales tax by 0.5% and use the additional funding to repair and upgrade infrastructure. As of Wednesday (November 6) afternoon, voters have rejected this proposal with approximately 52% voting No. Similarly, the city of San Diego’s Measure E sought to increase the sales tax by 1%, but it appears voters have also rejected this proposal with approximately 51% voting No.

    Income Tax

    In Washington, Measure 2109 was on the ballot to repeal the controversial capital gains tax. However, voters soundly rejected the repeal with approximately 63% voting No.

    In Illinois, Question 2 requested voter’s opinion on whether the state should raise taxes on higher incomes in order to fund property tax relief. Voters responded favorably with approximately 60% voting Yes. However, it should be noted that Question 2 was an advisory opinion measure which allows government officials to gauge public opinion, but it is not binding.

    In Oregon, Measure 118 would have imposed a controversial 3% minimum tax on corporations with Oregon sales exceeding $25M and would have funded rebates of up to $1,600/year to all Oregon residents. However, the measure was widely opposed by both conservative and progressive groups and voters soundly rejected the measure with almost 79% voting No.

    Finally, in California, San Francisco’s Proposition M will make a variety of changes to the city’s business taxes including changing the rates for the gross receipts tax, the homelessness gross receipts tax, the overpaid executive gross receipts tax, and the administrative office tax. Voters agreed with enacting these changes with almost 70% voting Yes.

    Property Tax

    In North Dakota, Measure 4 would have eliminated most property taxes, making North Dakota the only state without property taxes. However, it also would have required the state to make annual payments to local governments to compensate for the lost property tax revenue. Ultimately, voters decided to keep the property tax, with almost 64% voting No.

    Administrative

    In Georgia, Amendment 2 will create the independent (i.e., judicial branch) Georgia Tax Court. This court will replace the Georgia Tax Tribunal, which is part of the executive branch. Appeals from the Georgia Tax Court will be to the Georgia Court of Appeals.  This amendment passed with 52% voting Yes.

    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 recently-introduced bill in Ohio would allow a state income tax deduction for overtime wages?

    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!

    Eversheds Sutherland SALT Counsel John Ormonde is pleased to help cover the latest developments in California tax at the 2024 Annual Meeting of the California Tax Bar and Tax Policy Conference. On November 7, John’s panel will explore the California OTA precedential process, including:

    – Nomination of cases
    – Precedential designation
    – Removal of precedential status

    Additionally, the panel will guide taxpayers and tax practitioners on how to get involved in designating or removing precedential status. For more information and to register, click here.

    The first challenge to New York’s corporate franchise tax regulations is already in high gear: Paychex Inc. v. Department of Taxation and Finance. Although New York’s corporate tax reform took effect January 1, 2015, it took the department almost a decade to adopt the regulations. For many years, the draft regulations received comments and concerns, especially regarding the potential retroactive application.

    In this installment of NY Tax Talk, a quarterly column in Law360 focused on recent developments in New York tax law, Eversheds Sutherland attorneys Liz Cha and Chelsea Marmor provide context to Paychex Inc.’s complaint and review the potential implications of the court’s final decision.

    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 legislature recently introduced a bill that would exempt energy-saving products and services from the sales and use 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!

    This week, Eversheds Sutherland Tax is proud to be a platinum sponsor of Tax Executives Institute’s 2024 Annual Conference, taking place in San Antonio, TX, from October 27-30. SALT Partners Liz Cha and Jeff Friedman will delve into pivotal topics shaping the future of tax, including navigating tax department leadership in a changing world and the evolving landscape of taxing intangible assets like data and digital goods.

    Additionally, SALT attorneys Charlie Kearns and Jeremy Gove will present during the 31st Annual Paul J. Hartman SALT Forum in Nashville, TN. This premier event offers industry professionals, practitioners, and state revenue employees a unique opportunity to explore significant national developments and trends in state and local taxation. Charlie and Jeremy will share their insights on oddball taxes and sales factor apportionment issues.

    At the Electronic Transactions Association’s Payments Compliance Conference, SALT Partners Michele Borens, Charlie Kearns, and Maria Todorova will discuss how payments companies should navigate changes related to state sales tax laws.

    Finally, SALT Partner Jeff Friedman will review significant, unusual and interesting SALT cases and developments during the 2024 Western States Association of Tax Administrators (WSATA) Annual Meeting on October 30 in Palm Springs, CA.

    Meet Cooper and Murphy, our October SALT Pets of the Month! Named after characters in the movie Interstellar, this delightful duo of galactic furballs resides with Sam Roberts, Tax Manager of Domestic Income Tax Planning & Controversy at Starbucks.

    These littermates are 6.5 months old and were recently adopted from an animal shelter in Woodinville, WA. As they continue to grow, Cooper and Murphy eat everything they’re fed but have a particular penchant for yummy Churus treats.

    When they’re not chasing after a laser pointer or taking a catnap, the two kitties find time in their busy schedules to dream of brand deals and social media influencing gigs. We better pounce on getting their signatures now, before they get too fur-mous!

    Welcome to the SALT Pet of the Month family, Cooper and Murphy!

    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 city’s residents will vote on a substantial overhaul to the city’s gross receipts tax on their November ballot?

    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 an article published by Savannah Morning News, Eversheds Sutherland SALT Partner Jonathan Feldman discusses a proposed constitutional amendment on the Georgia ballot this November that would create a new judicial branch tax court with the same judicial power as superior courts. Appeals from the new tax court would go directly to the Georgia Court of Appeals, bypassing the need to go through the Fulton County Superior Court, which can be time-consuming and costly.

    According to Jonathan, this change would make the process more efficient for taxpayers and reduce the burden on the Fulton County Superior Court.

    Read the full article here.

    Eversheds Sutherland SALT Partners Todd Betor, Jeff Friedman, Charlie Kearns, Dan Schlueter and Maria Todorova are pleased to present during the 2024 Broadband Tax Institute (BTI) Annual Conference, held this year in Palm Beach, FL from October 21-23. They will provide their input on a variety of topics, including state tax litigation, state tax policy, insurance tax planning, federal and state regulatory fees, and property tax developments.

    Sessions and speakers include:

    • State Tax Litigation – Jeff Friedman
    • State Tax Policy – Charlie Kearns
    • Tax Planning Insurance – Todd Betor
    • Federal & State Regulatory Fees – SUSF, 988, 911 – Maria Todorova
    • Property Tax – Current Developments/Litigation – Dan Schlueter

    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: Recently, a bill was introduced in the Ohio Legislature that would permit taxpayers to pay state and local taxes and other government fees using what type of payment method?

    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: North Carolina Governor, Roy Cooper, recently vetoed a bill that would have increased funding of what type of education-related 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!

    On October 9, 2024, the D.C. Tax Revision Commission met to finalize their tax recommendations to the D.C. Council and Mayor. However, the Commission did not reach a consensus and instead opted to perform additional research.

    The D.C. Tax Revision Commission’s last activity was to issue a Revised Chairman’s Mark in July 2024. That document included two controversial proposals: new Business Activity and Data Excise Taxes. The Commission was then scheduled to meet a few days later to finalize its recommendations, but the meeting was instead abruptly cancelled. 

    During the October 9 meeting, the Chairman proposed to meet again in one to two weeks to decide on additional topics of research. After that, the Commission would then engage in a further three months of research before settling on final recommendations. However, he expressed a desire to move forward without the Business Activities Tax proposal.

    Eversheds Sutherland will continue to follow the activities of the D.C. Tax Revision Commission and follow up on the Commission’s proposed additional research. You can read more about our critique of the Commission’s recent tax proposals in the September 2024 installment of “A Pinch of SALT” in Tax Notes State.

    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 two-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!

    The Iowa Department of Revenue ruled that while a data center property owner and its tenant can both independently qualify for the sales tax exemption for data center businesses, the property owner and the tenant cannot aggregate their investments to meet the minimum investment requirement. Iowa law provides a sales tax exemption for data center businesses for the price of computers and equipment necessary for maintenance and operation of the data center business and property. Iowa Code § 423.3(95). To qualify for the exemption, the businesses must meet certain requirements, including a minimum investment made at an Iowa location of two hundred million dollars within the first six years of operation in Iowa. The DOR found that the language of the exemption (“an entity whose business among other businesses, is to operate a data center”), indicated that a data center business consists of a singular entity and therefore did not allow for two data centers to both qualify under the same set of facts. The DOR further found that the tenant and property owner could not aggregate their investments to meet the minimum threshold because the statute does not contain words such as “collective,” “aggregate investment,” or similar language. However, the DOR found that a data center property owner and a data center tenant based at the same physical location can both qualify for the exemption as long as they each independently meet the minimum requirements.

    In the Matter of T5 Data Centers LLC 3344 Peachtree Rd NE Atlanta, Georgia 30326, Iowa Declaratory Order No. 439443.

    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!

    The New York State Division of Tax Appeals determined that income from the vesting of restricted stock units of a nonresident taxpayer were subject to New York State personal income tax based on the taxpayer’s performance of services in New York during the restricted stock units’ vesting period. The Tribunal also determined that dividends on stock paid out of a deferred compensation plan were not New York source income because the stock on which the dividends were paid had vested before the dividends were issued.

    There were two sources of income at issue for the nonresident taxpayer: income from the vesting of restricted stock units and dividends paid out of a deferred compensation plan on restricted stock units that had substantially vested.

    The nonresident individual taxpayer argued that the income from the vesting of the restricted stock units was New York source income only to the extent that the taxpayer worked in New York (i.e., a workday allocation method). However, the administrative law judge concluded that the restricted stock units fell within the ambit of a state tax regulation governing the determination of New York source income from restricted stock, 20 NYCRR 132.24. That regulation provided that income from compensation received from stock appreciation rights or restricted stock is New York source income if at any time during the “allocation period” a nonresident individual performed services in New York State for the corporation granting such options. The allocation period is the time from when the stock was received to the earliest of the date that the stock is substantially vested, the individual’s services terminate, or the date that the stock is sold. 

    With respect to the dividend income, the ALJ determined that, because the stock on which such dividends were issued had vested prior to the issuance of the dividends, the dividends were “clearly not taxable” to the nonresident taxpayer.

    In the Matter of the Petition of Adams, Det’n DTA No. 850026 (N.Y. Div. of Tax App. Aug. 8, 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, 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!

    The South Carolina Administrative Law Court upheld a bank tax assessment that was based on adjustments made by the Department of Revenue to a taxpayer’s sales factor and tax base.  The taxpayer, a national bank, offered a range of banking and trust services, and generated income by providing residential mortgages and other loans, and issuing credit cards.

    Regarding the sales factor, the taxpayer asserted that its mortgages and mortgage servicing activities constituted services and should be sourced pursuant to the rule governing receipts from the provision of a service.  The Court, however, determined that mortgages are intangible property, and that the receipts generated by the mortgages, including interest and fees, must be sourced using the rule applicable to intangibles, which looks to the location where the intangible is used.  The Court reasoned that a mortgage is used at the location of the real property, and that the location of the borrower is a “reasonable proxy.”  Thus, the Court held that payments on mortgages and other kinds of loans should be sourced to South Carolina when paid by a borrower located in South Carolina.  In addition, the Court held that the taxpayer’s sales of its South Carolina mortgages to government sponsored entities should be sourced to South Carolina because the “mortgages are tied to real estate in South Carolina.”

    The Court also determined that the taxpayer’s receipts from credit cards, including interest, late fees and annual fees, constituted receipts from intangibles that should be sourced to South Carolina when the amounts are paid by cardholders in South Carolina.  With respect to the taxpayer’s interchange fees, i.e., fees paid by a merchant to facilitate the routing of a credit card transaction, the Court determined that the fees are from the provision of a service and must be sourced under the rule for services.  However, the Court held that, to the extent the taxpayer’s merchants are located in South Carolina, the primary income-producing activity related to the merchant interchange fees occurs in South Carolina, and that the associated receipts must be sourced to South Carolina.

    Finally, regarding the tax base, the Court held that the taxpayer’s sale of stock in a credit card company, which the taxpayer had used in swap agreement transactions, “was connected to its business” and, therefore, that the gains from the sale of the stock were apportionable to South Carolina.

    U.S. Bank National Association v. South Carolina Department of Revenue, No. 20-ALJ-17-0168-CC (S.C. Admin. Law Ct. June 25, 2024).

    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.

    Listen now:

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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.

    Listen now:

    Subscribe for more:

    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:

    Subscribe for more:

    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.

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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.).