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:

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Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

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

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

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

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

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

Register and find more information here.

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

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

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

For more information, click here.

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

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

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

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

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


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

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

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

Read the full article here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

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

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

Read the Legal Alert here.

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

Read the full Legal Alert here.

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

Read the full article here.

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

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

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

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

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

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

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

Read the full Legal Alert here.

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

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

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

  • Jeff Friedman, Ted Friedman State Tax Bronco Rodeo
  • Ted Friedman, Tim Gustafson and Chelsea MarmorEmpire State vs Golden State – What it means for your business
  • Jeff Friedman, Cyavash Ahmadi What’s in Store: Recent Marketplace Developments
  • Tim Gustafson, Jeremy GoveTransfer Pricing and Intercompany Transactions
  • Ted Friedman, Chelsea Marmor and Cyavash Ahmadi Sales Tax Is Cooler
  • Jeff Friedman, Tim Gustafson and Jeremy GoveNo, Income Tax Is Cooler

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

So, what’s a data extraction?

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

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

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

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

Only the big guys pay the tax

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

Apportionment and sourcing

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

Exclusions

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

Next steps

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


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

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

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

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

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

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

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

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

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

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

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

Read the full article here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

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

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

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

Listen now:

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

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

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

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

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

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

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

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

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

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

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

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

Read the full Legal Alert here.

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

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

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

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

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Read the full article here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: Which state’s appellate court recently rejected a single-subject rule challenge to the state’s single-sales factor apportionment?

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

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

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

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

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

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

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

For more information and to register, click here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: Which state’s supreme court recently ruled that a state statute allowing municipalities to tax nonresidents for work done outside of the municipality does not violate the federal Due Process Clause?

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

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

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

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

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

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

Read the full article here.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Read the full Legal Alert here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Register here.

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

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

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

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

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

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

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

Read the full Legal Alert here.

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

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

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

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

Read the full Legal Alert here

Meet George, our February SALT Pet of the Month!

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

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

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

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

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

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

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

Read the full article here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

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

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

Read the full article here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

Register now!

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

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

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

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

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

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

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

Digital Economy Tax Proposals

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

Digital Economy Sales Tax Decisions

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

Regulations and Department Guidance

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

Income Tax and Apportionment

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

Sales and Use Tax Cases

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

Constitutional Issues

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

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

Read the full Legal Alert here.

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

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

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

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

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

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

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

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

Read the full article here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: Which state recently announced that beginning January 1, 2024, sales, use, and excise tax payments, with the exception of quarterly payments, constitute an agreed liability by the taxpayer?

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

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

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

Read the full Legal Alert here.

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

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

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

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

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

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

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: An Administrative Law Judge in which state held that the Department of Revenue’s failure to timely issue the taxpayer a statutorily required written statement invalidated its assessment of net 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 posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

In this episode of the SALT Shaker Podcast, Eversheds Sutherland Associate Jeremy Gove welcomes Partner Jeff Friedman for another discussion of a landmark state tax case.

For this installment, Jeff and Jeremy jump into Moorman Manufacturing Co. v. Bair, discussing the history of 3-factor apportionment, and how the Moorman decision paved the way for states shifting to single-sales factor apportionment. 

After their discussion, the episode wraps with another edition of overrated/underrated – how do you feel about adults dressing up for Halloween?

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: Which city enacted legislation reinstating a tax credit for eligible emerging biotechnology companies for tax years beginning on or after January 1, 2023, and before January 1, 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 posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: Which state’s supreme court recently upheld the denial of a city wage tax credit for income taxes paid to another state by the city resident?

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

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

The Pennsylvania Supreme Court held that the City of Philadelphia is not required to provide a city wage tax credit for income tax payments that a resident made to another state. For the purposes of a dormant Commerce Clause analysis, the court found that state and local taxes do not need to be considered in the aggregate. Therefore, Philadelphia did not violate the dormant Commerce Clause by imposing its wage tax on a resident who worked exclusively in Wilmington, Delaware, and crediting her for Wilmington Earned Income Tax payments while not providing an additional credit for the resident’s payments of Delaware Income Tax. In reaching its decision, the court first concluded that the wage tax was a “purely local tax … promulgated by Philadelphia’s City Council and … collected … for the sole benefit of the City and its residents,” and not a “state tax masquerading as a local tax” that would require the two taxes to be considered in tandem. The court then held that Philadelphia’s tax scheme did not discriminate against interstate commerce because it was internally consistent as any excess tax paid was a result of Delaware’s higher income tax rate rather than any inherent discrimination in Philadelphia’s tax scheme itself and externally consistent as the imposition was justified by the City’s provision of municipal benefits and services to its residents and of a full credit for the local Wilmington tax.

Diane Zilka v. Tax Review Board City of Philadelphia, No. 20 EAP 2022 and 21 EAP 2022 (Pa. Nov. 22, 2022).

Three’s company! Say hello to our December SALT Pets of the Month – Arthur Pendragon, DustyAnn and Boon. These furry friends belong to Betsy Vancura, Tax Accountant at Home Depot. Betsy is passionate about rescue animals, and this trio is just half of the fur babies who make her house a home.

Arthur Pendragon, the “A”-mazing black shorthair cat, is one of five rescue kittens born in Betsy’s dining room in 2021. When Arthur and his siblings were born, he was the first one they picked up, and they gave him the letter “A.” His favorite treat is a small, boiled shrimp, which he receives every morning. He also enjoys getting his hair brushed and laying on his back, prepared for pets.

DustyAnn, another one of Betsy’s rescue kittens born in 2021, gets her name from her beautiful “dusty” grey coat. While she doesn’t have a favorite treat, she enjoys cozying up in blankets and a good grooming session, like her brother.

The last of this terrier-ific trio is Boon, a seven-year-old Scottish Terrier. Betsy has had him since he was just a pup, and is grateful to continue the tradition of having Scotties in the family. While he isn’t food motivated, he loves to go for a ride or a walk around the block. Watch out for some of his hidden toys under blankets – his own game of doggie hide-and-seek!

We’re so excited to welcome these three to the SALT Pet of the Month family!

Arthur Pendragon
DustyAnn
Boon

The federal check-the-box entity classification rules allow certain entities to change their default classification. Unsurprisingly, not every state conforms to the federal check-the-box (CTB) election for state tax purposes. There are numerous implications resulting from state nonconformity to the CTB election rules. In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Liz Cha, Maria Todorova and Chelsea Marmor review recent cases that highlight some of these implications.

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 legislature recently approved legislation that would allow the state’s revenue and justice departments to share taxpayer information under certain circumstances?

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

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

On December 5, Eversheds Sutherland is a proud sponsor of the TEI Silicon Valley Chapter SALT day, a comprehensive SALT update covering a wide range of topics including the latest legislation, litigation and administrative developments.

Speakers and topics include:

  • Michele Borens, Jeff Friedman, Eric Tresh – 2023 Litigation and Legislative Roundup
  • Michele Borens, John Ormonde – San Francisco’s Troubled Tax System: Where We Are and Where We’re Going
  • Jeff Friedman, Eric Tresh – Transfer Pricing and Intercompany Transactions
  • Jeff Friedman, Tim Gustafson – Income Tax is Cooler
  • Michele Borens, Eric Tresh – No, Sales Tax Is Cooler

In addition, Eversheds Sutherland Partners Michele Borens, Jeff Friedman and Ted Friedman will present at COST’s Pacific Northwest Regional State Tax Seminar on December 6. The seminar will provide an update on significant state tax issues for California, the Pacific Northwest states and certain other significant states around the country.

Speakers and topics include:

  • Michele Borens, Jeff Friedman, Ted Friedman Discussion of State Tax Cases, Issues & Policy Matters to Watch
  • Michele Borens, Jeff Friedman, Ted Friedman Transfer Pricing and Intercompany Transactions

Finally, on December 6, Eversheds Sutherland Partner Todd Betor will present during the TEI New York Chapter’s 60th Annual Tax Symposium. During the full-day program, Todd’s panel will review where we are for SALT in 2023 and where we’re going in 2024. For more information and to register, click here.

View and learn more about past and upcoming events and presentations for the SALT team.

In this episode of the SALT Shaker Podcast, Federal Tax Partner Mary Monahan joins Associate Jeremy Gove for a discussion of Moore v. United States

Ahead of the oral argument scheduled for December 5, Mary provides Jeremy with a federal tax perspective about the case, including covering the case’s background, the tax constitutionality issue before the Supreme Court, the legal arguments presented and more. 

Their discussion concludes with a timely overrated/underrated question, likely debated by many last week – what are your thoughts on Thanksgiving turkey?

You can read the Eversheds Sutherland Tax team’s Legal Alert about Moore at this link.

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

Listen now:

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On July 13, 2023, the Pennsylvania Board of Finance and Revenue (“BF&R”) denied a pharmaceuticals developer’s corporate net income tax refund claim based on adjustments to its apportionment formula and taxable income. The taxpayer filed, and the Pennsylvania Department of Revenue denied, a refund claim for the 2019 tax year on three grounds: (1) the reduction of the sales factor numerator to the amount of receipts from product consumed in Pennsylvania (i.e., excluding sales to distributors in Pennsylvania that were subsequently shipped outside of the state); (2) the exclusion from taxable income and its sales factor numerator of its royalties, management fees, and research and development cost share relating to activities outside of the United States; and (3) the use of a three-factor formula – rather than single sales factor – because it was a manufacturer relying extensively on capital and labor.

The BF&R denied all three of the bases for the taxpayer’s refund claim. First, the BF&R found that products delivered to distributors in Pennsylvania were correctly included in the sales factor numerator because the taxpayer had sold its goods to Pennsylvania distributor customers and delivered the goods in Pennsylvania. The BF&R refused to look through to the distributors’ customers’ sales to calculate the taxpayer’s sales factor. Second, the BF&R denied the taxpayer’s “request for multiform income treatment” because of the “lack of sufficient evidence proving entitlement to such treatment.” Third, the BF&R denied the taxpayer’s request for special apportionment because it had “not shown that the standard apportionment methods did not fairly represent the extent of its business activity within Pennsylvania.”

In re Gilead Sciences, Inc., Dec. No. 2224811 (Pa. Bd. Fin. & Rev. Jul. 13, 2023).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: The Maine Supreme Judicial Court recently held that an owner of property valued at more than $1 million can appeal an abatement denial to the local county commissioners or to which state administrative body?

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

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

On Wednesday, December 6, Eversheds Sutherland Partner Todd Betor will present during the TEI New York Chapter’s 60th Annual Tax Symposium. During the full-day program, Todd’s panel will review where we are for SALT in 2023 and where we’re going in 2024. For more information and to register, click here.

View and learn more about past and upcoming events and presentations for the SALT team.

The Washington Court of Appeals affirmed a Board of Tax Appeals decision that found an out-of-state bank had a sufficient physical presence in the state to be subject to Washington’s Business & Occupation (B&O) tax. The bank did not have any employees or property in Washington, but issued credit cards, including private label credits cards, to customers in Washington. The Court of Appeals concluded that the bank had a physical presence in Washington because in-state retailers promoted the bank’s private label credit cards, accepted card applications and payments on the cards on the bank’s behalf, and the bank used Washington attorneys to file collection-related lawsuits against Washington residents.

The court also rejected the bank’s argument that even if it was subject to the B&O tax, no income could be apportioned to Washington because the bank did not engage in business activities in the state. The Court of Appeals stated that the ordinary meaning of the term “business activities” in the context of a credit card issuer included issuing credit cards in Washington and earning substantial income from those cards, and that the bank engaged in those activities in the state. Thus, the Court found that apportioning the bank’s income to Washington based on the billing address of Washington cardholders fairly represented the bank’s business activity in the state.

Citibank (South Dakota) National Association v. Dep’t of Revenue, No. 57127-7-II (Wash. Ct. App. Nov. 14, 2023).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: Which state’s Department of Revenue recently issued guidance regarding the recently-enacted 4% surtax on individual income that exceeds $1 million?

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

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

The sales taxation of software has long been controversial. When sales of software became commonplace in the 1970s and 1980s, it was largely available and commercially distributed on a tangible medium. Today, software is provided in ways that do not constitute the transfer of title or possession of tangible personal property, such as the Software-as-a-service (SaaS) distribution model.

While only a few states explicitly tax SaaS or digital automated services as enumerated services, tax administrators may still attempt to tax them.

In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Michele Borens, Cyavash Ahmadi, and Meriem El-Khattabi explore recent administrative actions and judicial, tax tribunal, and legislative responses to the evolving provision of software. 

Read the full article here.

The Maine Supreme Judicial Court held that a prescription drug company’s income should be apportioned based on the location where its prescription drugs are received, rather than the headquarters locations of the health plans or employers paying for the drugs.

The drug company sought income tax apportionment based on a “market client basis,” arguing that its services were primarily received by its clients such as health insurers and employers. The court held that the clients’ “members” or insureds were the primary recipients of the drug company’s services, and therefore the company’s income must be apportioned on a “market member basis” to the location where the members received their prescription drugs. “Market client basis” sourcing was not appropriate because the company’s client agreements and its 10-k filings established that although the company contracted with health plans and employers, the ultimate recipients of its services were the individuals receiving the drugs and covered health services.

Express Scripts Inc. v. State Tax Assessor, No. BCD-22-331, (Me. Nov. 7, 2023).

A North Carolina Administrative Law Judge held that the Department of Revenue did not have the authority to adjust the taxpayer’s net income because the Department failed to timely issue a statutorily required written statement.

The Department believed the taxpayer had not accurately reported income properly attributable to North Carolina due to intercompany transactions that either lacked economic substance or were not at fair market value and issued a proposed assessment pursuant to N.C. Gen. Stat. § 105-130.5A(k). Although the Department is generally permitted to make such adjustments to a taxpayer’s net income, certain statutory requirements must be met. One such requirement is that the Department “shall” provide the taxpayer a written statement within 90 days of issuing the proposed assessment, detailing the support for the Department’s findings and its proposed method for computation of net income. 

Here, it took the Department nearly five years after issuance of the notice of proposed assessment to provide the required written statement. The ALJ analyzed the language within the 90-day deadline, ruling that the use of the word “shall” in reference to providing the written statement and the imposition of a deadline following the phrase “no later than” indicated the requirement was mandatory, not directory. Because the Department did not comply with a mandatory requirement, the Department lacked authority to adjust the taxpayer’s income under this code section.

Ingram Micro, Inc. v. N.C. Dep’t of Revenue, 22 REV 04478 (N.C. Office Admin. Hearings Oct. 27, 2023).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: The Ohio Board of Tax Appeals recently held that receipts from healthcare services should be sourced where the patient is located, for purposes of which state level 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 posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

The Multistate Tax Commission (MTC)’s 2023 Fall Committee Meetings are off to an exciting start, considering the announcement that Philadelphia will be joining the MTC’s Joint Audit Program. The District of Columbia and Philadelphia are the Program’s only non-state members.

The MTC’s Joint Audit Program provides audit services to the participating taxing authorities. The Program’s audit staff performs audits and provides proposed findings—often assessments—to jurisdictions that participate in each audit. Over the last 5 years, the MTC’s Joint Audit Program has completed the equivalent of 1,647 audits.

Read the full Legal Alert here.

Eversheds Sutherland is a proud sponsor of the 2023 New England State and Local Tax Forum, which provides an annual update on significant state and local tax developments from across the nation with a particular focus on New England.

On Thursday, SALT Partner Liz Cha will discuss the future of cost of performance sourcing, discussing cases in which the taxing authorities have been successful and cases in which the courts have pushed back, as well as what the current landscape looks like after the latest wave of litigation and where we may be headed next.

View and learn more about past and upcoming events and presentations for the SALT team.

In this article originally published by CalCPA in the September issue of California CPA, Eversheds Sutherland Senior Counsel Eric Coffill provides some considerations in deciding whether to grant or deny an auditor’s request for a statute waiver in a pending audit, a common issue arising in FTB audits.

Read the full article here.

Please join us for the NYU School of Professional Studies’ 42nd Institute on State and Local Taxation. This important conference, scheduled for December 11-12, 2023 in New York City, will provide insightful updates, practical advice, and in-depth analysis of the latest developments and current issues in state and local taxation. Check out this year’s exciting agenda here.

Sessions include:

  • Overview and Preview of Federal Constitutional Issues – A spirited review of the most significant constitutional cases
  • Rest Insured: The Pros and Cons of Insuring State Tax Positions and Controversies – What exactly is tax insurance, and what are the considerations to obtaining a policy? Considerations may vary between the insured (taxpayer) and the insurer. Hear about how insurance companies assess the insured’s return position/transaction/litigation position
  • Big Gain Hunting – A discussion of recent decisions confronting the issues that arise from transactions that produce big gains (and losses)
  • And more!

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

Register now!

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: Which state Department of Revenue recently found that a resident partnership was liable for additional composite tax on guaranteed payments made to nonresident partners?

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

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

On November 7, SALT Partner Todd Betor will present about current uses and trends of tax liability insurance for members of the Atlanta Tax Forum.

In addition, on November 10, Todd and fellow SALT Partner Ted Friedman will present during the 2023 Bank & Capital Markets Tax Institute, which provides a current state of the industry for bank tax professionals. Todd and Ted’s session will cover recent SALT developments, including judicial decisions, administrative guidance, legislative changes, and other matters relevant to the banking and capital markets industry. In addition, the panel will focus on corporate income tax, but will also cover recent sales/use and other state and local tax issues.

View and learn more about past and upcoming events and presentations.

Happy Halloween from the Eversheds Sutherland SALT team! Check out some of our festive and creative costumes, for humans and dogs alike!

Share your costumes (or impressive pumpkin carvings!) with us: SALTonline@eversheds-sutherland.com!

1, 2: Associate Cat Baron and her family, which includes former SALT Pet of the Month, Winnie

3: Associate Madison Ball’s dog, Agnes

4-6: Associate John Ormonde and his family, including their impressive pumpkin carvings

7: Legal secretary Janet Curry’s grandchildren

8: Associate Sam Trencs and her family

Paws and relax as we introduce our November SALT Pets of the Month, Pebbles and Lucy!

The two adorable mutts found their furever home with Kathryn Kelly, State Tax Manager at IHG Hotels and Resorts, after being adopted from BarkVille Dog Rescue and Atlanta Lab Rescue. In December of 2021, 3-year-old English Bulldog and Australian Cattle mix Pebbles was only meant to be fostered through the holiday season but quickly became a “foster fail” after unleashing the love. In September of this year, 2-year-old German Shepherd Lab mix Lucy joined the family as well after winning Kathryn over at an adoption event with her irresistible ears.

These two enjoy piling onto the couch to watch a Braves game after being dog-tired from a long walk and wolfing down anything coated in peanut butter. Pebbles loves to treat herself to rolling in the grass, especially when the temperature drops. Funnily enough, Lucy instantly bonded with Kathryn’s cat Fred, who she is absolutely mutts about!

The journey of rescuing Pebbles and Lucy would not have been possible without BarkVille Dog Rescue and Atlanta Lab Rescue and the work they do within the Atlanta community! Kathryn encourages everyone to find ways to give back to their local rescue shelters to help save one paw at a time.

We are elated to welcome these two pups to our 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’s Administrative Law Court upheld the Department of Revenue requirement that the taxpayer and its affiliates file a combined return because separate-entity filings resulted in distortion?

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

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

What should federal income tax advisors know about SALT issues? On October 30, Eversheds Sutherland SALT Partner Jonathan Feldman will revisit Wayfair and explore pass-through entity taxes as a panelist during the 58th Annual Southern Federal Tax Institute.

On November 2, Eversheds Sutherland Associate John Ormonde will serve as a panelist during the 2023 Annual Meeting of the California Tax Bar and Tax Policy Conference. His session will focus on the interplay between the California personal income tax law and the tax law for entities in the context of sourcing income.

View and learn more about past and upcoming events and presentations.

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 Massachusetts Department of Revenue recently announced a four percent surtax on taxpayers with taxable income over a certain threshold amount. What is the amount?

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

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

In an article for Bloomberg Tax, Eversheds Sutherland attorneys Liz Cha and Chelsea Marmor summarize recent tax developments in New York, including proposed corporate tax reform regulations and two court opinions on income sourcing, Matter of Techar and Matter of Jefferies Group LLC & Subs.

Read the full article here.

This week, Eversheds Sutherland is proud to support Tax Executives Institute’s 2023 Annual Conference—75th Anniversary Celebration. SALT Partners Todd Betor, Ted Friedman and Tim Gustafson will contribute to the comprehensive program that will include nearly 40 sessions focused on US federal, international, and state and local tax, as well as Canadian tax, financial reporting, and corporate tax management issues.

Presenters and topics include:

  • Tim Gustafson – Recent Developments in State Income Tax
  • Todd Betor – Accounting for State and Local Taxes: The Basics Every In-House Tax Professional Should Know
  • Ted Friedman – National SALT Litigation Update

In addition, Eversheds Sutherland is a proud sponsor of the 30th Annual Paul J. Hartman SALT Forum, held October 23 – 25 in Nashville, TN. The forum will discuss current developments as well as the practical solutions and planning opportunities in structuring and reporting state and local tax transactions.

Speakers and topics include:

  • Jeremy Gove – “Do the Due:” What To Do With Due Process
  • Maria Todorova – Market-Based Sourcing – Looking Through the Looking Glass
  • Jeff Friedman – 86-272 Sourcing and Nexus

Finally, on October 24, SALT Partner Dan Schlueter will cover current property tax developments and litigation during the 2023 Broadband Tax Institute (BTI) Annual Conference, held in Scottsdale, AZ.

View and learn more about past and upcoming events and presentations.

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 commissioner recently determined that a data center operator was entitled to a sales and use tax refund on its equipment purchases?

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

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

The Ohio Board of Tax Appeals denied an out-of-state healthcare organization’s apportionment of the Commercial Activity Tax related to healthcare services.

The taxpayer sought to apportion its gross receipts related to laboratory services and healthcare provider services based on where the taxpayer’s costs were incurred. The Board rejected the taxpayer’s position and found that the lab work and healthcare provider services are sourced based on where the benefit of these services is received. Citing to Defender Security Co. v. McClain, 162 Ohio St.3d 473 (2020), in which the Ohio Supreme Court held that under Ohio’s sourcing rule, the “paramount” consideration when determining what proportion of the benefit is attributed to Ohio is the physical location where the purchaser actually used and received the benefit of what was purchased. The Board found that while some of the services were conducted outside of Florida, the benefit of the services is received where the Ohio patients are located. 

The Board also noted that even if the laboratory testing and administrative services could be sitused outside of Ohio, the taxpayer failed to support its apportionment method with sufficient documentation. 

Total Renal Care Inc. v. Harris, No. 2019-848 (Ohio Bd. Tax App. July 24, 2023) (unpublished).

The taxpayer, a designer, marketer, and wholesaler of apparel, footwear, jeans, and other fashion accessories, shipped products to Ohio-based distribution centers of major retailers and paid the commercial activity tax for all items shipped to the distribution centers, even those that were ultimately received by customers outside of Ohio. The taxpayer applied for a refund for gross receipts realized from products that were sent to Ohio distribution centers but were ultimately shipped to locations outside of Ohio. The taxpayer provided labels for most of the retailers it shipped to that showed where the products would ultimately be delivered, and the Department of Taxation accepted those as sufficient evidence to situs those sales outside of Ohio. However, for two retailers (DSW and Dressbarn), the labels did not indicate where the products would ultimately be delivered, so the Department sitused those sales to Ohio.

The taxpayer appealed the refund denial to the Ohio Board of Tax Appeals. At the hearing the taxpayer provided evidence in the form of a report showing the distribution of each DSW product throughout all of its stores. This report was based on a data sample collected from DSW’s website over a 3-month period using custom software. The Department argued that the Board should only consider information the taxpayer had at the time it sold the products to DSW and Dressbarn and, that as far as the taxpayer knew at the time, the products were delivered to purchasers in Ohio.

While the Board rejected the Department’s argument that the taxpayer must have contemporaneous knowledge of the ultimate destination of the product at the time it is transported, the Board also determined that the taxpayer failed to meet its burden in proving that the Department’s findings (i.e., that the DSW and Dressbarn products should be sitused to Ohio) were not valid. The Board stated that the representative sample used was related to a time well after the tax period and “extremely short” in comparison (the sample looked at a period of 3 months and the tax period was 6 years). The Board also mentioned that while the taxpayer’s method may be sufficient in other circumstances, it was too far removed and reflected too narrow of a time frame to establish that the products sent to DSW and Dressbarn were ultimately received outside of Ohio. As a result, the Board affirmed the Department’s final determination.

Jones Apparel Group, et al. v. McClain, Case Nos. 2020-53, 2020-54 (Sept. 13, 2023).

Eversheds Sutherland is a proud sponsor of COST’s 54th Annual Meeting, covering all types of state and local taxes that business taxpayers are confronted with on a daily basis. Held in Las Vegas, NV between October 17 – 20, members of our SALT team will present on the following topics:

  • Jeff Friedman – 2024 and Beyond: The Acceleration of Business Tax Increases? 
  • Jonathan Feldman – Judicial Deference in Tax Controversies
  • Tim Gustafson – Local Taxes – Constitutional Constraints and Best Practices for Tax Administration
  • Todd Betor Financial Accounting for SALT
  • Charlie Kearns – The New Mobile Workforce – Employees Working from Anywhere

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: California Governor Gavin Newsom recently signed legislation establishing a new 11% excise tax on what kind of products?

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

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

Saddle up to meet our October Pet of the Month, Arson!

This striking Andalusian gelding is well traveled, having made his way from Madrid to New York to his final destination of Georgia where he was united with his owner, Jessica O’Quin, State and Local Tax Director at InterContinental Hotels Group.

Joining forces with Jessica after her previous horse had to reign in his more vigorous jaunts, Arson loves to be the mane attraction, especially by horsing around and performing tricks at random in hopes of earning a cookie. At five years of age, Arson enjoys galloping through the pasture with other horses where he lives in a stable state of mind. In future years, Jessica aims to compete in dressage and mounted archery with Arson.

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

In a June 1, 2023 determination, the Virginia commissioner concluded that a Virginia data center operator was entitled to a sales and use tax refund on its equipment purchases, regardless of whether they were delivered to a storage facility prior to delivery to the data center. 

Virginia allows a sales and use tax exemption for certain equipment purchased or leased for use in a data center. In reliance on this exemption, a Virginia data center operator pursued refund claims on its purchases of qualifying equipment. The Department denied the refund claims on the equipment that was delivered to the company’s Virginia storage facility prior to delivery to the data center itself. 

On appeal, the commissioner concluded that the data center operator’s equipment purchases qualified for the exemption, despite first being delivered to a storage facility. The commissioner observed that the statutory exemption did not include a requirement that the data center use the purchased items immediately. Rather, the exemption applied to eligible equipment either “used or to be used” in the operation of the data center. The commissioner further noted that storing equipment in reserve is “an essential part of data center operations.”  The incentive provided by the data center exemption would be impaired by “[p]rohibiting data centers from purchasing items for future use.”

Va. Public Document Ruling No. 23-67, Va. Dep’t of Tax. (Jun. 1, 2023).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: The Department of Treasury in which state recently updated its sales and use tax guidance on computer software and digital goods?

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

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

The Texas Comptroller of Public Accounts held its annual briefing in Austin on September 26 and provided taxpayers with updates regarding the administration of research and development credits, pending litigation, rule updates and related topics. The meeting – which was the first all in-person briefing since the beginning of the pandemic – struck an optimistic tone regarding the strength of the Texas economy and the Comptroller’s efforts to recover from its recent staffing shortages.

A Texas-sized R&D Backlog

The Texas Comptroller has struggled to administer the R&D credit over the past few years, resulting in a significant backlog of R&D audits and appeals. Texas’ R&D credit was a topic of intense interest for this year’s annual meeting and was covered in many of this year’s presentations. 

Brett Hare, the director of the Comptroller’s Direct Tax Section, said that the agency is making progress on its large backlog of R&D cases. Tax Hearings Attorney Supervisor Sarah Berry similarly said that her team was starting to move forward with pending R&D-related hearings and would consider taxpayer settlement requests for R&D issues.

Audit Director Emma Fuentes said that the audit division has shifted its approach to reviewing R&D credits. R&D credits are no longer being sent solely to the Tax Policy Division, which had been overwhelmed by the volume of requests. Now, a team from the Comptroller’s headquarters assists auditors to review R&D credit documentation. Fuentes also said that the Comptroller’s office understands that taxpayers typically cannot provide perfect documentation to substantiate R&D claims. Therefore, the Comptroller expanded the types of documentation that it will consider such as contemporaneous emails from personnel demonstrating that testing activity occurred.

Nick Souza of the Comptroller’s Policy Division said that the agency continues to focus on the Four-Part Test to determine whether a project has conducted qualifying research activities. The Four-Part Test is the test described in IRC, §41(d) (“Qualified research defined”) that determines whether research activities are qualified research. The four parts of the test are the Section 174 Test, the Discovering Technological Information Test, the Business Component Test, and the Process of Experimentation Test.

Souza added that taxpayers should continue to submit information used to qualify for the federal R&D credit, but that such documentation is not always conclusive for Texas purposes because the IRS does not always analyze the Four-Part Test, and the Texas-specific R&D expenses may not be apparent.

Virtual Currency, Cloud Computing, Data Processing and other Indirect Tax Developments

The Comptroller’s Indirect Tax Division highlighted two recent memorandums concerning virtual currency and credit card reporting services:

  1. No. 202309029L, the Comptroller clarifies that it considers electronic video games and associated virtual currency, virtual goods, and other content to be taxable amusement services. Meanwhile, membership fees, subscription fees, or similar charges, by whatever name called, for access to an electronic game or associated content are charges for membership or access to special privileges.
  2. In Memo No. 202302004L, the Comptroller determined that services to assign credit ratings to legal entities are taxable as credit reporting services.

    Two legislative changes that the Indirect Tax team is helping administer are H.B. 1515, which modifies the residency requirement for qualified Enterprise Zone employees to permit remote work, and S.B. 1122, which deals with the taxability of designated doctor exams related to workers’ compensation claims.

    The Indirect Tax Analyst Melissa Schulz said that her team is working on updates to Comptroller Rule 3.330, to provide examples of data processing services. Schultz also added that the team is discussing topics such as resale exemptions for cloud computing, out-of-state software licenses, and what emerging technologies may constitute taxable data processing.

    Franchise Tax apportionment, reporting, and other Direct Tax Updates

    The Comptroller finalized amendments to its franchise tax apportionment rule, discarding the now-repudiated “receipt-producing, end-product act” test. The Comptroller proposed these amendments in response to the Texas supreme court’s unanimous decision in Sirius XM Radio, Inc. v. Hegar. Eversheds Sutherland’s SALT Team represented Sirius XM in this litigation.

    Comptroller’s rule replaces the term used by the Texas supreme court—“equipment”—with the more general term “property” in apparent recognition that the location of property that is not equipment may be relevant as well.

    The Direct Tax team discussed the implementation of S.B. 3, which increases the threshold before small businesses are required to pay and file franchise taxes. The Tax Policy division also issued a memo to the Audit division on the impact of Hegar v. Health Care Services Corp. to stop-loss insurance. Based on the decision in Health Care Services Corp., insurers can allocate premiums received for stop-loss policies purchased by employers to finance self-funded employee health care benefits when calculating gross premiums subject to premium and maintenance tax if the insurer follows a reasonable allocation methodology that is supported by sufficient evidence.

    Audit Sampling Gone Wrong

    The Comptroller’s audit team discussed an initiative to change how audit samples are developed. Audit Director Emma Fuentes said that her team has noticed instances where a taxpayer’s audit sample complies with the Comptroller’s standards, but is nevertheless so large that it becomes inefficient. The example provided was an audit sample of 6,000 items that took approximately 1,500 hours to review. Methods to reduce sample sizes include merging sample categories, eliminating immaterial sample categories, and increasing the variances between dollar stratums up to eight percent.

    Refund Claims for Nonpermitted Taxpayers

    Nonpermitted taxpayers are required to fill out a Form 00-985, “Assignment of Right to Refund” in order to file refund claims. The Audit Director Fuentes said that her staff has noticed a widespread issue of taxpayers losing their refund claims due to statute of limitations because the form is not being sufficiently completed, specifically the requirement to itemize the transactions that form the basis for the refund claim. Audit staff are now conducting more thorough reviews of the Assignment of Rights forms as they come in, but Fuentes implores service providers to be more thorough when submitting the forms.

    Ongoing Audit Staffing Problems

    The Comptroller’s audit division remains understaffed. Director Fuentes said that the audit division is averaging staffing levels around 460 auditors down from a pre-pandemic average of 570. Interest waivers may be available for taxpayers who experience audit-related delays.

    Tax Hearings Bypass Process

    Victor Simonds, Senior Counsel of Tax Compliance, highlighted the progress of the Comptroller’s relatively-new hearings bypass process. Simonds noted that although the process allows taxpayers to quickly access District Court, taxpayers should not ask auditors to summarily deny claims to expedite the process. Mr. Simonds said that it was important to develop a complete record for District Court and that the hearings bypass process has been successful at fully or partially resolving many claims.

    See you in court… This Year’s Texas Tax Litigation Update

    Bree Boyett from the Comptroller’s Tax Litigation Team provided an overview of recent significant tax cases, including:

    • Apple, Inc. v. Hegar: An Internet Tax Freedom Act challenge to the imposition of sales tax on iCloud and iTunes matching services as data processing services.
    • Hibernia Energy LLC v. Comptroller: A case concerning how flow-through status for federal tax purposes is converted to taxable entity status for the Texas franchise tax.
    • Anadarko Petroleum Corporation v. Hegar: A COGS case regarding whether a $4 billion payment related to the Deepwater Horizon oil spill could be deducted as a cost of goods sold under an “origin of the claim” theory. 
    • American Airlines v. Hegar: A franchise tax controversy in which an airline claims that Texas’ imposition of franchise tax on baggage and passenger fees is prohibited by the Anti-Head Tax Act.
    • Sidetracked Bar LLC v. Hegar: A case holding that an electronic sweepstakes using magnetic card strips was taxable as an amusement service.
    • Boaz Energy II Operating LLC. V. Hegar: A sales tax case concerning whether tangible personal property purchased in connection with the operation of secondary recovery injection wells is exempt as property specifically installed to reuse and recycle wastewater streams generated within the manufacturing, processing, fabrication, or repair operation. Similarly, XRI Holdings, LLC v. Hegar is a case about whether water used for fracking qualifies for a sales tax exemption for wastewater treatment.
    • Avalon Exploration and Production LLC v. Hegar: A case regarding whether oil soluble chemicals are exempt from sales tax because they become a component of property sold for resale.

    What’s Next for Texas

    The Texas economy continues to outpace expectations according to the Comptroller’s Chief Revenue Estimator, Brad Reynolds.

    Reynolds said that the forthcoming revised revenue estimate abandons predictions of a recession, and that there are no strong indications that Texas will experience a recession next year. Notable areas of increased Texas tax collections include hotel occupancy, insurance and franchise taxes. Reynolds also noted that state coffers received a boost for increased apportionment from service providers that relocated their corporate headquarters to the state.

    The presentations throughout this year’s briefing struck an equally optimistic tone for the agency’s continuous efforts to improve its staffing, resolve the backlog of R&D cases, and push to clarify existing guidance. Taxpayers will continue to navigate the Comptroller’s evolving rules and audit process, as well as litigate some highly interesting cases in court. Eversheds Sutherland’s tax team will keep monitoring Texas developments and provide insights on what Texas taxpayers can expect in the Lone Star State.

    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 held that the sales tax exemption for the sale of aircraft parts and maintenance did not apply to aircraft lease charges for repairs and maintenance?

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

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

    So you think you know sales tax? Eversheds Sutherland SALT attorneys Liz Cha and Jeremy Gove will present on sales tax topics during the 2023 IPT Sales Tax Symposium, held in Chicago from October 1-4.

    Liz’s panel will identify notable local taxes and equip taxpayers with the skills to minimize risk, while Jeremy will explore trends in states’ manufacturing exemptions, with a focus on applicable cases and other hot topics.

    For more information and to register, click here.

    Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

    We will award prizes for the smartest (and fastest) participants.

    This week’s question: Which state recently held that payroll, property and sales that generated deductible agricultural cooperative income must be included in the taxpayer’s corresponding payroll, property and sales apportionment factors?

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

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

    On September 19, 2023, the D.C. Tax Revision Commission met for the second time to discuss proposals for changes to the D.C. tax scheme. Among the multiple topics reviewed, the Commission’s members discussed whether to create a business activity tax, which would primarily target entities that do not pay the District’s net income taxes on business entities – Corporation Franchise Tax or Unincorporated Business Franchise Tax. However, reception among the members on this proposal was mixed. The Commission also discussed a broad range of proposals, covering a range of tax types.

    Business Activity Tax

    For background, the District’s status as a federal enclave and not a state (while “functioning” as a state, county, and municipality for tax purposes) is unique among U.S. jurisdictions.  Pursuant to the Home Rule Act[1] and ultimate oversight by Congress, the District cannot impose tax on the personal income of non-residents. Because the District cannot tax the income of non-residents, it imposes the Unincorporated Business Franchise Tax to tax the entities of which they are owners, such as partnerships. However, the Unincorporated Business Franchise Tax does not apply to the income of professional partnerships.

    To address what it views as those inequities, the Commission now proposes creating a Business Activity Tax. The tax would apply at a 0.5% or 1.0% rate on the formula of Gross Receipts – [Cost of Goods Sold + Capital Purchases]. The Commission also considered the Business Activity Tax liability being a nonrefundable credit against the Corporation Franchise Tax or the Unincorporated Business Franchise Tax. In its proposal paper, the Commission specifically identifies law partnerships as being subject to new tax liabilities, along with, potentially, nonprofit entities. 

    The Commission’s members were not convinced by the business activity tax proposal. There were concerns about the tax applying to businesses that failed to make a profit and, also, providing a disincentive to start-ups considering locating in the District. The Commission’s members did not entirely rule out the tax, though, because of its potential as a revenue-raiser.

    Other Proposals

    The Commission brainstormed a number of other policy ideas affecting income taxes, taxation of partnerships, property taxes, and administrative issues, including:

    • Joyce to Finnigan. The District currently uses the Joyce method of combined reporting.  In other words, District combined reports may include only entities that separately have nexus with the District. The Commission’s members broadly supported switching to the Finnigan method of combined reporting, which would treat the entire combined group as includible in the combined return, unless otherwise excluded.
    • Pass-Through Entity Tax. Unlike many other states, the District does not currently have a SALT cap workaround option for individuals to bypass the federal cap on deductions for state taxes paid. The federal cap does not apply for taxes paid by businesses because they qualify instead as deductible business expenses. By allowing unincorporated pass-through entities that are not subject to the unincorporated business franchise tax (such as law and accounting partnerships) to pay entity-level tax and giving their owners an equivalent tax break at the individual level, the owners can reduce their federal income tax liabilities. This change would be optional for District taxpayers. The members of the Commission also supported this proposal.
    • Finally, the Commission’s members also discussed: (1) switching from I.R.C. rolling conformity to static conformity; (2) whether to increase the franchise tax filing thresholds and minimum tax amounts; (3) repealing, or increasing the threshold for, personal property tax; and (4) eliminating or limiting the District’s bar on issuing clean hands certificates for taxpayers with outstanding tax liabilities.

    Future meetings and next steps

    The Commission currently has scheduled four more proposal review sessions – September 26th, October 10th, October 20th, and October 24th. At the next meeting, the Commission expects to discuss whether to levy a per-employee service fee on employers and create an “extreme” wealth tax.


    [1] D.C. Code Ann. § 1-206.02(a)(5).

    On Wednesday, September 20, Eversheds Sutherland Partners Michele Borens, Jeff Friedman, Ted Friedman and Maria Todorova will provide various SALT updates to TEI’s Seattle Chapter.

    Sessions and speakers include:

    • Jeff Friedman – WA DOR update
    • Michele Borens, Maria Todorova – Sales Tax Is Cooler
    • Jeff Friedman, Ted Friedman – No, Income Tax Is Cooler
    • Michele Borens, Jeff Friedman, Ted Friedman, Maria Todorova – Why SALT isn’t Kosher?

    On September 13, 2023, the D.C. Tax Revision Commission met and evaluated over a dozen tax proposals. Most concerning, the Commission discussed the possibility of implementing a digital advertising tax or a data mining tax.

    D.C. Tax Revision Commission

    The Council of the District of Columbia established the Commission to comprehensively review the District’s tax code. The Commission’s mandate is to make tax policy recommendations on:

    1. Providing for fairness and equity in the apportionment of taxes and promoting progressivity;
    2. Broadening the tax base;
    3. Making the District’s tax policy more competitive with surrounding jurisdictions;
    4. Encouraging business growth and job creation; and
    5. Modernizing, simplifying, and increasing transparency in the District’s tax code.[1]

    By the end of 2023, the Commission is set to submit its slate of recommendations to the Council, along with specific steps for implementing the recommendations, such as draft legislation and regulations.

    The Commission previously released reports in 1998[2] and 2014.[3] Each Commission’s report made recommendations for changes to the District’s tax system. For example, in 1998, the Commission recommended a 1.5% business activities tax and “taxing sales of tangible products to District residents the same regardless of whether they are sold remotely or by District-based businesses.” In 2014, the Commission recommended reducing the District’s business franchise tax rate from 9.975% to 8.25%.

    D.C. Tax Revision Commission proposals

    Throughout 2023, the Commission has met with various tax and fiscal policy experts, as well as community and industry representatives. It has prepared a series of proposals to review and potentially suggest to the Council. On September 13, 2023, the Commission met for the first time to discuss these various proposals. In advance, the Commission released the list of proposals that they would review. 

    The first proposal on the list was “Strengthen and clarify taxation of digital ads and services.” The Commission released a proposal paper, elaborating on the topic. The proposal paper specifically listed as options: (1) a digital advertising tax act similar to Maryland’s enactment; and (2) a tax on “the extraction of consumer data by tech platforms in much the same way that states tax the extraction of valuable commodities like fossil fuels or precious metals.” The second option would be a “per-consumer excise tax that accounts for each user whose data is being mined.” 

    The sordid history of state digital advertising taxes

    Maryland became the first – and only – state in the United States to impose a tax on gross receipts from digital advertising services in 2022. The tax is imposed on gross revenues derived from digital advertising services in Maryland at graduated rates, from a minimum rate of 2.5% to a maximum rate of 10% of such revenues. The Maryland digital advertising generated immediate controversy, with taxpayers challenging the tax in state[4] and federal courts on federal statutory and constitutional grounds.[5] While those challenges have yet to result in a final nonappealable decision on the legality of the Maryland tax, we expect the Maryland Supreme Court to eventually reach the merits and, hopefully, find the tax to be unconstitutional. And while several other states have considered Maryland-style digital advertising tax legislation, those proposals ultimately have been rejected.

    With the history of Maryland’s digital advertising tax in mind, the Commission’s proposal paper acknowledged that any potential D.C. tax similar to Maryland’s tax would likely face similar legal challenges. But the paper noted that it may be able to “minimize challenges by, for example, imposing a tax on all advertising (as opposed to just digital advertising). There could then be less risk that the tax would violate the federal Internet Tax Freedom Act.” But imposing a broad advertising tax could prove difficult for the Council based on recent experience. In 2020, the Council considered expanding its sales tax base to include sales of advertising services and personal information, as part of its Fiscal Year 2021 Budget Support Act of 2020. Ultimately, the