On September 3, 2021, the United States District Court for the District of Nevada held that streaming video providers were not subject to Nevada localities’ franchise fees. The city of Reno filed a class action lawsuit against two streaming video providers, claiming that they were required to register as video service providers (i.e., obtain a certificate of authority) and pay local franchise fees. A “video service provider” is “any person that provides or offers to provide video service over a video service network to subscribers[.]”  Nev. Rev. Stat. § 711.151(1) (emphasis added).  The term “video service” excludes “[a]ny video content provided solely as part of, and through, a service which enables users to access content, information, electronic mail or other services that are offered via the public Internet.” Nev. Rev. Stat. § 711.141(3)(a).  The court held that the streaming video providers were not “video service providers” because they satisfied this exclusion from “video service.” The court rejected the city’s arguments that the taxpayers did not qualify for the exclusion because: (1) the providers’ video streaming offering must be only a part, rather than the entirety, of the service; and (2) the “public” Internet is no longer public if a fee is charged for its usage.

The court also concluded that local governments do not have a private right of action under the Nevada video service laws to contest that the streaming video providers must obtain certificates of authority to provide video service in Nevada and owe franchise fees to the localities. Rather, the Nevada Attorney General must bring any such claim.

City of Reno, Nevada v. Netflix, Inc. et al., Case No. 3:20-cv-00499-MMD-WGC (D. Nev. Sept. 3, 2021).

On this episode of the SALT Shaker Podcast, host and Eversheds Sutherland Associate Jeremy Gove is joined by Partners Nikki Dobay and Breen Schiller to discuss the history and changing landscape of local taxation, and what that means for multistate taxpayers as well as small businesses.

During their conversation, they discuss the expansion of local taxes as municipalities look to plug budget shortfalls by expanding their tax base by utilizing various strategies previously unseen at the local level, including economic nexus. They also explore the differences between municipalities generally and home-rule jurisdictions.

In part two of their discussion, they will address how local taxes are administered and how taxpayers can deal with local tax disputes.

Questions or comments? Email SALTonline@eversheds-sutherland.com.








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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: Which state recently published an advisory opinion, holding that the electronic transfer of photographs is not taxable because a digital photograph is not considered tangible personal property?

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

The prize for the first response to today’s question is a $25 UBER Eats gift card.

Answers will be posted on Saturdays in our SALT Shaker Weekly Digest. Be sure to check back then!

On September 10, 2021, the California Department of Tax and Fee Administration (the CDTFA) proposed amendments to the CDTFA’s regulations governing drop shipments, in an effort to clarify that marketplace sales are not drop shipments. In October 2019, the California Marketplace Facilitator Act became effective, making marketplace facilitators the seller and retailer for sales facilitated through their marketplace and responsible for collecting and remitting the sales tax. Historically, drop shipments were those sales made by a retailer not engaged in business in California, but who sells tangible personal property to California purchasers through the purchases of the property from a supplier (the drop shipper) who ships the property directly to the California purchaser. The drop shipper engaged in business in California is then reclassified as the “true retailer” and responsible for collecting and remitting tax on the sale. The proposed regulation provides that when a marketplace seller contracts to purchase property from a supplier, and have the supplier (acting similar to a drop shipper) deliver the property directly to the California purchaser, the supplier is not a drop shipper responsible for tax collection and is not considered the “true retailer.” Instead the tax collection remains the responsibility of the marketplace facilitator. The period to provide written comments to the Department regarding this proposed revision ends on October 25, 2021.

On September 15, Eversheds Sutherland Partner Nikki Dobay will participate on a panel during the Association of Washington Business (AWB) 2021 policy summit that will be discussing the Washington’s capital gains tax and the impact it could have on the state. Find out more here.

In addition, Eversheds Sutherland Partner Todd Lard will participate in an industry panel during the 2021 Northeastern States Tax Officials Association (NESTOA) annual conference, responding to states’ questions of interest. You can register and view more information here.

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

On September 9, California AB 1402 was enrolled and presented to Governor Newsom for his signature. The legislation requires marketplace facilitators to register, collect, and remit specified fees administered under the Fee Collection Procedures Law that are imposed upon the retail sale of tangible personal property in the state. Specifically, the legislation requires marketplace facilitators to collect and remit:

  • Lead-Acid Battery Recycling Fees,
  • Lumber Product Assessments,
  • Covered Electronic Waste Recycling Fees, and
  • Tire Fees.

In its final form, the legislation carves-out from the list of fees a marketplace facilitator is required to collect any fee on prepaid mobile telephone services imposed under the Prepaid Mobile Telephony Service Collection Act (Part 21.1).

The legislation treats a marketplace facilitator as the retailer, dealer, or seller for purposes of collecting and remitting any of the specified fees.  The Governor has until September 21 to act on the legislation or it will become law without his signature. The most recent committee analysis on the legislation is available here.

The California Court of Appeal, Second Appellate District ruled that the franchise fee, including a surcharge imposed by electric utility Southern California Edison (SCE) on its customers in Santa Barbara, pursuant to SCE’s agreement with the city, was not a tax requiring voter approval under Proposition 218. Dating back to 1959, SCE has had franchise agreements with Santa Barbara, allowing SCE the ability to distribute electricity to customers in the city through equipment running along, under and over the city’s streets in exchange for a franchise fee.  SCE and Santa Barbara agreed to a new franchise agreement in 1999, after five years of negotiations. Under the prior agreement, SCE was required to pay the city a fee equal to one percent of its gross annual receipts from the sale of electricity within Santa Barbara. Under the 30-year agreement entered into in 1999, SCE was required to continue paying the one percent franchise fee based on its gross receipts for the first two years, and for the remaining 28 years, include an additional one percent surcharge on customers’ bills, for a total franchise fee of two percent.

Customers initiated a class action following the imposition of the one percent surcharge, alleging that it was a tax imposed in violation of Proposition 218, which generally requires taxes imposed by local governments be subject to voter approval.  The plaintiffs filed suit in 2011 and the trial court ruled on cross-motions for summary adjudication that the surcharge was not a tax subject to Proposition 218. The Court of Appeal reversed in 2015, reasoning that because the primary purpose was to raise revenue, the surcharge was a tax.  In 2017 the California Supreme Court reversed the Court of Appeal, ruling that while all franchise fees raise revenues, only those that are not reasonably related to the services provided are taxes. The Supreme Court further found that the plaintiffs had alleged sufficient facts to overcome summary adjudication, but had not established their own right to summary adjudication, so the case was remanded to the trial court for further fact-finding. On remand, the trial court determined that Santa Barbara met its burden of proof by showing that the two percent franchise fee had a “reasonable relationship” to the value of the property interest Santa Barbara transferred to SCE.

In affirming the trial court’s decision, the appellate court determined that for purposes of analyzing Proposition 218 compliance, the entire two percent charge must be analyzed, and ruled that both the initial one percent included in the rates customers pay and the additional separately stated one percent surcharge, is a payment made in exchange for the property interest that SCE needs in order to provide electricity. The court went on to rule that Santa Barbara met its burden of establishing a reasonable relationship between the two percent charge and the franchise rights SCE paid for, and thus the fee was not a tax subject to Proposition 218.  In reaching that conclusion, the court noted there is no requirement of an actual relationship between the franchise right and the fee amount, only that two percent reasonably approximates the value of the franchise rights provided to SCE. In finding there was a reasonable relationship, the court noted the best indicator of market value are negotiations, which in this case were lengthy, conducted at arm’s length, and yielded the two percent fee in dispute. Ultimately, the court found that the plaintiffs made “virtually no effort” to rebut the trial court’s factual findings supporting the reasonable relationship between the franchise right and franchise fee, and thus, the franchise fee was not a tax subject to Proposition 218 protection.

Jacks et al. v. City of Santa Barbara, 2d Civ. No. B299297 (Cal. Ct. App. Aug. 19, 2021).

In this episode of the SALT Shaker Podcast policy series, host and Eversheds Sutherland Partner Nikki Dobay is joined by Rob Gutierrez, President and CEO of the California Taxpayers Association (CalTax).

Rob provides an overview of CalTax and its mission, and then expands the discussion to California’s latest legislative session and how it was impacted by COVID-19. He and Nikki also discuss legislation that didn’t pass, as well as legislation taxpayers should have on their radar. He then provides further detail on California’s upcoming governor recall. Finally, he takes part in the fun of a surprise non-tax question – what’s your favorite fair food? Stay tuned for part II of their conversation!

The Eversheds Sutherland State and Local Tax team has been engaged in state tax policy work for years, tracking tax legislation, helping clients gauge the impact of various proposals, drafting talking points and rewriting legislation. This series, which is focused on state and local tax policy issues, is hosted by Partner Nikki Dobay, who has an extensive background in tax policy.

Questions or comments? Email SALTonline@eversheds-sutherland.com.








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On September 2, 2021, the Colorado Department of Revenue issued private letter ruling PLR 21-005 concluding that subscription fees for an online learning platform are subject to sales tax. The taxpayer operates an online learning platform offering on-demand digital courses comprised of streaming video lessons covering academic subjects and vocational license preparation courses. Each subscription also provides a written transcript of the classes the user registered and access to an automated online tutor. The taxpayer offers various subscription plans that provide transferrable college credit and additional tutor access. The Department concluded that while Colorado only taxes tangible personal property and enumerated services, and the service in question is not an enumerated service, under the true object of the transaction test each learning plan is a mixed transaction “more analogous” to tangible personal property. Thus, the subscription fees are treated as the taxable sale of tangible personal property. The Department also determined that the taxpayer’s provision of internet advertising services, which include creating web content for an advertising company on a “pay-per-click” model, are not taxable because advertising services are not taxable in Colorado.