In this article originally published by CalCPA in the January/February issue of California CPA, Eversheds Sutherland Senior Counsel Eric Coffill provides helpful tips for having a Power of Attorney (POA) submission to California’s Franchise Tax Board accepted the first time and for anticipating problems in using the POA.

Read the full article here.

New York and Massachusetts are the latest states to introduce tax legislation targeting digital advertising and data collection. Like the similar bills introduced earlier in Connecticut, New York, and Indiana, proposals similar to these latest New York and Massachusetts bills have been rejected by the respective legislatures in prior sessions.

New York revisits the commercial data collection tax

New York legislators continue to introduce bills targeting the digital economy and data collection. On January 18, New York State Senator Liz Krueger (D), Chair of the Senate Finance Committee, introduced S2012, which imposes a monthly excise tax on for-profit entities collecting and selling data from more than one million New Yorkers per month. The tax would apply regardless of how the data is collected, whether by electronic or other means.

The tax rate in S2012 would apply on a graduated scale based on the number of New York consumers whose data the taxpayer collects in a month. The tax starts at 5 cents per individual per month on the number of New York consumers over one million, which would cost businesses at a minimum $50,000.05 per month. The tax rate then gradually increases both in rate plus an additional flat rate amount. The highest rate is 50 cents per month on the number of New York consumers over ten million, plus a flat rate of $2,250,000. This legislation was previously introduced by Sen. Krueger during both the 2021 and 2022 legislative sessions in New York.

Massachusetts throws digital taxes against the wall to see what sticks

Massachusetts legislators have introduced a flurry of bills that would tax digital advertising, commercial data collection, or the sale of personal information. On January 18 and 20, state legislators in Massachusetts introduced six draft bills that would adopt a digital advertising services tax. Additional bills were introduced that would tax commercial data collection or the sale of personal information. Those bills are:

  • HD 1507 was filed on January 18 and is pending committee referral. The bill draft would establish a special commission to conduct a comprehensive study relative to generating revenue from digital advertising that is displayed inside of Massachusetts by companies that generate over $100 million a year in global revenue.
  • HD 1683 was also filed on January 18; this bill draft would assess and levy in each calendar year an excise on the sale of digital advertising services provided within the commonwealth. Revenue from digital advertising services would be required to be remitted monthly. The excise would be assessed at a rate equal to 6.25 percent of the annual gross revenue from digital advertising services provided within the commonwealth. The first $1 million in revenue would be exempt.
  • HD 3052 was filed on January 20; the bill would impose a 5 percent tax on persons with revenue from digital advertising services in excess of $25 million per year. The tax would apply to digital advertising services accessed via a digital interface within the state.
  • HD 3144 would impose a tiered digital advertising tax with rates of 5, 10, and 15 percent based on annual gross revenues from digital advertising provided in the state, based on IP address of the user’s device on which the advertising is accessed. The tax is imposed on persons with more than $100,000 of digital advertising services in Massachusetts. The draft was filed on January 20.
  • HD 3230 would impose a 6.25 percent excise tax on digital advertising services provided in Massachusetts. The service will be deemed to be in the state if the advertising is received on the user’s device with an IP address in the state. The draft was filed on January 20.
  • SD 1439 was filed on January 19 and is pending committee referral. The bill would impose a tiered digital advertising tax with rates of 5, 10, and 15 percent based on annual gross revenues from digital advertising provided in the state, based on IP address of the user’s device on which the advertising is accessed. The tax is imposed on persons with more than $100,000 of digital advertising services in Massachusetts.
  • SD 1711 would tax on the collection of data by commercial data collectors. Similar to the New York Senator Krueger’s bill, SD 1711 would impose a tax on commercial data collectors that collect, maintain, use, processes, sells, or shares consumer data in support of its business activities. The bill also adopts a tired rate structure where the first $1 million of receipts is exempt, but rates thereafter range from $.05 cents per month of the number of Massachusetts consumers if data is collected from more than 1 million less than 2 million Massachusetts consumers, up to $750,000 per month plus $.30 cents per month on the number of Massachusetts consumers if data is collected from more than 6 million Massachusetts consumers.
  • SD 1768 would require persons who sell personal information or exchange personal information for consideration in the state to register with the Department of Revenue, and provide certain detailed information concerning the data and the collection of such data. The bill does not specifically impose a tax, but requires the Department to recommend ways to tax businesses selling personal information to the legislature, “to ensure appropriate compensation to the people of the Commonwealth.”

Meet our January Pet of the Month, Belle! She belongs to Jonnell Quarrie, Director of Tax at MOD Pizza.

Belle recently turned two in December, and is a delightful mix of Lhasa Apso and Cocker Spaniel. She joined Jonnell’s family on St. Patrick’s Day in 2021, and looks like Lady from the Disney classic Lady and the Tramp. Jonnell and her family almost renamed her. However, they decided there was enough change with her shifting households that they didn’t want to add a name change on top!

When it comes to food, Belle likes to have whatever everyone else is having! She prefers the large dog food of Jonnell’s daughter’s German Shepard, Henny, even though it barely fits in her mouth! If the cats are getting canned food, she wants some of that – and if her humans are eating, she is always willing to do the pre-wash before they put the dishes in the dishwasher!

For a puppy, Belle is pretty mellow, and loves to sleeps a lot. However, what she lacks in size she makes up for in volume! She is also fearless – she will run up to tackle Henny (who is 115 pounds!) to play with him. She also loves to have a great view. Since she was a puppy, she’s had her dog bed on top of Jonnell’s desk so that she can look out the window and see what’s happening in the neighborhood.

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

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 two states recently proposed digital advertising/data tax bills (again)?

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 Supreme Court of Virginia recently upheld a circuit court decision invalidating a county’s plan to claw back tax refunds because it violated the state constitution’s uniform taxation requirement.

The Isle of Wight County changed the valuation methodology for its machinery and tools tax (“M&T tax”), resulting in approximately $5.6 million in refunds for tax years 2013-2015. In response to the significant budgetary shortfall caused by the refunds, the county enacted a large one-year hike of its M&T tax rate for 2017 coupled with a “M&T Tax Relief Program” that provided “grants” to certain taxpayers. The grants were for the differential between the 2016 and 2017 rates, minus any refund amounts that a taxpayer may have received for the 2013-2015 period.  The net effect of this approach is that the only taxpayers who had to pay the significantly increased M&T tax rate were the ones who received refunds, and the increased amounts they owed were limited to the amount of the M&T tax refund they had received from the county.

International Paper, one of the affected taxpayers, challenged its tax assessment for 2017.  The Supreme Court held that the M&T Tax Relief Program operated effectively as a partial tax exemption, which made International Paper’s 2017 M&T tax assessment non-uniform, invalid and illegal. Because the M&T tax rate hike was enacted in tandem with the M&T Tax Relief Program, both were invalidated. Additionally, the county procedurally defaulted on its argument that it was entitled to rely on 2016 rates, so the taxpayer was entitled to a full M&T tax refund for 2017.

County of Isle of Wight v. International Paper Company, 881 S.E.2d 776 (Va. 2022).

Representative J.D. Prescott (R) introduced Indiana HB 1517, which would impose a surcharge tax on social media providers. HB 1517 is similar to legislation introduced by Representative Prescott during the 2021 and 2022 legislative sessions that did not make it out of committee.

Specifically, HB 1517 would impose a surcharge tax on social media providers equal to: (1) the annual gross revenue derived from social media advertising services in Indiana in a calendar year multiplied by seven percent; plus (2) the total number of the social media provider’s active Indiana account holders in a calendar year multiplied by $1.

A “social media provider” is defined as a social media company that: (1) maintains a public social media platform; (2) has more than one million active Indiana account holders; (3) has annual gross revenue derived from social media advertising services in Indiana of at least one million dollars; and (4) derives economic benefit from the data individuals in Indiana share with the company. The bill defines a “social media platform” to mean an internet website or internet medium that: (1) allows account holders to create, share, and view user generated content through an account or profile; and (2) primarily serves as a medium for users to interact with content generated by other third party users of the medium.

“Social media advertising services” means advertising services that are placed or served on a social media platform. The term includes advertisements in the form of banner advertising, promoted content, interstitial advertising, and other comparable advertising services.

The bill contains an apportionment provision, which provides that the apportionment of annual gross revenue derived from social media advertising services in Indiana shall be determined using an allocation fraction, the numerator of which is the annual gross revenue derived from social media advertising in Indiana, and the denominator of which is the annual gross revenue derived from social media advertising in the United States, during the calendar year.

The bill would be effective January 1, 2024. According to the bill’s fiscal note, the surcharge is expected to raise between $64.6 million and $88.3 million in FY 2024 and between $118.5 million and $173.9 million in FY 2025. The revenue would be distributed to an online bulling, social isolation, and suicide prevention fund.

A number of Connecticut digital advertising bills and a New York data tax bill have been introduced to jumpstart the 2023 legislative sessions. Both states have considered – but ultimately rejected – legislation that would adopt targeted taxes on the digital economy in recent years.

On January 18, 2023, proposed legislation was filed in the Connecticut House (HB 5673) and Senate (SB 351) that would establish a 10 percent tax on the annual gross revenues of any business with annual gross revenues exceeding $10 billion from digital advertising services. HB 5658 was also proposed, which similarly calls for a 10 percent tax on the annual gross revenues from digital advertising services on any business with annual gross revenues exceeding $10 billion, with no caveat that revenues be from digital advertising services. Similar proposals were introduced in Connecticut during the 2021 legislative session. Because Connecticut legislators may introduce legislation as a short statement in non-statutory language, HB 3573, SB 351, and HB 5658 lack the formal statutory language normally found in other states. The Joint Committee on Finance, Revenue and Bonding will now consider these proposed bills and determine if it should be sent to the Legislative Commissioners’ Office for full drafting of the bill’s text.  

New York legislators are back at it again, too. On January 17, 2023, S1845 was filed and referred to the Budget and Revenue Committee. The legislation proposes to impose a 5 percent tax on the gross income of every corporation that derives income from the data New York individuals share with such corporations. The bill says little about how the tax will work – and fails to define or use existing defined terms within New York’s franchise tax.  As written, it is unclear whether the income to be taxed is limited to gross income earned from data procured from New York individuals or if a broader base (i.e., any gross income) applies.  This bill is similar to legislation introduced in both the 2021 and 2022 legislative sessions that did not make it out of committee.

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: Eversheds Sutherland attorneys Jeff Friedman and Cyavash Ahmadi examined which New York False Claims Act related case in a recent article?

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 Illinois Court of Appeals held that an energy company’s book-out transactions, which do not involve the physical transfer of fuel, are taxable sales under the Cook County fuel tax ordinance because they involve the transfer of an ownership interest as to the fuel. The company enters into book-out transactions to settle forward contracts (i.e., agreements to deliver fuel on a specified date in the future) financially rather than through physical delivery of fuel. 

Reversing the circuit court, the Court of Appeals rejected the taxpayer’s argument that no taxable event occurred because the fuel tax applied to the retail sale of gasoline and other fuel, and the “book-out” transactions were purely financial, without any physical transfer of property. The court agreed with the Department that the fuel tax ordinance “broadly” defined a taxable “sale” to include “any transfer of ownership . . . by any means whatsoever.” In the court’s view, the taxpayer’s forward contracts involved taxable transfers of intangible ownership interest.

However, the court declined to apply penalties, concluding that the taxpayer’s position was a reasonable, albeit incorrect, interpretation of the law considering no physical transfer of property occurred.

Marathon Petroleum Co. v. The Cook Cnty. Dep’t of Revenue, 2022 Ill. App. 210635 (Ill. App. Ct. 2022)

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 supreme court recently held that proceeds from sales of book club memberships are taxable?

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 installment of A Pinch of SALT for Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman and Cyavash Ahmadi examine Egon Zehnder, a case they argue demonstrates why New York’s False Claims Act should never have been expanded to tax cases. The case reflects fundamental problems that go to the heart of sound tax administration policies.

Read the full article here.

State and local authorities recently have used decisions and enforcement to go beyond the language in tax statutes.

In this edition of “A Closer Look” in Bloomberg Tax, Eversheds Sutherland attorneys Jeff Friedman and Liz Cha look at examples of these attempts to expand the tax base and the challenges faced by those who litigate such cases.

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 super cute pup was the last SALT Pet of the Month for 2022, and who does it belong 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!

2022 was a year of transition – we emerged from the pandemic and its fully-remote environment, and welcomed the return of face-to-face meetings and in-person conferences. Likewise, there was significant transition in the state and local tax world – while certain issues maintained their prominence (marketplace and apportionment developments, to name a few), new issues moved to the forefront of SALT conversations across the country (digital advertising taxes, digital goods, and crypto/virtual currencies, among others).

The Eversheds Sutherland SALT team was kept busy throughout the year tracking interesting state and local tax developments – more than 280 were posted to this site. The items highlighted below exemplify the trends in 2022. (Note: If you would like to receive our posts by email, please register here).

Digital Advertising Taxes

Developments regarding digital advertising taxes grabbed headlines throughout 2022, and much of the spotlight was on Maryland.

Digital Goods and Services

Throughout the year, states and localities issued decisions and guidance addressing the ever-expanding modern digital economy. The rapid pace of guidance will certainly continue in 2023, and will likely give rise to additional controversies.

Marketplace Issues Continue

As in prior years, developments regarding marketplaces and marketplace facilitators continued with some frequency. Marketplace laws have significantly impacted sales tax collection and remittance obligations, and jurisdictions continued to provide guidance regarding these new regimes.

Apportionment Disputes

Apportionment maintained its status as a leading corporate income tax policy and controversy issue in 2022, and we see no sign of that changing in 2023.

Crypto/Virtual Currencies and NFTs

In 2022, we saw new and notable guidance regarding the treatment of crypto/virtual currencies and non-fungible tokens (NFTs), as states grappled with the wide-ranging state and local tax implications of their mainstream adoption.

Remote Work, Worker Classification, Domicile and Residency

Worker classification, domicile and residency continued to be hot topics in 2022, owing both to the increasing prevalence of remote work, and to on-going litigation involving personal income tax disputes across the country. While the pandemic began to recede in 2022, issues arising from the new(ish) remote and partially-remote working environment are certain to continue in 2023.

The Multistate Tax Commission

The Multistate Tax Commission (MTC) – an organization representing states’ interests in imposing state and local taxes – had another active year in 2022. The MTC focused on a variety of significant projects, from its transfer pricing effort, to the taxation of partnerships, to the taxation of digital products.