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 D.C. Council opted not to pursue expanding its sales tax base to these sales due to the adverse impact on local media and press, on top of the likely litigation that would follow if a targeted tax on digital advertising were adopted.[6]

The Commission meeting on September 13th

At the meeting, the Commission discussed the first batch of proposals but without formally voting on them, which will happen in a later meeting. Rather, the meeting was intended to advance discussion in preparation for later formal voting. 

The Commission’s members were generally interested in pursuing a digital advertising tax or a data mining tax. The members saw these taxes as being worth consideration because of the potentially large amount of revenue they could generate. One member supported the taxes because he saw them as an expansion of the tax base to match changing technology, rather than a tax rate increase.

However, there was hesitancy among the Commission’s members because of the ongoing Maryland litigation and potential tax implementation difficulties. The Commission’s members noted that the process to pass and implement these taxes could be long, especially as they were interested in whether the Maryland tax would survive legal scrutiny.

The Commission also considered a variety of other proposals. For example, the Commission’s members reacted negatively to increasing the general sales tax rate from 6 percent to 7 percent due to regressivity concerns. However, they were supportive of eliminating the motor vehicle excise tax exemption for electric vehicles.

Future meetings and next steps

The Commission currently has scheduled five additional proposal review sessions—September 19th, September 26th, October 10th, October 20th, and October 24th. These sessions will shape which recommendations the Commission will make to the D.C. Council. Of particular interest for the September 19th meeting, the Commission likely will discuss a business activity tax proposal, which may resemble the Texas franchise (margin) tax and the Oregon corporate activity tax. Eversheds Sutherland will continue to follow these review sessions that will color the next decade of District taxation. 

[1] D.C. Code Ann. § 47-462.

[2] See Summary Report to the Mayor and Council of the District of Columbia, June 1998, D.C. Tax Revision Commission (June 1998), available at https://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/ocfo_part_i_summary_report.pdf.

[3] Final Report, D.C. Tax Revision Commission (May 2014), available at https://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/DC%20Tax%20Revision%20050114.pdf.

[4] The Maryland digital advertising tax was challenged in the Circuit Court of Anne Arundel County, with the plaintiffs seeking a declaratory judgment that the tax is unconstitutional and unlawful.  On October 17, 2022, the circuit court granted the plaintiffs’ motion for summary judgment and issued a final declaratory judgment, finding that the tax was unconstitutional and invalid because it violated the Internet Tax Freedom Act (which bars state and localities from imposing taxes that discriminate against electronic commerce), the Commerce Clause of the U.S. Constitution, and the First Amendment to the U.S. Constitution. Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia, LLC, et al. v. Comptroller of the Treasury of Maryland, Case No. C-02-cv-21-000509 (Md. Cir. Ct. final declaratory judgment issued Nov. 17, 2022).While the Maryland Supreme Court later concluded that the circuit court lacked jurisdiction to enter the declaratory judgment, the supreme court did not address the tax’s legality. Comptroller of Maryland v. Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia, LLC, et al., 484 Md. 222 (2023). As it stands, only one court has review the legality of Maryland’s digital advertising tax. That court found it to be unconstitutional under multiple theories.

[5] The Chamber of Commerce of the United States is also pursuing a challenge to the Maryland digital advertising tax at federal court. However, the United States District Court for the District of Maryland concluded that the Tax Injunction Act precluded the Chamber’s substantive challenges to the tax. While the court initially allowed the lawsuit to proceed against the tax’s pass-through prohibition, the court later also dismissed that challenge as moot because of the Circuit Court of Anne Arundel’s declaration that the tax violated the U.S. Constitution. The Chamber is currently challenging these decisions before the United States Court of Appeals for the Fourth Circuit. Oral argument is set for September 20, 2023. Chamber of Commerce of the United States v. Lierman, No. 22-2275 (4th Cir. notice of appeal filed Dec. 13, 2022).

[6] The sales tax on advertising services would have applied to “the planning, creating, placing, or display of advertising in newspapers, magazines, billboards, broadcasting, and other media, including, without limitation, the providing of concept, writing, graphic design, mechanical art, photography, and production supervision.” The tax would have encompassed both physical and digital advertising. The proposed sales tax on sales of personal information would have applied to “information or data that is derived from a person that identifies, relates to, describes, or is capable of being associated with, a particular person” and included a person’s browser habits and consumer preferences.

This episode of the SALT Shaker Podcast welcomes a new voice into the mix, Eversheds Sutherland Associate Laurin McDonald. Laurin joins host and Associate Jeremy Gove to describe 80/20 rules used by states in the context of water’s-edge combined reporting, the subject of an article she co-authored in Tax Notes State.

In addition to discussing the 80/20 rules, Jeremy and Laurin cover variations on the rules, compliance issues and recent cases that exemplify controversies that can arise from application of 80/20 rules.

They wrap with an underrated/overrated question – how do you feel about concert encores?

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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The back to school buzz has begun! Time to hit the books and open a new chapter with plenty of learning and growth.

To commemorate the start of the 2023 school year, we’ve collected photos from members of our Eversheds Sutherland SALT team for your enjoyment! We wish all these bright minds a wonderful academic year!

1: Partner Charlie Kearns’ daughter Ella (1st grade)

2: Paralegal specialist Jaime Lane’s daughter Cassidy (6th grade) and son Cooper (8th grade)

3: Legal secretary Janet Curry’s granddaughter Raegan (pre-K)

4: Associate John Ormonde’s daughter Betsy (pre-K)

5: Partner Jonathan Feldman’s daughter Anna (8th grade) and son Micah (5th grade)

6: Partner Tim Gustafson’s son Luke (4th grade) and daughter Cate (8th grade)

7, 8: Legal secretary Melissa Bragg’s daughters Madelyn (4th grade) and Emma (10th grade)

9, 10: Partner Maria Todorova’s daughter Addison (7th grade) and son Nicholas (5th grade)

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

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

This week’s question: A tax court in which state found that a used car dealership was properly denied $1 million in sales tax deductions due to a failure to properly maintain records?

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!

There has been an alarming expansion of local taxes. In some localities, this includes new local taxes imposed on businesses. In other localities, this includes aggressive interpretations of existing local ordinances by local tax agencies.

In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Michele Borens, John Ormonde and David Patterson examine a relatively old local tax — San Francisco’s gross receipts tax.

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 southwestern state city council recently voted to put a measure on the November ballot asking residents to approve a 3% excise tax on any residential property purchase price in excess of $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 most purrfect pals, Lady and Monkey, are September’s SALT Pet(s) of the Month! Belonging to Mitch Trager, Senior Tax Manager at Forvis, these sisters make a pawsome duo, especially when teaming up to steal a spot on vacated chairs or in purrsuit of milk and butter, their favorite treats.

Named by Mitch’s oldest son, the two cats are the perfect additions to the Trager family.

Welcome to the SALT Pet of the Month family, Lady and Monkey!

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, Fourth Appellate District, recently held that a citizens’ initiative need only receive what percentage vote to pass?

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 Michigan Department of Treasury issued a Revenue Administrative Bulletin (RAB) describing the taxation of computer software and digital products to reflect updated case law and legislation enacted in 2004, which, among other things, defined “tangible personal property” to include “prewritten computer software.” The RAB provides that the “key feature” in determining whether prewritten software is taxable is whether a party exercises a right or power over it, which turns on how it was delivered. For example, if a user merely accesses the software through a third-party server outside of the state, the software is not taxable. Additionally, the RAB provides that the Department will use the “incidental to service” test to determine whether a transaction that includes prewritten software and professional services is taxable. The RAB specifies that digital goods that are not prewritten computer software, like e-books, movies streamed over the internet, or podcasts are not taxable, but noted that applications or video games downloaded or otherwise installed onto electronic devices could constitute prewritten computer software. Finally, the RAB provide how to source sales of prewritten computer software following the repeal a statute that allowed consumers to apportion tax for software through a multiple-points-of-use exemption certificate.

The South Carolina Administrative Law Court (ALC) held that the South Carolina Department of Revenue could require Tractor Supply and its affiliates to file a combined return notwithstanding that South Carolina law requires corporate taxpayers to file tax returns on a separate-entity basis. In a factually intensive ruling, the ALC found that the Department met its burden of proving that the taxpayer’s separate-entity return filings resulted in distortion and that combined reporting was a reasonable alternative method that fairly reflected the combined group’s business activity in the state. In rendering its decision, the ALC noted that the taxpayer’s expert admitted that the taxpayer’s original transfer pricing methodology was “flawed and unreliable” and its proposed alternative transfer pricing approach was not based on sufficient evidence. As a result, the ALC found that the Department was justified, in this circumstance, to exercise its discretion to require the taxpayer’s unitary group to file a combined tax return.  

Tractor Supply Co. v. S.C. Dep’t of Revenue, No. 19-ALJ-17-0416-CC (S.C. Admin. Law Ct., Aug. 8, 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 issued an emergency rule-making order regarding administrative rules surrounding sales and use tax and B&O tax for remote sellers?

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: New Mexico recently updated guidance for online marketplace providers and sellers reflecting that out-of-state taxpayers pay gross receipts tax at what new reduced rate?

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 August 16, during the National Conference of State Legislatures’ (NCSL) 2023 Indianapolis Legislative Summit, Eversheds Sutherland Partner Charlie Kearns will cover the remote work revolution. He will discuss how the shift away from the office has caused issues for state and local economies, and cover remote work’s impact on commercial property values, public transit and the growing question of how to tax work that crosses state borders.

In addition, also on August 16, Eversheds Sutherland Partner Todd Betor will participate in an industry panel during the Midwestern States Association of Tax Administrators (MSATA) Annual Conference 2023, providing his perspective on hot topics presented by attendees.

Finally, Eversheds Sutherland is a proud sponsor of the Council On State Taxation (COST) 2023 SALT Workshop for Technology Companies, which covers the key SALT issues that technology companies are facing. Held in Foster City, CA from August 16-17, presenters and topics include:

  • Jeff Friedman – Update on States’ Digital Services Tax Initiatives
  • Michele Borens – Conundrums with the States’ Marketplace Facilitator Laws

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

In this episode of the SALT Shaker Podcast, Eversheds Sutherland Partner Tim Gustafson joins Associate Jeremy Gove for a deep dive into California’s market-based sourcing regulation.

Together they discuss various interpretations of and proposed amendments to the regulation offered over the past six years, and how the interpretations and amendments might affect taxpayers.

They wrap with a series of underrated/overrated questions related to scents.

You can read Tim’s article on the topic for Tax Notes State here.

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 August 9, 2023, the New York State Department of Taxation and Finance (Department) submitted its draft corporate franchise tax regulations for publication in the State Register – a significant and necessary step in the State Administrative Procedure Act (SAPA) process to formally adopt regulations related to the sweeping reform of the state’s Corporation Franchise Tax that was enacted nearly a decade ago. 

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’s Court of Appeals recently held that a qualifying taxpayer could elect the alternative apportionment method for manufacturers for the first time on an amended 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 posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

In the pending-precedential decision Appeal of Southern Minnesota Beet Sugar Co-op., the California Office of Tax Appeals (OTA) ruled that payroll, property and sales that generated deductible agricultural cooperative income under Cal. Rev. & Tax. Code Section 24404 must be included in the taxpayer’s corresponding payroll, property and sales factors. 

The California Franchise Tax Board (FTB) argued that such payroll, property and sales should be excluded from both the numerator and denominator of the apportionment factors because the activities produced deductible income. The FTB relied on Legal Ruling 2006-01, which reflects the agency’s long-standing position that activities not resulting in net business income should not be reflected in the apportionment formula.  Despite the FTB’s request for deference to its interpretation, the OTA disagreed with the FTB’s position.  Looking to the plain language of the governing apportionment statutes, the OTA concluded that there were no grounds to exclude activities that give rise to apportionable business income whether or not deductible. Specifically, the OTA drew a distinction between income that is deducted, and income that is “exempted,” “excluded,” or “not recognized” under the terms of the Revenue and Taxation Code, the latter of which “generally do not enter into gross income (or gross receipts) to begin with.” 

In the Matter of the Appeal of Southern Minnesota Beet Sugar Co-op., 2023-OTA-342P (Cal. OTA March 17, 2023), petition for rehearing denied, 2023-OTA-343 (Cal. OTA June 6, 2023).

The Colorado Department of Revenue issued a private letter ruling concluding that a taxpayer’s income arising from the sale of Colorado real property is apportionable income because the property was used in the taxpayer property rental business. However, the proceeds from such sales are not “receipts” and thus not included in its Colorado apportionment factor calculation because the sale of the property did not occur in the regular course of the taxpayer’s business.  The taxpayer received receipts in the regular course of its business from property rentals, and disposed of its real property only on infrequent occurrences.  Thus, the Department concluded that proceeds for a sale of real property was apportionable income as it was “income arising from transactions and activity in the regular course of a taxpayer’s trade or business.” But, for purposes of determining the apportionment factor, receipts are included in the calculation only to the extent that they are “received from transactions and activity in the regular course of a taxpayer’s trade or business.”  The taxpayer’s business is property rental, not property sales, and thus the Department determined that the receipts received from the disposition of the real property are not “receipts” for purposes of determining the taxpayer’s Colorado apportionment factor.

Colo. Dept. of Rev., PLR 23-002 (Mar. 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 Washington DOR recently determined that an audio equipment rental company who rented and also operated the equipment was not entitled to an exemption from what 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 Wisconsin Supreme Court recently held that the state’s sales tax exemption for the sale of aircraft parts and maintenance does not apply to per-flight-hour aircraft lease charges for repairs and maintenance.

Under Wis. Stat. § 77.51(15b)(a), sales tax applies to the total amount of consideration that the taxpayer receives for leasing its aircraft, without any deduction for the taxpayer’s cost of materials used, labor or service cost, or any other expense of the taxpayer. Although the taxpayer’s purchase of aircraft repairs and engine maintenance from vendors is tax-exempt, tax applies when the taxpayer passes those costs along to its customers as part of the total amount of consideration in a lease.

The taxpayer sought to apply statutory exemptions related to aircraft: Wis. Stat. § 77.54(5)(a)3., which exempts the sale of “parts used to modify or repair aircraft,” and Wis. Stat. § 77.52(2)(a)10., which exempts the sale of “repair, service, … and maintenance of any aircraft or aircraft parts.” The court held that the taxpayer’s activities fell outside of the text of the exemptions because it was leasing aircraft to the lessees rather than re-selling aircraft repairs or engine maintenance services.  Further, the court found that the taxpayer was not incurring the repair and maintenance costs as the lessee’s agent.  The repairs and maintenance were cost of the taxpayer’s business that did not reduce the taxable sales price of the aircraft lease. 

Citation Partners, LLC v. Wisconsin Department of Revenue, 985 N.W.2d 761 (Wis. 2023)

Meet sweet Zita, our August Pet of the Month and rescue pup belonging to Jace Chevalier, Senior Tax Manager at T-Mobile. Named after the children’s book series “Zita the Spacegirl,” Zita joined the Chevalier family in 2021 by way of the Houston K-911 Rescue.

Jace and his family speculate that Zita is a Corgi and Pit Bull mix. They are one hundred percent certain, though, that she’s a good girl!

The five-year-old’s favorite munchies are bananas and sunflower seeds, and she also enjoys her two daily walks, chasing balls at the park and sunbathing on the deck.

Her morning routine of stretching, rolling around on her back, and making good morning sounds is pretty funny. It also didn’t take her long to figure out how to remove that sweater she’s wearing in the picture below!

We’re happy to have you, Zita!

On August 9, join Eversheds Sutherland attorneys Charles Capouet, Cyavash Ahmadi and Meriem El-Khattabi for a review of the long-standing SALT Scoreboard publication and the important state tax cases from the first half of 2023. In addition to recapping case opinions, Charles, Cyavash and Meriem will analyze case trends and compare 2023’s results to prior years’ case tallies.

Register to join us here.

An Illinois Appellate Court affirmed a circuit court’s dismissal of a qui tam action filed against a United Kingdom-based tailoring shop. The court held that although the tailor’s failure to investigate its use tax collection obligations was “an ostrich-type situation,” the tailor nevertheless did not violate the Illinois False Claims Act.

 The Illinois False Claims Act provides two theories of liability:

  1. knowingly making, using, or causing to be made or used a false record or statement material to an obligation to pay or transmit money or property to the State; or
  2. knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay or transmit money or property to the State.

The Act defines “knowingly” to include a person: (i) having actual knowledge of the information; (ii) acting in deliberate ignorance of the truth or falsity of the information; or (iii) acting in “reckless disregard” of the truth or falsity of the information.  The Relator claimed the tailor’s failure to investigate its tax responsibilities was reckless disregard of the tax law. 

The tailor’s failure to investigate its use tax obligation could have been sufficient to demonstrate that it acted with reckless disregard, but the Relator failed to seek and submit discovery on the tailor’s nexus with Illinois to support a finding of scienter, i.e. the requisite knowledge under the False Claims Act.

Further, in choosing to use the words “avoid” and “conceal,” the court found that the legislature intended to cover only those persons who intentionally choose not to meet their tax obligation, rather than a merely failing to pay tax.

The record failed to show the tailor knowingly concealed, avoided, or decreased an overpayment it received from the State of Illinois. Therefore a dismissal of the qui tam action was warranted.

People ex rel. Stephen B. Diamond PC v. Henry Poole & Co. LTD, No. 2018 L 10136 (Ill. App. Ct. June 30, 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 legislature recently overrode a governor’s veto of a bill that creates a payroll tax to increase funding for child care?

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 power and reach of administrative agencies — often led by unelected officials — has long been a source of controversy. Nearly 40 years ago, in Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., the U.S. Supreme Court held that an administrative agency’s interpretation of a statute administered by that agency should be given deference if (1) the statutory provision is ambiguous and (2) the agency’s interpretation is merely reasonable. Since then, the case “has become ‘the most cited case in modern public law.’” For state tax practitioners, this is nothing new — deference to a tax collector’s interpretation of the tax law was taken for granted well before Chevron was decided, and its application extended beyond formally promulgated regulations.

Wide variation between and within states’ administrative deference doctrines are problematic for obvious reasons. Taxpayers and businesses are harmed when there is uncertainty whether the law will be applied the same way in factually (and substantively) similar circumstances. But the rise of state tax tribunals, recent judicial opinions, and legislative and voter actions call into question the continued existence and viability of Chevron and related doctrines: How much deference should tax administrators be entitled to (if any)?

In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Jonathan Feldman, Cyavash Ahmadi and Cat Baron explore the deference afforded to state administrative agencies and suggest that, perhaps, the high-water mark is behind us.

Read the full article here.

The New Mexico Taxation and Revenue Department recently updated FYI-206, which describes the gross receipts tax collection responsibilities for online marketplace providers and sellers. The updated guidance reflects the new reduced gross receipts tax rate used for out-of-state taxpayers, 4.875%. Additionally, the updated guidance provides that marketplace providers may use Form TRD-31117, Marketplace Provider Data Sharing Agreement, to report to the Department a list of marketplace sellers it facilities sales for and paying gross receipts tax on those sales.

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 approved legislation that requires its revenue services department to study the possibility of creating a blanket sales and use tax exemption for nonprofit organizations?

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!

Curious what the top 10 sales tax issues for 2023 are? Join Eversheds Sutherland attorneys Jonathan Feldman and Alla Raykin as they cover this topic during the Southeastern Association of Tax Administrators (SEATA) 73rd Annual Conference in Little Rock, AR on July 18.

For more information and to register, click here.

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

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 recently held that a provider of what type of services for its affiliate’s enrollees met the insurance business exemption to the B&O 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 Alabama Court of Civil Appeals affirmed the trial court’s decision and held that retroactive application of the 2014 revisions to the “prepaid telephone calling card” provision of the Tax Code were unconstitutional as applied to the taxpayer. Taxpayer, an authorized dealer for Boost Mobile (“Boost”), sold Boost prepaid wireless-service plans to customers, but did not collect and remit the sales tax on the transactions. After an audit, the Department of Revenue (“Department”) assessed the taxpayer for the unpaid sales tax on the transaction and took the position that the transactions were subject to the sales tax under the “prepaid telephone calling card” provision of the Tax Code even though, as a Department employee conceded at trial, the type of prepaid wireless service provided by Boost through the taxpayer did not exist when the provision was enacted. While the assessment was being appealed at the Tax Tribunal, the legislature revised the Tax Code to require that the type of prepaid wireless service provided by Boost through the taxpayer would be subject to the sales tax. The revisions also included a provision stating that this change was prospective only except for “audits that began or assessments that were entered” prior to the effective date of the changes. The taxpayer asserted that this retroactive application violated its due process rights. The trial court agreed, holding that the taxpayer was not liable for the sales tax because the revisions, as applied to the taxpayer, were unconstitutional since the changes only applied retroactively to taxpayers who were either under audit or had an assessment entered against them as of the effective date of the revisions but did not apply retroactively to other taxpayers.

On appeal, the Alabama Court of Civil Appeals, held that the retroactive application of the revisions to some taxpayers but not others “was not supported by a legislative purpose furthered by rational means.” The court disagreed with the Department’s argument that the retroactivity was constitutional because the revisions only clarified the “prepaid telephone calling card” provision of the Tax Code and that this clarification was rational. The court stated that “it was not the clarification … that the trial court determined was not supported by a legislative purpose furthered by rational means; it was [the] retroactive application to a small number of taxpayers … while exempting other taxpayers from the retroactive application[.]” The court also rejected the Department’s argument that that the language of the statute before the revisions made the taxpayer liable for the sales tax. The court stated that the plain language of the statute did not subject the taxpayer’s “receipt of a prepayment for Boost’s wireless service” to the sales tax.

Alabama Department of Revenue v. Cellular Express Inc., No. CL-2022-0701 (Ala. Civ. App. May 12, 2023).

On March 23, 2023, the Washington Department of Revenue issued an emergency rule-making order. The purpose of the emergency rule was to make the public aware that certain of the Department’s administrative rules concerning remote sellers’ sales and use tax nexus and minimum nexus thresholds for the state’s business and occupation tax may be outdated. Specifically, the Department cautioned that the public should not use Rules 193 (Interstate sales of tangible personal property), 221 (Collection of use tax by retailers and selling agents), and 19401 (Minimum nexus thresholds for apportionable activities and selling activities) “to determine their sales or use tax collection obligations or to determine substantial nexus for apportionable activities and selling activities for periods beginning on or after October 1, 2018.” The Department explained that the rules may be outdated because, Substitute Senate Bill No. 5581 (2019) “clarified the sales tax obligation for remote sellers and when a person is deemed to have substantial nexus for business and occupation (B&O) tax purposes.” Substitute Senate Bill No. 5581 (2019) provides that substantial nexus is established by a nonresident individual or business entity who has more than $100,000 of cumulative gross receipts in Washington in the current or immediately preceding year.

A whole latte love! Meet our July Pet of the Month, Latte! Latte is an adorable Cavachon pup, combining the Cavalier King Charles Spaniel and Bichon Frise breeds. He recently celebrated his first birthday in May with his owner, Eugina Lim, a tax manager in SALT audit at Amazon.

Eugina came up with his name due to his coat color as a puppy. At the time, she thought his color perfectly resembled the color of milk poured into iced coffee. However, given a coat color transformation as he’s gotten older, he’s now more a milk than a latte.

Since his arrival in New York from Missouri last year, he’s enjoyed many of the finer things in life, including chicken jerky cooked up by Eugina’s parents when they visit. He also likes to play with visitors’ shoes. Eugina always warns her guests to hide them upon arrival because Latte will make sure their shoes follow them into the living room. 

He also makes sure to always keep his eye on the ball. Each time Eugina asks him “where’s the ball?” he drops everything and scurries around the room until he finds it. She (sometimes!) hides the ball just to add to the challenge. 

We’re pleased to feature Latte this month!

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 passed an exemption from state and local sales and use tax for purchases of qualifying agricultural fencing materials by commercial farmers?

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!

This week on the SALT Shaker Podcast, host and Eversheds Sutherland Associate Jeremy Gove welcomes New York Associate Chelsea Marmor back to the show for an update on New York tax developments.

Jeremy and Chelsea kick off their discussion with a review of New York Governor Kathy Hochul’s Fiscal Year 2024 Executive Budget and the implications of its tax – and nontax – provisions. They particularly focus on the revenue raisers and what it all means for taxpayers going forward.

They wrap with an underrated/overrated question – are mascots overrated?

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: Which state’s Supreme Court recently held that capital gains resulting from the sale of an urban redevelopment project were not subject to 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 posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

The Supreme Court granted certiorari on June 26 with respect to the Ninth Circuit’s decision in Moore v. United States. The question presented is whether the section 965 transition tax is a “direct tax” that violates the Apportionment Clause of the US Constitution.

The Supreme Court has not invalidated a federal tax on constitutional grounds since Eisner v. Macomber, over a century ago. The last time the Supreme Court addressed the direct tax clause, in the Affordable Care Act case NFIB v. Sebelius, it required only a few paragraphs to hold that a tax on the condition of not having health insurance was not a direct tax. The opinion in NFIB was written by Chief Justice Roberts and joined by four other members of the court, two of whom (Justices Sotomayor and Kagan) are still on the bench.

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 legislature recently introduced a bill that would provide an income tax credit equal to 95% of donations made by a taxpayer to a lower-performing public school?

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 NYU School of Professional Studies is hosting its Introduction to State and Local Taxation Conference. This two day conference in the heart of Manhattan will provide attendees with the key concepts of state corporate income tax AND state sales and use tax. This conference is perfect for those who are new to SALT or those looking to brush up on the foundational concepts. 

From July 24-25 in New York City, hear from state and local tax leaders as they describe fundamental concepts and practical applications of state corporate income tax and sales taxation. Topics include:

  • Sales and Use Taxation Fundamentals
    • Differences between Sales and Use Taxes
    • Sales tax exemptions and administration
    • Sales taxation of services and digital products
    • Marketplace facilitator tax requirements
  • Corporate Income Taxation Fundamentals
    • Determining the corporate income tax base
    • Allocation and apportionment
    • Separate, Consolidated, and Combined Reporting
    • The Unitary Business Principle
  • Gross Receipts Taxes
  • State Tax Research Tools, Tips and Tricks
  • And more…

We hope to see you there! For more information or 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: New York’s State Legislature recently approved a bill that would extend a partial property tax abatement for what type of property owners in New York City?

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!

This week, Eversheds Sutherland Partners Liz Cha and Eric Tresh will present during the 2023 TEI Region 8 Annual Conference in Hilton Head Island, SC. Liz and Eric will tackle a state tax controversy update.

For more information and to register, click here.

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

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 Internet Tax Freedom Act was recently held to prohibit which city’s tax on online storage services?

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!

Meet two very special ladies and our June SALT Pets of the Month, Haley and Hildee! Both dogs were rescued and now live in Northern California with Ben Wylie, Senior Tax Director at Instacart, and his family.

Haley was originally homeless in the streets of Taipei, Taiwan until she was hit by a car. She was lucky to receive sponsorship and medical attention, but lost her left eye and had her hip joint removed. The Wylie’s had her transported to the San Francisco Bay Area to join their family and continue her recovery. Haley is now very active and loves hiking, going to the beach and playing with her many toys. Understandably, she still dislikes cars!

Haley’s sister Hildee hails from Compton, CA. She was left outside a local shelter with a broken back, starving, and with other serious medical and dental issues. Despite her many challenges, Hildee has an amazing spirit and loves all people, dogs and even cats. She has since worked hard on her physical therapy and was determined to walk again. Hildee is now wheelchair free and enjoys her (several) short walks per day. Hildee is also an avid soccer fan and has become the unofficial team mascot for Ben’s daughter’s soccer team.

We’re so happy to have these two ladies as our SALT Pets of the Month!

On Thursday, June 8, New York-based SALT Partner Todd Betor will participate in the TEI New York Chapter’s M&A Tax Conference, held in person. The full day of programming will cover all aspects of M&A tax from both the buy side and sell side. Todd’s panel will discuss operational issues – state and local income, sales, and real estate transfer taxes including NOLs and sell side and buy side issues. 

For more information and to register, click here.

The Court of Appeals of Virginia, upholding the trial court’s decision, held that the successor to The C. F. Sauer Company could elect the manufacturer’s apportionment method for the first time on its amended tax return. By doing so, the court (preliminarily*) paved the way for qualifying taxpayers to take a wait and see approach to deciding on whether to elect Virginia’s alternative apportionment method for manufacturers is right for them. Virginia’s standard apportionment method prescribes a three-factor formula comprised of a taxpayer’s property factor, payroll factor, and double-weighted sales factor, whereas the manufacturer’s apportionment method for tax years beginning on or after July 1, 2014 is comprised of a single-sales factor. Considering that the manufacturer’s apportionment method is irrevocable for three taxable years, the flexibility in making such an election could be crucial for taxpayers that are uncertain of the impact that the alternative method could have when filing their original tax returns. To reach its conclusion, the court rejected the Department’s argument that certain provisions (e.g., the recapture provision) and phrases (e.g. any interest accrued would be “from the original due date for filing”) in the statute directly conflicted with the trial court’s ruling (and the taxpayer’s position) and showed the legislature’s intent to limit the election to the original tax return. Rather, the court found that there is no conflict and that, unlike other Virginia tax elections, the plain language of the statute “simply does not prevent a taxpayer company from electing to use the manufacturer’s apportionment method in a timely amended return.” Further support for the court’s reading was found in the “legislature’s liberal acceptance of amended returns generally elsewhere in the tax code.” *Virginia does not permit an appeal to the Supreme Court of Virginia as a matter of right in tax cases that do not involve the State Corporation Commission.

Commonwealth of Virginia, Department of Taxation v. 1887 Holdings, Inc., Record No. 0598-22-2 (Va. Ct. App. May 23, 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 recently enacted significant tax legislation that decouples from the TCJA changes to IRC § 174, imposes sales tax on certain digital goods, and revises eligibility for the pass-through entity tax election?

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 Thursday, June 1, Eversheds Sutherland Partner Jeff Friedman will present at the Villanova University Charles Widger School of Law’s First Annual State and Local Tax (SALT) Forum, which will bring together SALT thought leaders from around the country to discuss relevant policy, practice, procedural and technical issues. Hosted by the Villanova University Graduate Tax Program, the conference will cover the struggles of applying traditional tax laws to today’s digital economy. Jeff’s panel will discuss digital economy controversies.

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

This week on the SALT Shaker Podcast, Eversheds Sutherland Associate Jeremy Gove is pleased to welcome Professor Richard Pomp, a state and local tax professor at both the University of Connecticut School of Law and NYU School of Law, to discuss the pending U.S. Supreme Court cert petition in Quad Graphics, Inc. v. North Carolina Department of Revenue.

Professor Pomp recently filed an amicus brief with COST supporting Quad Graphics in its request to have the US Supreme Court review its North Carolina Supreme Court decision, which upheld the North Carolina Department of Revenue’s sales tax assessment rather than a use tax assessment. The decision was upheld despite Quad Graphics lacking sufficient nexus to be subject to the North Carolina sales tax.

Jeremy and Professor Pomp discuss the Quad Graphics case and the cert petition in greater detail, and how it relates to two long-standing U.S. Supreme Court cases: McLeod v. J.E. Dilworth Co. and General Trading Co. v. State Tax Commission.

To end the show, Jeremy proposes a pertinent question now that business travel is on the rise – have backpacks replaced briefcases?

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: Recently, a New York Administrative Law Judge ruled that New York’s corporation franchise tax on receipts from broadband services and other internet access services is preempted by what federal statute?

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 Partner Tim Gustafson reviews California’s market-based sourcing regulation, various interpretations of and proposed amendments to the regulation offered over the past six years, and how the interpretations and amendments might affect taxpayers.

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 Supreme Court of Missouri recently held that replacement equipment used to provide telecommunications services was exempt from which state 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!

On February 27, 2023, the Washington Court of Appeals held that a provider of pharmacy services and pharmacy benefits services (PBM) to its affiliate’s enrollees met the insurance business exemption to the Business and Occupation Tax because its activities were at least functionally related to insurance business. The taxpayer fulfilled the PBM services required by an affiliate’s Washington State Health Care Authority contract, including managing the availability and payment of the enrollees’ pharmacy benefits on behalf of the affiliate.  Washington provides a B&O Tax exemption to “any person in respect to insurance business upon which a tax based on gross premiums is paid to the state.” The Department contended that the taxpayer would be exempt only if it provided services that were “functionally related” to its affiliate’s insurance business. The amounts it received from the affiliate for its services would then be exempt to the extent that the affiliate paid the Washington premiums tax. The court held that “where activities are required to be performed under the insurance contract in exchange for premium payments and a tax is paid on those premium payments the activities are at least functionally related to ‘insurance business’” under the insurance benefit exemption. Because the activities performed by the taxpayer were required under its affiliate’s HCA contract – and if performed by the affiliate would be insurance business activities – the taxpayer’s activities were functionally related to the insurance business and satisfied the exemption.

Envolve Pharm. Sols., Inc. v. Washington Dep’t of Revenue, 524 P.3d 1066 (Wash. Ct. App. 2023).

Eversheds Sutherland Partner Ted Friedman will participate in a SALT panel during the Wall Street Tax Association’s Spring Tax Conference in New York, NY on May 17. He will help cover a variety of SALT topics, including legislative developments, recent judicial decisions of interest, and Multistate Tax Commission projects to watch. 

In addition, Eversheds Sutherland Partners Todd Betor and Charlie Kearns will help present a training for the TEI Nashville Chapter on May 17, covering a SALT legislative update, as well as pass-through entity workarounds.

Also on May 17, members of the SALT team will present at the TEI Orange County Chapter SALT event.

Speakers and topics include:

  • Michele Borens, Jeff Friedman – SALT Controversy Update
  • Jeff Friedman, Cyavash Ahmadi – Use Tax Considerations for Purchase of Software and Digital Products/Services
  • Michele Borens, John Ormonde – Local Tax Complications
  • Michele Borens, Jeff Friedman, Cyavash Ahmadi, John Ormonde – SALT Legislative Roundup

Finally, Eversheds Sutherland attorneys Maria Todorova and Laurin McDonald will present an ethics session for the TEI St. Louis Chapter on May 18.

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

On January 12, 2023, the Louisiana Board of Tax Appeals held that sales of remote personal electronic storage capacity services were not subject to the New Orleans French Quarter Economic Development District sales and use tax. A federal statute, the Internet Tax Freedom Act, prohibits states and political subdivisions from imposing taxes on Internet access. Effective November 1, 2007, Congress expanded the ITFA’s definition of Internet access to include, among other items, “personal electronic storage capacity” that is provided independently or not packaged with Internet access. The taxpayer offers a service that allowed users, via an Internet connection, to upload their personal digital content to the taxpayer’s remote servers and access their personal digital content from any of their Internet-connected devices. The taxpayer provides the storage service at no cost, but also offers customers the option to pay a subscription fee for additional storage capacity. The Board held that under the plain meaning of the ITFA, the storage service provided subscribers with “personal electronic storage capacity.” Therefore, the storage service is Internet access and not taxable. The Board further noted that services are generally not taxable, unless specifically enumerated. The storage service was thus also not taxable because it was not specifically enumerated.

Apple Inc. v. Samuel, Dkt. No. L01283 (La. Bd. Tax App. Jan. 12, 2023).

On December 29, 2022, the District of Columbia Court of Appeals held that transfer and recordation taxes were due on the portion of consideration from a sale of land and related improvements related to reversionary interests in land improvements. The taxpayers argued that the acquisition consisted of two distinct steps: (1) taxable land sales, via special warranty deeds; and (2) non-taxable terminations of ground leases, via lease termination memoranda.  The District generally does not tax either the formation or termination of ground leases of less than thirty years. The taxpayers allocated a portion of the purchase price to the land based on the assessed value for real property taxes and paid transfer and recordation taxes on that amount. The taxpayers asserted that the remainder of the purchase price was allocated to the non-taxable terminations of ground leases. Following an audit, the District contended that the acquisition was a single taxable transaction in which the land and buildings transferred to the purchaser and the pre-existing ground leases terminated.

Ultimately, the Court of Appeals held that the taxpayers had not accounted for – and owed tax on – reversionary interests in the land improvements transferred between parties.  Because the consideration attributed by the taxpayers to the ground lease terminations also included a portion attributable to the taxable reversionary interests in land improvements, the Court of Appeals remanded the case to the Superior Court to resolve the factual issue.

District of Columbia v. Design Ctr. Owner (D.C.) LLC, 286 A.3d 1010 (D.C. 2022).

On February 6, 2023, the Texas Comptroller of Public Accounts released a memorandum summarizing the internal-use software regulations related to the state’s franchise tax research and development credit and the sales tax R&D exemption. The comptroller significantly revised these regulations in 2021 and then reversed the revisions in 2022, causing confusion among members of the state’s tech industry.

In this installment of A Pinch of SALT for Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman, Mary Monahan and Dennis Jansen examine the recent memorandum and discuss what’s next for the Texas R&D credit.

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: Recently, a bill was introduced in the New York state legislature that would impose a delivery surcharge on any item purchased online and delivered within New York City. How much is the delivery surcharge for?

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 March 10, 2023, the Supreme Judicial Court of Massachusetts held that capital gains resulting from the sale of an urban redevelopment project were not subject to Massachusetts personal income tax. As an incentive for private entities to invest in constructing, operating, and maintaining urban redevelopment projects, Massachusetts exempts these entities “from the payment of any tax, excise or assessment to or from the commonwealth … on account of a project.” The court concluded that the exemption extends to capital gains from the sale of such urban redevelopment projects because the gains are “on account of” the project. The court relied on an analysis of the statute’s plain language, finding that “on account of” the project meant “because of” the project. The court concluded that capital gains – the increased value of the properties – are causally related to the project and thus exempt. The court’s conclusion was buttressed by the statute as a whole and its legislative history, which demonstrated that the tax exemption was established to stimulate the investment of private capital. The court observed that “[a]chieving a capital gain from the sale of [the] project is often a significant driver for real estate investors[.]”

Reagan v. Commissioner of Revenue, 203 N.E.3d 1150 (Mass. 2023).

On Wednesday, May 10, members of the Eversheds Sutherland SALT team, including Partners Todd Betor, Michele Borens, Jeff Friedman, Ted Friedman, Tim Gustafson and Maria Todorova, will present on a variety of state and local tax topics at the TEI Denver state and local tax seminar.

Speakers and topics include:

  • Jeff Friedman, Maria Todorova – State and Local Tax Update
  • Todd Betor, Ted Friedman – State Tax Issues in M&A
  • Michele Borens, Tim Gustafson – Use Tax Considerations for Purchases of Software and Digital Products/Services
  • Jeff Friedman, Todd Betor, Michele Borens, Ted Friedman, Maria Todorova – Why State and Local Tax is Awesome!

Meet mama Dory! This precious tabby cat and her league of kittens are under the careful watch of Maria Biava, Senior Managing Associate General Counsel at Verizon.

For the last several years, Maria has been on a mission to rescue feral cats from a Philadelphia neighborhood once known for housing local breweries. Named after a specific beer hop, Dory (short for Dorado) came to be in Maria’s care after Maria found her in the parking lot of a series of townhomes.

A vet appointment revealed Dory was pregnant, so Maria brought her home to give her shelter and help find homes for her kittens!

Dory and her cuddly kiddos are available for adoption in the Philadelphia area. If you’re interested in providing a forever home, email SALTonline@eversheds-sutherland.com.

We’re so glad to feature Dory and her kittens as the May SALT Pets of the Month!

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 court of appeals recently held that meter-reading services are non-taxable data processing services exempt from retail sales 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!

This week, Eversheds Sutherland Partners Liz Cha, Maria Todorova and Eric Tresh will participate in panel sessions during TeleStrategies’ 2023 Communications Taxation Conference in New Orleans, LA. The conference addresses the challenging and complex domain of telecommunications taxation, regulatory compliance and fees.

On May 4, Liz and Eric 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, court interpretations of the limitations of the Internet Tax Freedom Act and the unbundling of taxable and nontaxable products and services. 

Also on May 4, Eric will participate in a panel that looks at how to create and implement bundled pricing for tax and regulatory purposes. Eric will help review issues associated with market pricing and elasticity of demand, minimizing taxes, and risk management.

Finally, on May 5, Maria will help discuss the complexities of gross receipts taxes, as well as new taxes and fees applicable to the communications industry. In addition, she will highlight issues and controversies related to these taxes.

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

On April 18, 2023, the Supreme Court of Missouri affirmed the Administrative Hearing Commission’s (AHC) decision that replacement equipment used to provide telecommunications services was exempt from use tax under the State’s manufacturing exemption in effect in 2011 and 2012.

Like most States, Missouri exempts from sales and use tax equipment used in manufacturing or producing a product or taxable service ultimately intended to be sold at retail. Under Missouri law, telecommunications services are taxable services when sold at retail. In 2018, the legislature amended the sales and use tax statute to make clear that equipment used in the production of telecommunications services qualified for the manufacturing exemption.  The amendment expressly provided that it was not intended to change the law and was only a clarification of existing law. 

This case involved purchases of telecommunications equipment by Charter Communications Entertainment I, LLC (CCE I) in 2011 and 2012 (prior to the statutory amendment). The court found that the equipment qualified for the exemption as equipment used in “manufacturing” and that CCE I had sufficiently shown that its replacement equipment was “used directly” in manufacturing telecommunications services. In rendering its decision, the court found that the provision of telecommunications services constituted manufacturing because it transforms an input (the caller’s voice) into an output with a separate and distinct value from the original. It also agreed with the AHC that CCE I was not also required to establish that its replacement equipment is “substantially used” in manufacturing—relevant because CCE I used its equipment not only to provide telecommunications service but also cable and Internet service as well.

Accordingly, the court affirmed the AHC’s decision, awarding CCE I with a $1.5 million refund on use taxes paid on replacement equipment purchased in 2011 and 2012.

Charter Commc’ns Ent. I, LLC v. Dir. of Revenue, Mo., No. SC99517 (April 18, 2023).

In the latest episode of the SALT Shaker Podcast, Eversheds Sutherland Associate Jeremy Gove is joined by SALT Partner Tim Gustafson to discuss the ins and outs of the one-of-a-kind settlement process in California.

Before diving into specific considerations for taxpayers, Jeremy and Tim provide an overview of the settlement process itself, including a discussion of the agencies involved, the oft-surprising rules in play, and the impact on controversy generally.

Their conversation ends with an overrated/underrated question pertaining to casual office wear – how do you feel about jeans?

You can read the article Tim referenced, co-authored by Partner Liz Cha, in Tax Executive here.

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

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

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

This week’s question: According to the Illinois Independent Tax Tribunal, what type of fuel is not eligible for the expanded temporary storage exemption under the Retailer’s Occupation 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!

Assembly Bill 6008, introduced on March 30, 2023, would impose a $3 delivery surcharge on any item purchased online and delivered within New York City. The person selling the item to be delivered within New York City is liable for the surcharge and the surcharge “shall be passed along to the purchaser and separately stated on any receipt” provided to the purchaser.

Deliveries of food, diapers, baby formula, drugs and medicines are exempt from the surcharge under this proposed legislation. If enacted, the surcharge would take effect on January 1, 2025.

The North Carolina Department of Revenue issued a letter ruling that concluded an online platform owner and administrator was not a marketplace facilitator because it neither collected nor otherwise processed payment for any items sold on the website. The taxpayer requesting the ruling was an affiliate of original equipment manufacturers “OEMs), and operated a platform whereby the OEMs sold parts to established customers. The taxpayer administered the electronic infrastructure of the platform and provided connection support. The taxpayer did not receive any compensation for the use of the platform or for orders received through the platform. An independent entity processed all customer payments, or made payment processing services available.

North Carolina’s definition of “marketplace facilitator” under N.C. Gen. Stat. § 105-164.3(133) has two parts: (1) listing or otherwise making available for sale a marketplace seller’s items through a marketplace owned or operated by the marketplace facilitator; and (2) collects the sales or purchase price of a marketplace seller’s items, processes payment, or makes payment processing services available to purchasers. The Department concluded that while the taxpayer satisfied the first part, it did not meet the second part. Neither the taxpayer nor its affiliates collected or processed payments; instead, an unrelated entity handled that function.

N.C. Private Letter Ruling No. SUPLR 2022-0008 (Dec. 9, 2022).

Eversheds Sutherland is a proud sponsor of TEI’s Region 10 43rd Annual Tax Conference, held in Huntington Beach, CA from April 26 to 28. Eversheds Sutherland Partner Michele Borens will help provide updates in the taxation of the digital economy and cryptocurrency, and Partner Jeff Friedman will discuss a current state of the states.

Find out more information and register here.

During COST’s 2023 Income Tax Conference & Spring Audit Session, Eversheds Sutherland Partner Maria Todorova will present on hot topics in transfer pricing and intercompany transactions, discussing transfer pricing methodologies employed, how to counter aggressive assertions of profit shifting, and risks and opportunities around intercompany transactions and transfer pricing.

Finally, on April 27, Eversheds Sutherland attorneys Todd Betor, Jeremy Gove and Chelsea Marmor will lead a state litigation update during the TEI Minnesota Chapter’s 37th Annual President’s Seminar.

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

Say hello to Diego! Adopted in 2022, this 13-year-old certified good boy is owned by Brandi Drake, Senior Director of Strategic Tax at Charter Communications.

When he first came home with Brandi and her husband, Matthew, he looked at them for permission for everything – except for one thing. Despite being a senior pup, he fought his way onto their bed, laid down, and refused to move. With the help of some added steps, he has snoozed there every night since!

He loves all treats, but is particularly fond of dental sticks and doggie ice cream. In fact, he will not go to bed until he gets his nightly dental stick!

Beyond his love for sleeping in his humans’ bed, he enjoys his daily walks and belly rubs. He will also destroy any new toy within minutes, and makes sure to bring Brandi his favorite ball every time she gets home from work and greets him.

We are thrilled to feature Diego as our April pet of the month!

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 introduced a bill that would amend the state income tax return to let filers register to be an organ donor?

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 California Court of Appeal held that the Los Angeles County Assessor erred by failing to remove the value of certain nontaxable intangible assets when valuing a hotel for property tax purposes. Intangible assets are generally exempt from property tax in California. In valuing the hotel, the Assessor used the income valuation approach, which looks to the current and future income stream associated with the property in order to calculate its present, taxable value. The taxpayer argued that in calculating the income stream, the Assessor failed to remove income associated with three intangible assets: a subsidy from the City of Los Angeles valued at $80 million (directly tied to the City’s hotel tax collected on the rooms); a onetime upfront payment made by the hotel’s operators, Ritz Carlton and Marriott, of $36 million dollars for the right to operate the hotel; and “hotel enterprise assets,” including “flag and franchise, food and beverage, and assembled workforce,” valued at $34 million dollars. 

First, the Assessor argued that the $80 million subsidy was not exempt from tax because it “runs with the land and is associated with the ownership of the property.” Relying on Elk Hills Power, LLC v. Board of Equalization, 57 Cal. 4th 593 (2013), the Court rejected the Assessor’s argument, finding that the correct test is whether “the asset is directly necessary to the productive use of the property, whether it is intangible, and whether it can be valued.”  Because all three of these requirements were met, the Court found the subsidy was not taxable and must be removed from the income stream.

Second, turning to the $36 million dollars paid by Ritz Carlton and Marriott for the right to operate the hotel, the Court found that the Assessor erred by treating the payment as income attributable to the hotel. Rather, the Court concluded, it “was not income to the hotel; it was a price break the managers gave the hotel on payments from the hotel.” 

Third, the Court found that the income attributable to the “hotel enterprise assets” had to be removed from the income stream. The Assessor argued that the value of these assets, owned by the hotel’s operators, had already been removed from the income stream by deducting the fees paid to the operators under the so-called “Rushmore” approach.  Following SHC Half Moon Bay, LLC v. County of San Mateo, 226 Cal. App. 4th 471 (2014), the Court found that this method failed to account for the value of these assets, reasoning that if the “fee were so high as to account completely for all intangible benefits to a hotel owner,” the owner would have no reason to pay it.

Olympic & Georgia Partners, LLC v. County of Los Angeles, 2023 Cal. App. LEXIS 263 (2023).

The Washington Court of Appeals held that a company’s collection of data from electric and natural gas meters constituted data processing services exempt from the retail sales tax. The taxpayer collected data from meters used by an energy company’s customers, converted the data into a usable form, and transmitted the data to the energy company so that it could be used for customer billing.

Washington law defines data processing services (an exception from taxable digital automated services) as “primarily automated service[s]…where the primary object of the service is the systematic performance of operations by the service provider on data supplied in whole or in part by the customer to extract the required information in an appropriate form or to convert the data to usable information.”  The Department contended that the taxpayer’s services did not constitute exempt data processing because the primary purpose or true object of the services was the collection and transmission of data—not its processing. The taxpayer disagreed, arguing that the primary purpose of its services was the manipulation and conversion of the data into information usable for its customers, as opposed to the transmission of the data itself.

Relying on precedent, the Court of Appeals concluded that the company was primarily providing data processing services. The court focused on the distinction between services involving the mere transmission of data, versus those involving manipulation or conversion of the data. Because the company (1) converted the data into an appropriate form in a process that took several hours, (2) quantified the information, (3) identified patterns in the information, and (4) without the company’s conversion the data was useless to the customer, the court held that the manipulation and conversion of the data was the true purpose of the transaction. As a result, the court concluded that the company’s services met the statutory definition of data processing and were therefore exempt from retail sales tax. 

Landis+GYR Midwest Inc. v. Washington Department of Revenue, Case No. 56877-2-II, Wash. Ct. App. 2d  (March 28, 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 recently held that taxpayers are not entitled to a set interest rate for their refund because no consistent interest rate has been provided on all refunds?

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!

This week on the SALT Shaker Podcast, Eversheds Sutherland Associate Jeremy Gove welcomes Chris Emigholz, Chief Government Affairs Officer at the New Jersey Business & Industry Association (NJBIA), to the show.

First, they cover Chris’ role at NJBIA and what NJBIA does for New Jersey taxpayers. They then dive into a meaty tax discussion of current issues and legislative proposals in the state, including corporate tax rate reduction, the state’s remote work tax policies, unemployment insurance payroll taxes, and proposed changes to how New Jersey taxes GILTI.

Jeremy picks his latest overrated/underrated question from a large menu – how do you feel about diners?

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: During Georgia’s 2023 legislative session, which bill would have increased the tax on tobacco and vaping products by 20 cents?

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 a recent unreported decision, the Maryland Appellate Court held that taxpayers were not entitled to a 13 percent interest rate on a judgement after the legislature lowered the state’s refund interest rate during the pendency of the taxpayers’ appeal.

The taxpayers successfully challenged the limits that Maryland state law placed on the tax credit for income taxes paid to other states. The law authorized a tax credit against state income taxes but not county income taxes. While the taxpayers’ claim was pending, the state legislature lowered the interest rate for tax refunds from 13 percent to the 2015 prime lending rate. The court characterized the lower interest rate as “sound fiscal planning” because of the estimated $200 million in potential refund claims that would be paid if the taxpayers prevailed with their claim.

The court held that the legislature set up the tax refund interest rate on “shifting sands,” and that the state has never consistently provided interest on all refunds nor locked the interest rate in place. Accordingly, the taxpayers could not reasonably rely on or have a settled expectation of a specific rate.

The court also noted that this is the fourth appeal to reach an appellate court in this controversy, deeming it a “threequel.”

Wynne v. Comptroller of Maryland, Md. App. No. 1561 (March 15, 2023).

During the 2023 legislative session, the Georgia General Assembly passed significant tax legislation including decoupling from IRC § 174, imposing sales tax on certain digital goods, and revising eligibility for the pass-through entity tax election.

March 29, 2023 was “Sine Die” or the 40th and final legislative day of the 2023 session. Both chambers of the General Assembly passed the below bills before the end of the session. These bills are now transmitted to the Governor, who can sign or veto the legislation within 40 days after the end of the legislative session. If the Governor fails to take any action, the legislation becomes law upon the expiration of the 40-day period (May 8).

Read the full Legal Alert here.

In this week’s episode of the SALT Shaker Podcast, Eversheds Sutherland Associate Jeremy Gove welcomes a fellow New York resident to the show, Partner Todd Betor. Todd recently re-joined the SALT practice in January.

Jeremy and Todd delve into a key area of Todd’s practice, SALT issues arising as a result of mergers, acquisitions, or dispositions.

Jeremy and Todd’s conversation covers a few key reasons why it’s important for SALT advisors to be involved in a deal, such as the potential disconnect between state and federal tax treatment of certain transactions. In addition, they talk about why it’s important to review major SALT considerations that go into a deal, and how the consideration of SALT issues can affect tax savings.   

They conclude with this week’s overrated/underrated consideration – Nashville hot chicken.

As referenced in this week’s show, you can read more of Todd’s key takeaways from his presentation at TEI’s 2023 M&A Seminar here.

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 state’s Department of Revenue recently released guidance specifying that sales of “canned” computer software are taxable sales of tangible personal property regardless of the form in which the software is transferred or transmitted?

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, March 29, Eversheds Sutherland attorneys Eric Coffill and Chelsea Marmor will participate in the TEI Philadelphia Chapter’s virtual East/West Summit, covering SALT updates on both coasts.

In addition, on Thursday, March 30, Eversheds Sutherland Partners Michele Borens, Jeff Friedman and Tim Gustafson will present at the TEI Virginia Chapter’s SALT Day, covering a legislative update as well as use tax considerations for purchasing electronically delivered software, SaaS, digital services and digital content.

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

The unitary combined reporting method for state corporate income taxation has been adopted by an increasing number of states. While combined reporting requirements vary significantly from state to state, nearly all combined reporting regimes require or allow a water’s-edge method that limits the members of a group return to entities that are incorporated in the United States and meet other combined reporting requirements. 

The water’s-edge combined reporting method makes sense for many taxpayers and stems from criticisms and litigation aimed at the worldwide combined reporting method. Problems with worldwide combined reporting include compliance challenges associated with varying accounting methods required by other countries, conversion of foreign currencies, and even the lack of available data associated with non-U.S. entities.

There are instances when a domestic incorporated entity is largely engaged in business outside the United States. To help solve this problem, many states adopted the Pareto principle, which states that “for many outcomes, roughly 80 percent of consequences come from 20 percent of causes (the ‘vital few’).” Application of an 80/20 rule in the context of water’s-edge combined reporting requires taxpayers to include in a water’s-edge return those foreign entities that conduct at least 20 percent of their business in the United States (an inbound 80/20 company), and exclude those domestic corporations that conduct at least 80 percent of their businesses outside the United States (an outbound 80/20 company).

In this installment of A Pinch of SALT for Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman, Cyavash Ahmadi and Laurin McDonald describe 80/20 rules used by states in the context of water’s-edge combined reporting and the compliance issues that can arise as a result.

Read the full article here.

The Texas Comptroller of Public Accounts amended its franchise tax apportionment rule, as published in proposed form in the March 10 issue of the Texas Register. The rule, which is now final, discards the “receipt-producing, end-product act” test in light of Eversheds Sutherland’s litigation in Sirius XM Radio, Inc. v. Hegar. Taxpayers should consider the new rule and potentially filing refund claims.

Read Eversheds Sutherland’s description of the Comptroller’s now-adopted amendments here. Eversheds Sutherland attorneys will continue to monitor any developments.

48 Tex. Reg. 200 (January 20, 2023) available at:

https://www.sos.state.tx.us/texreg/pdf/backview/0120/0120prop.pdf.

Meet our March SALT Pets of the Month, 12-year-old Sunny and 5-year-old Lily! These lovely ladies belong to David Weiner, Vice President and Tax Counsel for A&E Television Networks. 

Sunny and Lily were both rescued as adult pups and were happy to join David’s family in 2017 and 2020. Sunny, whose coat is an adorable wiry mix of orange and white, and Lily, who has black and white markings, are both mixed breeds and around 50 pounds each. They get along like two peas in a pod!

Sunny was found in Louisiana, which must have been hard for her since she hates the heat.  Sunny wants to stay outside all day (and night!) during the winter. The colder the temps, the better! Prior to the pandemic, Sunny volunteered at schools and government offices as a certified therapy dog with David’s wife, Paula. She offered emotional support and stress relief.

Meanwhile, Lily was an owner surrender from South Carolina. Prior to her adoption, Lily had not spent much time indoors, but she has quickly gotten used to the good life, especially time on the couch. Lily can often be seen lounging on David’s bed, as well.

Around December 2021, Sunny began dragging one of her back legs. She was diagnosed with degenerative myelopathy, which is a genetic condition that affects dogs’ spinal cords. It causes progressive loss of coordination and weakness, but thankfully, the condition has not spread to her front legs. Sunny has adapted very well and uses a dog wheelchair outside. Neighbors and acquaintances are very supportive of her and often stop to inquire about her health or just give her scratches! 

The girls are beloved by David and Paula’s children Sabrina, age 17, and Cole, age 13.

We’re so happy to welcome them to the SALT Pet of the Month family! 

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

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

This week’s question: Which state legislature recently excluded digital advertising taxes from the governor’s appropriation bills?

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 February 24, 2023, the Wisconsin Tax Appeals Commission upheld the Department’s assessment that Skechers’ licensing transaction with its wholly owned subsidiary, Skechers USA Inc. II (SKII), lacked a valid business purpose and economic substance. On the formation of SKII, Skechers entered into a license agreement with its subsidiary that generated significant royalty deductions, which Skechers claimed on its Wisconsin tax returns. The Department disallowed the royalty expense paid by Skechers to SKII, assessing that the intercompany transactions between Skechers and SKII were sham transactions.

In its decision, the Commission agreed with the Department, finding that Skechers was unable to show that these intercompany transactions had a valid business purpose other than tax avoidance. While the Commission acknowledged that there may be some valid, non-tax, intellectual property related benefits to the formation of SKII, none of these benefits were considered by Skechers before the formation of SKII. The Commission further found that the royalty payments had no economic substance as Skechers failed to provide any documentary evidence showing a change to business practices, profitability or intellectual property before and after the creation of SKII and the transactions at issue.

Therefore, the Commission upheld the Department’s assessments, finding that Skechers failed to present persuasive evidence or testimony that it had a valid business purpose for entering into the licensing transaction with SKII that generated royalty deductions claimed on its Wisconsin tax returns and that the licensing transaction had economic substance.

Skechers USA Inc. v. Wisconsin Department of Revenue, docket numbers 10-I-071 and 10-I-072, in the State of Wisconsin Tax Appeals Commission.

The Illinois Department of Revenue (IDOR) released a general information letter outlining the applicability of Illinois Retailers’ Occupation Tax (ROT) on computer software licenses and maintenance agreements.

The letter states that sales of “canned” computer software are taxable retail sales in Illinois and are considered to be tangible personal property regardless of the form in which it is transferred or transmitted. However, if the computer software consists of “custom” computer programs, then the sales of such software may not be taxable retail sales. In addition, if the computer software, including canned software, is licensed and the license agreement meets the specified criteria in 86 Ill. Adm. Code § 130.1935(a)(1) (distinguishing licenses from sales a retail), neither the transfer of the software license nor the subsequent software updates are subject to ROT. With respect to the software maintenance agreements, the letter provides that taxability depends on whether the charges for the agreements are included in the selling price of the tangible personal property. The IDOR notes that software maintenance agreements are not taxable if the agreements for the maintenance of tangible personal property are sold separately from the tangible personal property. However, the service providers would incur use tax based on their cost price of tangible personal property transferred to customers incident to the completion of the maintenance service.  On the other hand, if the charges for the software maintenance agreements are included in the selling price of the tangible personal property, the charges are part of the gross receipts of the retail transaction and subject to ROT, but no ROT is incurred on the maintenance services or parts when the repair or servicing is performed.

Ill. Dep’t of Revenue, Gen. Info. Ltr. ST-22-0023-GIL (Oct. 19, 2022) (released Feb. 2023).

On March 15, 2023, the two houses of the New York State Legislature released their respective amendments (Senate Bills S.4008 and S.4009, Assembly Bills A.3008 and A.3009, collectively the Amendments) to New York Governor Kathy Hochul’s Fiscal Year 2024 Executive Budget (the Budget Bill) (see our prior legal alert). While the Amendments make notable changes to the Budget Bill, outlined below, which tax proposals the Amendments do not include is equally important to the future of New York’s tax climate. 

Read the full Legal Alert here.

Next week, Eversheds Sutherland is a proud sponsor of Tax Executives Institute’s (TEI) 73rd Midyear Conference, held this year between March 19-22, 2023 at the Grand Hyatt Hotel in Washington, DC.

Eversheds Sutherland SALT Partners Liz Cha and Charlie Kearns will present, and the details of their presentations are below.

Monday, March 20
Market Sourcing – Fair Apportionment?
2:15 – 3:15 p.m. ET
Speaker: Liz Cha

Wednesday, March 22
Remote/Mobile Workforce: Where Are We Now?
8:30 – 9:30 a.m. ET
Speaker: Charlie Kearns


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 Tax Policy Division of the Texas Comptroller of Public Accounts issued guidance summarizing (and incorporating by reference) certain federal statutes and regulations related to which (in)famous tax regime?

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 March 1, 2023, a Florida Circuit Court rejected the Department of Revenue’s attempt to achieve a market-based sourcing result under Florida’s costs of performance sourcing rule that applies to receipts from services. In Billmatrix Corp. et al. v. Dep’t of Revenue, the court granted summary judgment in favor of a number of affiliated corporations that had sourced their receipts from the provision of financial technology services based on the location of the corporations’ income-producing activities and associated costs of performance. Following an audit, the Department had issued corporate income tax assessments after making adjustments to source the corporations’ receipts based on the location of the corporations’ customers. The court, however, found that the Department’s “focus on the ‘location,’ ‘destination, or ‘actions’ of customers contradicts the plain language of the rule and must be rejected.”  The court held that, “to determine the taxpayer’s income-producing activity the Department must look at the transactions and activity the taxpayer directly engages in for the ultimate purpose of obtaining gains or profits, rather than looking at the actions or location of the customer.”

The Billmatrix ruling comes on the heels of a decision issued on November 28, 2022 by the same court that also addressed Florida’s costs of performance sourcing regime. In Target Enter., Inc. v. Dep’t of Revenue, the court rejected the Department’s argument that a corporation that performed services for an affiliate failed to provide sufficient documentation to support the use of the costs of performance sourcing rule and that, as a result, the Department was entitled to use its equitable authority to craft a new apportionment methodology. The court found that the relevant income producing activity was the corporation’s provision of services to its affiliate under a services agreement, that the services were performed by the corporation’s employees, and that the best evidence of the costs to perform the services was the corporation’s payroll apportionment workpapers. The court determined that the workpapers provided by the corporation “make abundantly clear that the greater proportion of the costs to perform [the corporation’s] services were incurred outside Florida.”

The two Florida decisions stand in stark contrast to an opinion issued by the Pennsylvania Supreme Court on February 22, 2023. In Synthes U.S. HQ, Inc. v. Commonwealth, the court held that under the state’s former costs of performance statute applicable to receipts from the provision of services, a corporation’s sales should have been sourced to the location where “the service is fulfilled and the income is finally produced, which is at the customer’s location.” The court reached its conclusion despite the fact that the Pennsylvania Legislature enacted a statutory amendment that adopted explicit market-based sourcing for receipts from services beginning in 2014 – after the years at issue in the case. Without citing to any Legislative history, the court stated that it did not view the amendment “as an attempt to alter the general framework for sourcing sales, but rather as an attempt to clarify the sourcing of sales of services to the point of delivery to the consumer.”

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 administrative office recently held that parts used to repair equipment that is subsequently shipped back to out-of-state customers is subject to use tax because the repairer is deemed the consumer?

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 a taxpayer was not eligible for a sales tax refund on purchases made using coupons because the receipts did not sufficiently describe the coupons, and did not clearly indicate which item(s) the coupon discounted. Where a consumer uses a coupon, Pennsylvania sales tax is generally not due on discount amounts. In this case, the taxpayer engaged in three separate transactions using coupons. In the first transaction, the taxpayer purchased six items using five coupons of varying amounts, and none of the coupons related to a specific item. In the two remaining transactions, the taxpayer purchased a single item and used one coupon. The coupons appeared as “SCANNED COUP” on each of the three transactions’ receipts. Sales tax was imposed on the total purchase price before the coupon discounts were applied. The taxpayer sought a refund, contending that sales tax was only due on the post-discount price.

Reversing the Commonwealth Court, the Pennsylvania Supreme Court concluded that the coupons used in the transactions were taxable because they did not meet the specific requirements the Pennsylvania regulation, 61 Pa. Code § 33.2(b)(2), prescribes for excluding discounts from the sales tax base. The court explained that sales tax should be imposed on the full purchase price unless (1) the amount of the item and coupon are separately stated and identified, and (2) both the item and the coupon are described in the invoice or receipt. The court found that while the coupons were separately stated and identified as coupons in each of the receipts, the coupons were not sufficiently described. Without a proper description, the court explained, it is impossible to determine whether the coupons utilized were of the type that would establish a new purchase price. Thus, the court ruled that the taxpayer was not entitled to a refund of sales tax on the amount of the coupons.

Myers v. Pennsylvania, Nos. 67 MAP 2021 and 68 MAP 2021, 2023 WL 2145639, — A.3d —- (Pa. Feb. 22, 2023).

The Illinois Independent Tax Tribunal found that aviation fuel sold to airlines and subsequently stored at O’Hare International Airport was not exempt from Retailer’s Occupation Tax (ROT). The taxpayer collected the ROT on the sales, but later filed for refunds claiming these sales were exempt from the ROT under the expanded temporary storage exemption. Specifically, the exemption applies to: “tangible personal property purchased from an Illinois retailer by a taxpayer engaged in centralized purchasing activities in Illinois who will, upon receipt of the property in Illinois, temporarily store the property in Illinois (i) for the purpose of subsequently transporting it outside this State for use or consumption thereafter solely outside this State[.]” 35 ILCS 120/2-5(38) (Emphasis added).  The airlines advised the taxpayer that although airplanes received the fuel in Illinois, 98% of the fuel was consumed outside of the state. Based on this representation, the taxpayer filed refund claims arguing that such amounts were exempt from the ROT.

Relying on a case interpreting similar language in the context of the Use Tax Act, United Air Lines v. Mahin, 49 Ill. 2d 45 (1971), the tribunal broadly construed the word “solely” and thus narrowly construed the exemption. Because a portion of the fuel (i.e., approximately 2%) was consumed in Illinois, the tribunal determined that it was not stored in Illinois for use of consumption thereafter “solely” outside the State. Thus, based on the “plain language” of the rule, the tribunal found the exemption did not apply. The tribunal found that applying the temporary storage exemption on a percentage basis would be against the holding of United Air Lines, which the court was unwilling to overturn.

Am. Aviation Supply LLC v. Dep’t of Revenue, 21 TT 27, 21 TT 54 (IL Ind. Tax Tribunal, Jan. 3, 2023).

The Tax Policy Division of the Texas Comptroller of Public Accounts issued guidance summarizing certain federal statutes and regulations related to Internal Use Software (IUS) that are now incorporated-by-references into Texas’ research and development (R&D) laws. Specifically, for purposes of the franchise tax R&D credit laws and the sales tax R&D exemption, the Comptroller incorporates-by-reference certain definitions that, prior to the amendment, were only recognized if taxpayers were required to apply those regulations to the 2011 federal income tax year. Instead, the Comptroller now recognizes these federal laws if taxpayers were allowed to apply those regulations to the federal 2011 income tax year.

In federal tax year 2011, taxpayers were given the election between two different versions of Treas. Reg. § 1.41-4(c)(6): the version adopted in 2003 (contained in IRB 2001-5) and the version proposed in 2022 (contained in IRB 2002-4). Both versions of Treas. Reg. § 1.41-4(c)(6) have some identical provisions, including: (1) the general rule and exemptions from IUS treatment; (2) the definition of “computer services”; and (3) most—but not all—of the language and application of the High Threshold of Innovation Text (which must be satisfied in addition to the Four-Part Test).

The two versions, however, contain some differences: (1) how IUS is defined; (2) details on the treatment of hardware and software developed together as a single product; (3) applicability of a portion of the High Threshold of Innovation Test; (4) the exception for software used to provide noncomputer services; and (5) the examples used in each version of the regulation.

  1. Definition of IUS. IRB 2001-5 is more limited, defining IUS as any software developed to be used internally and clarifying that the sale of the software does not remove its IUS classification. Instead, IRB 2002-4 establishes a presumption that software is IUS unless it is developed to be commercially sold, leased, licensed, or otherwise marketed, for separately stated consideration to unrelated third parties, as determined at the start of the research.
  • Hardware and Software Developed Together as a Single Product. Both versions of the regulation state a new or improved package of hardware and software developed together as a single product, of which the software is an integral part, will be exempt from treatment as an IUS, so long as the product is used directly by the taxpayer to provide services to customers in its trade or business. IRB 2001-5, however, states that the services provided by the taxpayer must be “technological services,” whereas IRB 2002-4 provides that the services can be any services.
  • High Threshold of Innovation Test. While most of the High Threshold of Innovation Test is the same between both versions, IRB 2001-5 has detailed rules for its application.  Note that both versions provide that only the activities related to the new or improved software are considered for the test (i.e., the effect of modifications to related hardware or other software are not taken into account). 
  • Exception for Software Used to Provide Noncomputer Services. IRB 2001-5 uniquely exempts software used in providing noncomputer services to customers from the IUS exclusion. The exception was eliminated entirely in IRB 2002-4—the IRS considered that software eligible for the exception would be credit-eligible under other provisions, making the exception unnecessary.
  • Examples. IRB 2002-4 eliminated one of the two examples provided in IRB 2001-5, and uniquely modified the other. IRB 2002-4 also includes twelve additional examples.

The memo clarifies that taxpayers have the option to elect between the two versions—but any version they select will be applied in full (i.e., they may not elect between different provisions within both versions). The memo also clarifies that additional provisions from the 2016 regulations are not incorporated-by-reference.

Texas Comp. Of Pub. Accounts, Tax Policy Division, Mem. 202302001L (February 6, 2023).  

The California Office of Tax Appeals (OTA) held that a taxpayer was liable for use tax on parts used to repair equipment in California before shipping it back to out-of-state customers. The taxpayer is a distributor, retailer, and repairer of endoscopes and other medical devices, and as part of its optional lump-sum maintenance contracts, the taxpayer performed repairs at its California facility free of charge to the customers. The taxpayer purchased repair parts without tax and stored them in California. Upon completion of the repairs, the taxpayer shipped the repaired equipment via common carrier to its customers. The taxpayer did not accrue use tax on the repair parts, because the out-of-state customers were the consumers of the repair parts.

The OTA disagreed with the taxpayer’s position, instead holding that the taxpayer’s performance of the repairs was a taxable use within California. The OTA relied on two California regulations which state that a person obligated under an optional warranty contract to furnish parts, materials, and labor necessary to maintain property is deemed to be the consumer, and the repairer under an optional lump-sum maintenance contract is the consumer of the parts and materials. Therefore, the OTA held that use tax applied to the repair parts.

In the Matter of the Appeal of Olympus Am. Inc., 2023-OTA-087 (Cal. OTA Dec. 20, 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 recently dismissed a class action lawsuit because the tax at issue was actually an excise tax, rather than sales 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!

An administrative law judge at the New York Division of Tax Appeals found that a company’s vendor management fees were taxable as the sale of pre-written software. The company offers a web-based application that helps to manage and procure staffing services from requisition through billing. The company argued that its fees are not taxable because “the primary purpose of its service was to act as a “matching” agent for suppliers of temporary labor and customers needing such labor and not the license of software.” The Department countered that the primary function test does not apply because they are licensing tangible personal property.  While the company also provided certain customization services, such charges were not assessed by the Department.

The ALJ found the company used the same software for all of its customers; thus, the product was pre-written software – a type of tangible personal property and the primary function test should not apply. Nonetheless, even if the primary function did apply, the ALJ noted that the primary function of the sale was a license of software. In particular, “the software technology and license appear to be completely intertwined with all the services petitioner offers in the contract” and “the ultimate goal was to provide customers a seamless, automated and efficient system of fulfilling and monitoring their temporary employment needs, and that required, as the contract reflects, utilization of the software technology license.”

In the Matter of the Petition of Beeline.com, Inc., DTA No. 829516, (N.Y. Div. Tax App. Feb. 9, 2023).

As cute as he is cuddly, meet Zorro, our February Pet of the Month! Zorro is an adorable Cardigan Welsh Corgi that turned two this past Halloween. His proud parent is Jéanne Rauch-Zender, Editor in Chief of Tax Notes State.

Beyond snacking on tasty treats, he loves to play baseball with Jéanne’s kids, and brings sweet and protective energy to their household. He’s also a little bossy!

His current trick is an ability to carry his own leash, which comes in very handy. He loves to run as fast as possible, which often results in tripping over his short legs, common with his Corgi brothers and sisters.

We’re glad to feature you, Zorro!

In 2021, the Georgia Tax Tribunal ruled that a non-profit hospital was entitled to use Quality Jobs Tax Credits (QJTC) against its unrelated business income tax and its payroll withholding tax. The Tribunal’s decision was affirmed by the Fulton County Superior Court. In response to these court decisions, the Department has proposed legislation, to purportedly “clarify” the plain language of the QJTC statute. Rather than a mere clarification, HB 482 changes the existing law and if enacted as a clarification, the proposed legislation could deprive taxpayers of the credit for prior years and establish troubling precedent.

Read the full Legal Alert here.

In the latest episode of the SALT Shaker Podcast, Eversheds Sutherland Associate Jeremy Gove is pleased to welcome back Doug Lindholm, President and Executive Director of the Council On State Taxation (COST).

Doug dives into the background of COST, how he came to assume his current position, and COST’s role in the state and local tax realm. Doug and Jeremy also touch on the founding of the State Tax Research Institute (STRI), the research and educational arm of COST, which is designed to enhance the public dialogue and understanding of state and local tax policy. 

Jeremy’s newest overrated/underrated question deals with winter accessories. How do you feel about wearing scarves?

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: As showcased in the SALT Scoreboards for 2022, how many significant corporate income taxpayer wins were there for the entire year?

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!

Members of the Eversheds Sutherland SALT team will present during COST’s 2023 Sales Tax Conference & Audit Session in Denver, CO from February 22-24, 2023. The conference features presentations on the most recent transactional tax developments, initiatives and case law topics. SALT team speakers and topics include:

  • What’s Happening with Digital Service Taxes (DST) and Taxes on Digital Products? The New Frontier – Jeff Friedman
  • On-Demand Services and the States’ Marketplace Rules – What’s the Impact? – Michele Borens

For more information and to register, click here.

The King County Superior Court in Washington dismissed a class action lawsuit which alleged that Kroger, Whole Foods, Safeway, and Town & Country Markets improperly collected sales tax on exempt items. In dismissing the claim, the court found that the sales tax at issue is an excise tax. Further, the court found that the exclusive remedy for a wrongfully collected excise tax is to seek a refund from either the retailer or the Department of Revenue, and after that, pursue a civil action in Thurston County Superior Court. The class representatives argued that they were contesting the legality of the tax, and thus not required to follow the statutory procedures for refunds. The court disagreed, holding that the statutory procedural requirements applied regardless of whether the challenge was to the application of the tax as a whole or as to a factual or computational error in imposing or collecting the tax. Because the court did not reach the merits of the underlying claim, the court dismissed the matter without prejudice, allowing the class to re-file with the Department within 21 days.

Caneer v. The Kroger Co., No. 22-2-08219-4-KNT (King Cnty. Sup. Ct., Jan. 20, 2023).

On December 22, 2022, the Massachusetts Supreme Judicial Court held that a taxpayer’s use of computer cookies did not constitute substantial nexus with the state for periods prior to the United States Supreme Court’s decision in South Dakota v. Wayfair, Inc. The taxpayer sold auto parts entirely online and utilized cookies to track customers that visited its website. Effective October 1, 2017, the Massachusetts Department of Revenue promulgated a regulation that required nondomiciliary vendors that employed apps, cookies, or content delivery networks (“CDNs”) in connection with its sale of goods or services in the state to register, collect, and remit Massachusetts sales or use tax if during the preceding 12 months it also met certain transaction value and volume thresholds. This regulation applied to periods prior to the Wayfair Court’s abrogation of the physical presence nexus rule. Nevertheless, the Department assessed the taxpayer based on its electronic contacts with Massachusetts. The taxpayer protested the Department’s use tax assessment for October 1, 2017 to October 31, 2017.

The Massachusetts Supreme Judicial Court held for the taxpayer. The court refused to apply Wayfair’s holding retroactively because “the regulation, by its own terms, limited its reach to nondomiciliary Internet vendors that satisfied the physical presence test set forth in Quill.” The court also admonished the Department for ignoring its position (contained in an amicus brief filed with the US Supreme Court) that it would not apply the Wayfair Court’s holding retroactively. Thus, the pre-Wayfair physical presence standard applied for the tax period at issue. Under that standard, the use of apps, cookies, and CDNs did not constitute physical presence in the state.  

U.S. Auto Parts Network, Inc. v. Commissioner of Revenue, 199 N.E.3d 840 (Mass. 2022).

State and local tax (SALT) issues may arise from mergers, acquisitions, or dispositions. Eversheds Sutherland Partner Todd Betor presented on Unique State Tax Issues at Tax Executives Institute’s 2023 Mergers & Acquisitions Seminar last week in Nashville, TN.

In addition to the need for SALT advisors to get involved at the outset of a deal, the following are three key takeaways from Todd’s panel presentation.

  1. States (and some localities) divert from the federal tax treatment of certain transactions;
  2. SALT deal considerations go beyond how states view a transaction; and
  3. Considering SALT issues as part of a plan can result in meaningful tax savings.

States Do Not Always Follow Federal Tax Rules or Results

As a general rule, states are not bound to conform to the federal tax treatment of a transaction. Indeed, the myriad of state responses to the 2017 Tax Cuts and Jobs Act and, more recently, the 2020 CARES Act demonstrates how very real the disconnect between federal tax provisions and state conformity therewith can be.

A prime example of this disconnect is illustrated by states’ varying levels of conformity to Internal Revenue Code (IRC) Section 381, which governs preservation/carryover of tax attributes,1 including net operating losses (NOLs) of the target company.

While a majority of states generally conform to IRC Section 381, a fair number do not. Massachusetts, for instance, decouples from the federal provision with respect to NOLs via regulation – 830 CMR § 63.30.2(9)(a). That regulation provides in the case of a merger of two or more corporations where there is a single surviving/successor entity, the NOLs of the corporation merged out of existence are eliminated. In other words, the surviving/successor entity only succeeds to, or more appropriately, carries forward the NOLs that a surviving corporation incurred prior to the merger. An unexpected result may occur where two or more existing corporations consolidate into a new corporation. In that situation, Massachusetts regulations provide that the new corporation has no NOLs—any NOLs of the consolidated entities are lost.

Massachusetts’ deviation from IRC Section 381 is but the tip of the state tax iceberg that companies and practitioners must navigate in evaluating and implementing a merger, acquisition, or divestiture, among other transactions. And this example merely serves to highlight the complexity state tax brings to a deal.

SALT Deal Considerations Go Beyond How States View a Transaction

How states ultimately view a transaction and the implications stemming therefrom is but one piece of the SALT considerations that go into a deal. Two examples of other major SALT considerations are discussed below.

A significant SALT consideration is the “track record” of the target company/business, e.g., historic tax positions, filing methodologies, audit history, etc., which the buyer should consider in moving forward with a transaction. This issue relates to successor liability of the buyer for SALT exposures inherent in stock and asset deals.

What a target’s SALT track record looks like, and how it looks through the lens of a buyer, can have a significant impact on a deal, including pricing. More often than not, a SALT risk is identified—typically in the diligence process, either proactively by the seller or raised by the buyer—that cannot otherwise be overcome by the buyer through negotiations (for example, the seller getting the buyer comfortable with the target’s position on the taxability of a service offering). When this occurs, the parties commonly seek to address the risk through seller indemnification, seller escrow (i.e., placing a portion of the purchase price in escrow pending a triggering point for use/release), and/or a purchase price reduction.

How a SALT risk is handled in the transaction agreement (e.g., indemnification, escrow, purchase price adjustment) is generally dependent on the scope of the risk, the risk appetite of the buyer, and advice of SALT advisors. On this last point, it is often that the parties will have differing positions on the historic tax position of the target—typically with respect to sales and use taxes. SALT advisors can add value by substantiating a position or otherwise providing context and support for a target’s position. And the advice may support the elimination or narrowing of an indemnification provision, escrow amount, or purchase price adjustment.

On the other side of the table, a SALT advisor’s role is to advise the buyer on the financial exposure related to pre-transaction tax liabilities of the target. This role is all the more important if a buyer is planning on, and/or the transaction agreement contemplates, the pursuing voluntary disclosure agreements (VDAs) to preemptively address SALT risks.

From the buy-side, another significant SALT consideration is what the post-transaction tax picture may look like. Though the implications are post-transaction, this analysis and planning should be contemporaneous with the steps leading up to close.

At a high-level, this generally involves a review of a target’s nexus footprint with a focus not just on current filing states, but also evaluating a target’s profile based on employee location (payroll), property location, and source of receipts (sales), and comparing that footprint to the buyer’s existing SALT filing profile. Hand-in-hand with the nexus evaluation is how the target will be viewed from an income tax filing perspective, particularly whether there will be “instant unity” of the target with the buyer’s existing business such that target would be included in the buyer’s existing state income tax reporting groups.

Consideration of SALT Issues as Part of a Plan Can Have Meaningful Tax Savings

Considering SALT issues as part of a plan can result in meaningful tax savings. For example, the use of equity consideration can lead to a significant state franchise (or net worth) tax exposure. These taxes are privilege taxes—taxes imposed for doing business in a state—that are generally based on a taxpayer’s total equity value.

A prime example is the Illinois Franchise Tax, administered by the Illinois Secretary of State as opposed to the state’s Department of Revenue, which utilizes “paid-in capital” as the base for the tax (as imposed on corporations) and is imposed on a separate company basis.2 The term is broadly defined to include – 

the sum of the cash and other consideration received, less expenses, including commissions, paid or incurred by the corporation, in connection with the issuance of shares, plus any cash and other consideration contributed to the corporation by or on behalf of its shareholders, plus amounts added or transferred to paid-in capital by action of the board of directors or shareholders pursuant to a share dividend, share split, or otherwise, minus reductions . . .. 3

The franchise tax implications of using equity consideration, specifically issuance of additional equity, are illustrated in the 2004 case of USX Corp. v. White.4 In that case, USX Corp. (USX) had issued additional shares of its stock (133,184,470 shares), which was used as consideration in a reverse subsidiary merger with Texas Oil and Gas Corporation. For purposes of its Franchise Tax, USX reported $2.99 billion as the entire consideration received for issuing the new USX stock—a $2.99 billion increase in paid-in capital. The case ultimately dealt with the application of an exclusion Illinois affords to vertical mergers—which the court found did not apply to USX’s fact pattern.

The above highlights the need for careful planning as to transaction consideration and its impact on a company’s franchise tax liability. Post-transaction debt restructuring can also have a significantly similar tax impact. All too often, though, SALT advisors are called upon to address the tax impact after the fact; further enforcing the need for SALT advisors to get involved at the outset of a deal.

_______

1 Putting aside limitations on tax attributes under IRC Sections 382, 383, and 384, and states’ conformity therewith. 

2 805 ILCS §§ 5/15.25, 15.40, 15.55, 15.70.

3 805 ILCS § 5/1.80(j).

4 352 Ill. App. 3d 709 (Ill. App. Ct. 2004).

The pending precedential Office of Tax Appeal’s (OTA) decision of Appeal of L. Smith, OTA Case No. 20036033 (Dec. 7, 2022) concerned whether California could impose income tax on a nonresident’s distributive share of gain from the sale of an interest in a timeshare developer operating in California as a limited liability company (Timeshare). This turned on two issues. 

The first issue was whether a nonresident’s distributive share of gain on a sale of an interest in a pass-through entity must be sourced using the statute for sourcing gain from the sale of intangibles, Cal. Rev. & Tax. Code § 17952, or FTB’s regulation for sourcing partnership income from a trade, business or profession, Cal. Code Regs., tit. 18, § (“Regulation”) 17951-4.  Following the Court of Appeal’s decision in The 2009 Metropoulos Family Trust, et al. v. Franchise Tax Bd. (2022) 79 Cal.App.5th 245, 266 (see our prior coverage here), the OTA found that it must apply FTB’s regulation. Although Metropoulos concerned an S Corporation, OTA found that its holding applies equally to partnerships and limited liability companies taxed as partnerships.

The second issue arose in the course of applying Regulation 17951-4:  whether the parent limited liability company (Holding Co) that sold the interest in Timeshare was engaged in a unitary business with Timeshare. If it was, then the apportionment factors of Timeshare would flow up to Holding Co, resulting in nearly 42 percent of the gain from the sale being sourced to California, as opposed to none. OTA found that Timeshare and Holding Co were engaged in a unitary business. Notably, OTA rejected FTB’s argument that a special unitary test applied to holding companies. It also explained that majority ownership is not required to be unitary in the partnership context because unlike “a corporate shareholder, only the partner’s ownership interest in the partnership’s income and apportionment factors may be combined.” The OTA’s analysis highlighted California’s alternative test for unity — the “three unities test” and “dependency or contribution test” — but focused on the latter because that is what FTB based its assessment on and the taxpayer failed to rebut FTB’s position. Critical factors that OTA relied on in reaching its decision were an integrated executive force, intercompany financing, and a covenant not to compete.

The decision is available 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 Texas Comptroller of Public Accounts recently made amendments to its franchise tax apportionment rule in light of which case?

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!

A recent report issued by the New Jersey Division of Taxation includes a suggestion that state lawmakers consider a cloud computing tax. The report titled, “Studying the Impact of the Digital Economy” recommends adopting a sales and use tax model that differentiates between physical good and services and digital goods and services. The report notes that New Jersey law does not specifically address cloud computing services and thus sales tax does not apply to software as a service (SaaS) or platform as a service (PaaS). The report suggests that a review of tax policy regarding cloud computing services should be undertaken as the volume of transactions increases, but adds that “[t]o effectively tax cloud computing services, nexus and sourcing issues will also have to be addressed.”

New Jersey Division of Taxation, “Studying the Impact of the Digital Economy.” (2023)

The New York Tax Appeals Tribunal ruled that a semiconductor manufacturer was eligible to use the carryover refund from both the Empire Zone investment tax credit (EZ-ITC) for new businesses and the qualified investment project (QUIP)/significant investment project (SCIP) tax credit in the same year, resulting in a $152.3 million refund for the 2014 tax year. 

In 1986, the Legislature created the Economic Development Zone Act to stimulate private investment and job creation in specific economically challenged areas of the state (the areas were later renamed Empire Zones). Among the tax incentives, the EZ-ITC allowed taxpayers a refund of 50% of its EZ-ITC carryover as a new business, and a 50% refund of its EZ-ITC carryover as the owner of a QUIP or SCIP. 

GlobalFoundries, as an operator of a manufacturing facility in a designated Empire Zone, filed a refund claim for 2014 on the basis that it was entitled to combine the new business credit carryover refund and the QUIP/SCIP credit carryover refund, which together effectively provided a 100% refund of its EZ-ITC credit carryover. The Division of Tax Appeals rejected GlobalFoundries’s refund claim, ruling that the two credit carryovers are mutually exclusive, and that GlobalFoundries was only entitled to the original 50% refund. 

On appeal, the Tax Appeals Tribunal overturned the ALJ’s decision, refraining from deferring to the Divisions requested deference to its interpretation and concluding that the new business credit and the QUIP/SCIP credit could be taken together. The Tribunal pointed to the unambiguous plain language of the statute, which “expressly provides” that a new business is entitled to a 50% refund of its EZ-ITC carryover, and the statute “also expressly provides that, in addition, any taxpayer that is approved as the owner of a QUIP or SCIP may elect to treat 50% of its EZ-ITC carryover as an overpayment of tax to be credited or refunded.” The Tribunal held that a natural reading of the language allows a taxpayer that qualifies for both benefits to receive both benefits. 

Matter of the Petition of GlobalFoundries U.S. Inc., DTA No. 829184 (Tax App. Trib., Jan. 19, 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 Supreme Court of Virginia recently upheld a decision invalidating which county’s plan to claw back tax refunds?

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!

To kick off the SALT Shaker Podcast for 2023, Eversheds Sutherland Associate and host Jeremy Gove welcomes Maria Koklanaris, Senior Tax Correspondent for Law360, to the show. Together, they tackle state tax legislation and litigation that should be on your radar this year.

Jeremy and Maria begin with an overview of state tax legislation season, including: two diverging trends, some states increasing taxes on people deemed “high earners” versus other states moving to cut taxes or simplifying their tax codes; and states’ continued attempts to tax the digital economy. 

Beyond legislation, they also discuss cases to watch this year, which includes two U.S. Supreme Court cases dealing with unclaimed property, and a non-tax California ballot initiative case which has the potential to inform the application of “Pike Balancing” under the Commerce Clause. They also address the pending case before the Ohio Supreme Court confronting the tax impacts of remote work.

You can read Maria’s articles they referenced here:

To conclude, Jeremy picks his first overrated/underrated question of the year – how do you feel about hot chocolate?

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

Listen now:

Subscribe for more:

On February 7, Eversheds Sutherland Partner Todd Betor will present during Tax Executive Institute’s 2023 Mergers and Acquisitions Seminar in Nashville, TN, which covers the critical tax and operational issues relevant to M&A transactions. Todd’s panel will discuss unique state tax issues.

For more information and to register, click here.

In addition, Eversheds Sutherland Partners Michele Borens and Jonathan Feldman will present during the 2023 National Multistate Tax Symposium, held in Orlando, FL. Jonathan will present Cultivating a Thriving Multistate Tax Environment: Fostering Today for Tomorrow on February 9, and Michele will present Sales and Use Tax Hot Topics in Our Digital World: What’s New and Next on February 10.

For more information and to register, click here.

On January 19, 2023, the Michigan Court of Appeals held that a taxpayer, transitioning from the Michigan Business Tax (MBT) to the Corporate Income Tax (CIT), cannot claim prior MBT business losses on its first CIT return. For tax years 2008 through 2011, the taxpayer filed MBT tax returns and claimed employment tax credits. In 2012, Michigan replaced the MBT with the CIT, but allowed businesses to continue filing MBT returns until they had exhausted their credits. However, any such taxpayer must pay the MBT as the greater of the typical MBT amount or as if it had instead filed a CIT return. The taxpayer took this approach until it exhausted its credits in 2018. In tax year 2019, the taxpayer filed its first CIT return and claimed an MBT business loss carryforward as a deduction. The Department of Treasury denied the deduction. 

The court first held that the taxpayer had not paid CIT from 2012 to 2018, even though it paid the “greater” CIT-based amount on the MBT return. The court concluded that the CIT-based amount is “[a]n amount equal” to the CIT liability, not a CIT liability itself. The court then concluded that the CIT does not allow a deduction for MBT business losses. The CIT defines “business loss” specifically with respect to the “corporate income tax base.” In contrast, the MBT “contemplates and uses a business income tax base which contains some different additions and deductions than those in the corresponding CIT statute.” Because the taxpayer did not previously file CIT returns and pay the CIT, it had no CIT base. It therefore had no CIT losses capable of being carried forward to tax year 2019. 

Int’l Auto. Components Grp. N. Am., Inc. v. Dep’t of Treas., No. 360602 (Mich. Ct. App. Jan. 19, 2023) (unpublished).

The Texas Comptroller of Public Accounts (the Comptroller) published proposed amendments to Texas’ franchise tax apportionment rule in the January 20 issue of the Texas Register, 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.

Read the full Legal Alert here.

On February 1, 2023, New York Governor Kathy Hochul released her Fiscal Year 2024 Executive Budget and accompanying legislation (the Budget Bill). The Budget Bill includes several tax rate adjustments and technical fixes to the Tax Law, among other provisions.

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 recently introduced bill would impose a tax on revenue from digital advertising services, specifically on persons with revenue from digital advertising services in excess of $25 million per year?

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 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!

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!