In this episode of the SALT Shaker Podcast policy series, host and Eversheds Sutherland Partner Nikki Dobay is joined again by Meredith Beeson, Director of State Government Affairs with the Global Business Alliance (formerly known as the Organization for International Investment) in Washington, DC.

During this conversation, they discuss state tax haven provisions, which seemed to be a dying policy. With Colorado’s recent passage of tax haven legislation earlier this year, however, Nikki and Meredith talk about the history and why these provisions are of concern to the Global Business Alliance as well as the tax policy reasons these provisions should be rejected.

They wrap up with Nikki’s surprise nontax question – are you a “Vegas person”?

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

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In a personal income tax residency decision that involves a fair amount of schadenfreude, the District of Columbia Court of Appeals affirmed a criminal tax evasion conviction of a District domiciliary and denied a motion to suppress documents obtained through extensive summonses issued by the Office of Tax and Revenue.

For background, the taxpayer filed District tax returns as a part-year resident for the 2009 through 2013 tax years because he spent a substantial amount of time in New Hampshire during those periods.  As an alleged part-year District resident, the taxpayer argued that he was allowed to exclude from District taxable income any income he received when he was a part-year resident of New Hampshire (which does not impose a personal income tax).

The trial court explained that a District “resident” incudes a “person who is domiciled in the District or who maintains a place of abode in the District for 183 days out of the year regardless of domicile, and that temporary absence from the District does not change a person’s domicile or place of abode.”  The trial court further noted that “a person is domiciled in the District if he lives there and has no intent to return to where he was formerly domiciled, and that to establish a change in domicile a person must show physical presence outside the District, an intent to abandon the domicile in the District, and an intent to remain in the new domicile indefinitely.”  As described in the court of appeals opinion, OTR conducted a thorough investigation as to the taxpayer’s District residency status under these rules.

The trial court found that the taxpayer established his District domicile in July 2009 and remained a District domiciliary until after April 2014.  The trial court based its findings on the following facts – (i) financial records provided by the taxpayer’s soon-to-be ex-wife “[i]n the midst of an ‘acrimonious’ divorce,” (ii) testimony of a New Hampshire hotel clerk that the taxpayer offered to bribe to use the hotel as his residence address, and (iii) information from 26 summonses to third parties for “bank, investment, residential real estate, employment, school, and other records.”  Ultimately, the trial court convicted the taxpayer of tax evasion of the 2011 and 2012 tax years.

The taxpayer argued on appeal that his records were obtained through summons that were improperly obtained, thereby violating the Fourth Amendment to the U.S. Constitution, and that his belief that he was only a part-year resident of the District was reasonable and in good faith.  As additional support for his reasonableness and good faith arguments, the taxpayer invoked the venerable “TurboTax” defense, although he admitted “that TurboTax’s designation of his status as a part-year resident was dependent upon the information he entered.”

Following a lengthy discussion of the U.S. Supreme Court’s third-party doctrine as it relates to the summonses and the taxpayer’s reasonable expectation of privacy in the documents sought by them, the court of appeals held that the trial court did not err in holding that OTR “acted in objectively reasonable good-faith in reliance on then-existing law in issuing the summons, and in ruling that the documents need not be suppressed.”  The court of appeals held that the trial court’s finding of willfulness mens rea requirement for tax evasion was amply supported by the evidence.  Following its review of the detailed record, the court of appeals found there was “overwhelming” proof that the taxpayer was domiciled in the District during the periods at issue and that the taxpayer did not believe in good faith that he was only a part-year resident of the District.

Witaschek v. District of Columbia, 254 A.3d 1151 (D.C. 2021).

The Tennessee Department of Revenue posted sales tax letter ruling number 21-08 on October 12, 2021 (issued August 2021) in which the Department determined that an online cloud-based platform’s charges to commercial freight transportation brokers and carriers were not subject to sales tax. The platform offers two cloud-based remote access services, one of which allows brokers to post hauling opportunities for carriers, in exchange for subscription fees. The second service uses the platform’s data to help brokers and carriers determine the fair market value of each route or hauling engagement, and subscribers may purchase this service on a subscription model or for a one-time fee. The Department found that both services are a nontaxable online advertising service and did not constitute either a taxable data processing service or a taxable telecommunications service. Further the Department concluded that the services could not be characterized as taxable remotely accessed software.

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: How many digital advertising tax proposals have been introduced in the Massachusetts legislature this year?

E-mail your response to

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

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

This week, Eversheds Sutherland is pleased to sponsor the Council on State Taxation (COST) 52nd Annual Meeting from October 17-20, 2021 in Las Vegas, NV. This year’s conference will be a hybrid event, offering both in-person and virtual attendance options. Registration and event information can be found here.

Members of the Eversheds Sutherland SALT team are presenting on several topics,  including:

  • October 18 – The Biden Administration’s Corporate Tax Reform Proposals – Nikki Dobay
  • October 18 – A Deep Dive into the Taxation of Digital Goods and PITFA- Not Just For ISPs – Charlie Kearns
  • October 18 – Combined/Unitary Reporting – States’ Increasing but Varied Adoption – Todd Lard
  • October 19 – Conformity – First There was the TCJA and now CARES – Where Are We? – Jonathan Feldman

In addition, Partner Nikki Dobay will present a SALT update during the Oregon State Bar meeting on October 21.

There are several federal statutes that limit state and local taxation, including the Internet Tax Freedom Act and Public Law 86-272. Ever since the U.S. Supreme Court handed down its decision in Murphy v. National Collegiate Athletic Association, there have been calls to apply the “anti-commandeering doctrine” to invalidate or limit these federal laws.

In the latest installment of A Pinch of SALT for Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman and Alla Raykin explain why such calls are misguided. The anti-commandeering doctrine prevents Congress from commanding states enact laws or enforce regulations, it does not lessen Congress’s plenary authority to regulate interstate commerce. Congress’s constitutional authority to regulate interstate commerce authorizes the preemption of state and local taxes.

On July 27, the Indiana Department of Revenue found that a taxpayer had abandoned her Indiana domicile and was therefore no longer subject to Indiana state income despite the taxpayer erroneously listing her permanent address with her employer as her old Indiana-based address.

The taxpayer protested the imposition of Indiana income tax and provided the following documentation supporting her position that she had abandoned her Indiana domicile beginning in January 2019: (1) a mortgage statement showing that she lived with her mother in Nevada, (2) student loan documents, (3) bank statements, (4) utility bills, (5) insurance policies and (6) a Nevada driver’s license.  The Department ultimately granted the taxpayer’s protest, finding that she met her burden of proving the proposed assessment wrong by showing that she took steps to establish domicile in another state.

Letter of Findings: 01-20210028, Indiana Department of State Revenue (July 27, 2021).

Recent developments for Illinois’ marketplace facilitator tax law.

The latest

  • October 1 – The Illinois Department of Revenue releases Sales and Use Tax Form CRT-63 “Sales Through Marketplace Facilitator Certificate.” (PDF). This certificate, which must be renewed annually, must be provided by marketplace facilitators to marketplace sellers.  The certificate must be maintained with the marketplace seller’s books and records to show no tax is due.
  • August 27 – Governor J.B. Pritzker signs S.B. 2066, which allows marketplace sellers to claim a retroactive retailers’ occupation tax credit for sales in 2020 for which a marketplace facilitator has already remitted tax.
  • July 23 – the IDOR publishes emergency rules with specific guidance regarding food delivery marketplace facilitators (PDF).
  • June 9the IDOR issues updated FAQs for marketplace facilitators, marketplace sellers and remote sellers.
  • June 8 – IDOR revises its “Leveling the Playing Field Retailer Flowchart” (PDF).
  • June 3 – IDOR publishes “What’s New in 2021 for Remote Retailers and Marketplace Facilitators PowerPoint Presentation” (PowerPoint).
  • June 1 – IDOR publishes a Compliance Alert for reporting issues on form ST-1, Sales and Use Tax Return (PDF).

Illinois’s marketplace collection law at a glance:

Relevant statutes:

  • Retailer’s Occupation Act: 35 ILCS 120/2
  • Service Use Tax Act: 35 ILCS 110/2d
  • Use Tax Act: 35 ILCS 105/2d

Tax collection threshold: $100,000 in sales of tangible personal property or 200 separate transactions for the sale of tangible personal property within the preceding 12-month period. (Includes sales facilitated on behalf of marketplace sellers.)

“Marketplace facilitator” defined: A person who, pursuant to an agreement with an unrelated third-party marketplace seller, directly or indirectly through one or more affiliates facilitates a retail sale by an unrelated third party marketplace seller by:

  1. listing or advertising for sale by the marketplace seller in a marketplace, tangible personal property that is subject to tax under this Act; and
  2. either directly or indirectly, through agreements or arrangements with third parties, collecting payment from the customer and transmitting that payment to the marketplace seller regardless of whether the marketplace facilitator receives compensation or other consideration in exchange for its services.

“Remote retailer” defined: A retailer that does not maintain within this State, directly or by a subsidiary, an office, distribution house, sales house, warehouse or other place of business, or any agent or other representative operating within this State under the authority of the retailer or its subsidiary, irrespective of whether such place of business or agent is located here permanently or temporarily or whether such retailer or subsidiary is licensed to do business in this State.

Background: Marketplace facilitator collection in Illinois

Like most states with a sales tax, Illinois enacted a marketplace facilitator sales tax collection law after the 2018 Wayfair decision. The goal of this law was to “level the playing field” between online and in-store sales by requiring marketplace facilitators and remote retailers to collect sales tax. However, the interaction of Illinois’ unique sales tax system and the collection requirements imposed on digital marketplaces created issues that had to be resolved by a series of “fix” bills and guidance from the IDOR.

Sales Tax in Illinois

Illinois imposes two separate but complementary taxes upon the sale and use of tangible personal property: the Illinois Retailers’ Occupation Tax (ROT) and the Use Tax (UT). Typically, customers pay UT to retailers, who must remit the tax to the Illinois Department of Revenue unless the retailer has already remitted ROT upon the gross receipts from the same sale. If ROT has already been paid on the transaction, then the seller may keep the UT collected from the customer. Therefore, although a single retail sale transaction triggers the imposition of both the ROT and UT on the retailer and customer, only one of the taxes must be remitted to the state. If a retailer does not have nexus with Illinois and therefore lacks ROT or UT obligations, the Illinois customer must pay UT directly to state.

Marketplace Facilitator Sales Tax Laws in Illinois

IDOR emergency rules cover food delivery marketplaces and formalize February guidance

On July 21, 2021, the IDOR released emergency rules formally reversing Compliance Alert 2021-01, regarding the obligations of marketplace facilitators to collect the Chicago soft drink tax and metropolitan authority’s retailer tax. The emergency rules provide that marketplace facilitators must collect both taxes. The rules are retroactive to July 13, 2021.

In connection with this change, provisions were added to emphasize that food delivery services that are considered marketplace facilitators must provide food service establishments with a certification that the food delivery service assumes the rights and duties of a retailer under the Retailers’ Occupation Tax Act and all applicable local taxes administered by the IDOR for sales made by the food service establishment on the marketplace, and that it will remit all such taxes for such sales.

The emergency rules also describe obligations of local taxing jurisdictions to provide data to the IDOR so taxpayers can determine the correct rates of local tax due on transactions.

Section 131.175 of the emergency rules provides that beginning February 1, 2022 and on or before February 1 of each year thereafter, the IDOR will make available to each local taxing jurisdiction the taxing jurisdiction’s boundaries, determined by the IDOR, for its verification. Jurisdictions shall verify these taxing jurisdiction boundaries and notify the IDOR of any changes, additions, or deletions by April 1 of each year in the form and manner required by the IDOR. The IDOR will use its best judgment and information to confirm the information provided by the taxing jurisdictions and update its database. The IDOR will administer and enforce the changes on the first day of the next following July.

The clerk of any municipality or county from which territory has been annexed or disconnected shall notify the IDOR of that annexation or disconnection. Required documentation shall include a certified copy of the plat of annexation or, in the case of disconnection, the ordinance, final judgment, or resolution of disconnection together with an accurate depiction of the territory disconnected. Notification shall be provided to the IDOR either:

  1. On or before the first day of April, whereupon the IDOR will confirm the information provided by the municipality or county and update its database and proceed to administer and enforce the confirmed changes on the first day of July next following proper notification; or
  2. On or before the first day of October, whereupon the IDOR will confirm the information provided by the municipality or county and update its database and proceed to administer and enforce the confirmed changes on the first day of January next following proper notification.

January 2021 sales tax guidance update

The Illinois Department of Revenue (IDOR) recently issued updated sales tax rules and guidance for remote sellers and marketplace facilitators. The updated rules and guidance reflect changes made by the 2019 “Leveling the Playing Field for Illinois Retail Act” that became effective on January 1, 2021 (Public Act 101-0031 and Public Act 101-0604).

Updated Retailers Occupation Tax (ROT) rules

The new ROT administrative rules address six categories of retailers with different tax liabilities:

  1. Remote retailers incurring state and local ROT using destination sourcing for sales made to Illinois purchasers;
  2. Marketplace facilitators incurring state and local ROT using destination sourcing for sales made over the marketplace on behalf of marketplace sellers to Illinois purchasers;
  3. Marketplace facilitators incurring state and local ROT using origin sourcing for their own sales that are fulfilled from inventory located in Illinois and incurring state and local ROT using destination sourcing for all other sales of its own;
  4. Out-of-state retailers with a physical presence in Illinois incurring a use tax collection obligation for sales made outside Illinois and shipped or delivered to Illinois purchasers; such retailers also incur state and local ROT using origin sourcing for any sales made in Illinois;
  5. Illinois retailers, including brick and mortar retailers, incurring no state or local ROT for sales made over a marketplace (the marketplace facilitator will now incur state and local ROT liability based on destination sourcing for these sales); and
  6. Illinois retailers, including brick and mortar retailers, incurring state and local ROT based on origin sourcing for sales made in Illinois.

As a result of these differing tax obligations, the IDOR advises that it is critical that retailers examine their selling activities to determine their specific tax liabilities. This is especially important for retailers that engage in multichannel retailing (for example, retailers that engage in selling through their own website, as well as through a marketplace, or Illinois brick and mortar retailers that also sell over a marketplace).

Finally, the scope of the rules is limited to state and local ROT. The rules do not impact the liability of marketplace sellers and remote retailers for other taxes administered by the IDOR or taxes administered by localities.

Destination-based sales tax guidance

On January 4, 2021, the IDOR published a website with technical guidance for remote retailers and marketplace facilitators who must collect destination-based sales tax starting Jan. 1, 2021. The website addresses how these taxpayers can determine tax rates and location codes, add and change locations on a MyTax Illinois account, and properly file Forms ST-1/ST-2.

Eversheds Money Court Graphic

Threshold calculation guidance for marketplace facilitators

Illinois Informational Bulletin FY 2021-02-A, provides additional ROT guidance for marketplace facilitators. The guidance advises that for the purposes of calculating the remittance threshold determination for marketplace facilitators, two categories of sales should be excluded:

  • sales for resale, and
  • sales of tangible personal property that is required to be registered with an agency of Illinois, including motor vehicles, watercraft, aircraft, and trailers.

All sales other than these, even if they are exempt from tax, must be included in calculating the tax remittance thresholds. Finally, a marketplace facilitator is considered to be habitually engaged in the selling of tangible personal property and as such, no sales made by a marketplace facilitator are considered to be occasional sales (unlike a remote retailer). Therefore, marketplace facilitators do not have occasional sales to exclude from their tax remittance threshold determination.

Further guidance was provided in Sept. 2020 in Illinois Informational Bulletin FY 2021-2: Retailers’ Occupation Tax Guidance for Remote Retailers as set forth by the Leveling the Playing Field for Illinois Retail Act.

Occasional sales on marketplace platforms

The IDOR takes the position that marketplace sellers cannot qualify for the occasional sale exemption for ROT. Generally, persons who make isolated or occasional sales do not incur tax liability because ROT is imposed on persons engaged in the business of selling tangible personal property. However, according to an IDOR General Information Letter released on Jan. 28, 2021, marketplace sales are not eligible for the occasional sale exemption.

The IDOR noted that under the new administrative rules that took effect in 2021, a marketplace facilitator is considered a retailer engaged in the occupation of selling at retail in Illinois for ROT purposes if it meets the annual $100,000 in sales or 200 transaction thresholds. Thus, a marketplace facilitator makes more than isolated or occasional sales. Additionally, a “marketplace” is a location held out to the public as being habitually engaged in the selling of tangible personal property.

Ill. Dept. of Rev., General Information Letter ST 21-0003 (Jan. 28, 2021).

June 2021 Compliance Alert

The IDOR published a compliance alert on June 1 (PDF) noting that it had identified a large number of retailers who filed Form ST-1 returns for periods after January 1, 2021, with sales amounts reported only on lines 6a and 7a, the lines used to report tax on sales subject only to Illinois Use Tax.

These retailers may not be properly assessing, collecting, remitting, and reporting Illinois taxes on some or all of their sales. Some of their sales may be subject to Retailers’ Occupation Tax at the origin rate or destination rate, depending on the specifics of each sale.

The Compliance Alert notes that in-state retailers must collect and remit state and local ROT at the origin rate. Out-of-state retailers with a physical presence within the state must determine on a sale-by-sale basis if their selling activities take place within the state:

  • If selling activities occur in Illinois (for example, sales are filled from inventory in Illinois or other selling activities occur in Illinois; see, e.g., 86 Ill. Adm. Code 270.115), then state and local retailers’ occupation tax is calculated using the origin rate for that sale.
  • If selling activities occur outside Illinois, then use tax must be collected and remitted for that sale.

Remote retailers meeting the state’s $100,000 in sales/200 transaction threshold must collect and remit state and local ROT at the destination rate.

Taxes for sales made by a marketplace facilitator on behalf of a marketplace seller are incurred at the tax rate in effect at the purchaser’s location (destination rate). This applies to sales made through a marketplace by:

  • Illinois retailers
  • Out-of-state retailers (with or without physical presence)

Sales made over the marketplace by a marketplace facilitator itself are taxed as follows:

  • For sales that are fulfilled from inventory located in Illinois and for which selling activities do not otherwise occur in Illinois (see, e.g., 86 Ill. Adm. Code 270.115), state and local retailers’ occupation taxes are incurred at the tax rate in effect at the location of the Illinois inventory (origin rate);
  • For sales for which selling activities otherwise occur in Illinois (see, e.g., 86 Ill. Adm. Code 270.115), state and local retailers’ occupation taxes are incurred at the tax rate in effect at the location of the selling activities (origin rate);
  • For sales that are not fulfilled from inventory located in Illinois and for which selling activities do not otherwise occur in Illinois (see, e.g., 86 Ill. Adm. Code 270.115), state and local retailers’ occupation taxes are incurred at the tax rate in effect at the purchaser’s location (destination rate).

Developments: Illinois’ marketplace and remote seller collection laws

  • August 27, 2021the Governor signs S.B. 2066.
  • May 30, 2021the Illinois Legislature passes S.B. 2066, which creates an exemption and retroactive credit for marketplace sellers for transactions in 2020 where tax was paid by the marketplace seller and the marketplace facilitator.
  • Feb. 23, 2021 – Illinois issues responses to Frequently Asked Questions regarding marketplace facilitators, marketplace sellers, and remote retailers.
  • Feb. 1, 2021 – IDOR issues a Compliance Alert on the tax remittance obligations of remote retailers, marketplace sellers, and marketplace facilitators. It concluded that remote retailers and marketplace facilitators must collect and remit state and local ROT administered by the IDOR – including the Chicago Home Rule Municipal Soft Drink ROT. However, marketplace facilitators are not required to collect and remit other (non-ROT) taxes administered by the Department on sales made by marketplace sellers over the marketplace and remote retailers, including the Prepaid Wireless E911 Surcharge, Illinois Telecommunications Access Corporation Assessment, and Tire User Fee.
  • Jan. 1, 2021Illinois issues updated sales tax rules for remote sellers and marketplace facilitators. The updated rules and guidance reflect changes made by the 2019 “Leveling the Playing Field for Illinois Retail Act” that became effective on January 1, 2021.
  • Sept. 18, 2020 – IDOR proposes regulations implementing their remote seller and marketplace facilitator legislation. (PDF) The guidance adds Ill. Admin. Code tit. 86, § 131.101 et seq. to provide updated definitions, explain the determination of remote retailer status, and explain when the gross receipts and separate transaction thresholds are met.
  • May 19, 2020 – IDOR issues proposed regulation 150.804 clarifying the state’s marketplace facilitator legislation (PDF). Under the proposed regulations, a marketplace facilitator must certify to marketplace sellers that it assumes the rights and duties of a retailer for Illinois use tax purposes, must maintain records of its marketplace sellers, and must clearly indicate to sellers that it is listing goods on behalf of a clearly identified seller. The proposed regulations also provide detail and definitions regarding the $100,000 annual revenue or 200 annual transactions thresholds. Finally, the proposed regulation clarifies that the marketplace requirements apply only to use tax obligations and marketplace facilitators are not authorized to remit sales tax obligations (related to orders fulfilled from in-state inventory).
  • Jan. 1, 2020 –Illinois expands nexus to include marketplace facilitators that meet certain thresholds.

More resources

The Michigan Court of Appeals reaffirmed its March 2020 decision that application of the state’s statutory apportionment formula was unconstitutionally distortive as applied to a taxpayer’s Michigan Business Tax (MBT) liability. The Michigan Supreme Court vacated and remanded the Court of Appeals’ March 2020 decision, which was the topic of a prior SALT Shaker post located here, to address the taxpayer’s arguments regarding the proper method for calculating MBT liability under the state’s apportionment statute. The Michigan Supreme Court noted that determining the proper statutory calculation method was an important “foundational issue” and was necessary in order to ascertain whether alternative apportionment was required.

The Michigan Court of Appeals remanded the case to the trial court to determine whether the Department correctly applied the statutory apportionment formula. On remand, the trial court rejected the taxpayer’s argument that the sale of an entire business should be included in the sales factor denominator. The Court of Appeals agreed with the trial court’s conclusion and reaffirmed its prior determination that application of the statutory formula violated the Due Process and Commerce Clauses. The Court of Appeals again vacated the tax assessment and penalty, and remanded the case to the trial court once again to determine an appropriate apportionment method if the parties cannot agree on one.

Vectren Infrastructure Services Corp. v. Department of Treasury, Mich. Ct. App., Dkt. No. 17-000107-MT (Sept. 30, 2021)

On this episode of the SALT Shaker Podcast, host and Eversheds Sutherland Associate Jeremy Gove discusses the rise of pass-through entity taxes following the 2017 enactment of the Tax Cuts and Jobs Act with Counsel Michael Hilkin from the firm’s New York office. Jeremy and Michael discuss the need and purpose of the pass-through entity taxes, the lack of uniformity in the taxing regimes enacted around the country and the potential controversy that may arise regarding states recognizing other states’ pass-through entity taxes. They wrap up their discussion with a special focus on their home state of New York.

As always, they conclude with Jeremy’s favorite – overrated or underrated? And, this week, they delve into camping.

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