Digital Economy

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The Virginia Tax Commissioner concluded in two recent rulings that a reseller of mobile telephone services is not a “telephone company” for purposes of the Virginia Business, Professional and Occupational License (BPOL) tax and therefore is not subject to the higher BPOL tax rate levied against telephone companies. Va. Dept. of Taxation, Pub. Doc. Nos. 12-182 & 12-183 (Nov. 13, 2012). The taxpayer, a limited partnership, is not licensed by the FCC or the state regulatory agency, though its two partners are licensed by the FCC.Continue Reading Virginia Commissioner: Reseller of Mobile Telephone Services Not a “Telephone Company”

The Missouri Department of Revenue (Department) issued guidance stating that gift certificates sold below face value by a radio station, which are redeemable for goods and services purchased at local retailers, are not subject to sales tax. Although the primary determination is not noteworthy, the private letter ruling further stated that the retailers receiving the…

On October 16, 2012, the Virginia Department of Taxation issued two identical determinations in which it found cable set-top boxes (a/k/a “converters”) exempt from the Business Tangible Personal Property (BTPP) tax (Ruling Nos. PD 12-162 and PD 12-163). Intangible personal property generally is exempt from the BTPP tax. Section 58.1-1101 of the Virginia Code classifies certain…

We hope you will join us on November 13-14 at the Bloomberg BNA Tax Policy and Practice Summit in Washington, D.C. Sutherland is pleased to sponsor the Summit and to offer our clients and friends a $200 discount off the Summit registration fee.

The Summit is perfectly timed to provide insights into the tax implications…

Iowa and Kansas recently issued rulings regarding the taxability of cloud-based software applications and online training services. While the conclusions reached by both states—that the services are not taxable—are generally the same, the reasoning relied upon by each department of revenue illustrates the ongoing uncertainty of applying state sales and use tax laws to cloud computing services.

The Iowa Department of Revenue (IDOR) looked to the state’s statutory authority and acknowledged that the taxability of “cloud computing has not been expressly addressed by the Iowa Code.” Nonetheless, the IDOR determined that the sale of hosted software is not taxable because the Iowa Code provides that a “taxable ‘sale’ of tangible personal property does not occur if the substance of the transaction is delivered to the purchaser digitally, electronically, or by utilizing cable, radio waves, microwaves, satellites, or fiber optics.” I.C. § 423.3(67). Likewise, the IDOR considered web-based training to be nontaxable because “software training” is not an enumerated service under the Iowa Code.Continue Reading Iowa and Kansas: Remote Access to Software is Not Taxable . . . Or Is It?

A recently released California Chief Counsel Ruling authorized a corporate taxpayer to use its customers’ billing addresses as a proxy for the customers’ “commercial domicile” in calculating the taxpayer’s sales factor numerator. Chief Counsel Ruling 2011-01 (Aug. 23, 2011, rel. Dec. 28, 2011).

For sales factor purposes, California sources the sales of intangibles and services using costs of performance (COP) apportionment. The sales of intangibles and services are attributable to California if a greater proportion of the income-producing activity is performed in California than in any other state, based on COP. Before 2008, taxpayers could not include payments to agents and independent contractors as part of the taxpayer’s COP analysis. But beginning in 2008, California began to require taxpayers to take into account payments made to agents and independent contractors in calculating COP. As part of the analysis, the taxpayer must determine the location of the income-producing activity, and the regulations provide a comprehensive list of cascading rules to determine the appropriate location of the income-producing activity. See Cal. Code Regs. tit. 18, § 25136.Continue Reading We Know Where You Live: California’s Billing Address Sourcing

Recently, there has been significant activity in Congress related to sales tax nexus.

  • In July, Sen. Richard Durbin (D-Ill.) introduced the Main Street Fairness Act (the “Durbin Bill”), the first of three bills introduced this year that would allow states to collect sales taxes from remote sellers.
  • On October 13, 2011, Rep. Steve Womack (R-Ark.) and Rep. Jackie Speier (D-Cal.) introduced the Marketplace Equity Act of 2011 (the “Womack Bill”) that would allow states to impose a sales or use tax collection requirement on remote sellers with no physical presence in a state.
  • Yet another bill, the Marketplace Fairness Act, was introduced by Sen. Michael Enzi (R-Wyo.) on November 9 (the “Enzi Bill”). This bill appears to have bipartisan support, as senators on both sides of the aisle are co-sponsors: Sens. Durbin, Lamar Alexander (R-Tenn.) Tim Johnson (D-S.D.), John Boozman (R-Ark.), Jack Reed (D-R.I.), Roy Blunt (R-Miss.), Sheldon Whitehouse (D-R.I.), Bob Corker (R-Tenn.), and Mark Pryor (D-Ark.).
  • In contrast to these bills, Sens. Ron Wyden (D-Ore.) and Kelly Ayotte (R-N.H.) introduced a resolution opposing the enactment of “new burdensome or unfair” tax collection requirements on small Internet sellers. Sen. Res. 309 (Introduced Nov. 2, 2011).

Despite the resolution, Congress will seriously consider the three proposed acts. The three acts attempt to address the same issue through slightly different approaches. All three would allow states to collect tax from remote sellers if certain uniformity requirements are met. The uniformity requirements are similar, for the most part, but with some slight differences as discussed below.Continue Reading Nexus? Who Said Anything about Nexus?: A Summary of the Federal Nexus Bills

Businesses that sell video games and related content online and by remote access have been pondering an essential sales and use taxability question: What is the proper characterization of the goods and services being sold? Although downloaded video games have long been thought to be a form of prewritten computer software, businesses that sell related subscription services, virtual goods, and virtual currencies have enjoyed much less tax certainty.

Two states have weighed in on this issue in recent months. Kansas and Missouri issued letter rulings addressing the tax issues that arise in the gaming environment. Although the states’ guidance is not entirely consistent, gaming companies may welcome any move toward improved tax clarity in the virtual gaming business.Continue Reading Virtual Chaos: Two States Log In to the Online Gaming Arena