The New Jersey Tax Court rejected the taxpayer’s argument that the partnership filing fee, which requires a partnership with New Jersey source income to pay a per-partner fee of $150 (capped at $250,000), violated the Commerce Clause. The Tax Court held that the filing fee is not facially discriminatory because all partnerships must pay the fee regardless of the location of the partnership or partner, or the nature of the partnership’s business, provided the partnership earns New Jersey source income. The Tax Court also held that the plaintiff failed to prove that the filing fee, in practical effect, discriminates against interstate commerce. The Tax Court ruled that the filing fee did not “implicate or violate” the Commerce Clause because the fee is imposed to cover the government’s cost of processing and reviewing the New Jersey returns of partnerships and their partners, which, according to the Tax Court, is a purely intrastate activity.


Targa Resources Partners, L.P. v. Director, Division of Taxation, 010749-2015 (N.J. Tax 2018)

Ferrellgas Partners, L.P. v. Director, Division of Taxation, 007051-2014 (N.J. Tax 2018)

On September 26, 2018, the Illinois Department of Revenue issued a Private Letter Ruling confirming that certain electronic signatures satisfied the first prong of the software license sales tax exemption test. In Illinois, a license of software is not a taxable retail sale if a five-part test is satisfied. The first prong asks whether the license is evidenced by a written agreement signed by the licensor and the customer. The Department had previously concluded that a license agreement in which the customer electronically accepts the terms by clicking “I agree” does not comply with the requirement. Here, the Department concluded that four methods of executing the Order Form satisfied the written agreement prong: (1) physically signing the Order Form; (2) physically signing the Order Form and then digitizing the Order Form into a PDF file; (3) using DocuSign to sign the Order Form; and (4) digitally signing the Order Form by pasting a digital image of a signature onto the PDF Order Form file and then saving the file with the signature image embedded into the Order Form. However, the Department did not have sufficient information to determine whether the use of a competing software product satisfied the prong. Additionally, the Department concluded that it would incorporate the Terms and Conditions Agreement into the Order Form in order to constitute a written agreement.


Illinois Private Letter Ruling ST 18-0010-PLR, Illinois Department of Revenue (Sept. 26, 2018).

The Texas Comptroller ruled that a taxpayer, which provided education and networking services for the property management industry, was not providing “information services,” but rather a non-taxable service. Taxable information services involve “furnishing general or specialized news or other current information” or “electronic data retrieval or research.” Tex. Tax Code § 151.0101(a)(10), 151.0038; Texas Rule 3.342(a)(6). Here, the taxpayer’s online courses were interactive, involved an instructor and contained tools for student assessments. Because the taxpayer provided student instruction and assessment tools, the Comptroller concluded that the education and networking services were not information services or any other taxable service. Tex. Comptroller of Pub. Accts., Comptroller’s Letter No. 2017010109, Accession No. 201809007R (Sept. 11, 2018).

The Minnesota Supreme Court held that the state’s gross receipts tax on prescription drugs did not violate the Due Process or Commerce Clauses when applied to transactions between out-of-state pharmacies and in-state customers, reversing the Minnesota Tax Court. After concluding that Minnesota’s “legend drug tax” legally applied to the taxpayer under the imposition statute (Minn. Stat. § 295.52, Subd. 4(a)), because the taxpayer was “a person who receives legend drugs for resale or use in Minnesota … when that person receives or delivers those drugs in Minnesota,” the state supreme court addressed—and rejected—the taxpayer’s US constitutional challenges. First, the court ruled that by delivering the drugs into Minnesota through a common carrier, having a sales representative within the state, and taking other actions “purposefully directed” at Minnesota customers, the taxpayer maintained sufficient contacts within the state to establish the “definite link and minimum connection” required under the Due Process Clause. Second, the court held that the tax was fairly apportioned under the internal consistency test and, therefore, did not violate the dormant Commerce Clause. Because the legend drug tax is imposed on a person’s taxable receipt of “legend drugs for resale or use,” the court reasoned that such taxable event in another state is “mutually exclusive” of a person’s receipt of legend drugs for resale or use in Minnesota. Walgreens Specialty Pharmacy, LLC v. Comm’r of Revenue, 916 N.W.2d 529 (Minn. 2018) reversing Minn. Tax Ct., Dkt. No. 8902-R (Oct. 16, 2017).

This is the eleventh edition of the Eversheds Sutherland SALT Scoreboard, and the third edition of 2018. Each quarter, we tally the results of what we deem to be significant taxpayer wins and losses and analyze those results. This edition of the SALT Scoreboard includes a discussion of California combined reporting, insights regarding the Washington bad debt deduction, and a spotlight on apportionment cases.

View our Eversheds Sutherland SALT Scoreboard results from the third quarter of 2018!

In two cases, the Minnesota Tax Court clarified the extent to which the Minnesota research and development (R&D) credit is calculated based on the Internal Revenue Code’s defined terms. Minnesota law incorporates the Internal Revenue Code’s definition of “base amount” for purposes of calculating the Minnesota R&D credit. The proportion of qualified research expenditures to the base amount is critical for calculating the federal and Minnesota R&D credits. The base amount is the fixed-base percentage multiplied by the average annual gross receipts for the four preceding tax years. The fixed-base percentage is the aggregate qualified research expenditures divided by aggregate gross receipts. At issue in these cases is the extent to which these numbers are limited to Minnesota amounts only for purposes of calculating the Minnesota R&D credit.

In two cases that were consolidated for oral argument and decided with identical analysis language, the Minnesota Tax Court granted summary judgment:

(1) In favor of the Commissioner, in deciding that the Minnesota law incorporates the federal minimum base amount provision as part of the state law definition of “base amount”;

(2) In favor of the taxpayer, in deciding that the Minnesota base amount must be computed using federal gross receipts (rather than Minnesota gross receipts) in the denominator of the fixed-base percentage; and

(3) In favor of the Commissioner, in deciding that the federal provisions allowing for an alternative simplified credit calculation are not incorporated into Minnesota law.


General Mills, Inc. v. Comm’r of Revenue, No. 9016-R (Minn. Tax Ct., Aug. 17, 2018).

International Business Machines Corporation v. Comm’r of Revenue, No. 9053-R (Minn. Tax Ct., Aug. 17, 2018).

The Pennsylvania Board of Finance and Revenue recently published a decision regarding the sourcing of receipts and property of a satellite television provider.  The Board held that the taxpayer’s receipts from sales of satellite television services were properly included in the taxpayer’s Pennsylvania numerator based on the location of subscribers in the state.  The Board held that the taxpayer failed to meet its burden of proof to show that a greater portion of its income-producing activities occurred outside the state under Pennsylvania’s cost of performance sourcing rules applicable to the tax year at issue.  Pennsylvania sourcing rules changed for tax years beginning after December 31, 2013 to require market-based sourcing for sales of services.

The Board also upheld the inclusion of orbiting satellites in the Pennsylvania property factor numerator.  On audit, the taxpayer’s property numerator was increased to include a percentage of the satellite values as shown on the taxpayer’s federal return, based on the percentage of subscription fees from Pennsylvania customers to subscription fees everywhere.  The Board upheld this adjustment to the property factor, which noted that the satellites were owned by the taxpayer and used in the state to provide satellite television service.  In re Dish DBS Corporation, Docket No. 1713444 (Pa. Bd. Fin. & Revenue May 14, 2018).

See our previous coverage of a similar South Carolina decision involving this taxpayer.


In re Dish DBS Corporation, Docket No. 1713444 (Pa. Bd. Fin. & Revenue May 14, 2018).

The Washington Court of Appeals upheld the denial of sales tax and B&O tax refund claims filed by Lowe’s Home Centers, LLC based on the bad debt deduction.  Lowe’s, a home improvement retail store with locations in Washington, entered into private label credit card (“PLCC”) agreements with two issuing banks.  Among the typical terms of the PLCC agreements, Lowe’s and the banks shared in profits and losses of the PLCC accounts.  Under those profit-sharing provisions, defaulted accounts reduced Lowe’s share of profits from the PLCC agreements and, therefore, were deductible under IRC § 166 for federal income tax purposes.  Due to the deductibility under IRC § 166, Lowe’s argued that it also qualified for the Washington bad debt deduction for sales and B&O tax purposes under R.C.W. § 82.08.37. The appeals court, however, found deductibility under federal tax law alone is not sufficient to qualify under the Washington bad debt statute.  Explaining that, per R.C.W. § 82.08.37, the bad debt must also be “on sales taxes previously paid” that are “written off as uncollectible” by the seller to qualify for a deduction under that provision.  Lowe’s relationship to the bad debts at issue in this case failed both of these requirements:  (1) the bad debts were not “directly attributable” to a retail sale on which sales tax was paid, but instead were attributable to Lowe’s separate, contractual profit sharing reductions with the banks; and (2) Lowe’s books and records did not reflect any written-off accounts that resulted in bad debt.  Accordingly, the appeals court concluded that Lowe’s was not entitled to a refund of sales or B&O taxes based on the bad debt deduction under R.C.W. § 82.08.37.


Lowe’s Home Center, LLC v. Dep’t Revenue, No. 50080-9-II (Wash. Ct. App. Sept. 5, 2018).

In interpreting an ambiguous statute allowing for a tax credit against the state’s financial institution excise tax (FIET), the Alabama Court of Appeals held in favor of the Department of Revenue’s interpretation. Alabama imposes a 6½% FIET on the net income of certain financial institutions. After deducting administrative charges payable to the Department, the Department is required by statute to distribute the FIET proceeds to the counties and municipalities in which the financial institution is located, with the remaining amount to the Alabama general fund. Taxpayers who make certain investments in designated areas of the state are eligible under Alabama Code § 41-9-218(1) for a credit against the “state-distributed portion” of the FIET due. The court stated that although the phrasing “state-distributed portion” of the tax credit statute was ambiguous, the various differing constructions by the taxpayer, the Department, and the lower court did “not stand on equal footing.” Because of the Department’s “expertise in matters of taxation,” the court held that the Department’s interpretation of the statute—that the “state-distributed portion” refers only to the FIET proceeds distributed to the state general fund—was entitled to deference. The court reasoned that even though the Department did not promulgate a rule or regulation interpreting the statute, the Department was entitled to deference because it applied the same interpretation “on its internal paperwork in making its final assessment” and before the circuit court and court of appeals, rather than just adopting the interpretation as a litigation position. Thus, the credit applied to reduce the FIET liability by only the amount of the FIET proceeds distributed to the state general fund, and not to the amount of the FIET proceeds distributed to the counties, municipalities, and the state as argued by the taxpayer.


Alabama Dep’t of Revenue v. Bryant Bank, CV-17-900699 (Ala. Civ. App. Sept. 14, 2018).

Reversing a judgment of the circuit court, the Alabama Court of Civil Appeals held that sales of prepaid authorization numbers that allow purchasers to access wireless services on cellular telephones are subject to the state’s sales tax. The court reasoned that during the 2008 through 2011 tax years at issue, the relevant sales tax statute treated a sale of a prepaid telephone calling card or prepaid authorization number as a taxable sale of tangible personal property.


Alabama Dep’t of Revenue v. Downing, No. 2170129, 2018 WL 3489917, at *6 (Ala. Civ. App. July 20, 2018).