2022 was a year of transition – we emerged from the pandemic and its fully-remote environment, and welcomed the return of face-to-face meetings and in-person conferences. Likewise, there was significant transition in the state and local tax world – while certain issues maintained their prominence (marketplace and apportionment developments, to name a few), new issues moved to the forefront of SALT conversations across the country (digital advertising taxes, digital goods, and crypto/virtual currencies, among others).
The Eversheds Sutherland SALT team was kept busy throughout the year tracking interesting state and local tax developments – more than 280 were posted to this site. The items highlighted below exemplify the trends in 2022. (Note: If you would like to receive our posts by email, please register here).
Digital Advertising Taxes
Developments regarding digital advertising taxes grabbed headlines throughout 2022, and much of the spotlight was on Maryland.
- On October 17, 2022, a Maryland circuit court granted summary judgment in favor of two corporations that challenged the constitutionality of the state’s Digital Advertising Gross Revenues Tax (DAT). A copy of the court’s order can be found here. The Maryland attorney general has appealed the ruling. Eversheds Sutherland attorneys represented the taxpayers in this litigation.
- Breaking news: Federal court dismisses legal challenge to Maryland digital advertising tax
- Maryland digital advertising tax payment deadline extended to April 18th
- Maryland releases digital advertising tax payment form
- Massachusetts Legislature considering multiple digital advertising tax proposals
Digital Goods and Services
Throughout the year, states and localities issued decisions and guidance addressing the ever-expanding modern digital economy. The rapid pace of guidance will certainly continue in 2023, and will likely give rise to additional controversies.
- Connecticut determines online learning plans not taxable digital goods
- Indiana manufacturer’s software service agreement not subject to sales tax
- Louisiana Court of Appeals determines online travel companies not responsible for tax on hotel bookings
- Maryland alters statutory definition of “digital product”
- Pro tip: Maryland limits sales taxation of certain digital products
- Massachusetts online software provider receives property tax exemption
- Mississippi Department of Revenue withdraws proposed rule taxing cloud computing
- Private wireless network not taxable in Missouri
- New York ALJ determines multilevel marketing company’s web-based service not taxable
- New York Tax Appeals Tribunal affirms determination that measuring advertising effectiveness is taxable
- New York Tax Appeals Tribunal concludes IT managing and monitoring services are taxable
- Tennessee Department of Revenue rules platform is software, implementation and content fees taxable
- Texas Comptroller determines medical record retrieval is taxable data processing
- Texas provides guidance on taxability of card management programs
- Texas Comptroller rules online learning courses are nontaxable while teacher planning services are taxable data processing
- Computer storage space subject to Washington B&O tax
- Account access services are taxable digital automated services in Washington
- Wisconsin private letter ruling determines taxability of online learning plans
Marketplace Issues Continue
As in prior years, developments regarding marketplaces and marketplace facilitators continued with some frequency. Marketplace laws have significantly impacted sales tax collection and remittance obligations, and jurisdictions continued to provide guidance regarding these new regimes.
- Indiana updates sales tax guidance for marketplace facilitators
- Minnesota updates guidance regarding marketplace providers
- Nevada Tax Commission issues draft regulation for marketplace sellers and facilitators
- Business-to-business platform is a North Carolina marketplace facilitator
- Oklahoma expands marketplace facilitator provisions
- Tennessee Department of Revenue rules marketplace facilitator fees nontaxable
- Wisconsin marketplace providers responsible for collecting premier resort area taxes
- City and County of Denver move to exempt new statewide delivery fee from sales tax
Apportionment maintained its status as a leading corporate income tax policy and controversy issue in 2022, and we see no sign of that changing in 2023.
- On March 5, 2022, the Texas Supreme Court issued a unanimous decision in favor of Sirius XM regarding the sourcing of receipts from the performance of services. Eversheds Sutherland attorneys represented the taxpayers in this litigation.
- California Office of Tax Appeals shuts down refund claim related to 338(h)(10) election
- What service? Massachusetts Appellate Tax Board rules that SaaS provider is a manufacturing corporation required to use single sales factor apportionment
- Airline lands partial victory in Oregon apportionment decision
- Virginia Department of Taxation approves BPOL tax payroll apportionment
- Virginia Tax Commissioner rules that remote worker payroll not included in BPOL payroll apportionment numerator
- Washington apportions genealogy services to customer location
- (Pay)rolling with the punches: D.C. Office of Administrative Hearings holds payroll factor denominator limited to financial institution payroll
- Get out of town! Court upholds New York City tax applying investee apportionment
Crypto/Virtual Currencies and NFTs
In 2022, we saw new and notable guidance regarding the treatment of crypto/virtual currencies and non-fungible tokens (NFTs), as states grappled with the wide-ranging state and local tax implications of their mainstream adoption.
- Alabama introduces legislation to exempt cryptocurrency from property tax
- Illinois Department of Revenue releases clarifying guidance on tax treatment of cryptocurrency
- New Jersey updates guidance regarding virtual currencies
- Washington issues interim statement regarding the taxability of NFTs
Remote Work, Worker Classification, Domicile and Residency
Worker classification, domicile and residency continued to be hot topics in 2022, owing both to the increasing prevalence of remote work, and to on-going litigation involving personal income tax disputes across the country. While the pandemic began to recede in 2022, issues arising from the new(ish) remote and partially-remote working environment are certain to continue in 2023.
- California Court of Appeal rules shareholders’ flow-through S corporation intangible income is apportionable, not sourced to shareholders’ domiciles
- Not just Hotel California – OTA finds taxpayer’s ties give rise to California residency
- Kansas Supreme Court holds pizza restaurant franchisee was a Florida domiciliary
- Back up the truck: Nebraska Supreme Court finds couple didn’t change their domicile to Florida
- New York finds taxpayers’ evidence to establish new domicile is insufficient
- Not home yet: New York State Tax Appeals Tribunal determines individual is not a statutory resident
- A bridge too far: Ohio Court of Common Pleas finds convenience rule unconstitutional
- D.C. Attorney General alleges gig-economy company misclassifies workers as independent contractors
The Multistate Tax Commission
The Multistate Tax Commission (MTC) – an organization representing states’ interests in imposing state and local taxes – had another active year in 2022. The MTC focused on a variety of significant projects, from its transfer pricing effort, to the taxation of partnerships, to the taxation of digital products.
- MTC SITAS Program addresses Eversheds Sutherland confidentiality concerns and pushes forward with 5 signatory states
- Legal Alert: Updates from the MTC’s Uniformity Committee Spring Meeting
- Smooth Sailing – updates and insights on the MTC’s Project on State Taxation of Partnerships
- Legal Alert: Updates from the MTC’s Summer Meetings
- Legal Alert: MTC revamps its transfer pricing efforts
- Legal Alert: MTC Fall Meetings – digital products, apportionment, Multistate Power of Attorney, and marketplace updates