In this episode of the SALT Shaker Podcast, host and Eversheds Sutherland Associate Jeremy Gove explores transactional nexus with Partner Breen Schiller. The two discuss the recent Quad Graphics, Inc. v. NC Department of Revenue decision out of North Carolina determining whether there was nexus to impose sales tax on out of state sales, and how the decision relates to the U.S. Supreme Court’s holding in McLeod v. J.E. Dilworth Co.

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Last year, the Texas Comptroller proposed a regulation that affects how local sales tax is allocated for online sales, to become effective October 1, 2021. While Texas generally uses origin-based sourcing, under the new rule, online sales will generally be sourced to the destination of the sale. Local governments protested these amendments, arguing that they would disrupt the sales tax revenues generated by businesses. Now, the City of Round Rock, Texas has filed a suit against the Texas Comptroller seeking to enjoin the regulation. In the petition, Round Rock argues that the regulation’s definition of where a sale is consummated and “place of business” conflicts with Texas statutes, and would significantly decrease its annual sales tax revenue. Round Rock points to one large computer and software business, with which it has an incentive agreement, whose substantial sales tax revenues would no longer be sourced to Round Rock under the new regulation. The petition further alleges that the changes from the regulation would unconstitutionally impair Round Rock’s existing incentive contracts.

The Indiana Department of State Revenue recently published Letter of Findings 01-20181612 (dated April 27, 2021), upholding the disallowance of a state research expense credit for the production of two enterprise level software applications. The Department found that the Indiana research expense credit claimed by the taxpayer was based on a similar federal credit, and thus to be eligible, the taxpayer must undertake “qualified research” that satisfies four requirements: (1) does the research qualify as an IRC § 174 business deduction for federal purposes, (2) is the research being undertaken to discover information that is “technological in nature”, (3) is the information intended to develop a new or improved business component, and (4) does substantially all of the research involve pursuing a process of experimentation?  The Letter of Findings determined that the taxpayer’s documentation was insufficient to meet any of the credit’s requirements, as it “simply outlined” the taxpayer’s continual maintenance of its software applications. It further explained that even assuming the taxpayer met the first three prongs of the test, the taxpayer still could not show that its activities met the “process of experimentation” required in the fourth prong.

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 has implemented recent developments for their marketplace facilitator tax laws?

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.

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

On July 8, 2021, the Michigan Court of Appeals issued a decision holding that a retailer was not subject to use tax on advertising materials mailed to Michigan residents. The retailer designed the materials in-house and had them printed by a third-party printer, outside of Michigan. After printing, the retailer sent the materials to a provider of marketing solutions. The retailer contracted with this marketing solutions company to prepare and deliver the advertisements to in-state residents. The marketing solutions company was in charge of preparing and delivering the advertising materials. This marketing solutions company had exclusive control over the packaging of the marketing materials and the handoff of the materials to the USPS, who ultimately delivered the materials to Michigan residents.

Upon audit, the Michigan Department of Treasury assessed the retailer for use tax on the advertising materials that were sent to Michigan customers. The Michigan Court of Claims held in favor of the retailer, declaring the use tax assessment void and invalid. On appeal to the Michigan Court of Appeals, the court upheld the decision of the Court of Claims, finding that the retailer did not exercise any control over the materials within the state’s border. The court found that the retailer’s provision of a list of Michigan customers and direction of the dates of distribution did not constitute adequate power or control to subject the retailer to use tax. As a result, the court affirmed the Court of Claims’ decision holding the use tax assessment against the retailer void and invalid.

Bed Bath & Beyond, Inc. v. Dep’t of Treas., Dkt Nos. 352088 and 325667 (Mich. Ct. App. Jul. 8, 2021).

In their article for the July-August issue of Tax Executive, Eversheds Sutherland attorneys Jeff Friedman, Todd Lard and Justin Brown discuss the Tax Injunction Act (TIA), specifically justifications for modernizing the TIA, including highlighting issues that the TIA has created and the legal and business changes that have taken place since 1937, when Congress enacted the TIA.

In this episode of the SALT Shaker Podcast policy series, host and Eversheds Sutherland Partner Nikki Dobay is joined by Tony Long, Director of Tax and Economic Policy at the Ohio Chamber of Commerce. During their conversation, they cover highlights from Ohio’s latest legislative session, review details of the state’s budget and reference tax credits and deductions taxpayers should keep in mind.

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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The Arizona Department of Revenue recently released Private Taxpayer Ruling LR 21-003 (dated May 27, 2021), finding that gross income arising from the provision of temporary use of digital information and data is subject to the transaction privilege tax (TPT). The taxpayer is an information and analytics company that provides primarily publically available information and data from multiple sources that is continually updated, sorted, and filtered for each customer. Customers pay a subscription fee to remotely access the data that is housed on the taxpayer’s servers located outside Arizona. Customers only receive the right to use the data, and do not receive access to software. The TPT is imposed on tangible personal property, which is any property that “may be seen, weighed, measured, felt or touched or is in any other manner perceptible to the senses.” Arizona has broadly interpreted that definition of tangible personal property to include electricity, electronic delivery of software, and even music played from a jukebox. Based on this broad understanding of tangible personal property and the application of the “dominant purpose” and “common understanding” tests, the Department concluded that the rental of data is a taxable sale of tangible personal property, regardless of how the data is delivered.

Effective July 1, 2021, Kentucky has enacted sales tax and utility gross receipts exemptions for certain transactions involving the commercial mining of cryptocurrency. The Kentucky DOR explained the two recently enacted bills here. HB 230 exempts the sale or purchase of electricity used or consumed in the commercial mining of cryptocurrency from sales tax and utility gross receipts tax. “Commercial mining of cryptocurrency” is defined as the process through which blockchain technology is used to mine cryptocurrency at a colocation facility. The facility must consume at least 200,000 kilowatt hours of electricity per month.

SB 255 updated Kentucky’s existing incentive program for energy-related businesses to extend to cryptocurrency facilities making investments over $1 million. Qualifying cryptocurrency facilities are eligible for several incentives, including the new sales tax exemption on all purchases of tangible personal property to construct, retrofit, or upgrade an eligible project, including commercial cryptocurrency mining equipment at a qualifying facility.

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: Who is the newest SALT Shaker Podcast host?

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.

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