On June 23, 2021, Colorado’s Governor signed legislation adding “digital goods” to the statutory definition of “tangible personal property” subject to sales and use tax. HB 21-1312 (Effective July 1, 2021). The bill states that it interprets the definition of “digital goods” consistent with “the department of revenue’s long-standing treatment of digital goods, as reflected in its rule.” Colorado’s Rule 39-26-102(15) was amended effective January 30, 2021 to “clarify” that sales tax would apply to the streaming of digital goods. See more about the rule’s adoption here. Under the new law, the definition of “tangible personal property” will include digital goods, regardless of the method of delivery. C.R.S. § 39-26-102(15)(b.5) as amended by HB 1312. The new definition specifies that “digital goods” includes, but is not limited to, electronic download and internet streaming of video, music, or electronic books.

Meet Winston Bartholomew, a.k.a. Winnie! Winnie is a three-year-old Havanese poodle mix belonging to Cat Baron, one of the Eversheds Sutherland SALT team’s newest associates in New York.

Thanks to a fateful trip looking at dogs in March of 2018, Winnie has been providing love and energy to Cat’s household ever since. He has an affinity for ice cubes and holiday lights, and is bilingual! He knows every trick in both Spanish and English. His other party trick includes knowing how to unwrap presents, which can come in handy!

He has lived in apartments his entire life, so when he ventures out to dog parks, he knows to stay near his owners. However, that doesn’t mean he hasn’t had adventures! Cat enjoys bringing him to national parks with her husband, Joe, and Winnie even won the BARK Ranger Ambassador badge during his visit to the Petrified Forest National Park in Arizona. Don’t let his adorable, adventurous face fool you, though – he loves to give side eye and sit on his bottom like a person when he’s being scolded.

We’re glad to welcome Winnie to the SALT Pet of the Month crew!

 

 

 

On June 24, 2021, the United States Supreme Court held a conference to review New Hampshire’s motion for leave that challenged Massachusetts’ taxation of wages earned by nonresident remote workers during the Covid-19 period. This morning, the Supreme Court denied New Hampshire’s motion. Because the Supreme Court declined to address the issues raised by New Hampshire, multistate employers will continue to face withholding and other state tax issues created by remote work arrangements.

Read the full Legal Alert here.

On June 24, the Illinois Department of Revenue released Informational Bulletin FY 2021-27 concerning foreign dividend reporting changes for corporate filers that take effect for tax years ending on or after June 30. The guidance summarizes changes implemented by the Illinois FY 2022 budget legislation, S.B. 2017, which was signed by Governor J.B. Pritzker on June 17.

The new law makes the following changes for Illinois corporate filers (Form IL-1120):

  • Decouples Illinois from:
    • the federal 100% foreign dividends received deduction (DRD),
    • the deduction for global intangible low-taxed income (GILTI), and
    • the deduction under IRC Section 243(e) for foreign dividends treated as domestic dividends.
  • Disallows a subtraction modification:
    • for foreign dividends eligible for deduction federally under IRC Section 245(a), and
    • IRC Section 1248 gain.

These changes are outlined in revised instructions (R-06/21) for Schedule M, Other Additions and Subtractions (for businesses), and Schedule J, Foreign Dividends.

Schedule M changes

Corporate filers must add back amounts deducted federally under:

  • IRC Section 250(a)(1)(B)(i),
  • IRC Section 245A(a), and
  • IRC Section 243(e).

These amounts qualify for the foreign dividend subtraction modification on Schedule J, Foreign Dividends.

Schedule J changes

Corporate filers:

  • may no longer include any amount attributable to dividends eligible for deduction under IRC Section 245(a);
  • are allowed a subtraction modification for dividends reported on federal Form 1120, Schedule C, Line 13, except for any amount attributable to gains treated as a dividend under IRC Section 1248; and
  • may include in their subtraction modification for GILTI the addition modification required on Schedule M for the amount deducted federally.

More on the Illinois FY 2022 budget legislation

S.B. 2017 / Public Act 102-0016 makes several other noteworthy changes for Illinois taxpayers including reviving the $100,000 net operating loss limitation that was in effect for 2013-2014 and eliminating the phase-out of the Illinois franchise tax.

For more information the 2021 Illinois legislative session, see our recent episode of the SALT Shaker Podcast policy series. In this episode, Carol Portman, President of the Taxpayers’ Federation of Illinois, joins Breen Schiller, Partner in the Chicago office of Eversheds Sutherland, and host Nikki Dobay for a review of the 2021 Illinois legislative session, which adjourned June 1 with the passage of the budget.

A three-judge panel of California’s Office of Tax Appeals (“OTA”) issued a precedential decision ruling that taxpayers remained domiciled in and residents of California at the time they sold their aviation business despite renting an apartment in Nevada prior to purchasing a home in the same area.

At the time of the sale, the taxpayers were in the process of moving from California to Nevada and establishing residency there.  However, the taxpayers had not relinquished their residence in California, had left much of their personal property at their sizeable California home, and maintained a post office box address, numerous bank accounts, and healthcare providers in California.  Additionally – and most importantly to the OTA – the taxpayers spent a majority (over two-thirds) of their time during the disputed period in California.  The OTA stated that the “sheer amount of time spent in California” was “a factor of greater significance than mental intent and the formalities that tie one to a particular state.”

While acknowledging the taxpayers’ purported intent to change their California domicile, the OTA reasoned that the taxpayers did not “adopt some other permanent home” when they took possession of their rented apartment in Nevada and moved essential items, registered to vote, and obtained a post office box, driver’s licenses, and bank accounts in the state.  The panel focused on the temporary nature of the rental property, stating that it “was marked with impermanence” as the taxpayer even testified that the rental apartment was “a temporary place to live” to make purchasing a home in the same area easier.  Thus, while the taxpayers’ possession of a rental apartment was part of their plan to find a permanent home, it was not an actual move to a new residence with the intent to remain there permanently, and the taxpayers still maintained the strongest connection with California.  Accordingly, on the date of the sale of their business, the taxpayers were residents of California and subject to personal income tax on the gain from the sale.

For an overview of California law regarding domicile and residency, see our prior post on “What Makes a California Resident?” In addition, Eric Coffill, senior counsel in the Eversheds Sutherland Sacramento office, reviews the lessons to be learned from Bracamonte for California residents wishing to become nonresidents in an article for Bloomberg Tax.

 

Just days before Oregon’s legislature is set to adjourn, SB 164, the Corporate Activity Tax (CAT) “technical corrections” bill, cleared its final hurdle in the Oregon legislature and will now be sent to the Governor for signature. Specifically, on June 24, SB 164 passed the House of Representatives by a unanimous vote of those in attendance.

As passed, the A-engrossed version of the bill clarifies that non-Oregon based insurance companies, which are subject to Oregon’s retaliatory tax, are “excluded entities” (for purposes of the CAT) and, thus, not subject to the CAT.  In addition, SB 164 fixes a technical issue that has plagued fiscal year filers since the CAT was enacted in 2019.  If SB 164 is enacted, fiscal year filers will be required file a short year return for 2021 (from 1/1/2021 to the end of a taxpayer’s 2021 fiscal year), and, for 2022, such taxpayers would file using their fiscal year period.  Accordingly, for fiscal year 2022, affected taxpayers’ CAT-filing calendars would mirror their Oregon excise tax return filing calendar.  Lastly, SB 164 would also expand the exclusion for certain receipts of vehicle dealers (all receipts from the new vehicle exchanges between franchised motor vehicle dealerships) and provide a narrow carve out for certain receipts from groceries sold on consignment.

 

Addressing cross-motions for summary judgment from the Seattle Metropolitan Chamber of Commerce and the City of Seattle, the Superior Court of Washington for King County held that the City’s new payroll expense tax, which applies to businesses that spend $7 million or more on payroll in Seattle, is constitutionally permissible.

On July 6, 2020, the City passed Ordinance No. 126108, imposing a payroll expense tax applicable to certain entities engaging in business within Seattle. The tax is based on compensation paid to employees in Seattle.  Businesses with payroll expense in the prior calendar year of less than $7 million – as well as a variety of specifically-named types of businesses – are exempt. In response to the ordinance, the Seattle Chamber brought an action in court alleging the tax violated the state constitution.

Before the Superior Court, the City asserted that the payroll expense tax is a constitutionally permissible excise tax on the privilege of doing business, while the Seattle Chamber argued that the tax is a tax on employers’ payment of compensation to employees and was therefore an impermissible tax on an employee’s act of earning a living. Highlighting the facts that the tax is levied on businesses based on their aggregate payroll expense and businesses are expressly prohibited from passing the expense of the tax on to employees in the form of wage deductions, the Court concluded that there is no burden on employees.  Accordingly, the Court granted the City’s motion for summary judgment, ruling as a matter of law that the City’s payroll expense tax is a valid excise tax on business under the taxing authority granted to cities by the Washington State Constitution and statutes.

Greater Seattle Chamber of Commerce v. City of Seattle, Case No. 20-2-17576-5 SEA.

Richard Anklam, President and Executive Director of the New Mexico Tax Research Institute (NMTRI), joins host and Eversheds Sutherland Partner Nikki Dobay on this episode of the SALT Shaker Podcast policy series. Richard and Nikki discuss the work of NMTRI and tax legislation that passed during the recent legislative session. In particular, New Mexico conformity to the MTC’s partnership audit model as well as the passage of cannabis legislation. Next, they revisit the major tax reform of 2019 and its implementation – mandatory combined reporting (while keeping the consolidated election), a move to market sourcing and big changes to the GRT. Then, they get personal – naming their most used emoji!

A note: NMTRI is a nonprofit, nonpartisan, member-supported organization dedicated to providing fact-based, principled research and analysis to the tax policy debate in New Mexico. They do not advocate any agenda for or against taxation.

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.

Questions or comments? Email SALTonline@eversheds-sutherland.com.

 

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In letter ruling ST 21-0003, the Illinois Department of Revenue considered sales made by a nonprofit organization that previously qualified for the isolated or occasional sale exemption to the Retailers’ Occupation Tax. The Organization requested guidance concerning whether the exemption would apply if it made sales through a marketplace facilitator. The Department responded that beginning January 1, 2021, a marketplace facilitator is considered to be a retailer engaged in the occupation of selling at retail for purposes of the Retailers’ Occupation Tax if it exceeds the sales or transactions threshold. The Department concluded that under the new rules, a marketplace is a location held out to the public as being habitually engaged in the selling of tangible personal property. Therefore, sales made on a marketplace would not be considered “occasional” sales. If the marketplace facilitator meets one of the two thresholds it would be liable for collecting and remitting all applicable tax and the occasional sales exemption will not apply.

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 Eversheds Sutherland alumna recently appeared as a guest on the SALT Shaker Podcast?

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!