This is the second edition of the Eversheds Sutherland SALT Scoreboard for 2021. Since 2016, we have tallied the results of significant taxpayer wins and losses and analyzed those results.
View our Eversheds Sutherland SALT Scoreboard results from the second quarter of 2021 now!
Following a taxpayer’s assessment appeal, the Virginia Tax Commissioner determined that “easy return label” and “merchandise logo charges” were subject to Virginia sales tax.
Easy return labels
The taxpayer was a retailer of products sold online and through catalogs. The taxpayer offered its customers the option of returning merchandise using an “easy return label,” which was shipped with the merchandise. If the customer opted to return the merchandise, the customer would affix the label to the package containing the merchandise to be returned. The taxpayer charged the customer a flat fee for the use of the easy return label, representing the postage cost to ship the returned merchandise.
The Virginia sales tax statute exempts separately stated transportation charges from sales tax. But the Commissioner has adopted a regulation limiting that exemption to only delivery charges for transportation from the seller to the purchaser. In an earlier ruling involving the same taxpayer, P.D. 19-115, the Commissioner determined that the exemption did not apply to the easy return charges because the charge was for transportation from the purchaser to the seller, rather than from seller to the purchaser. On reconsideration, the taxpayer argued that easy return label charges billed to Virginia customers were exempt as the delivery of tangible personal property for use or consumption outside the state. However, the Commissioner concluded that the returned inventory was not subject to a taxable use outside of Virginia; rather, the products were only being returned to inventory. The charges were instead taxable because of their direct connection to the sales to Virginia customers of the returned merchandise.
Merchandise logo charges
The taxpayer offered customers the option of adding customized logos to clothing sold by the taxpayer. The taxpayer argued that the merchandise logo charges were exempt as separately stated charges for clothing alterations. The Commissioner rejected the taxpayer’s argument, adopting a narrow dictionary definition of “alter” as “to adjust (a garment) for a better fit.” As the merchandise logo charges were not adjustments to clothing to ensure a better fit, the Commissioner concluded that the charges did not qualify for the exemption.
Va. Public Document Ruling No. 21-74, Va. Dep’t of Taxation (May 25, 2021).
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: On a recent podcast, Eversheds Sutherland attorneys Breen Schiller and Jeremy Gove explored transactional nexus. Which North Carolina decision did they analyze in their discussion?
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!
The Idaho State Tax Commission found an individual taxpayer remained domiciled in the state and thus liable for Idaho individual income taxes where there was no evidence he ever abandoned his Idaho domicile. The taxpayer was audited and issued a notice of deficiency determination because the taxpayer did not file a tax return in Idaho for the years at issue. The taxpayer protested the deficiency determination and the commission held that the taxpayer was domiciled in Idaho for income tax purposes explaining that a “domicile” includes both residency and an intent to remain. The commission reiterated that the two most determinative factors for determining domicile in Idaho are where an individual lives and where an individual votes, but that other factors may also be relevant. The commission found that although the taxpayer did not reside in Idaho during the entirety of the years at issue, the taxpayer was raised in Idaho, returned to Idaho whenever he was not employed outside the state, and offered no evidence of any place resembling a residence or dwelling of permanence in any state other than Idaho. Accordingly, the commission affirmed that taxpayer was domiciled in Idaho during the tax periods at issue and upheld the assessment.
Idaho State Tax Comm’n, Comm’n Dec. Docket No. 1-802-528-768 (Feb. 1, 2021).
On July 28, 2021, the Uniformity Committee of the Multistate Tax Commission’s (MTC) advanced the new project on Sales Taxation of Digital Goods (the Project). Specifically, the Standing Subcommittee recommended MTC staff draft an outline for a white paper that will explore issues concerning the state taxation of digital products and to provide guidance on the matter in pursuit of uniformity. The Uniformity Committee approved the Subcommittee’s recommendation, and the outline will be presented at the MTC’s November meeting, where state representatives will have the opportunity to provide commentary.
Other issues, such as whether a separate work group will be created for the Project and whether the white paper will include guidance on cryptocurrency or non-fungible tokens will also be discussed by the Uniformity Committee at the November meeting.
Eversheds Sutherland attorneys plan to participate and provide timely updates on the Project’s developments.
The Virginia Department of Taxation issued a private letter ruling on May 25, 2021, determining that a man who relocated out of Virginia as a result of a new position with his employer, but retained his Virginia driver’s license and motor vehicle registration in order to facilitate a potential return to the state in the event that the new employment position ended, did not prove intent to change his domicile from Virginia to another state.
Pursuant to Virginia Code § 58.1-302, Virginia recognizes two classes of residents for individual income tax purposes: domiciliary residents and actual residents. The domiciliary residence of a person is the person’s permanent place of residence and the place to which the person intends to return despite residing elsewhere. For a person to change his or her domiciliary residence, the person must (1) abandon his or her Virginia domicile without an intent to return, and (2) acquire a new domicile. The taxpayer has the burden of proof, and must provide sufficient facts and evidence to satisfy both requirements concurrently. An actual resident is a person who maintains a place of abode within Virginia for a total of more than 183 days of the taxable year.
The Taxpayer in this case filed a Virginia resident income tax return for the 2017 tax year. The Department issued an assessment, finding that the Taxpayer underreported his federal gross income on the return. Following the assessment, the Taxpayer contacted the Department and indicated that he resided in another state. In support of his position, the Taxpayer showed that his new employment required relocation to another state, that he leased a residence in the other state beginning in December of 2016, and that he was physically present in the other state during the year. Additional facts in this case showed the Taxpayer retained certain connections with Virginia, however: his parents resided in the state; he held a Virginia driver’s license and motor vehicle registration; and he filed a Virginia resident income tax return for the 2017 taxable year. Further, in response to the Department’s inquiries, the Taxpayer explained that he retained his Virginia driver license and motor vehicle registration to facilitate a potential move back to Virginia in the event that he did not retain his new employment position.
While the Department acknowledged that no one factor is dispositive when determining residency, the Department ultimately found that the Taxpayer’s explanations and retained connections with the state indicated that he had not formed the requisite intent to fully abandon his Virginia domicile. As a result, the Department upheld the assessment and determined that the Taxpayer remained a domiciliary resident of Virginia for the 2017 tax year.
The Mississippi Department of Revenue proposes to amend its regulation for Photographers and Film Developers to specify that certain digital products would be subject to sales tax. Under the proposed regulation, photographs, pictures, videos, discs, other tangible personal property and “specified digital products” sold by photographers and videographers are taxable. The proposed amendments would be effective October 1, 2021.
The Mississippi Department of Revenue has appealed to the Mississippi Supreme Court a chancery court decision reversing a sales tax assessment against a wedding photographer. That decision noted that no statute subjects digital photography to sales tax, and that the regulation did not authorize the Department to impose tax on the wedding photographer in the case.
In this episode of the SALT Shaker Podcast policy series, Eversheds Sutherland attorneys Michele Borens and Samantha Trencs join Partner Nikki Dobay to discuss all things marketplace. They discuss recent marketplace legislation, other developments and state guidance (or lack thereof) and associated compliance challenges.
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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The New Mexico Taxation and Revenue Department recently updated FYI-206, describing the gross receipts tax collection responsibilities for online marketplace providers and marketplace without physical presence in New Mexico. Marketplace providers and marketplace sellers with at least $100,000 of taxable gross receipts in New Mexico in the previous calendar year have a tax collection obligation. Marketplace sellers that make taxable sales through marketplaces have gross receipts subject to tax, even if the marketplace provider has the same taxable gross receipts. However, to offset the potential double-taxation, the marketplace seller is allowed a deduction for those receipts on which the marketplace provider pays the gross receipts tax. Additionally, beginning July 1, 2021, New Mexico began destination sourcing, so tax rates are based on the location where the buyer receives the property.
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 first adopted the sales tax?
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!
