The New Jersey Tax Court ruled that the in-state activities of an out-of-state wholesale produce distributor were protected under Public Law 86-272 (P.L. 86-272), a federal law that prohibits states from imposing a net income tax on an out-of-state taxpayer.  The Taxpayer had no offices, property, employees or inventory in New Jersey, but it did deliver produce to customers within the state primarily using third-party trucks and took the position that it was not subject to New Jersey Corporation Business Tax (CBT).

The court found that the Taxpayer’s practice of delivering produce to in-state customers and accepting returns of rejected produce upon delivery and prior to acceptance was “ancillary to solicitation of sales” and thus was protected under P.L. 86-272.  The Taxpayer had an obligation under the federal Perishable Agricultural Commodities Act of 1930 to accept the rejected produce before title had transferred to the customer.  However, the Taxpayer’s practice of sending its own trucks into the state to pick-up returned produce after delivery and acceptance by the customer was not protected under P.L. 86-272.  In all but one of the tax years at issue, these activities were de minimis and thus the Taxpayer was not subject to CBT.  For the outlier year, the court held these activities plus the Taxpayer’s practice of sending trucks into the state to obtain produce from a related party constituted “sufficient contacts” in-state that exceeded the protection of P.L. 86-272 and was thus subject to the CBT.

Procacci Bros. Sales Corp. v. Div. of Taxation, N.J. Tax Ct. Dkt. No.  015626-2014 (May 25, 2021)

New York Governor Andrew Cuomo issued a series of executive orders beginning on March 20, 2020, tolling statewide legal filing deadlines from March 20, 2020, to Nov. 3, 2020.

In their column for Bloomberg Tax, Eversheds Sutherland attorneys Michael Hilkin and Jeremy Gove note there is confusion over whether the executive orders apply to filing administrative tax appeals.

Read the full article here.

In this episode of the SALT Shaker Podcast policy series, 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. They begin their discussion with the topic of the restoration of the Illinois franchise tax, which is unlike any other state that has one. They also discuss the Department of Revenue’s frustration the 80-20 definition, despite the recent win in Pepsico at the Tax Tribunal.

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 Tennessee Department of Revenue recently published Letter Ruling No. 21-05 (dated April 28, 2021) determining that an online marketplace was not a marketplace facilitator responsible for sales tax collection because it did not process payments.  The taxpayer is creating an online platform that allows a network of independent dealers across the country to make business-to-business sales of equipment, manufactured by the taxpayer’s affiliates, that is in the dealer’s inventory.  The taxpayer can charge the dealers for use of the platform, and the taxpayer will also receive a percentage of the dealers’ sales made through the platform. However the taxpayer will not collect payments from the dealers’ customers.  Purchasers pay for their selected inventory in one of two ways: (i) dealer accounts or (ii) by credit card.  The taxpayer’s role with both types of is just communicating the dealer’s preliminary order approval or rejection with the purchaser.

Under Tennessee law, marketplace facilitators are responsible for collecting and remitting sales and use tax on sales made through its marketplace if Tennessee sales exceed $100,000 during the previous 12-month period.  The Department of Revenue found that while the taxpayer was providing an electronic marketplace for the dealers, it was not a marketplace facilitator because the taxpayer only provides the electronic display of the Dealer User’s inventory and communicates the preliminary order approval or rejection, but is not involved in collecting or transmitting the payments.

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: Explored in a recent SALT Shaker Podcast, which state has recently attempted to extend transfer pricing to 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!

In the latest SALT@Work column for the Journal of Multistate Taxation and Incentives, Eversheds Sutherland Partner Charlie Kearns provides an overview of the Pension Source Law, specifically its treatment of excess benefit plans, as well as recent guidance from New York that applies those provisions.

On June 8, the Oregon Senate passed SB 164, which is the 2021 Corporate Activity Tax (CAT) “technical corrections” bill. SB 164 has moved to the House, where it has been referred to the House Revenue Committee. To become law—which is expected—SB 164 will be required to pass out of the House Revenue Committee and the full House before the legislature adjourns later this month.

As passed by the Senate, 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.

On June 4, 2021, the California Franchise Tax Board (“FTB”) held its sixth interested parties meeting (“IPM”) to discuss the latest proposed amendments to FTB’s market-based sourcing regulation, Cal. Code Regs., Title 18, Section 25136-2.  At the IPM, FTB staff provided an explanation of the newly-proposed regulation language, which includes:

  1. A definition of “asset management services;”
  2. A definition of “professional services” that includes “management services, tax services, payroll and accounting services, … legal services, business advisory consulting services, [and] technology consulting services,” among others;
  3. A special assignment rule for “professional services” providing for the use of a customer’s billing address where the taxpayer provides “substantially similar professional services” to more than 250 customers;
  4. A change to the applicability date of the amendments to taxable years beginning on or after January 1, 2023; and
  5. The removal of a proposed election to apply the amendments retroactively.

Responding to a comment that some taxpayers already have taken return positions consistent with the proposed amendments based on the now-deleted retroactive election provision, Staff reiterated that under the latest draft, the amendments are intended to apply prospectively only.

Please see our previous posts here and here for additional background on FTB’s proposed amendments to the market-based sourcing regulation.  FTB will accept written comments on the proposed regulation language until July 5th and will release a summary of the comments received after that date.  There was no discussion about whether FTB’s next step will be to issue another round of proposed amendments or proceed to the formal rulemaking process.

On May 14, 2021, the Indiana Tax Court upheld a pharmacy benefit management company’s sourcing of its receipts under Indiana’s costs of performance rules applicable to receipts from services. The court rejected the Indiana Department of Revenue’s position that the receipts should instead be sourced according to the rules for sales of tangible personal property. The taxpayer was engaged in the business of administering the prescription drug and pharmacy benefits of health insurers. As part of this service, the taxpayer negotiated contracts with over 60,000 pharmacies, specifying negotiated rates to be charged when filling the subscriptions of its insurer client’s members. When a member had their prescription filled at the pharmacy, the member would pay the pharmacy their copayment, and the taxpayer would pay the pharmacy the difference between the negotiated rate and the member’s copayment. The taxpayer would then get paid by billing its insurer clients a service charge comprised of both (i) the amount paid to the pharmacies for the prescription drugs dispensed and (ii) the taxpayer’s administrative fee.

On motion for summary judgment, the Department argued that the taxpayer’s receipts should be sourced according to the rules applicable to sales of tangible personal property, because the taxpayer was not a mere conduit through which payment for prescription drugs passed but instead it exercised a right, interest and title in the prescription drugs sold to its members and that the taxpayer had admitted it sold prescription drugs. The tax court rejected the Department’s position as unsupported under the record. Based on the taxpayer’s designated affidavits and contracts stating that its clients engage it and pay for the provision of services and that it does not purchase any drugs for resale or ever acquire possession or title of any drugs sold to its insurer client’s members, the tax court found that the taxpayer properly apportioned its income as a service provider and granted summary judgment in favor of the taxpayer.

Express Scripts Inc. v. Ind. Dep’t of State Revenue, Dkt. No. 19T-TA-00018 (Ind. Tax Ct. May 14, 2021).

On May 30, 2021, the Illinois Legislature passed S.B. 2066, which creates an exemption and retroactive credit for marketplace sellers for transactions in 2020 where tax was paid by the marketplace seller and the marketplace facilitator. Previously, Illinois’s marketplace law imposed a use tax (UT) obligation on a marketplace facilitator on all taxable sales of tangible personal property made by the marketplace facilitator or facilitated for the marketplace seller to customers in Illinois. However, marketplace transactions fulfilled with in-state inventory created a retailer’s occupation tax (ROT) liability for marketplace sellers. The imposition of the two taxes on the same transaction resulted in a problem because there was no mechanism to credit a marketplace facilitator’s remittance of UT against a marketplace seller’s ROT obligation on the same sale. The Department previously issued a compliance alert stating that it had no authority to provide a marketplace seller with a credit against ROT for the tax that was remitted by the marketplace facilitator. The bill adds a new subsection to the ROT exemption statute providing that “beginning January 1, 2020 and through December 31, 2020, sales of tangible personal property made by a marketplace seller over a marketplace for which tax is due under this Act but for which use tax has been collected and remitted to the Department by a marketplace facilitator under Section 2d of the Use Tax Act are exempt from tax under this Act.” Further, “marketplace sellers that have properly remitted tax under this Act on such sales may file a claim for credit as provided in Section 6 of this Act.” However the credit is not permitted if the marketplace facilitator has received or filed a claim for a credit or refund for such taxes.