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!

On May 18, the California Office of Tax Appeals (“OTA”) issued a pending precedential decision holding that community income derived from nonqualified stock options (“NQSOs”) and restricted stock units (“RSUs”) granted to a resident in exchange for services performed exclusively in California and vested while a California resident is taxable California source income to a non-resident spouse living in France.

The OTA employed a two-step analysis to determine whether or not the income was subject to tax.  First, the OTA considered the nonearning spouse’s marital property interest in the earning spouse’s income. Because the earning spouse was domiciled in California – a community property state – when the income from the NQSOs and RSUs was earned, the OTA concluded that the income was community property.

Second, the OTA analyzed whether the nonresident, nonearning spouse’s interest in the community income was taxable in California. Here, the NQSOs and RSUs were compensation for personal services performed by the resident spouse entirely in California. The OTA rejected the nonresident spouse’s argument that her services to the marriage (i.e., the community) were performed entirely in France such that her share of the community income did not have a California source. The OTA instead treated the nonresident, nonearning spouse as if she had derived the income directly from the source from which her resident husband derived it. Accordingly, the OTA found the income had a California source and was thus taxable.

Appeals of O. Cremel and E. Koeppel, 2021-OTA-222P (May 18, 2021).

On May 27, the New Jersey Tax Court held that the New Jersey Division of Taxation could not eliminate a taxpayer’s net operating losses generated during years beyond the statute of limitations. The division’s proposed reduction was based on a transfer pricing adjustment between related entities for years never audited by the division and otherwise closed under the applicable statute of limitations. The court held that although the division had broad authority to determine the proper tax amount due from available information, this mandate did not permit the division to audit closed years to reduce a NOL carryforward.

The court noted that the statute of limitations protection for NOLs or other permitted carryforwards would be illusory under the corporate business tax if the division could change the components of the carryforward at any time simply because it was not imposing an additional assessment of tax in the closed years.

The court held that permitting division to audit and adjust the taxpayer’s NOL carryforward from these closed years would be tantamount to an adjustment of the income reported in those years and thus constitutes an impermissible audit of closed years under N.J.S.A. 54:49-6. “The court finds that auditing a closed year and applying the revisions from that closed year in the open year of audit is doing indirectly what the statute does not permit directly: bypassing the four year statute of limitations.”

In this episode of the SALT Shaker Podcast, new host and Eversheds Sutherland Associate Jeremy Gove is joined by colleagues and Eversheds Sutherland Partners Nikki Dobay and Eric Tresh to discuss declaratory judgments as a potential tool to obtain certainty on state tax matters. A recent Alaska Supreme Court decision highlights the limitations of the declaratory judgment, which only are available in limited circumstances. In lieu of declaratory relief, taxpayers can pursue other options as well. Taxpayers can work with Departments of Revenue to expedite judicial review of disputed issues, and legislation to fix the issue may also be an option. Our participants also get personal and share their thoughts about fireworks in answering the “overrated/underrated” non-tax question.

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

 

 

 

 

 

 

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New Jersey’s 2022 Fiscal Year appropriations bill requires the New Jersey Division of Taxation to conduct a study of the state tax laws in relation to the “digital economy” and make recommendations on gaps in the current law. The Division’s study must “quantify how various taxes have expanded or reduced the economic activity, and State revenue, that those laws were intended to capture when first enacted.” Additionally, the study must identify “particular forms of economic activity that are untaxed or undertaxed that have grown more significant in the modern economy.” By March 31, 2022, the Division must submit a report of its findings and recommendations for changes to the law.

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 two states were involved in a major case involving the taxation of wages earned by nonresident remote workers during the COVID-19 period?

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!

South Carolina’s Department of Revenue (DOR) recently published the inaugural edition of its Guide to Determining a Taxpayer’s Domicile for Income Tax Purposes (Guide). The publication issued by the DOR’s Policy Division provides a general overview of South Carolina’s domicile rules for income tax purposes. The intent of the guide is to assist taxpayers and tax professionals in determining whether an individual is a “resident” or “nonresident” of the Palmetto State, and whether such individual’s income is subject to tax in South Carolina. The Policy Division notes that other states may have rules different from South Carolina’s and that the guide is meant to “assist taxpayers and tax professionals in determining whether an individual is a South Carolina ‘resident’ or ‘nonresident’ and whether the individual’s income is subject to tax in South Carolina.”

To accomplish this purpose, this guide:

  • reviews the meaning of “domicile” as provided primarily through South Carolina case law;
  • provides factors the DOR considers when determining if an individual is a “South Carolina resident” or a “South Carolina nonresident” for individual income tax purposes;
  • provides key principles of domicile for South Carolina income tax purposes; and
  • reviews the federal provisions and special rules for domicile afforded to military service members and to service members’ spouses.

On June 30, 2021, Delaware’s Governor signed into law Senate Bill 103, which adds “virtual currency” to the definition of “property” subject to the reporting and remitting requirements of Delaware’s unclaimed property law. “Virtual currency” is “a digital representation of value, including cryptocurrency, used as a medium of exchange, a unit of account, or a store of value that does not have legal tender status recognized by the United States.” However, virtual currency excludes the software or protocols governing the transfer, game-related digital content (digital content that exists only in a game or game platform), and loyalty cards.

Effective August 1, 2021, “virtual currency” is presumed abandoned 5 years after the owner’s last indication of interest in property. At that point, the holder of the abandoned virtual currency must report it to Delaware as unclaimed property. Within 90 days prior to filing the report, the holder of the virtual currency must liquidate the virtual currency and remit the proceeds. The owner of the virtual currency has no recourse against the Delaware Escheator to recover gains in value that would have been realized had the virtual currency not been liquidated.