The Department of Taxation and Finance recently issued advisory opinion numbered TSB-A-20(63)S (dated November 17, 2020) in which it concluded that the primary purpose of a marketing-consulting service was a nontaxable service, even though the taxpayer’s customers had access to software. The taxpayer assists automotive industry clients in designing and launching effective marketing campaigns and uses its proprietary software to gather sales data from its clients to identify marketing success rates and trends, which it then uses to create analytical models to develop new advertising campaigns. The taxpayer’s clients use a secure website to access personalized data reports and the results of their own campaigns, but cannot access data or reports related to any of the taxpayer’s other clients. In concluding that the taxpayer’s service was a nontaxable service, rather than the provision of a taxable information service or the taxable sale of pre-written computer software, the Department looked to the primary function of the service—the creation and development of advertising campaigns. While clients had access to the secure website to communicate with the taxpayer, and to view only their own reports and data, that access was not the primary purpose of the transaction, and was not sufficient to find the service taxable.

On May 24, 2021, the Magistrate Division of the Oregon Tax Court denied a taxpayer’s motions for summary judgment, finding the taxpayer’s claim for refund was filed beyond the statute of limitations.  Specifically, on December 4, 2015, the taxpayer filed its Oregon corporation excise tax return for tax year end February 28, 2015. The taxpayer subsequently filed an amended federal tax return, which the IRS accepted and issued a refund for on January 8, 2019 (without issuing a Revenue Agent’s Report). The taxpayer then filed its amended Oregon corporation excise tax return on February 1, 2019, reporting those same changes.  The taxpayer’s amended return was filed three years, one month and 28 days after the taxpayer’s originally filed Oregon return.

Oregon law generally requires a taxpayer file a refund claim within three years after the original return was filed, pursuant to ORS § 314.415(2)(a). An exception to the general rule is found in ORS § 314.380(2)(b), which provides that a change or correction made by the IRS or another state revenue authority giving rise to a claim for refund will extend the general statute of limitation. ORS § 314.380(2)(c) requires a taxpayer to file an amended Oregon return to report a change in Oregon tax liability based on the filing of an amended federal or other state return; however, that provision makes no reference to a claim a refund.  Considering these provisions, the court concluded that the filing of the taxpayer’s amended Oregon return was governed by ORS § 314.380(2)(c), based on the filing of the federal amended return, and that although the taxpayer filed within the 90 day filing requirement, that provision of ORS § 314.380 does not provide a statute of limitations extension for refund claims. Thus, the court determined that the taxpayer’s claim for refund was bared by the general claim for refund provision (ORS § 314.415(2)(a)) since the taxpayer’s amended Oregon return was filed more than three years after the date its original return was filed.

Bed Bath & Beyond Inc. v. Dep’t of Revenue, TC-MD 200272G, (Or. Tax Ct., Mag. Div., May 24, 2021) (unpublished)

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.