On February 17, 2021, the Washington Department of Revenue issued a Preproposal Statement of Inquiry regarding a proposed new rule for the business and occupation tax workforce education investment surcharge for select advanced computing businesses. A public meeting on the proposed rule is scheduled for March 10, 2021. Interested parties can submit written comments in advance or provide written or oral comments at the public meeting.

The Illinois Department of Revenue issued responses to Frequently Asked Questions regarding marketplace facilitators, marketplace sellers, and remote retailers. The Department considers food ordering and delivery services to be marketplace facilitators if they: (1) list or advertise food or drink for sale by a marketplace seller in a marketplace; and (2) either directly or indirectly, through agreements or arrangements with third parties, collect payment from the purchaser and transmit that payment to the marketplace seller, regardless of whether the marketplace facilitator receives compensation or other consideration in exchange for its services. The tax rate is that of: (1) the delivery location, if the food or drink order is delivered; or (2) the location of the restaurant, if the order is picked up. The FAQs also explain how marketplace sellers and marketplace facilitators should report sales on the Form ST-1, Sales and Use Tax and E911 Surcharge.

In a pending precedential decision, the California Office of Tax Appeals (OTA) held that the true object of a taxpayer’s prenatal imaging business involving elective 3D and 4D ultrasound services is the sale of images captured on tangible medium such as photos, CDs and DVDs.  Thus, receipts from such sales are subject to sales tax as tangible personal property.

California imposes sales tax on retail sales of tangible personal property but does not impose sales tax on the provision of a service that is not part of a sale of taxable tangible personal property. When a transaction involves both the provision of a service and transfer of tangible personal property, the taxability is determined based on whether the true object of the transaction is the tangible personal property or whether the transfer of tangible personal property is incidental to the performance of a service.

The taxpayer argued that the sale of the photos, CDs, and DVDs was incidental to the primary objective of the clinical service of elective diagnostic imaging. The taxpayer stated that only a small percentage of its patients purchased additional CDs and DVDs separate from the ultrasound services. OTA disagreed, determining that the true object of the sales was the tangible personal property, noting that the packaging and marketing of the services focused on the photos, CDs and DVDs containing the imaging, and the quality thereof.  OTA also determined that taxpayer’s services were not a medical necessity because the customers were required to have already obtained diagnostic ultrasounds from their healthcare providers.

In this episode of the SALT Shaker Podcast, host Chris Lee discusses a Kansas proposal to enact a marketplace facilitator law, two residency cases from California, and a New York decision concerning sales tax treatment of certain advertising services.

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

 

 

 

 

 

 

 

 

 

 

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On August 13, 2020, the Utah Supreme Court agreed to hear a married couple’s direct appeal from a State Tax Commission decision holding that the couple was domiciled in Utah during the 2012 tax year under Utah’s “presumptive domicile” statute. Specifically, the case involves Utah Code Ann. § 59-10-136(2), which provides a rebuttable presumption that an individual is domiciled in the state if the individual or the individual’s spouse claims a residential exemption for property tax purposes for the individual’s or the individual’s spouse’s primary residence.

In a decision dated June 9, 2020, the Utah State Tax Commission held that the couple were domiciled in Utah for the 2012 tax year because the couple’s Utah home received a “primary residence” partial property tax exemption in 2012, which had been “claimed” automatically each year since 2008. The couple attempted to rebut the statutory presumption by offering evidence that they had relocated to Florida in 2011 and that neither the husband nor the wife spent more than 22 days in Utah during the 2012 calendar year. In addition, the taxpayers presented evidence showing they had obtained new Florida driver’s licenses in 2011, registered to vote in Florida in 2011, enrolled their minor children in Florida schools in 2012, and received the majority of their mail at their Florida home during the 2012 calendar year. The Commission based its opinion on an interpretation of the presumptive domicile language in Utah Code Ann. § 59-10-136 to limit the types of evidence that a taxpayer may present in order to rebut the presumption arising from claiming the primary residence property tax exemption. One of the four commissioners authored a dissenting opinion, arguing that the majority opinion failed to give adequate weight to the evidence and arguments presented by the taxpayers.

On appeal to the Utah Supreme Court, the main issue is whether the State Tax Commission properly applied the presumptive domicile statute when it found the taxpayers’ evidence regarding their relocation to another state to have no weight in rebutting the presumption created by claiming the primary residence exemption. Beyond the Utah-specific issue of statutory interpretation, though, there are important constitutional considerations involved, namely whether Utah’s treatment of the couple as residents for the 2012 tax year violates the privileges and immunities clause, the equal protection clause, the commerce clause, and due process. The case has attracted the attention of numerous groups who have filed amicus briefs with the Utah Supreme Court. Briefing has begun in the case but a hearing date has not yet been set. The Eversheds Sutherland SALT team will be following the case as it develops at the Utah Supreme Court. The case is Buck v. Utah State Tax Commission, Dkt. No. 20200531 (petition filed July 6, 2020). The State Tax Commission decision is Appeal No. 18-888 (decided Jun. 9, 2020).

On February 9, 2021, Governor Laura Kelly announced a plan to add market facilitator collection and remittance to other tax related legislation, Senate Bill 22. The governor noted that Kansas is one of only three states that has not enacted marketplace facilitator provisions and that this change would allow Kansas “…to collect from fewer entities and increase compliance.” The plan also proposes a tax on digital products, including video streaming services. The governor stated that the additional revenue generates by marketplace facilitator and digital goods provisions would allow the state to increase the Kansas standard deduction by 20% in 2021 and 35% in 2022. Earlier in February, Kansas introduced H.B. 2230, which would impose sales tax on digital property and subscription services.

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: After Maryland became the first state to enact a digital advertising tax, what is another state pursuing similar legislation?

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!

2020 saw significant state and local tax activity in California.

In this webcast, Eversheds Sutherland attorneys Tim Gustafson and Eric Coffill look ahead into 2021 and what promises to be another unpredictable year in California tax legislation, administration and litigation.

View the presentation slides here.

On February 12, 2021, the Maryland General Assembly voted to override Governor Larry Hogan’s veto of House Bill 932, which subjects digital products (both downloads and streaming) to the state’s sales and use tax.

As the Maryland Senate voted 29-17 and the Maryland House of Delegates voted 90-44, the bill received the required three-fifths vote by both chambers of the Maryland General Assembly to override the Governor’s veto. As a result, Maryland has now expanded its sales and use tax to encompass the sale of digital products, including streaming. The tax will take effect in 30 days pursuant to Maryland’s Constitution.