The New York State Department of Taxation and Finance issued an advisory opinion explaining that a taxpayer’s payments from nonqualified deferred compensation plans to nonresident former employees, after termination of employment of the nonresidents, constitute retirement income and are therefore not subject to New York personal income tax, income tax withholding, or reporting. The Department’s determination was based on the federal Pension Source Law, codified at 4 U.S.C. § 114, which provides that no state may impose an income tax on any “retirement income” of an individual who is not a resident or domiciliary of such state. Specifically, the Department determined that the nonqualified plans at issue are described in IRC § 3121(v)(2)(C) and meet the other requirements in 4 U.S.C. § 114(b)(1)(I), thereby qualifying as “retirement income” under the federal law. However, the Department also determined that payments made prior to termination of employment do not constitute retirement income for purposes of the Pension Source Law and therefore any income, gain, loss, or deduction derived from New York sources with respect to the distributions to the nonresident individuals are subject to New York personal income tax. Because these payments are considered wages for federal income tax withholding purposes, the Department concluded that the payments will also be considered wages for New York State withholding tax purposes. Therefore, the taxpayer is required to deduct and withhold New York State personal income tax from these payments, based on a reasonable estimate of the tax due, and to file a New York State withholding tax return and pay to the state the taxes required to be deducted and withheld.

Advisory Op. TSB-A-20(8)I, N.Y.S. Dep’t of Tax & Fin. (Oct. 6, 2020) (Published Feb. 19, 2021).

The New York Commissioner of Taxation and Finance issued an Advisory Opinion explaining that a petitioner’s service that allows customers to access its database and run reports of the customers’ data is not subject to sales tax.  The petitioner enters into agreements with customers to maintain their fleet of vehicles, and the petitioner compiles data on the maintenance performed on the vehicles.  For a separate monthly charge, the petitioner allows a customer access to the data through a website, and a customer can run reports regarding maintenance performed on its vehicles.  Under New York law, sales tax is imposed on the service of furnishing information, except for information “which is personal or individual in nature and which is or may not be substantially incorporated into reports furnished to other persons.”  The Commissioner explained that the petitioner’s database service is an information service, but determined that it was not subject to sales tax because the petitioner compiles and organizes information about a customer’s own vehicles, and each customer’s information is provided only to that customer and, therefore, the petitioner’s service is personal or individual in nature.

Advisory Op. TSB-A-20(38)S, N.Y.S. Dep’t of Tax & Fin. (July 28, 2020) (Published Feb. 19, 2021).

On March 22, 2021, the Georgia House of Representatives passed SB 185, which now heads to the Governor’s desk. The measure, which was previously unanimously passed by the state Senate, seeks to level the playing field in state tax litigation matters by reducing the level of deference accorded to the Department of Revenue’s interpretations of ambiguous laws. Specifically, SB 185 provides that “all questions of law decided by a court or the Georgia Tax Tribunal, including interpretations of constitutional, statutory, and regulatory provisions shall be made without any deference to any determination or interpretation, whether written or unwritten, that may have been made on the matter by the department, except such requirement shall have no effect on the judicial standard of deference accorded to rules promulgated pursuant to Chapter 13 of Title 50, the ‘Georgia Administrative Procedure Act.’” Accordingly, the legislation eliminates all subregulatory deference but makes no change to the current level of deference accorded (by judicial doctrine) to interpretations of the Department of Revenue within regulations that have been formally promulgated pursuant to the Georgia Administrative Procedure Act. The legislation would apply to tax cases commenced at the Georgia Tax Tribunal or a state Superior Court after the Governor’s approval or upon the bill’s becoming law without such approval if no action is taken by the Governor within 40 days after the end of the legislative session (Sine Die scheduled for March 31, 2021).

The reduction in administrative deference in SB 185 is similar to measures taken in recent years in Arizona, Arkansas, Florida, Mississippi and Wisconsin by legislation, ballot initiative, or judicial ruling. Furthermore, it aligns Georgia with the treatment of subregulatory deference at the federal level where the United States Treasury and the Internal Revenue Service stated in a 2019 Policy Statement that they will no longer argue for Auer or Chevron deference for any administrative guidance other than IRS regulations that are subject to public notice and comment and other statutory rulemaking procedures contained in the federal Administrative Procedures Act.

This legislation is primarily sponsored by state Senator Bo Hatchett and is the culmination of several years of efforts by the Metro Atlanta Chamber and state Representative Todd Jones and supported by the Coalition to Reform Administrative Deference. It further advances the goal of the Georgia Tax Tribunal, which was created by the state legislature in 2012, to establish an independent forum to settle disputes between a taxpayer and the Department of Revenue.

The Texas Court of Appeals held that a taxpayer’s refund claim sufficiently put the Comptroller on notice that the taxpayer claimed a manufacturing exemption. An electricity manufacturer filed a refund claim for sales taxes paid on various types of meters used in its business. The Comptroller denied the claim, and the taxpayer sought an administrative hearing. The administrative law judge concluded that the manufacturing exemption was not sufficiently raised within the deadline for the taxpayer to amend its statements of grounds. The taxpayer sought judicial review. The trial court: (1) rejected the Comptroller’s argument that the taxpayer had waived the opportunity to raise the manufacturing exemption claim; and (2) held that the manufacturing exemption applied to the taxpayer’s meters because they constituted “telemetry units related to step-down transformers.”

Texas law requires that a claim for refund “state fully and in detail” each reason or ground on which the claim is founded. The Comptroller contended that the taxpayer did not specifically assert that the legal basis of the refund claim was for telemetry units related to step-down transformers. Rather, the taxpayer cited to the relevant statute and mass quoted a list of numerous categories of exempted items, one of which was for telemetry units related to step-down transformers. Because the Comptroller did not know which specific category of exempt items was at issue, it claimed it could not determine the merits and validity of the refund claim.

Over two dissenting votes, the court of appeals rejected the Comptroller’s argument. The court found it to be sufficient that the taxpayer: (1) expressly referenced the manufacturing exemption and quoted the relevant statute in the statement of grounds; and (2) provided notice in the accompanying schedules, which referred to one of the relevant items as “mfg. equip. – 100% exempt” and referred to the applicable statute and rule.  Thus, the court concluded that the Comptroller was put on notice of the taxpayer’s manufacturing exemption claim.

The court also concluded that the manufacturing exemption applied to the taxpayer’s customer meters. These items were telemetry units related to step-down transformers – and thus not subject to sales tax – because the information collected and transmitted from the customer meters was used to analyze the step-down transformers’ performance, maintenance, and safety requirements.

Hegar v. El Paso Electric Co., No. 03-18-00790-CV (Tex. Ct. App. Mar. 5, 2021) (en banc).

In this episode of the SALT Shaker Podcast, host Chris Lee discusses a California income tax matter concerning the sourcing of an individual’s income, a Wisconsin corporate income tax matter involving the dividends received deduction, and two Idaho individual income tax decisions addressing domicile.

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The Arkansas Supreme Court held that a furniture and electronics retailer’s weekly and semi-monthly rent-to-own leases are subject to the excise tax on short-term – less than 30 days – rentals of tangible personal property. Under the retailer’s rental-purchase agreements, customers select an initial rental term of monthly, semi-monthly, or weekly. At the end of each period, the customer can choose to terminate the arrangement or continue to rent.  When the customer reaches a predetermined number of payments or makes a lump-sum payment, it will acquire ownership of the tangible personal property. On protest from an assessment, the taxpayer alleged that its rental-purchase agreements were nontaxable long-term leases, not taxable short-term leases. The taxpayer contended that the tax did not apply because: (1) its customers almost always renewed their leases beyond the initial term; and (2) the legislature intended to tax “true” short-term leases, not rent-to-own purchases. The Arkansas Supreme Court concluded that the weekly and semi-monthly rent-to-own leases were taxable short-term leases because the periods were for less than 30 days. Whether the customer renews the lease does not change the length of the rental or lease period in question.

Rent-A-Center East, Inc. v. Walther, 615 S.W.3d 701 (Ark. 2021).

On March 11, 2021, the Florida House Ways and Means Committee approved H.B. 15. This bill and its Senate companion, S.B. 50, which was previously approved by the Senate Appropriations Committee, would require sales tax collection from a person whose remote sales to Florida exceed $100,000 per year and would require a “marketplace provider” to collect sales tax. The additional revenue would be used to replenish the state’s unemployment compensation trust fund. The Committee amended H.B. 15 to be consistent with S.B. 50 including requiring marketplace providers to collect and remit the E911 fee, waste tire fee, and lead-acid battery fee starting April 1, 2022, and preventing retroactive application of bill. The effective date of the legislation would be July 1, 2021, consistent with S.B. 50.

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: What state is considering a 20-year tax incentive ban for online marketplaces and social media platforms that censor content?

E-mail your response to SALTonline@eversheds-sutherland.com.

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Answers will be posted on Saturdays in our SALT Weekly Digest. Be sure to check back then!

The Maryland Comptroller of Public Accounts issued guidance interpreting 2020 H.B. 932, entitled the 21st-Century Economy Fairness Act. Effective March 14, 2021, the act expanded the sales and use tax to sales and uses of digital products. Pursuant to its guidance, the Comptroller will apply tax to a variety of digital products – including e-books, motion pictures, sound files, and video games – regardless of whether they are downloaded or streamed by the customer. The Comptroller will also apply tax to sales of canned or commercial off-the-shelf software, if obtained electronically by the buyer, as well as sales of software as a service (SaaS).

Immediately before last Friday’s deadline for the filing of unrestricted bills, Texas lawmakers introduced a digital advertising tax bill and a bill that would expand sales tax to a wide array of services.

H.B. 4467, filed on March 12 by Rep. Trey Martinez Fischer (D-TX-116) would impose a tax on gross revenue from digital advertising services.  The tax proposal closely resembles the recently enacted Maryland digital advertising tax.

The tax would apply to a taxpayer’s “assessable base” for a reporting period is at least $1 million, and gross revenue for the reporting period is at least $100 million. “Assessable base” means “the portion of gross revenue derived from digital advertising services in Texas.”  Just as is the case with Maryland, the Texas proposal does not include a sourcing rule; rather the Comptroller “shall adopt rules for determining when business is done.” Oddly, the proposal directs the Comptroller to consider revenue recognized by a person according to generally accepted accounting principles.

The rates are the same as Maryland’s, ranging from 2.5% of a person’s assessable base if the person’s gross revenue is between $100 million and $1 billion, up to 10% of a person’s assessable base if the person’s gross revenue is more than $15 billion.

If enacted, the first payment is due (annually) on or before April 15, 2023, however the tax applies to revenue derived from business done on or after Jan. 1, 2022.  This tax payment structure deviates from Maryland’s, which requires quarterly estimated payments.

S.B. 1711 filed on March 11, by Sen. Drew Springer (R-TX-030), would expand sales tax to a wide range of enumerated services, including advertising services, dating services, funeral services, and personal instruction services (such as individual coaching), among others.

Advertising services are defined as: (1) the provision of advertising space and time, including television and radio time, magazine space, newspaper space, and billboard space; or (2) the development of an advertising campaign or the content of an advertisement, including a television, radio, print, or Internet advertisement. The bill also does not contain any provisions for how advertising services would be sourced to the state.

S.B. 1711 bill would take effect on Jan. 1, 2022, but only if a constitutional amendment is approved by voters to authorize the legislature to exempt from ad valorem taxation by a school district a portion of the appraised value of an individual’s residence homestead in an amount equal to 150 percent of the median appraised value of all single-family residences in the state.