It goes without saying that an individual is free to move about the country and to change their state of residency/domicile for state income tax purposes. However, that change is potentially complex under the law, especially when an individual who is a longtime resident/domiciliary of California plans to become a nonresident.
In this article for Financial Advisor, Eversheds Sutherland Senior Counsel Eric Coffill discusses how to successfully change California residency for tax purposes.
A pair of recently-introduced Maryland bills would create a whistleblower program within the Maryland Comptroller’s office and possibly result in a headache for many taxpayers. The proposed whistleblower bills appear to be modeled after the IRS’ whistleblower program, although they contain a noticeably low materiality threshold and allow for the anonymous reporting of complaints.
The proposed legislation, H.B. 804 and S.B. 916, would establish the “Whistleblower Reward Program,” which provides financial incentives to individuals or entities that supply the Comptroller with “original information” that results in a successful audit, administrative or judicial action. Possible rewards range from 15 to 30 percent of the recovered taxes, penalties, and interest arising from original information supplied to the Comptroller on or after October 1, 2021.
To be eligible for a reward, the whistleblower’s original information must concern $250,000 of taxes, penalties, and interest in dispute and:
“Original information” is “information derived from the independent knowledge of analysis of a whistleblower” and not previously known to the Comptroller. Original information cannot be derived from the news media, a judicial or administrative hearing, audit, or investigation, unless the whistleblower is the original source of that information.
A whistleblower may receive a reduced award if the whistleblower planned or initiated the action that resulted in the underpayment of the taxes at issue. Whistleblowers who have been criminally convicted of an action related to the whistleblower complaint are ineligible for awards. Additionally, members of federal, state, or local tax-enforcement agencies are also ineligible for whistleblower rewards.
Whistleblowers may be represented by an attorney and can report whistleblower complaints anonymously through counsel. The bills prohibit employers from retaliating against employees who file whistleblower complaints in any manner. While the bills do not authorize whistleblowers to initiate civil actions against taxpayers, the Comptroller is required to provide regular investigation status updates to whistleblowers.
Finally, in a provision separate from the Whistleblower program, the bills would extend Maryland’s statute of limitations for tax collections from 7 years to 10 years after a timely assessment is made.
Maryland has been at the forefront of many highly-watched and controversial tax proposals this year. On March 14, the state’s sales tax expansion to digital products and streaming services became effective. On March 5, the Maryland Senate passed S.B. 787, which makes several noteworthy changes to the state’s new digital advertising tax, including delaying the tax’s effective date until Jan. 1, 2022. Currently, the first estimated quarterly payment – at least 25% of the “reasonably estimated” tax based on 2021 Maryland digital ad tax revenues – is due to the Comptroller by April 15, 2021. S.B. 787 is currently with the House of Delegates, with a hearing scheduled for March 25, 2021.
The North Carolina Department of Revenue released a private letter ruling, concluding that a web-based product used to handle administration, management, and record-keeping via a Software as a Service model was not subject to sales and use tax. Consumers accessed the software application, which was running on a cloud-based infrastructure. The ruling states: “North Carolina does not currently impose sales and use tax on revenue from access to cloud based software accessed electronically via an internet connection.”
In this episode of the SALT Shaker Podcast policy series, we discuss all things Maryland digital advertising tax. Talk about drama! We have a brand new tax, vetoes, veto overrides and litigation. State tax policy doesn’t get more exciting than this! Host and Eversheds Sutherland Partner Nikki Dobay of the Sacramento office is joined by Washington, DC Partners Jeff Friedman and Charlie Kearns. 
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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A recently-introduced bill in the West Virginia Senate would impose a new tax on companies that provide digital advertising services. SB 605, introduced on March 9 by Senator Rupie Phillips (R-Logan 07), would impose a gross receipts tax on the annual gross revenues of a taxpayer derived from digital advertising services in the state.
“Digital advertising services” are defined in the bill as “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.” “Digital interface” means any type of software, including a website, part of a website, or application, that a user is able to access.
Annual gross revenues from digital advertising services are determined by an apportionment fraction comprised of the taxpayer’s gross revenues derived from digital advertising services in West Virginia compared to digital advertising services in the United States. The bill directs the West Virginia Tax Commissioner to promulgate sourcing regulations.
The digital advertising gross revenues tax rate proposed by the bill is
The bill requires returns to be filed by each party that has at least $1 million in annual gross digital advertising revenues derived in West Virginia in a calendar year. Returns for this tax would be due April 15, and estimated quarterly returns would be due on June 15, September 15, and December 15 each year.
The proposed tax in SB 605 strongly mirrors Maryland’s recently-enacted digital advertising tax legislation, which is subject to various and well-documented legal challenges.
The South Dakota Department of Revenue issued updated guidance regarding the application of sales tax to sales of Internet access and internet-related services. In particular, the Department added “Internet e-mail services” and “web hosting” to the list of exempt Internet-related services. However, the Department removed “live chat or conferencing fees” from the list. The Department also explained remote sellers’ and marketplace providers’ South Dakota sales tax collection and remittance obligations.
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 pending state house resolution urges a governor and state revenue department to devise a plan to allow wealthy individuals to voluntarily pay more money to the state?
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 March 6, a bill to tax capital gains passed the Washington state senate. S.B. 5096, introduced on Jan. 6 by state senators Hunt Robinson and Wilson Nguyen, would impose an excise tax equal to seven percent of a Washington resident’s capital gains, starting January 1, 2022.
Only individuals are subject to the tax, and the bill exempts an individual’s first $250,000 of adjusted capital gains. “Adjusted capital gains” are federal net long-term capital gains with various specified modifications based primarily on Washington tax exemptions and allocation factors.
The first $350 million in revenue raised by this new tax each fiscal year are earmarked for the state’s education legacy trust account. The next $100 million collected annually would go toward the general fund, and the rest of the revenues would be placed in a “taxpayer fairness account” used “to offset existing tax burdens via policies such as the funding of the working families’ tax exemption.”
The bill, as amended, contains several carve-outs for this new tax, such as the sale of:
The bill also includes a residency test for determining whether an individual qualifies as a statutory Washington resident, and apportionment provisions for capital gains. If passed by the House and signed by the Governor, the bill is expected to be the subject of a court challenge (as many see this as an income tax in violation of Washington case law) and/or referred to voters.
Earlier today, the Maryland Senate passed S.B. 787, Digital Advertising Gross Revenues Tax and Tobacco Tax – Alterations and Implementation, on third reading (46-0). As amended, S.B. 787 makes the following relevant changes to the digital advertising tax:
S.B. 787 is scheduled to be introduced in the House of Delegates on Monday, March 8, 2021.
In this episode of the SALT Shaker Podcast, host Chris Lee discusses a New York letter ruling concerning sales tax treatment of a database service, a New York Tax Appeals Tribunal decision concerning residency for individual income tax, an Illinois letter ruling addressing sourcing of sales for sales tax and a California Office of Tax Appeals decision concerning the sales tax treatment of ultrasound services.
Questions or comments? Email SALTonline@eversheds-sutherland.com.
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For a transcript of the podcast, click here.
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