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.

On February 12, 2021, the Maryland General Assembly voted to override Governor Larry Hogan’s veto of H.B. 732, which creates an entirely new gross revenues tax on digital advertising services.

As the Maryland Senate voted 29-17 and the Maryland House of Delegates voted 88-48, the bill received the required three-fifths vote by both chambers of the Maryland General Assembly to override the veto. Maryland has now enacted the nation’s first gross receipts tax targeted on digital advertising.

As mandated by the Maryland Constitution, the tax will take effect in 30 days. The tax is applicable to all taxable years beginning after December 31, 2020. 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 15th.

Maryland S.B. 787 and H.B. 1200

The Maryland General Assembly recently introduced S.B. 787 and H.B. 1200 on February 5th and 8th, which propose revisions to the digital advertising tax under H.B. 732. The companion bills have two key components:

  • Maryland would exempt from the tax advertisement services on digital interfaces (e., websites and apps) owned or operated by or operated on behalf of a broadcast entity or news media entity.
    • “Broadcast entity” means an entity that is primarily engaged in the business of operating a broadcast television or radio station.
    • “News media entity” means an entity engaged primarily in the business of newsgathering, reporting, or publishing articles or commentary about news, current events, culture, or other matters of public interest. But the term excludes “an entity that is primarily an aggregator or republisher of third-party content.”
  • Maryland would prohibit a person who derives gross revenues from digital advertising services in Maryland from directly passing on the cost of the tax to a customer who purchases the digital advertising services by means of a separate fee, surcharge, or line-item. However, the bills would not prohibit taxpayers from indirectly passing on the cost of the tax, such as raising prices to account for this increased cost.

If passed, the bills – like the underlying digital advertising tax – would be applicable to all taxable years beginning after December 31, 2020.

On February 15th, the Department of Legislative Services issued the Fiscal and Policy Note for H.B. 1200. The Department of Legislative Services is unclear on the bill’s revenue impact:

State Revenues: The fiscal and policy note for House Bill 732 of 2020 estimated that annual revenues for the Blueprint for Maryland’s Future Fund from the digital advertising gross revenues tax may increase by as much as $250 million under one set of assumptions. The exemption proposed by the bill may reduce the overall revenue impact of the digital advertising tax provisions of House Bill 732; however, the amount of the revenue decrease cannot be reliably estimated due to a lack of data regarding the amount of digital advertising revenues generated by broadcast and news media entities.

We look forward to learning more about the bills’ impacts soon. Committee hearings will be held on S.B. 787 and H.B. 1200 on February 17th and 26th, respectively.

On February 3, 2021, the Kansas House of Representatives introduced H.B. 2230, which would expand the state’s sales tax to include all sales of digital property and subscription services, regardless of whether the purchaser has a permanent right to use the property or whether the right to use the property is conditioned on continued payment. The bill defines “digital property” to mean media or products that are encoded in machine-readable formats and transferred electronically, including but not limited to: digital audio-visual works, digital audio works, digital books, artwork, digital photographs and pictures, periodicals, newspapers, magazines, digital greeting cards, graphics, templates, patterns, desktop applications, mobile applications, web applications, cloud-based applications, native applications, online games, video games, electronic games, any digital code related to any of these items, and any streaming service related to any of these items.

This afternoon, the Maryland Senate voted 29-17 to override Governor Larry Hogan’s veto of House Bill 732, which creates an entirely new gross revenues tax on digital advertising services – display ads, search engine ads, mobile application ads, and ads within a piece of software.

Yesterday, the Maryland House of Delegates voted 88-48 to override the veto of House Bill 732.  The bill has now received the required three-fifths vote by both chambers of the Maryland Legislature to override the veto and enact the nation’s first gross receipt tax on digital advertising. As mandated by the Maryland Constitution, the tax will take effect in 30 days. 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 15th.

The tax has drawn scrutiny as violating federal law, including the Permanent Internet Freedom Act and the dormant Commerce Clause.  Thus, legal challenges to the new tax will inevitably follow.

In this episode of the SALT Shaker Podcast policy series, host and Eversheds Sutherland Partner Nikki Dobay is joined by Patrick Reynolds, Senior Tax Counsel, with the Council On State Taxation (COST) and fellow Partner Jonathan Feldman. They discuss a Nebraska bill that would fix an issue related to Internal Revenue Code section 965, deemed repatriation income, and GILTI. They also review some significant legislation in Alabama.

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.

Note: As of February 11, the Alabama measure passed the Senate and is on to the Governor’s desk.

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

 

 

 

 

 

 

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Maryland is one step closer to enacting the nation’s first digital advertising tax. This afternoon, the Maryland House of Delegates voted 88-48 to override Governor Larry Hogan’s veto of House Bill 732, which would create an entirely new gross revenues tax on digital advertising services – display ads, search engine ads, mobile application ads, and ads within a piece of software.

The Maryland Senate may vote on whether to override Governor Hogan’s veto as early as tomorrow, February 12th. A three-fifths vote by the Senate (i.e., 60 percent or 29 members) is needed to override the veto and enact the digital advertising tax.