In this episode of the SALT Shaker podcast, host Chris Lee discusses the Verisign decision from Delaware concerning NOL limitations, an Indiana letter ruling concerning the taxation of software (2019-09ST), and a Washington Department of Revenue decision concerning nexus 
(Det. No. 15-0036).
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On December 29, 2020, the Rhode Island Division of Taxation issued a declaratory ruling concerning the taxability of marketing analytic services using proprietary software and an online dashboard hosted on the taxpayer’s own servers. The software and services help customers develop advertising services and evaluate the effectiveness of advertising. According to the Division, the taxpayer’s sales are subject to sales and use tax because the software is taxable vendor-hosted prewritten computer software and the analytic service is inseparably intertwined with the taxable software.
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 plains state recently introduced a much-anticipated IRC 965/GILTI “fix” bill?
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 January 12, 2021, the Oregon Legislature introduced nine new Corporate Activity Tax (CAT) bills as the 2021 legislative session began. The bills introduced in both the House and Senate ranged in scope from treatment of receipts in specific industries to modifications of provisions of the CAT more generally.
Some of the bills introduced include:
In addition, two bills—HB 2429 and SB 164, which include broad relating to clauses (i.e., “related to corporate activity tax”), were also introduce. One of these two bills is expected to the vehicle for technical corrections, which we expect will include a full fiscal year fix. As such, the Eversheds Sutherland SALT team will continue to monitor these two bills closely.
On January 7, 2021, New York senator Michael Gianaris introduced S.1124, which would impose a new gross revenues tax on digital ads. The tax would be imposed on the annual gross revenues any person derives from digital advertising services apportioned to the state based on digital advertising receipts. “Digital advertising services” is defined to include “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services, that use personal information about the people the ads are being served to.” Depending on the taxpayer’s global annual gross revenues, the tax rate would vary from 2.5% to 10%. Separate legislation was previously filed in the New York Senate that would expand the sales tax base to digital advertising services.
On October 2, 2020, the Indiana Department of Revenue issued Revenue Ruling #2019-09ST concerning the sale of digital course materials to Indiana colleges and universities, which were made available to students on the schools’ online learning management systems. The Department determined that these sales were exempt from sales tax because: (i) the course materials were available to a student only for the length of the semester and thus did not qualify as a taxable sale of a specified digital product granted to the end user permanently; (ii) the course material sales were purchased by public universities (exempt state instrumentalities) or private universities (exempt nonprofits); and (iii) the universities purchased the course materials for resale.
As employers look forward to reopening after the COVID-19 pandemic and, perhaps more importantly, adjusting to the “new normal” of indefinite telework, they should evaluate the multistate tax obligations that arise out of remote employees. Some states (and a few localities) have passed laws, promulgated regulations, or issued guidance on the impact that COVID-19 has on withholding obligations for multijurisdictional employers. The majority of this pandemic-related guidance temporarily changes, in whole or in part, the tax jurisdiction’s ordinary withholding rules in-place before the onset of the pandemic in March 2020.
This SALT@Work column co-authored by Eversheds Sutherland attorneys Charles Kearns and Chelsea Marmor for the Journal of Multistate Taxation and Incentives reviews how employers may distinguish between pandemic-induced telework and permanent teleworking arrangements, based on the limited applicability of the relevant state guidance.
With remote work spiking in popularity (or infamy), adherence to Covid-19 stay-at-home orders is progressing to permanent teleworking arrangements for some employees. Under normal circumstances, navigating the unemployment insurance (UI) rules on multistate employment may be more complicated than they seem. The Covid-19 pandemic and the resulting remote work mandates exacerbate the potential for such complications.
This SALT@Work column co-authored by Charles Kearns and Alexandra Louderback for the Journal of Multistate Taxation and Incentives summarizes the UI laws that determine the state where tele-working-related employment occurs, whether such employment arose from the Covid-19 pandemic or will arise under a permanent arrangement.
In an unpublished opinion, the Appellate Division of the New Jersey Superior Court affirmed the Tax Court’s holding that the New Jersey partnership filing fee does not violate the Commerce Clause of the U.S. Constitution. New Jersey statutes require partnerships with more than two owners and income derived from New Jersey sources to pay an annual partnership filing fee (PFF) of $150 for each owner, up to a maximum of $250,000. The taxpayer, Ferrellgas Partners, LP, had more than 67,000 owners and paid the maximum PFF for tax years 2009 through 2011. The taxpayer then challenged the PFF, arguing that it violated the Commerce Clause because it is not fairly apportioned and discriminates against interstate commerce, and is not internally consistent. The appellate court affirmed substantially for the reasons expressed by the Tax Court, noting that Ferrellgas did not present a prima facie case of disparate impact or other form of discrimination violative of the Commerce Clause. Rather, the appellate court found that the record demonstrated that the PFF funds the cost of the processing and reviewing of partnership and partner returns filed in New Jersey, which is a purely intrastate activity. As a result, the appellate court agreed with the Tax Court that the PFF does not implicate or violate the Commerce Clause.
Since December of 2018, taxpayers have been battling with the Nebraska Department of Revenue over its interpretation of the state’s dividend received deduction (DRD) provisions. Although the statute provides a 100% DRD for dividends or dividends deemed to be received and the Department has long taken the position that Subpart F income qualifies for that deduction, the Department asserted in a GIL that I.R.C. § 965 (deemed repatriation) income did not qualify for the DRD. (GIL 24-18-1, Superseded by GIL 24-19-1). In its 2018 guidance, the Department asserted that 965 income is not a foreign dividend. Subsequently, the Department has since refined its position to encompass the taxation of Subpart F income as a whole and not just 965 income, including global intangible low tax income (GILTI). (GIL 24-20-1). Specifically, the Department has taken the position that beginning with the 2018 tax year substantially all of a taxpayer’s subpart F income must be included in the tax base. The Department has taken a similar position with GILTI, that GILTI is not a deemed dividend and thus does not qualify for the state’s DRD.
On January 13, LB 347 was introduced in Nebraska, which if passed would make clear that Nebraska’s DRD would apply to I.R.C. § 965 as well as I.R.C. § 951A (GILTI). Specifically, the bill provides that such receipts would be treated as “dividends deemed” for purposes of NRS § 77-2716(5) and that the changes are intended to clarify the meaning of this subsection prior to the effective date of the bill.
A similar bill was proposed last year but failed to pass, which many believe has much to do with Covid-19 pandemic shutdown. The Eversheds Sutherland policy team is working with a coalition supporting this legislation run by the Nebraska Chamber of Commerce.
