On January 11, 2021, H.B. 2392 was introduced in Oregon, which if passed would impose 5% gross receipts tax on the sale of “taxable personal information” of individuals located in the state, which is sold in Oregon. The definition of “personal information” (PI) includes “information that identifies, relates to, describes or is capable of being associated with an individual” and includes a laundry list of information that could qualify (i.e., name, physical address or other location information, telephone number, email address, IP address, signature, physical characteristics or description, biometric data, driver license number, state identification card number, passport number, Social Security number or other government-issued identification number, bank account number, debit card number, credit card number or other financial information, insurance information, medical information, employment information, educational background information, browser habits, consumer preferences, and other data that can be attributed to the individual and used for marketing or determining access and costs related to insurance, credit or health care). Photographs are specifically carved out of the definition of PI. “Taxable personal information” is defined as “personal information accumulated from the internet.”

Not only is a 5% rate extraordinary for a gross receipts tax, this proposal is riddled with compliance issues. Again, the tax is only imposed on the sale of information of an “individual located in” Oregon and provides that would be determined by use of one’s IP address, which would be very challenging to comply with – for example, an IP address may not accurately reflect in-state activity based on server location or use of a virtual private network. In addition, the tax is required to be filed on a quarterly basis and a business is required to file regardless of whether tax is actually due.

This proposal also raises several legal issues, including potential Internet Tax Freedom Act (ITFA) challenges based on the tax only being applicable to PI accumulated online. In addition, there may raise international, federal, and state privacy law issues as the list of information it covers is incredibly broad.

Finally, the proposed gross receipts tax may result in “tax pyramiding” and damaging economic effects, as such taxes apply to receipts from all transactions, including intermediate business-to-business purchases and not just final sales.

The Oregon Legislature will start holding public hearings on bills later this month, and we anticipate this bill will be set for hearing. The bill sponsor, Representative Marsh, is on the House Revenue Committee and is well respected; thus, the proposal is one to be taken seriously.

On January 13, the authors of California Assembly Bill AB 71, a bill introduced to address the state’s homelessness problem, amended the bill’s provisions to propose an increase to the corporate income tax rate and to establish global intangible low-taxed income (GILTI) inclusion rules.

The bill provides that for taxable years starting January 1, 2022, the corporate income tax rate would increase from the current rate of 8.84% to 9.6% for businesses with taxable income over $5 million for the taxable year (and, from current rate of 10.84% to 11.6% for financial institutions).

Next, the bill would require taxpayers who make a water’s-edge election to include in gross income 50% of the GILTI and 40% of the repatriation income of affiliated corporations, but not take into account the apportionment factors of those affiliated corporations.  For calendar year 2022 only, the bill would allow a taxpayer to revoke its water’s-edge election.

With respect to the personal income tax, the bill would require inclusion of a taxpayer’s GILTI in gross income for taxable years starting January 1, 2022.

This bill is currently being reviewed by the Assembly Housing and Community Development Committee.

Welcome to the second episode of the Eversheds Sutherland State and Local Tax policy series, a new feature of the SALT Shaker Podcast. In this episode, we discuss substantive state tax legislative issues that should be on your radar for 2021. With the recognition that many state and local governments will be looking for additional revenue, we review the top three items on our lists (and a few others). Some of the items we are watching include digital advertising taxes, the need to replenish unemployment trust funds, a revisiting of credits and incentives, administrative gimmicks to accelerate revenue and taxes targeted at companies that have done well during the pandemic. But, we do not forget the usual suspects.

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 Partners Nikki Dobay, Charlie Kearns and Todd Lard, who each have extensive backgrounds in tax policy.

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

 

 

 

 

 

Listen now: 

For a transcript of the podcast, click here.

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Representative J.D. Prescott (R) introduced Indiana House Bill 1312, which would impose a surcharge tax on social media providers.  This proposed bill shares similarities with proposed digital advertising taxes in Maryland and New York, except that Indiana’s proposed surcharge tax is targeted at social media providers deriving revenue from advertising services on their platforms of at least one million dollars and does not contain a tiered rate structure.

Specifically, HB 1312 would impose a surcharge tax on social media providers equal to: (1) the annual gross revenue derived from social media advertising services in Indiana in a calendar year multiplied by seven percent; plus (2) the total number of the social media provider’s active Indiana account holders in a calendar year multiplied by $1.

A “social media provider” is defined as a social media company that: (1) maintains a public social media platform; (2) has more than one million active Indiana account holders; (3) has annual gross revenue derived from social media advertising services in Indiana of at least one million dollars; and (4) derives economic benefit from the data individuals in Indiana share with the company.  The bill defines a “social media platform” to mean an internet website or internet medium that: (1) allows account holders to create, share, and view user generated content through an account or profile; and (2) primarily serves as a medium for users to interact with content generated by other third party users of the medium.

“Social media advertising services” means advertising services that are placed or served on a social media platform.  The term includes advertisements in the form of banner advertising, promoted content, interstitial advertising, and other comparable advertising services.

The bill contains an apportionment provision, similar to the provision included in Maryland’s digital advertising tax bill (HB 732), which provides that the apportionment of annual gross revenue derived from social media advertising services in Indiana shall be determined using an allocation fraction, the numerator of which is the annual gross revenue derived from social media advertising in Indiana, and the denominator of which is the annual gross revenue derived from social media advertising in the United states, during the calendar year.

The bill would be effective January 1, 2022 and is expected, under the fiscal note, to raise between $35 million – $62.3 million in FY 2022 and between $60 million – $118 million in FY 2023, which would fund a rural broadband fund and an online bullying, social isolation, and suicide prevention fund.

If enacted, legal challenges will certainly follow as the bill appears to violate federal statutory and constitutional law, including the Permanent Internet Tax Freedom Act/Supremacy Clause and the dormant Commerce Clause. The Eversheds Sutherland SALT Team will continue to follow this bill during the legislative session, along with the many other digital advertising tax proposals that have been proposed and are surely to follow.

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: Which state recently issued guidance regarding its new marketplace facilitator law that includes six categories of retailers with different tax liabilities?

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!

In a per curiam opinion, the New Jersey Supreme Court affirmed an insurance premium tax (IPT) decision of the Appellate Division “substantially for the reasons expressed” in the Appellate Division’s opinion. The New Jersey Appellate Division held that New Jersey’s IPT for self-procured insurance coverage is based only on the risks insured in the state, and not based on risks insured throughout the United States.  The appellate court considered a 2011 “home state rule” amendment to the IPT that provided that if a surplus lines policy covers risks in New Jersey and other states and New Jersey is the home state, then the tax payable shall be based on the total United States premium for the applicable policy.  The appellate court noted the differences between self-procured insurance and surplus lines insurance. With respect to surplice lines insurance, the plain language of the IPT statute applies a “home state rule” imposing the IPT on the premiums paid on all risks in the United States, while self-procured insurance is only subject to tax on risks within New Jersey. Because the taxpayer self-procured the insurance from a subsidiary captive insurance company, the appellate court concluded that the insurance was not a surplus lines policy and thus, the taxpayer was not subject to IPT on all of its risks in the United States. The appellate court relied on the plain language of the statute to resolve the case however, the appellate court noted that even if the IPT statute’s reference to surplus lines policies was ambiguous, any ambiguity would need to be resolved in the taxpayer’s favor. The New Jersey Supreme Court noted in its two sentence opinion affirming the appellate court’s decision that “[t]he Legislature, of course, may amend the statute if it chooses to do so.”

Johnson & Johnson v. Dir., Div. of Taxation, 2020 N.J. LEXIS 1387 (Dec. 7, 2020)

The Delaware Superior Court granted summary judgment in favor of the taxpayer finding that the Division of Revenue’s limitation on net operating losses violated the state constitution’s uniformity clause and that the Division improperly limited the amount of separate company NOL the taxpayer could claim on its Delaware income tax return to the amount of its federal consolidated NOL deduction. While the taxpayer in this matter filed a consolidated federal income tax return, Delaware requires separate company income tax returns and thus calculates net operating losses on a separate company basis. The Delaware Division of Revenue limited the amount of the taxpayer’s separate company NOL carryforward deduction to the amount of the taxpayer’s consolidated NOL deduction based on the Division’s policy to require a taxpayer to compute its NOL on a separate company basis under the Internal Revenue Code and then to limit that separate company NOL deduction to the consolidated NOL deduction on the federal consolidated group. The court found that the Division’s policy was consistent with Delaware’s income tax statute and that the policy did not discriminate against interstate commerce in violation of the U.S. Constitution. However, it ruled that the Department’s policy violated the state constitution’s uniformity clause by creating two classes of taxpayers and by treating taxpayers that file a federal consolidated return differently than those that do not. The Division therefore improperly limited the amount of NOL the taxpayer could claim.

Verisign, Inc. v. Dir. Of Revenue, Del Super. Ct., No. N19C-08-093 (12/17/2020)

Welcome to the Eversheds Sutherland State and Local Tax policy series, a new feature of the SALT Shaker Podcast. In this first episode, we focus on 2021, the effect of the pandemic on state budgets and attempt to prognosticate what to expect as state legislatures near the time for their sessions.

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 Partners Nikki Dobay, Charlie Kearns and Todd Lard, who each have extensive backgrounds in tax policy.

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

 

 

Listen now: 

For a transcript of the podcast, click here.

Subscribe for more:

  

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: Which game show production company recently scored a dismissal of a state’s attempt to tax $3.6 million in royalties?

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

The prize for the first response to today’s question is a $20 UBER Eats gift card.

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

On January 5, Eversheds Sutherland SALT Partners Todd Lard and Maria Todorova will present a webinar about top SALT audit issues and trends for the coming year with Associate Mike Kerman as part of Eversheds Sutherland’s 2021 tax outlook webcast series. (Presentation materials can be found here.)

Members of the Tax Practice will also address topics concerning employee benefits, digital taxes and more during the seven-part series, held from January 5 to 15 from 3:00 to 4:00 p.m. EST.

For more information about the series or to register, click here.