After losing at trial, the Maine State Tax Assessor is now arguing to the state’s Supreme Judicial Court that sales tax applies to carrier subsidies received by Apple on its sales of iPhones bundled with service contracts.  During the years in issue, Apple sold iPhones to its customers at a reduced price when the customers also purchased a long-term service contract from a wireless telecommunications carrier.  Pursuant to agreements Apple had with these carriers, the carriers promptly reimbursed Apple after the sales to make up for the discounted price.  Apple remitted sales tax on the amounts paid by its customers, but not the reimbursed subsidy amounts.

The Tax Assessor assessed sales tax on the subsidies and Apple ultimately brought an action in Maine’s Business and Consumer Court.  The lower court concluded that the subsidies Apple received from the carriers were not part of the taxable sales price of the iPhones, but instead were intended to “compensate Apple for securing long-term commitments on behalf of wireless carriers.”  The Tax Assessor argues on appeal that Apple expected to be paid the subsidies when it sold the iPhones, and that Maine’s statutory definition of “sale price” is broad enough to capture those subsidy payments.

The Tax Assessor’s position reflects a growing trend among state tax agencies wherein those agencies apply sales tax to amounts above what is paid by a customer for a particular item, in many instances elevating substance over form.  Stay tuned for further developments in this case and in other cases where tax agencies seek to extend the sales tax base through an expansive interpretation of the sales price.

Apple Inc. v. State Tax Assessor, Maine Supreme Judicial Court Case Number BCD-20-112.

Citing to principles of comity, a federal district court remanded back to state court a class action suit brought by Indiana municipalities seeking franchise fees from various streaming video companies.

The Indiana municipalities filed a class action lawsuit against the streaming video companies in state court, asserting that the companies were obligated to pay franchise fees under Indiana’s Video Service Franchise Act (“VSF Act”).  The video streaming companies removed the action to federal court, but the municipalities then moved the federal court to remand the action back to state court, arguing that the matter was more appropriate for Indiana courts under the doctrine of comity.

Agreeing with the municipalities, the court applied the “confluence of factors” adopted by the U.S. Supreme Court in Levin v. Commerce Energy, Inc., 560 U.S. 413 (2010) in reaching its decision that comity warranted abstention.  Applying the factors identified in Levin, the court determined that:

  • the lawsuit involves commercial regulation (“matters over which the State of Indiana and its municipalities have traditionally enjoy[ed] wide regulatory latitude”) and does not implicate any fundamental right or suspect classification requiring heightened judicial scrutiny;
  • the streaming video companies invoked federal court jurisdiction “to improve their competitive position” when compared to other companies that are required to pay franchise fees under the VSF Act; and
  • the matter involves interpretation of Indiana state law—specifically, provisions of the VSF Act—for which Indiana state courts are better positioned than federal courts to correct any potential constitutional or other violations.

As such, the court concluded that these considerations, “in combination,” warranted remand to state court in “deference to the state adjudicative process.”

Order, City of Fishers v. Netflix, Inc., No. 1:20-cv-02351-JMS-MPB (S.D. Ind. Nov. 18, 2020)

The Washington Department of Revenue has published a draft “pre-proposal” for regulations on the state’s 2019 marketplace facilitator law. The draft guidance includes: definitions of key legislative terms; a summary of who is and isn’t a marketplace facilitator, a requirement for marketplace facilitators to collect other retail taxes such as car rental taxes, lodging taxes, and spirits taxes; documentation requirements for marketplace facilitators related to exempt sales, explanation of relief for marketplace facilitators that receive incorrect information; and a clarification that marketplace facilitators may be subject to audit. Comments are requested ahead of a December 16 public hearing on the draft guidance.

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 major California proposition involving app-based drivers passed this year?

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 November 20, the Executive Committee of the Multistate Tax Commission (MTC) met via videoconference for its final meeting of 2020. During the meeting, the Committee heard updates from Greg Matson (MTC Executive Director) and each of the MTC’s standing committees, including the State Intercompany Transactions Advisory Service (SITAS) Committee. Here are the highlights.

Krystal Bolton (Louisiana Department of Revenue) presented to the Committee, noting she recently agreed to serve as chair of the SITAS Committee and described Louisiana as having “been a state on the forefront of using transfer pricing as a tool in its audit program” in her report. She also noted that the Committee plans to hold a meeting January 2021, during which the Committee intends “to discuss ways the Committee can support member states and to discuss the possibility of holding a training and information session in 2021.”

The Committee also received a report from the hearing officer for the updates to the MTC’s P.L. 86-272 Statement of Information, Robert J. Desiderio. Since the MTC first launched the project in November of 2018, an MTC work group has drafted amendments to the MTC’s “Statement of Information Concerning Practices of the Multistate Tax Commission and Signatory States under Public Law 86-272.” The statement was last updated in 2001, and it acts as the MTC’s and the signatory states’ position on the application of P.L. 86-272. Spurred by the Wayfair decision, the work group was tasked with considering how P.L 86-272 “applies to modern business activities,” according to a June 17, 2020 Memo by Brian Hamer (MTC). The ultimate result of the revisions was the gutting of any P.L. 86-272 protection for any company with an interactive website, based on the customer’s activity with the company’s website.

Read our full Legal Alert here.

Meet Grapes! While this Rhodesian Ridgeback and pitbull mix is a senior lady (she’ll be 14 soon!), that doesn’t mean she’s lost her spunk and love for life!

Grapes is the fur child of one of SALT’s newest partners, Nikki Dobay, who works in our Sacramento office. What started as simply looking at puppy pictures while studying for the bar exam resulted in Nikki gaining a longtime family member. When you look at Grapes’ sweet face, can you blame her?

Grapes doesn’t shy away from the finer things in life. While ice cream is one of her favorite treats, her go-to is a croissant – but only if it’s fresh! Otherwise, you might find a paw in your face and her saying, “no thanks.”

Grapes’ unique, fruity name was gifted to her as a puppy, and it stuck. In fact, other pups in her litter also had fruit-inspired names – Apple, Banana, Mango and more! Grapes lives up to her moniker when she visits wineries on the weekends with her humans. You can also find her enjoying a nice, lengthy nap on the couch (probably after devouring another croissant.)

Welcome to the SALT family, sweet Grapes – we’re so glad you are our November Pet of the Month!

There’s always an opportunity to submit your pet to be featured! Visit the Eversheds Sutherland SALT Shaker App, click the Pet of the Month in the drop-down, then click “Submit A Pet.”

 

The New York State Department of Taxation and Finance issued an advisory opinion explaining that a corporation’s charges for access to its digital advertising platform are subject to sales tax.  The corporation provides digital advertising products to customers through an online management platform that allows customers to access a package of software tools to create, deliver, and manage digital advertising.  In addition, the corporation provides advertising placement services and consulting services to customers on how to optimize their digital advertising campaigns.  The corporation bills its customers a single charge for each advertising campaign, with no specifically identified charge for access to the platform.  The Department determined that providing access to the corporation’s software tools to create, deliver, and manage digital advertisements constitutes a taxable sale of prewritten software.  The Department also determined that, although advertisement placement services and consulting services are not taxable services, because the corporation invoices its clients a single non-itemized amount, sales tax is due on the total sales price charged.

Advisory Op. TSB-A-20(22)S, N.Y.S. Dep’t of Tax. & Fin. (June 30, 2020) (Published Nov. 6, 2020)

On October 27, 2020, the Sacramento Superior Court granted a writ of prohibition barring the California Department of Tax and Fee Administration (the Department) from applying  sales tax Regulation 1585 (Reg 1585) to bundled sales of cellular telephones and service by carrier-retailers.

  • Reg 1585 provides, in part, that sales tax on bundled sales of cellular telephones and service will apply to the “unbundled sales price” of the cellular telephone.
  • The decision is based on the ground that Reg 1585 conflicts with statutory definitions which require sales tax to be collected on consideration paid, not another measure of value.
  • In recent years, the Department has made several attempts to impute additional consideration to the stated sales price and require the collection of additional sales tax on many types of sales; if upheld on appeal, this decision represents a substantial win for taxpayers.

Read our full Legal Alert here.

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: As of November 2020, which three states with sales taxes had yet to enact a marketplace facilitator sales tax collection law?

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!