On October 23, 2020, the Massachusetts Appellate Tax Board ruled that capital gain from a Florida S corporation’s sale of a subsidiary Massachusetts LLC was subject to Massachusetts corporate excise tax and nonresident composite tax. The taxpayer contended that the U.S. Constitution’s Due Process and Commerce Clauses forbade Massachusetts from taxing the income because the LLC’s sale did not involve a minimum connection to Massachusetts or availment of the protections and benefits of Massachusetts law. The S corporation did not have any activities in Massachusetts, and none of its shareholders were Massachusetts residents. However, the Board concluded that the increase in value of the subsidiary was “inextricably connected to and in large measure derived from property and business activities in Massachusetts.” The activities that derived the gain included improved management and staffing of a call center business and expansion of product offerings. The Board ruled that these business activities “necessarily involved availment of the protection, opportunities and benefits given by Massachusetts” and these facets “supplied the requisite connection between Massachusetts and business activities that resulted in the” capital gain.

VAS Holdings & Investments LLC v. Commissioner of Revenue, Dkt. Nos. C332269, C332270 (Mass. App. Tax Bd. Oct. 23, 2020).

The New Mexico Court of Appeals held that a taxpayer’s refund claim was timely even though it did not comply with a requirement found in the Department of Revenue’s regulation.  Specifically, the court concluded that the Department’s regulatory requirement to provide a “fully completed amended return” was not required prior to the expiration of the statute of limitations, because the requirement was not part of the New Mexico statute.

Citing New Mexico Supreme Court precedent for the proposition that the Department may not impose additional requirements by regulation that would abridge or modify a statute, the court determined that the regulation at issue was invalid because the regulation’s sixth requirement has the effect of abridging the taxpayer’s right to pursue an otherwise timely refund claim.  The court noted that the hearing officer below did not address this case law, and instead evaluated the Department’s regulation based only upon its reasonableness.

Lastly, the court noted that the New Mexico Legislature subsequently amended the statute to include the amended-return requirement, with no indication that it intended the requirement to apply retroactively.

CIBL, Inc. & Subs. v. New Mexico Taxation & Revenue Dep’t, No. A-1-CA-37122 (Oct. 2, 2020)

The pandemic has changed the physical and economic environment in which restaurants operate. Although food delivery has long been popular for certain types of food, pandemic restrictions and consumer preferences hastened the expansion of food delivery for almost all food and meals. Food delivery can be done either through the restaurant itself or through unrelated third party online food delivery services. Restaurants without pre-pandemic infrastructure for deliveries are now increasingly relying on regional or national online or app-based food delivery services. Delivery, particularly through these online food delivery services, unearth new challenges for restaurants’ compliance with state sales tax laws.

In this article published by Modern Restaurant Management, Eversheds Sutherland Partner Jonathan Feldman and Associate Alla Raykin discuss the new challenges for restaurants’ compliance with state sales tax laws.

Companion bills recently introduced in New York State (A. 11180 and S. 9112) would impose a temporary tax on businesses that provide broadband internet access service.  Revenues generated from the tax would be earmarked to fund the provision of broadband internet access services to students in the state during the COVID-19 pandemic.

The tax proposal would assess an “annual charge” on a provider’s “gross intrastate telecommunication revenue”— which remarkably is undefined.  Also astonishing is the lack of a tax rate — the New York State Department of Taxation and Finance is directed to determine the applicable rate “in consultation with the state education department” in order to fund the bills’ mandate to provide “high-quality internet access” to eligible students in the state.

Another unfortunate — and likely unconstitutional — component of the tax proposal is a prohibition that bars an internet access service provider from passing through the tax to customers “as a fee, charge, increased service cost, or by any other means.”  Finally, and somewhat more positively, the proposal contains a self-terminating provision that automatically repeals the tax on the last day of the school year in which Governor Cuomo’s declaration of an emergency related to the COVID-19 pandemic terminates.

The Eversheds Sutherland SALT Legislative Insider policy team will continue to track this and other New York tax legislative proposals in what is certain to be a very busy 2021 legislative session. The Eversheds Sutherland SALT Legislative Insider platform tracks state and local legislative developments and provides policy insights from the Eversheds Sutherland SALT Team to help you navigate evolving legislative developments with real-time policy insights. The platform offers customizable services to ensure you are aware of tax proposals that are of the highest impact to your company.

For more information about SALT legislative proposals or to learn about tracking bills with our SALT Legislative Insider platform, please contact the Eversheds Sutherland SALT Team.

Meet April! This sweet lady belongs to Mark Coffeen, Director of U.S. Federal Taxes at Lear.

April is the perfect mix of Border Collie and Springer Spaniel, and joined the Coffeen family in 2011. According to Mark and his wife, Nancy, it was love at first sight at a local humane society. His son, Chris, dubbed her April so she could match their other shelter pet at the time, May.

Since her daily food isn’t too tasty, she loves to go for a ride to Mark’s local frozen custard stand for a delicious “pup cup” – a small serving of vanilla frozen custard with a dog treat! When she isn’t devouring her sweet treat, she loves to go on walks with her family or spend time on the couch watching TV. While she may be a furry friend, she becomes animated when there are other dogs on the screen!

She’s occasionally visited by her best dog friend, Rocco, for play time while she’s outside, but don’t let that fool you – she has no time for dog toys. She also prefers you rub her belly, please.

Her only bad habit is that she’s afraid of storms, and as a result, she likes to stretch out in Mark’s bed. She knows the basic commands such as sit, stay, down and wait. One of her unique features is that in addition to barking, she almost “talks” sometimes and can be lovably sassy!

 

We’re pleased to feature April this month!

The Texas Comptroller of Public Accounts recently released guidance explaining the application of Texas sales and use tax to online sales. In particular, online buyers must pay sales and use tax on taxable items delivered or brought into Texas. Remote sellers required to collect tax can do so based on either the shipping destination rate or the 1.75% single local use tax rate. For marketplace providers required to collect and remit sales and use tax, the local tax rate is based on the shipping destination.

On December 18th, the three-member Board of the Franchise Tax Board (FTB) will hold its final quarterly meeting of 2020.  At the meeting, the Board will consider the 2021 Rulemaking Calendar.  The Calendar contains the agency’s schedules for its administrative rulemaking processes on various regulation projects.  Two significant corporate franchise tax regulation projects on the Calendar include amendments to California’s market-based sourcing regulation, FTB Regulation 25136-2 and California’s alternative apportionment regulation, FTB Regulation 25137.

FTB’s 25136-2 regulation project aims to provide more clarity and detail surrounding the state’s market-based sourcing regime for sales of services and intangibles.  The most recent iteration of the proposed regulation provides additional guidance around terms used in the regulation and provides new sourcing rules for specific industries. The draft language also includes new presumptions for sourcing sales of services to business and government entity customers based on the type of services performed.  For a more detailed discussion of the 25136-2 regulation project, please see our previous post: How Does California Source Sales of Services and Intangibles for Apportionment Purposes?

The 25136-2 regulation project has been ongoing since 2017 and FTB has held five interested parties meetings to obtain public comment on different iterations of the proposed amendments.  Those meetings were contentious at times as FTB’s proposed changes have raised significant questions on both substantive and procedural issues, including the effective date of the final regulation. The proposed 2021 Rulemaking Calendar provides that this regulation project will be completed by spring 2021 and that the regulation will be finalized by fall 2021.

Next, FTB’s 25137 regulation project is intended to provide guidance on the state’s process for petitioning the Board to use an alternative apportionment formula.  The latest iteration of the proposed regulation provides guidance on how taxpayers can preserve their rights and privacy during the alternative apportionment petition process.  For a more detailed look at the 25137 regulation project, please see our previous post: The Long Road to Clarity: FTB Holds Latest Meeting in Multiyear Project to Clarify Alternative Apportionment Petition Process.

This regulation project also has been ongoing since 2017 and FTB has held a total of four interested parties meetings on the proposed amendments.  The proposed Rulemaking Calendar provides that this regulation project will be completed in late spring 2021 and that the regulation will be finalized by late 2021.

The Board meeting is open to the public and will be hosted virtually.  Information on how to attend the meeting is available here, and interested parties have the opportunity to make comments at the meeting.  Please contact the Eversheds Sutherland SALT team if you have questions or concerns about these draft regulations or the meeting process.

On December 1, 2020, the Tennessee Department of Revenue announced that the filing and threshold requirements for marketplace facilitators and sellers established in Senate Bill No. 2932 – effective October 1, 2020 – do not apply for purposes of the business tax or franchise and excise tax. Rather, the bill’s nexus requirements apply to only the sales and use taxes.

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 Oregon County increased income taxes this year to fund a universal pre-K program?

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 December 9, Eversheds Sutherland SALT lawyers will present a “SALT Survival Guide” as part of the TEI New York Chapter’s 57th Annual Tax Symposium, held virtually this year.

Presentation topics include:

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