A Louisiana court of appeals affirmed a trial court decision dismissing for lack of personal jurisdiction the Louisiana Department of Revenue’s (“Department”) petition to collect corporate and franchise taxes on over $3.6 million in royalties from nonresident television production company Jeopardy Productions Inc. (“Jeopardy”). Jeopardy earned royalties from Louisiana between 2011 and 2014 through agreements with CBS Television Distribution Group (“CBS”) to distribute the show to TV stations, and International Gaming Tech (“IGT”) to use its trademarks on gaming machines. During the tax years 2011-2014, Jeopardy earned a total of $3,622,595 in royalty income from licensing agreements attributed to Louisiana. The Department filed suit against Jeopardy to collect franchise and corporate taxes on that royalty income.  Jeopardy filed a declamatory exception raising the objection of lack of personal jurisdiction, arguing that it did not transact any business in Louisiana and that Jeopardy’s contacts through unrelated third parties in Louisiana do not rise to the level of minimum contacts required by due process of law.

Ultimately the court found that the nonresident Jeopardy did not have sufficient minimum contacts to satisfy the requirements for specific jurisdiction, and even less so for general jurisdiction. The appeals court affirmed that jurisdiction over Jeopardy was not justified because Jeopardy had zero contacts with Louisiana aside from the activities of unrelated third parties that contracted with CBS and IGT. Jeopardy had no control over where and with whom the licensees, CBS and IGT, choose to market and negotiate distribution of the game show and merchandise. Jeopardy made no intentional or direct contact with Louisiana. Furthermore, each licensing agreement specifically states that Jeopardy is not in a partnership, joint venture, or agency with CBS or IGT.  Relying on the Due Process clause,  the court found that the “random, fortuitous, and attenuated contacts” with Louisiana, initiated by the independent activities of third parties, were simply not sufficient to establish personal jurisdiction over Jeopardy in Louisiana. Moreover, because they found that there was no intentional or direct contact by Jeopardy, there is no reason for Jeopardy to have reasonably anticipated being brought into court in Louisiana.

Robinson v. Jeopardy Prods., Inc., 2020 BL 407045, 4-5 (La. App. 1st Cir. 2020)

On October 7, 2020, the Massachusetts Appeals Court held that a taxpayer’s deduction for payment of the Indiana utility receipts tax (“URT”) was permitted for Massachusetts corporate income tax purposes. The taxpayer who was engaged in natural gas distribution operations in Massachusetts and other states, claimed a deduction for the URT it paid to Indiana on its originally filed Massachusetts corporate income tax returns for the 2012 through 2014 tax years. Upon audit, the tax commissioner asserted that the URT could not be deducted because it was an “income tax” which is not permitted as a deduction under Mass. Gen. Laws ch. 63, § 30(4). Under Massachusetts law no deduction is permitted for “taxes on or measured by income, franchise taxes measured by net income, franchise taxes for the privilege of doing business and capital stock taxes imposed by any state.” Mass. Gen. Laws ch. 63, § 30(4)(iii). When the taxpayer protested the determination to the Massachusetts appellate tax board, the commissioner abandoned its argument that the URT is an income tax and instead argued that the URT is a franchise tax for the privilege of doing business and therefore not deductible under Massachusetts law. The appellate tax board ruled in favor of the commissioner, holding that the URT constituted a franchise tax and was therefore not deductible.

The appeals court reversed the decision of the appellate tax board, holding that the Indiana URT does not constitute a franchise tax imposed for the privilege of doing business in Indiana, finding instead that the URT is essentially a tax on retail sales. The Indiana URT is imposed on gross receipts received in consideration for the “retail sale of utility services for consumption.” Ind. Code § 6-2.3-1-4. Wholesale sales, occasional sales, and sales to the US government are not subject to the URT, and a deduction from gross receipts is permitted for depreciation on certain capital assets. The court found that although the Indiana URT has some unique aspects, such as the ability to deduct depreciation on certain capital expenses, the URT is in substance “fundamentally similar to transaction taxes on retail sales.” As a result, the appeals court held the Indiana URT is a deductible tax for corporate income tax purposes. Bay State Gas Co. v. Comm’r of Revenue, Dkt. No. 19-P-114 (Mass. App. Ct. Oct. 7, 2020)

On October 26, Oregon’s Department of Revenue (DOR) filed a Notice of Proposed Rulemaking for Oregon Administrative Rules 150-314-0465 (broadcaster sourcing) and 150-317-0510 (unitary common ownership threshold). The DOR’s stated need for the proposed amendments were to: (1) clarify that an interstate broadcaster must compute their audience/subscriber ratio using the DOR’s market-based sourcing rule, and (2) modify the common ownership and control percentage (from 80% to 50%) for affiliates in a unitary group.

Read the full Legal Alert here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

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This Week’s Question: Which Florida retirement hot-spot recently repealed its local tourism development tax?

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!

This is episode two of our two-part podcast series based upon our webcast addressing SALT Issues Related to Worker Classification and Teleworking. In this marketplace podcast, we discuss SALT issues that teleworking may create for marketplaces with various business models, and provide tips on how to best position your business for the new normal of permanent remote work.  In episode one we focused on ongoing worker classification disputes in California, as well as other states, and the SALT implications resulting from those disputes.

 

 

 Webcasts: 

 Click on this link if you would like to view the hour-long version of this webcast and access the accompanying PowerPoint presentation.

On October 16, the District of Columbia’s Department of Consumer and Regulatory Affairs issued a notice of proposed rulemaking concerning short-term housing rentals. Among other things, the regulations require booking services to collect and remit all applicable transient occupancy taxes on behalf of the host. The Department of Consumer and Regulatory Affairs is accepting comments on these proposed regulations until November 15, 2020.

The New York State Department of Taxation and Finance has finally issued guidance related to its application of the convenience of the employer test during the Covid-19 pandemic. In its Frequently Asked Questions, the Department applies current policy and concludes that New York-based employees teleworking outside the state due to the Covid-19 pandemic must continue to source their income to the state under the “convenience of the employer” test, unless the narrow “bona fide employer office” exception applies. New York has long-adopted the convenience of the employer test, which deems a nonresident who teleworks outside the state to be working at its employer’s New York location (and, hence, such wages would be New York-sourced), unless the nonresident teleworks out of necessity for the employer and not just for the employee’s convenience. Not unexpectedly, the Department’s FAQs indicate that teleworking due to the pandemic is not out of necessity for the employer. However, the Department does not provide any insight into its determination.

Individual taxpayers have frequently challenged New York’s convenience of the employer test over the years, but not in the context of a global pandemic. Over those decades since the convenience of the employer test was first adopted in 1960, the New York Court of Appeals has sustained the Department’s test despite several challenges based on the Commerce, Due Process, and Equal Protection Clauses of the U.S. Constitution.[1] The “bona fide employer office” exception to the test is impossibly narrow and infrequently met, but may be ripe for a challenge given the circumstances of Covid-19 and the significant change in facts resulting from the pandemic’s mandatory remote work orders.[2]

More generally, sourcing employee wages due to the various mandatory remote work orders have caused a rift among the states. While New York’s convenience of the employer test is controversial, other states have adopted similar policies during the Covid-19 period. Most notably, a Massachusetts regulation effectively adopts a temporary convenience of the employer test during the pandemic period.[3] This policy has a distinctly adverse impact on New Hampshire residents, as New Hampshire does not impose an income tax on wages. As a result, New Hampshire recently filed a complaint to the United States Supreme Court requesting that the Court permanently enjoin Massachusetts from enforcing the regulation.[4] In that complaint, New Hampshire argues that the Massachusetts regulation is “a direct attack on a defining feature of the State of New Hampshire’s sovereignty.”

[1] E.g., Huckaby, supra, at n. 36; Zelinsky v. New York State Tax Appeals Tribunal, 1 NY3d 85, 801 NE2d 840, 769 NYS2d 464 (2003), cert. denied, 541 US 1009, 124 S. Ct. 2068 (2004).

[2] ESUS discusses New York’s and other states’ convenience of the employer tests, here and here.

[3] ESUS discusses the Massachusetts regulation and related federal legislation, here.

[4] The New Hampshire complaint is available, here.

On October 8, Vermont’s governor signed bill H. 954, which includes, among other things, a requirement for marketplace facilitators to collect the state’s universal service charge – generally charged on retail sales of prepaid wireless telecommunications services. This new collection obligation takes effect July 1, 2021.

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: Approved by California voters in 1978, Proposition 13 placed significant limits on property taxes, and landed this chief proponent on cover of Time magazine.

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!

This is episode one of a two part podcast series based upon our webcast addressing  SALT Issues Related to Worker Classification and Teleworking. In this marketplace podcast, we discuss ongoing worker classification disputes in California, as well as other states, and the SALT implications resulting from those disputes. In the next episode, we will  discuss SALT issues that teleworking may create for marketplaces with various business models, and provide tips on how to best position your business for the new normal of permanent remote work.

 

 

 

 

 

 

 

 

 

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