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 west-coast state has four primary taxing agencies?
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!
Arizona’s Supreme Court unanimously held that the city of Phoenix’s fee increase on ride-sharing trips at airports are not “transaction-based” fees and therefore constitutional. In 2016, Phoenix’s City Council had amended its City Code to require commercial ground transportation providers to pay a “trip fee” each time drivers picked up passengers from the Phoenix Sky Harbor International Airport. Arizona’s Attorney General challenged the fee under Article 9, section 25 of Arizona’s Constitution, which prohibits state and local governments from imposing or increasing taxes or other “transaction-based” fees on services. Arizona’s Supreme Court concluded that the trip fees were not based on the passenger’s payment of money, and apply whether or not a fare is paid, and are therefore not transaction-based fees. The court characterized the fees as payment to use airport property for commercial purposes.
The Washington Supreme Court held that a business & occupation (“B&O”) tax deduction contained in RCW 82.04.4311 is limited to payments received from Washington and federal programs, but not payments received from other states’ medical programs. The B&O tax is a gross receipts tax imposed on nearly every type of enterprise, including for-profit and not-for-profit hospitals. The taxpayers are Washington hospitals that claimed that their receipt of payments from other states’ medical programs related to patients they treated in Washington State should qualify for the deduction. In deciding that the statutory deduction did not apply to payments from other states, the court relied on a statutory construction principle known as the “series-qualifier” rule and rejected the taxpayers’ application of the “last antecedent” rule. While acknowledging that these principles would produce different results, the Court held – in a footnote – that the statute “unambiguously” requires that payments from other states do not qualify for the deduction. The court also did not have a difficult time dismissing the taxpayers’ claims that applying the deduction to in-state payments but not out-of-state payments violates the Commerce Clause. The court held under the “government function exemption” from the Commerce Clause, disparate treatment between in-state and out-of-state interests is tolerated if the challenged provision (1) benefits the exercise of a government function, and (2) treats private interests the same.
Peacehealth St. Joseph Med. Ctr. v. Dep’t of Revenue, Wash., No. 97557-4 (Aug. 6, 2020).
South Carolina Information Letter No. 20-23 clarified that COVID-19-related surcharges, takeout charges, and the like are subject to sales tax. The information letter, released August 5, “remind[ed]” taxpayers that the 6% sales tax applies to “gross proceeds of sales,” which includes all value that comes from the sale of tangible personal property, such as restaurant meals. The guidance provided four examples of taxable surcharges added to restaurant meals, including coronavirus-related surcharges added to meals ordered through online food delivery marketplaces. Under this guidance, such marketplace facilitators are responsible for collecting and remitting tax on these surcharges.
On August 10, the Virginia Lottery released full draft sports betting regulations for public comment. The regulations will implement H.B. 896/S.B. 384, signed into law on April 22 as Chapter 1218. The proposed regulations concern operations, internal controls, and enforcement. The Virginia Lottery Board will accept public comments regarding the regulations through September 9. The Board must approve final regulations by September 15 and begin accepting initial applications for licenses in October.
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 St. Louis-based army quartermaster prompted the enactment of the federal False Claims Act?
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!
A recent wave of local tax initiatives passed by simple majority vote in cities and counties across California has resulted in either court validation actions or challenges under the state constitution. Article XIII C, Section 2(d) of the California Constitution provides that “[n]o local government may impose, extend, or increase any special tax unless and until that tax is submitted to the electorate and approved by a twothirds vote.” Thus far, trial courts have split as to whether this provision applies to voter-initiated local taxes, and one appellate court already has concluded it does not.
By and large, the cases turn on the interpretation of California Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924, wherein the California Supreme Court held that Article XIII C, Section 2(b) of the California Constitution does not require voter-initiated local general taxes to be submitted to the electorate at a general election, as opposed to a special election. Article XIII C, Section 2(b) states “[n]o local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote” at a “general election.” The Court in Upland concluded that in the context of this specific provision, “local government” does not extend to the electorate and voter initiatives related to local general taxes may be considered in a special election. Given the similarity in language between Article XIII C, Sections 2(b) and 2(d), a San Francisco trial court – and now the First District Court of Appeal – concluded the reasoning and holding of Upland apply and that special taxes introduced by voter initiative only require a simple majority vote. Trial courts in Fresno and Oakland, on the other hand, relied on language in Upland that distinguished the “procedural timing requirement” in Section 2(b) and the “procedural two-thirds vote requirement” in Section 2(d) to conclude Upland does not demand a similar result when interpreting the latter.
This special edition of Eversheds Sutherland’s SALT Scoreboard – California Local Tax Cases, discusses the five key California cases showcasing this divide. A number of the cases are now on appeal, and since one appellate court already weighed in, the question remains whether the California Supreme Court will take review of the case and clarify its decision in Upland.
Read the special edition of the Eversheds Sutherland SALT Scoreboard here.
In this episode we discuss three recent developments, including an electricity tax matter in California (City of Arcata v. Pacific Gas & Electric Co.) a Texas unclaimed property matter (CKD Homes Direct, Ltd v. Comptroller) and a Utah income tax matter.
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On Aug. 11, the California Franchise Tax Board (FTB) held the latest Interested Parties Meeting (IPM) in its three-year long project to amend the state’s alternative apportionment petition regulation. The meeting covered changes in the latest proposed regulation language (PDF) and provided taxpayers with the opportunity to voice concerns regarding potential gaps and ambiguities with the draft language. Once finalized, the regulation will help settle significant uncertainty regarding how taxpayers can preserve their rights and privacy during the alternative apportionment petition process.
Project Background
California Revenue and Taxation Code Section 25137 and FTB Regulation 25137 allow for relief where the standard apportionment formula does not result in a fair representation of a corporate taxpayer’s business activity in California (typically an unusual situation). However, neither the statute nor the current regulation offer taxpayers any guidance on the process for petitioning for such relief.
On June 30, 2017, the FTB held its first interested parties meeting to discuss potential amendments to Regulation 25137 to provide more guidance regarding the Section 25137 Petition process. Follow-up meetings were held on Nov. 26, 2018 and Dec. 4, 2019. The meeting held on Aug. 11 was the latest IPM in this years-long process, but signaled progress in clarifying a few significant taxpayer concerns.
Key Takeaways from the Latest Section 25137 Petition IPM
Highlights from the IPM include:
For an in-depth look at California’s alternative apportionment process and the FTB’s efforts to amend the Section 25137 Regulation, please see the recent 3-part series in Bloomberg Tax by Eversheds Sutherland SALT partner Timothy A. Gustafson and associate Justin T. Brown:
On Aug. 11, the California Assembly Appropriations Committee held a hearing on S.B. 972, a controversial bill that authorizes the disclosure of otherwise confidential taxpayer information.
S.B. 972 requires the Franchise Tax Board (FTB) to compile an annual list of all taxpayers, including combined reporting groups, subject to California’s Corporation Tax Law with gross receipts over $5 billion (less returns and allowances). The taxpayer list would contain the following information:
The bill requires the FTB to publish this information on or before April 1, 2021 and on or before April 1 every year thereafter.
According to the Appropriations Committee report published on Aug. 9 (PDF), the primary purpose of S.B. 972 is to provide public data so lawmakers can evaluate the effectiveness of the state’s tax credit and incentives programs, such as the Research and Development (R&D) Tax Credit. Specifically, the data will purportedly help lawmakers determine whether the R&D credit is used to create jobs or promote certain business activities. However, in an Aug. 10 written statement against the bill (PDF), the Council on State Taxation (COST) noted that policymakers already have access to the information covered by the bill on an aggregate basis to inform policy decisions. Accordingly, “the only rational basis for this “list” is to publicly shame large corporate taxpayers,” COST concluded.
A July 24 report from the Assembly Committee on Revenue and Taxation notes that many significant California business groups have already registered their opposition to S.B. 972, including:
After Tuesday’s hearing, S.B. 972 was placed in the suspense file. However, the bill may move out of committee as early as next week.
