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: Earlier this month, the Massachusetts Appeal Court held that the Internet Tax Freedom Act (ITFA) preempted sales taxes on Internet access charges because the Internet service provider satisfied ITFA’s requirement for this type of software.

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 July 7, 2020, the California Office of Tax Appeals (OTA) held that a foreign LLC was subject to the state’s $800 LLC tax because it held a 0.7830849% ownership interest in an LLC that owned property in San Diego. In addition to a more traditional nexus test based on an entity’s business activities in the state, California has a bright-line nexus test tied to threshold sales, property, and payroll amounts. In particular, a corporate entity is doing business in California if its real and tangible personal property in California exceeds the lesser of $50,000 – adjusted for inflation – or 25% of its total real and tangible personal property. In making this determination, California takes into account the entity’s pro rata share of California property owned by pass-through entities in which it held an interest. The OTA concluded that because the foreign LLC’s pro rata share of the California LLC’s property – valued at over $60 million – exceeded this threshold, the foreign LLC had nexus for purposes of the $800 LLC tax.

The OTA rejected the taxpayer’s comparison to Swart Enterprises, Inc. v. Franchise Tax Board (2017) 7 Cal.App.5th 497, in which the California Court of Appeal held that an out-of-state corporation was not doing business in California despite its passive holding of a 0.2% ownership interest in a manager-managed LLC that did business in the state. The OTA concluded that Swart was inapplicable because that case was decided under California’s historical “doing business” test, and not the bright-line factor presence test. The OTA also determined that the bright-line tests do not distinguish between active versus passive ownership interests, or general versus limited partnerships.

In the Matter of the Appeal of Aroya Inv. I, LLC, 2020-OTA-255P (Cal. Office of Tax Appeals Jul. 7, 2020) (pending precedential).

The Illinois Department of Revenue (IDOR) recently announced an expansion of its audit resolution program as it braces for a wave of litigation over amendments to the state’s marketplace facilitator law. The department expands its Audit Fast Track Resolution (FTR) Program to all sales and miscellaneous tax audits except for Motor Fuel Use Tax. The newly-expanded FTR program could become an efficient method of settling some sales tax disputes, but disagreements involving the state’s amended marketplace facilitator law will ultimately need to be resolved by legislature or courts.

In this article published by Bloomberg Tax, Eversheds Sutherland Partner Breen Schiller and Associate Dennis Jansen explain why the program won’t stop litigation.

In this marketplace webcast, we discuss ongoing worker classification disputes in California, as well as other states, and the SALT implications resulting from those disputes. We will also 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.

Listen to the full webcast here.

Virginia’s peer-to-peer vehicle sharing tax, passed in April, takes effect on October 1. Generally, vehicle owners with up to ten shared vehicles will be subject to a 6.5% gross tax. The law obligates vehicle sharing platforms to collect the tax on behalf of the owners if the platform has established sufficient contact with the state. This week, the Virginia Department of Taxation published informal guidance on the new tax.

A platform is required to collect the tax if it meets the marketplace facilitator thresholds of $100,000 in annual Virginia revenue or 200 Virginia transactions. Additionally, a platform is required to collect the tax if, among other things it performs the activities of: owning or operating the infrastructure or technology that brings buyer and seller together; listing vehicles for sharing; payment processing; branding transaction as those of the platform, or providing customer assistance. Vehicle owners are obligated to certify to sharing platforms, and sharing platforms are obligated to ask vehicle owners, whether the owner owns more or less than ten vehicles.

On September, 9, 2020, the New Jersey Appellate Division ruled against the taxpayer in Preserve II, Inc. v. Director, Div. of Taxation, No. A-1331-17T3. On its face, the decision looks like a disappointing taxpayer loss because the court upheld the determination that a corporation was subject to the New Jersey Corporation Business Tax (CBT) based upon its limited partnership interest in a partnership conducting business in New Jersey. However, in what could be good news for other taxpayers, the appellate court also interpreted the CBT imposition statute to require more than simply deriving receipts from New Jersey sources before a taxpayer can be subject to the CBT.

Read the full Legal Alert here.

On September 9, 2020, the California Supreme Court denied review of the opinion of the First District Court of Appeal in City and County of San Francisco v. All Persons Interested in the Matter of Proposition C, which held a voter-initiated local special tax may pass with only a simple majority.  With appeals currently pending in the First and Fifth Districts, California taxpayers and governments alike continue to seek guidance from the courts as to whether a special tax imposed by initiative requires only a simple majority, and not a two-thirds, vote to pass.  If the Fifth District affirms the lower court in the Fresno Measure P matter and agrees that a special tax must receive the required two-thirds vote, it will result in a split among the districts and likely force the California Supreme Court’s hand to clarify its prior decision in in California Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924.

For more information on California supermajority voting requirement tax cases, check out Eversheds Sutherland’s SALT Scoreboard – CA Local Tax Edition.

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 recently-enacted California bill expands exemptions to the state’s 2019 worker classification 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!

On August 25, California’s Department of Tax and Fee Administration released a discussion paper and proposed amended regulations to clarify when marketplace facilitators are considered the retailer with regard to drop shipment transactions. The CDTFA is accepting written comments and will hold a virtual hearing on the proposal September 15.

On September 4, 2020, in New Cingular Wireless PCS LLC v. Commissioner of Revenue, No. 18-P-1317, the Massachusetts Appeals Court held that the Internet Tax Freedom Act (ITFA) preempted Massachusetts’ sales tax on New Cingular Wireless’ (NCW) Internet access charges. The court concluded that NCW satisfied ITFA’s requirement that it offer screening software to its customers, even though: (1) NCW’s salespersons did not affirmatively ask each customer whether it wanted to purchase the software; and (2) the software was not compatible with every device sold by NCW.

Eversheds Sutherland filed an amicus curiae brief in support of NCW on behalf of the Broadband Tax Institute.

Read the full Legal Alert here.

In this article published by Bloomberg Tax, Eversheds Sutherland Partners Eric Tresh and Todd Lard and Associate Charles Capouet expand on this alert.