In this episode we discuss the top ten issues that should be considered when evaluating and implementing marketplace collection laws. It is excerpted from the third in our series of webcasts on marketplaces. In the prior two webcasts, we talked about marketplace collection legislative changes in the first one and the marketplace litigation cases and other developments in the second one.

Webcasts:

Listen to the hour-long version of this third episode in our webcast series here.

Episode One: “Behind the Eight Ball – A Look at the Past and Present State of Marketplace Laws”

Episode Two: “Stuck in the Middle Again: Latest Developments in Online Marketplace Litigation”

 

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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 Founding Father was granted a tax incentive from New Jersey—a 10-year property tax exemption—to establish his manufacturing company in the state?

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!

The Pennsylvania Commonwealth Court issued its much-anticipated decision on July 24 in Synthes USA HQ Inc. v. Commonwealth of Pennsylvania.

  • The Court upheld the Department of Revenue’s position that under the State’s pre-2014 costs-of-performance (COP) statute, service providers were required to apportion their receipts based on where customers received the benefit of the services, rather than where the costs of performing the service were incurred.
  • In so holding, the court rejected the Attorney General’s position that the Department’s benefits-received interpretation was incorrect and ordered the Department to issue a refund to the taxpayer.
  • Although the Pennsylvania legislature amended the COP statute to expressly require a benefits-received sourcing methodology effective with the 2014 tax year, this decision has implications for service providers that have open years prior to 2014 or businesses with certain other receipts, such as receipts from licensing intangibles, that continue to be sourced in accordance with the pre-2014 COP statute.

Read the full Legal Alert here.

The California Court of Appeal held that California income tax applies to the entire amount of trust income that is derived from California sources, even though a trust is managed in part by a non-resident trustee. The taxpayer had requested a refund on income taxes paid on capital gains, claiming that the income was incorrectly sourced to California. The taxpayer argued that under Section 17743 of the Revenue and Taxation Code, the gain should be sourced to California based on the proportion of trustees that were resident in California, without regard to the source of the income. Taxpayer also argued that Section 17041, subdivision (i) of the Revenue and Taxation Code, which provides that gross income of nonresident taxpayers are subject to tax if such income is derived from sources within California, did not apply to trusts because the term “resident” did not include trusts.

The California Court of Appeal disagreed with the taxpayer, holding that the Revenue and Taxation Code requires treating individuals and trusts similarly. The Court cited to section 17743 of the Revenue and Taxation Code, which incorporates the trust provisions of the federal Internal Revenue Code, and Section 17041, subdivision (e) of the Revenue and Taxation Code, which mandates that a trust’s taxable income must be calculated in the same way as if the trust were an individual. Further, the Court cited to the condition of Section 17743 of the Revenue and Taxation Code that it only apply where taxability “depends on the residence of the fiduciary.” The Court concluded that, according to Section 17041, subdivision (i), the taxability of gross income only depends on the residence of the taxpayer or fiduciary when the income is derived from a source outside of California. This case represents one of several recent state tax cases, many with different outcomes, ruling on the sourcing of income from trusts.

Steur v. Franchise Tax Board, No. A154692 (Cal. Ct. App. June 29, 2010).

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The California Department of Tax and Fee Administration adopted an emergency regulation to clarify and resolve specified issues with the California Marketplace Facilitator Act (CMFA), as amended. The regulation clarifies, among other things, the registration requirements for marketplace facilitators and marketplace sellers and provides definitions for terms left undefined by the CMFA and relevant examples. As an emergency regulation, it will remain in effect for two years following its June 29, 2020 effective date.

Earlier today, the D.C. Council voted to amend the Fiscal Year 2021 Local Budget Act of 2020 (“LBA”) and effectively eliminate the proposed sales tax expansion to advertising services and personal information.

On July 21st, the Council first attempted to vote on the LBA (which sets the District’s expenditures), but the Council was unable to agree on: (1) whether to retain the sales tax expansion in full; (2) whether to amend the advertising tax to impact only the placement of advertising; and (3) how to account for the $18.4 million that the advertising tax was expected to generate, if they chose to eliminate the tax. Chairman Mendelson then recessed the meeting until today to attempt to reduce the budget by the $18.4 million. Late on July 22nd, the Council’s and Chairman Mendelson’s offices distributed documents detailing his proposal.

At today’s Legislative Meeting, numerous councilmembers commented that they disagreed with the advertising tax and were glad to come to a compromise that eliminated it. However, Councilmember Grosso noted that he still supports the advertising tax. He wants to broaden the sales tax base and ultimately decrease the tax rate. The Council then approved the revised budget by a vote of 11-2. On July 28th, the Council will formally eliminate the proposed taxes by amending the Fiscal Year 2021 Budget Support Act of 2020.

While today was a victory against the advertising service and personal information sales taxes, the Council expects that they will revisit the budget in approximately two months after the District government understands the full impact of the COVID-19 pandemic. In a recent press release, Chairman Mendelson also announced that he is scheduling a hearing on the Tax Revision Commission Reestablishment Amendment Act of 2019, which would re-establish the Tax Revision Commission and require it to submit tax recommendations to the Mayor and Council. The Tax Revision Commission last released a Final Report in May 2014 that made numerous recommendations, including: (1) reducing the business franchise tax from 9.975% to 8.25%; (2) raising the sales tax rate from 5.75% to 6%; and (3) creating separate income tax brackets for single and married people. If re-established, the Tax Revision Commission may address advertising service and personal information sales taxes, among numerous other issues affecting multistate taxpayers. Eversheds Sutherland SALT will closely monitor any developments of the re-established Commission.

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 state is the latest state to enact legislation complying with the Streamlined Sales & Use Tax Agreement?

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!

During the July 21st Legislative Meeting, the D.C. Council voted to postpone consideration of the Fiscal Year 2021 Local Budget Act of 2020 (“LBA”) (which establishes the expenditures of D.C. revenue) to Thursday, July 23rd at 12:30 p.m. Prior to that meeting, the D.C. budget office will attempt to trim $18.4 million from the LBA, which will allow the Council to later eliminate the proposed sales tax on advertising services from the Fiscal Year 2021 Budget Support Act of 2020 (“BSA”). It is unclear whether the Council would also eliminate the proposed sales tax on sales of personal information.

A proposed amendment to the LBA (along with a forthcoming amendment to the BSA) is also pending, in case the D.C. Council does not eliminate the advertising tax. Chairman Mendelson proposed a funding reduction to the D.C. libraries budget in order to remedy an unexpected impact of the advertising tax. He expressed surprise that, as written, the tax would apply to each step of the advertising process. Instead, he explained, “the intention of the tax was only to apply to the placement and display of advertisements, and not on the planning or creation of those advertisements.” Without proposed language, it is not yet known whether the proposed fix would be to amend the definition of “advertising services” or incorporate a specific sale for resale exemption.

The Eversheds Sutherland SALT Team will continue to follow the breaking news on these potential taxes as it unfolds over the next week.

Join Todd Lard, Charlie Kearns and Stephanie Do from the Council on State Taxation (COST) on Wednesday, July 22 at 3:00 PM ET for a webcast discussion on the technical aspects and current status of the District’s proposed advertising services and personal information taxes.

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In what could best be described as a “tax on talking,” the DC Council will vote on a budget tomorrow that relies on revenue from expanding the sales tax to advertising services and personal information. The rate is generally 3%, but could rise to 7.25% for certain taxpayers.

The legislation quickly moved through the Council with virtually no debate. As a result, taxpayers and policymakers struggle to understand the exact scope of the new tax. Given the broad definition of advertising services, the tax could apply to a broad swath of services. Examples of new taxable services subject to a 3% rate include traditional print and broadcast advertising; banner ads; marketing fees paid to food delivery platforms; marketing and click fees paid to real estate platforms; sign spinners; podcast product promotions; promoted search results; Instagram influencers; YouTube vloggers; sponsorships on sports team jerseys; naming rights for stadiums and arenas; sponsorships for non-profit organizations; and advertising at local conventions. Advertising at the Capital One Arena and Nationals Park could be subject to not just the 3% advertising service sales tax, but additionally the 4.25% arena-specific sales tax. Complicating the question of what is taxed is the absence of any language that sources advertising services that occur in multiple jurisdictions. Would DC tax every ad that is seen by a DC resident?

How the tax will apply to the sale of personal information is equally uncertain. The 3% tax applies to any “person” that sells personal information. Person includes not only individuals, but also corporations and other entities. The definition of personal information includes a list of examples of personal information and can be as simple as charging another person a fee for someone’s name. In the modern economy, there are numerous instances where this type of information exchange occurs on a routine basis. For example, making a restaurant reservation on OpenTable involves the reservation system transmitting personal information to a restaurant for a fee. Should restaurants expect to pay sales tax on their fees from OpenTable?

Despite many concerns with the imposition of the new taxes, the Council seems determined to enact a budget that relies on this new revenue. A final vote on the taxes will occur next Tuesday, after which it will await the Mayor’s signature and a congressional review period.

Related Event
For more on the DC proposed tax on advertising services and personal information, register for our July 22 webcast here.

The DC Council is considering a new sales tax on advertising services, including digital advertising services, and personal information.

On July 6, the DC Council released the Committee Print of the Fiscal Year 2021 Budget Support Act of 2020, which includes a sales tax expansion to those services beginning October 1, 2020 at the reduced rate of 3% instead of the general 6% sales tax rate. On July 28, the DC Council will hold its second (and final) vote on the Fiscal Year 2021 Budget Support Act of 2020. If enacted, the District of Columbia would become the first jurisdiction to target sales of digital advertising services and personal information.

Join Todd Lard, Charlie Kearns and Stephanie Do from the Council on State Taxation (COST) on Wednesday, July 22 at 3:00 PM ET for a webcast discussion on the technical aspects and current status of the District’s proposed advertising services and personal information taxes.

Register Now