Eversheds Sutherland has filed an amicus curiae brief on behalf of the 550 members of the Council On State Taxation (COST) on the important issue of whether imposition of certain local special taxes in California requires a two-thirds vote by the California electorate, or a simple majority. City of Fresno v. Fresno Building Healthy Communities. After the City of Fresno concluded that Measure P did not pass because it was a “special tax” that did not receive the required two-thirds vote, the nonprofit Fresno Building Healthy Communities filed suit, arguing that Measure P only required a majority vote because it was a citizen initiative. The trial court disagreed and concluded in favor of the City, holding that it would be “erroneous to conclude that the two-thirds requirement” only applied to “local government.” The amicus brief urges the Court to affirm the well-reasoned decision of the trial court and adopt the arguments of the respondents that both Proposition 13 and Proposition 218 require passage by a two-thirds vote and that nothing in the California Supreme Court’s decision in California Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924 alters that result.

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

In this episode we discuss two recent developments, including an Oregon decision concerning sales tax on vehicles (EAN Holdings, LLC v Oregon Department of Revenue) and a Texas letter ruling dealing with software as a service and data processing (Texas Private Letter Ruling No. PLR 20180724152951).

 

 

 

 

 

 

 

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In Indiana Department of Revenue Letter of Findings No. 02-20191221 (Dated June 3, 2020, published August 26, 2020), the Department concluded there was a lack of a unitary business relationship between an out-of-state holding company and a partnership that operated gas stations within the state. The Department held that the holding company could not show a unitary relationship with the gas station partnership under the “three unities” test of functional integration, centralization of management, and economies of scale. This finding was in part due to the fact that the holding company that did not have employees, property, and or any activities other than holding a minority interest in the gas station partnership:

  • Centralized management: The holding company had no means to oversee or contribute to the day-to-day operations of the gas station partnership because the holding company had no employees.
  • Functional integration: There were no combined functions or common operational resources since the holding company had no employees, assets or activities other than holding the partnership interest.
  • Economies of scale: There could be no economies of scale because the holding company’s sole purpose was holding interests in partnerships.

 Finally, the Department found that although the partnership agreement gave the holding company some management rights over the gas station partnership, there was no evidence that the holding company actually exercised any of those rights. Additionally, the refusal of holding company representatives to sign a routine time extension waiver on behalf of the gas station partnership indicated a lack of management or operational control. Therefore, the holding company could not treat its distributive share of the partnership’s gain/loss as apportionable income.

Eversheds Sutherland has filed an amicus curiae brief on behalf of the 550 members of the Council On State Taxation (COST) on the important issue of whether imposition of certain local taxes is required to be passed by a two-thirds vote by the California electorate, or a simple majority. Howard Jarvis Taxpayers Association, et al. v. City and County of San Francisco. The case is pending in the California Court of Appeal, First Appellate District, on appeal from a judgment of the San Francisco County Superior Court holding that a special tax imposed by initiative requires only a simple majority, and not a two-thirds, vote to pass. The amicus brief urges the Court to adopt the well-reasoned arguments of the appellants that both Proposition 13 and Proposition 218 require passage by a two-thirds vote and that nothing in the California Supreme Court’s decision in California Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924 alters that result. This case follows on the heels of the First District’s recent order in favor of the City and County of San Francisco in San Francisco’s Proposition C (November 2018) case, City and County of San Francisco v. All Persons Interested in the Matter of Proposition C.

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

September 10, 2020 | 12:00 – 1:00 p.m. PDT

In this marketplace webcast, we will 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.

Knowledge level: Overview
Delivery method: Group internet based
Advanced preparation: None
Fee: None
CLE: 1.0 hour for the session
CPE: up to 1.2 hours for the session

After completing this course, participants will be able to:

  • Discuss California legislation and litigation on worker classification.
  • Discuss California and multistate SALT impact of worker classification issues.
  • Evaluate and explain SALT impact of teleworking employees.
  • Determine how to navigate and mitigate SALT implications of a remote workforce.

Confirm Attendance

On August 24, 2020, New York Governor Andrew Cuomo signed New York S.8832, a bill authorizing tax return preparers to accept electronic signatures on e-file authorizations for purposes of filing tax documents electronically with the New York Department of Taxation and Finance. The Bill applies in the context of New York State corporation, personal income, sales and use, excise, property, trust income, and estate taxes and any other tax administered pursuant to Tax Law Chapter 60. The Bill is broad in scope, not limited by tax type, however it is limited to tax documents “authorized by the commissioner to be filed electronically.” Thus, it does not apply to tax documents that must be physically filed.

On August 18, 2020, the New York Supreme Court, Albany County, held that there was no rational basis for New York’s imposition of sales tax on storage services performed in New Jersey that occurred subsequent to the initial sale and pickup of items in New York. The taxpayer, a New Jersey corporation, operated corporate records storage facilities in New Jersey. The taxpayer offered a service through which customers could have their records picked up and transported to its New Jersey storage facilities from the customer’s business location and also have the records delivered from storage to the customer’s business location. The taxpayer billed its customers on a monthly basis for the storage services as well as any courier services. On audit, the New York Department of Taxation and Finance (“Department”) took the position that the taxpayer’s charges to New York-based customers, including monthly charges related to storage services provided exclusively in New Jersey, were subject to New York sales tax.

After settling the audit for prior periods but failing to come to an agreement with the Department regarding future years, the taxpayer sought a declaratory judgment in state court that its services were not subject to New York sales tax. The taxpayer argued that sourcing the charges for storage services to New York, when the services were performed entirely in New Jersey, resulted in double taxation in violation of the Commerce Clause. The court held that charges made with respect to the initial sale of services were subject to New York sales tax, since the purpose of the transaction was the storage of items that are picked up in New York. However, the court held in favor of the taxpayer with respect to charges subsequent to the initial sales transaction because such charges were for storage services provided out-of-state.

Vital Records, Inc. v. N.Y. State Dep’t of Taxation and Finance, No. 900088-19 (N.Y. Sup. Ct. Aug. 18, 2020).

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 on September 15.

Several California localities filed a complaint alleging that PG&E willfully miscalculated the electricity user’s tax (“Electricity Tax”) causing harm to the cities, their employees and public services. California cities and counties impose Electricity Tax on a percentage of charges for electricity used within the city. For example, the City of Sacramento imposes an Electricity Tax on every person who uses electricity in the city “at the rate of five percent (5%) of the charges made for such energy…” Following the adoption of California’s cap-and-trade program and the requirement for utilities to purchase greenhouse gas emission allowances, California developed multiple financial assistance programs for customers affected by rate increases. This included the Industry Assistance Credit, Residential Climate Credit, and the Small Business Climate Credit. PG&E calculated “charges” to which the Electricity Tax applies by reducing the Electricity Tax base by the amount of these credits. The localities allege that the Electricity Tax ordinances impose tax on total “charges made for such energy” and that the ordinances do not provide an exception or other provision permitting PG&E to reduce the amount of charges subject to the Electricity Tax. Further, the localities allege that PG&E violated the state’s unfair business competition statute because the willful under-collection of the Electricity Tax subsidizes PG&E’s sales and causes financial harm to the localities and those who rely on the public services PG&E provides.

City of Arcata at al. v. Pacific Gas & Electric Co. et al., No. 20-585483 (Sup. Ct. San Francisco).

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 a rapidly advancing bill that could result in the disclosure of otherwise-confidential taxpayer information?

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!