The Nebraska Supreme Court held that a telecommunications construction company was liable for sales taxes on both its purchases of construction materials to build telecommunications infrastructure and for its subsequent sales of services installing and constructing the same telecommunications property.

Nebraska law requires a construction contractor to make an election as to whether it will be treated as a “consumer” or “retailer” with respect to building materials it purchases. With respect to its purchase of construction materials, the taxpayer elected to be the consumer, which meant that it was liable as the consumer for sales tax upon purchase. In addition to sales tax on building materials, Nebraska also imposes sales tax on “any person involved in the connecting and installing of [telecommunication] services.”

The taxpayer argued this outcome resulted in improper double taxation, whereby it was required to pay tax on the gross receipts it earned in the installing and connecting of telecommunications services using those same previously taxed goods.

In rejecting this argument, the court found the scenario involved two different activities subject to tax, with different legal incidences of the tax. Double taxation, according to the court, occurs when “both taxes are of the same kind and have been imposed by the same taxing entity, for the same taxing period, for the same taxing purpose, and upon the same property or the same activity, incident, or subject matter.” Here, for sales tax on its construction materials, the taxpayer was the consumer and therefore the payer of the tax. But, in the case of sales tax on the construction services, the taxpayer was no longer the consumer, but instead the seller, and therefore responsible for remitting the tax paid by its customers. While the legal incidence of sales tax is on the customer, the taxpayer was nonetheless obligated for the unpaid amounts.

Diversified Telecom Servs., Inc. v. Nebraska Dep’t of Revenue, 306 Neb. 834 (2020).

The U.S. Court of Appeals for the Ninth Circuit upheld a rail carrier’s authority to challenge the Oregon Department of Revenue’s taxation of its “accounting goodwill” pursuant to the federal Railroad Revitalization and Regulatory Reform Act, commonly referred to as the 4-R Act.

Oregon imposes tax on real and tangible personal property located in the state, and also imposes tax on intangible personal property for railroads and certain other commercial and industrial entities that are subject to central assessment by the Department. After the Department assessed tax on its goodwill, BNSF Railway Company (BNSF) challenged the tax under the 4-R Act, which prohibits states from unreasonably burdening and discriminating against interstate commerce by imposing taxes that discriminate against rail carriers. The Ninth Circuit agreed with BNSF that the assessment violated the 4-R Act, knocking down each of the Department’s three principal arguments in turn.

First, the Ninth Circuit rejected the Department’s argument that the specific provision of the 4-R Act relied on by BNSF did not apply to property taxes. Specifically, the Department contended that because three other subsections of the 4-R Act apply to property tax, the catchall provision pursued by BNSF for “another” discriminatory tax must necessarily apply only to non-property taxes. The Ninth Circuit cited several prior decisions spanning four other circuit courts of appeal rejecting this same argument.

Second, the Ninth Circuit rejected the Department’s assertion that its taxation of BNSF’s intangible property was not discriminatory because the tax on intangibles is a broadly applied tax, albeit one that exempts all non-centrally assessed taxpayers. In framing its tax scheme as being a tax exemption for non-centrally assessed taxpayers, the Department sought to fit the tax within the permissible exemption-based discrimination blessed by the U.S. Supreme Court in Department of Revenue of Oregon v. ACF Industries, Inc., 510 U.S. 332 (1994). The court disagreed with the Department’s characterization, reasoning that the tax on intangibles is not generally applicable; it is a “separate rule” that applies only to a very limited group of taxpayers. According to the court, the Department’s characterization of the tax on intangibles as one that applies broadly to all taxpayers “never leaves the station.”

Third, the Ninth Circuit disagreed with the Department’s contention that the comparison class for assessing discrimination should be limited to those other taxpayers that are centrally assessed. Rather, the court explained, based on the U.S. Supreme Court’s decision in CSX II, the appropriate comparison class is all other commercial and industrial taxpayers. See Ala. Dep’t of Revenue v. CSX Transp., Inc. (CSX II), 575 U.S. 21, 26 (2015). Having defined the appropriate comparison class, the court stated that BNSF is “obviously” treated differently that the rest of Oregon’s locally assessed commercial and industrial taxpayers.

BNSF Railway Co. v. Oregon Dep’t of Revenue, 965 F.3d 681 (9th Cir. 2020).

Meet Daisy, an adorable beagle who belongs to SALT Associate Justin Brown. Justin had always wanted a dog but was worried he never had enough time to properly care for one. Working from home during the pandemic, Justin decided it was the right time to adopt. In May he went out and found Daisy at a rescue shelter in North Georgia. Justin was pulled in by Daisy’s sweet eyes and instantly knew she would be the perfect dog to take home.

Daisy is a sweet and friendly pup, who loves to socialize with humans and other dogs. She has a voracious appetite and will rarely pass up an opportunity to eat. This summer she has really enjoyed eating fresh watermelon.

When choosing her name, Justin didn’t realize at first how fitting of a name Daisy would turn out to be. The two of them enjoy taking leisurely walks together, and Daisy just loves to stop and smell the flowers (along with everything else) every chance she can get. Daisy also enjoys the walks because it’s a chance for her to see other dogs and humans. Daisy is friendly to a fault, and can hardly contain her excitement when she sees other people out walking – especially children.

Daisy is still learning tricks, but she has learned to sit – so long as she knows there is a treat waiting for her. Daisy also has a keen sense of smell and loves when Justin hides treats around the house for her to find.

While working from home, Daisy has been a great companion to Justin and all of the extra time they have spent together has shown Justin how caring and trusting of a dog Daisy is.

We are thrilled to feature Daisy as our August pet of the month!

On Aug. 6, the New York Tax Appeals Tribunal held that royalties received from a foreign affiliate are taxable and are not subject to New York’s royalty income exclusion provision under former Tax Law § 208(9)(o)(3).

Prior to its amendment, Tax Law § 208(9)(o)(3) provided for a deduction for royalties received from a related member unless the royalties would not be subject to addback under New York’s royalty expense addback statute (the “exclusion provision”). The taxpayer received royalty payments from foreign affiliates that were not New York taxpayers, and therefore the payments were not added back by the foreign affiliates. The taxpayer asserted that the exclusion provision allowed a New York taxpayer to deduct royalty payments received from its foreign affiliates because they were the type of payments that would be subject to the addback provision if the foreign affiliate had been subject to New York tax. The Tribunal disagreed, however, holding that the deduction was improper because payments from a nontaxpayer foreign affiliate “would not be required” to be added back under the royalty addback provision since that affiliate was not subject to New York tax.

The Tribunal also concluded that former Tax Law § 208(9)(o)(3) did not violate either the dormant Commerce Clause or the Foreign Commerce Clause as applied to the taxpayer because the statute only applies “to entities with a shared economic interest wherein the benefit of a deduction for one such related entity is always offset by the cost of an expense add back to another related entity” and thus does not discriminate against interstate or foreign commerce.

In the Matter of the Petition of The Walt Disney Company and Consolidated Subsidiaries, N.Y. Tax Appeals Tribunal, Dkt. No. 828304 (Aug. 6, 2020).

Eversheds Sutherland is pleased to announce the addition of Breen M. Schiller and Nikki E. Dobay to the firm’s Tax Practice Group as State and Local Tax (SALT) partners. Ms. Schiller will join the firm’s Chicago office and Ms. Dobay will join the firm’s Sacramento office in the next few weeks.

Ms. Schiller is joining the firm from Horwood Marcus & Berk in Chicago, where she had been the Chair of the SALT practice group. In addition to Ms. Schiller’s Illinois tax experience, she has consulted with clients on state and local tax issues across the country, including for several of Eversheds Sutherland’s existing clients. She regularly consults and represents some of the largest taxpayers in the US.





Ms. Dobay is joining from the Council On State Taxation (COST), where she had been senior tax counsel. Ms. Dobay joins former COST lawyers Jeff Friedman and Todd Lard, both of whom represented COST’s members on state tax matters before joining Eversheds Sutherland. She has extensive Oregon tax experience, including with the state’s newly imposed Commercial Activity Tax. Ms. Dobay also has represented clients on state tax policy matters across the US. Her legislative and regulatory experience will add to the firm’s considerable state tax policy practice.


“I am excited to welcome Breen and Nikki to the firm and our Tax Practice,” said Mark D. Wasserman, Co-CEO of Eversheds Sutherland. “Their outstanding reputations and experience will further elevate our SALT services and expand our capabilities in important geographic regions for our clients. We plan to continue to grow our tax practice and the firm overall through internal promotions and additional strategic lateral hiring.”


“We are fortunate to attract Breen and Nikki to our Tax Practice,” said Jeffrey A. Friedman, Partner and Chair of the firm’s Tax Practice Group. “Adding Breen and Nikki also reflects the firm’s focus on growing our Midwest and West Coast tax presence. Their skill sets and unique backgrounds are a natural fit for our group.”


Eversheds Sutherland’s Tax Practice is comprised of more than 100 attorneys representing many of the world’s largest corporations—including more than 35 of the Fortune 100—in every industry sector and in virtually every area of tax law, on the federal, international, state and local levels. By virtue of the size of its tax practice and its varied client base, Eversheds Sutherland is active in every area of taxation—from planning the most complex corporate tax transactions to representing taxpayers in administrative and judicial tax controversies.


About Eversheds Sutherland

As a global top 10 law practice, Eversheds Sutherland provides legal services to a global client base ranging from small and mid-sized businesses to the largest multinationals, acting for 75 of the Fortune 100, 68 of the FTSE 100 and 113 of the Fortune 200.


With more than 3,000 lawyers, Eversheds Sutherland operates in 68 offices in 32 jurisdictions across Africa, Asia, Europe, the Middle East and the United States. In addition, a network of more than 200 related law firms, including formalized alliances in Latin America, Asia Pacific and Africa, provide support around the globe.


Eversheds Sutherland provides the full range of legal services, including corporate and M&A; dispute resolution and litigation; energy and infrastructure; finance; human capital and labor law; intellectual property; real estate and construction; and tax.


Eversheds Sutherland is a global legal practice and comprises two separate legal entities: Eversheds Sutherland (International) LLP (headquartered in the UK) and Eversheds Sutherland (US) LLP (headquartered in the US), and their respective controlled, managed, affiliated and member firms. The use of the name Eversheds Sutherland is for description purposes only and does not imply that the member firms or their controlled, managed or affiliated entities are in a partnership or are part of a global LLP. For more information, visit eversheds-sutherland.com.


			
		


		

	


	

	

 		
 		
		
		


	 							
									
			
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.


State of Arizona v. City of Phoenix; No. CV-20-0019-SA


			
		


		

	


	

	

 		
 		
		
		


	 							
									
			
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.