In a recently released letter ruling, the Georgia Department of Revenue concluded that charges for the electronic delivery of medical records, and services related to the management and processing of medical records, are not subject to sales and use tax, while charges for transferring medical records delivered on paper or another “tangible format” are subject to sales and use tax.

The taxpayer who received the letter ruling requested guidance regarding the taxability of activities including:

  1. providing medical records maintained by the taxpayer to third-parties including patients, medical providers, and insurance companies;
  2. retrieving medical records maintained by persons other than the taxpayer; and
  3. services related to the collection, management, storage and use of healthcare data such as: (a) the translation of medical information into industry-standard codes for purposes such as risk adjustment and claims processing; (b) converting and updating medical records; and (c) data mining and extraction of clinical data from a large volume of medical records.

Under Georgia law, sales of tangible personal property generally are subject to sales and use tax unless an exemption applies, but sales of information or material delivered electronically typically are not considered taxable sales of tangible personal property. Further, sales of services are not subject to tax unless specifically designated as taxable. Therefore, the Department concluded that sales and use tax only applied to charges related to medical records delivered in a tangible format, but tax did not apply to charges related to the transfer of electronic records or the management and processing of medical records.

Georgia Letter Ruling No. LR SUT-2019-04 (Jun. 20, 2019) (released June 15, 2020).

Wisconsin’s Department of Revenue (DOR) released two proposed guidance documents answering common questions and clarifying rules applicable to marketplace sellers and providers. The proposed Marketplace Provider Common Questions generally explains the DOR registration process and offers other clarifications; for example, it notes that facilitators can prepare a single sales tax return that includes all facilitated sales, that facilitators must collect sales taxes on any fees, and that facilitators may be audited.

The proposed Marketplace Seller Common Questions offers similar guidance for sellers. It explains, for example, when a marketplace seller may rely upon a marketplace facilitator to collect and remit sales tax, notes that marketplace sellers will be notified if the marketplace facilitator has a collection waiver, and offers guidance on how to account for sales revenue on the return form.

On June 30, the North Carolina Governor signed into law a wide-ranging tax bill that includes marketplace facilitator rules for meals taxes and clarifies sales tax for download codes. HB 1080 extends marketplace facilitator collection and remittance obligations to local meals taxes, effective July 1, 2020. In addition, the law clarifies that the sale of a digital download code is taxed the same as a sale of the property to which the code relates.

On June 30, Mississippi became the latest state to enact a marketplace facilitator law after Governor Tate Reeves signed House Bill 379, also known as the “Mississippi Marketplace Facilitator Act of 2020.” The law requires most marketplace facilitators to collect sales and use tax on behalf of marketplace sellers beginning on July 1, 2020. The collection requirement applies to marketplace facilitators and remote sellers that exceed $250,000 in direct or facilitated sales in a consecutive 12-month period.

Not all marketplace sales will be covered under the new law. Third-party food delivery marketplaces are explicitly excluded from the new sales tax collection requirements. In order to impose the new sales tax collection obligations, the new legislation updates Mississippi’s definition of a “retail sale” to include, in part, “a sale made or facilitated by a person regularly engaged in the sale or facilitation of sales of services or tangible personal property.” However, the law clarifies that the term “retail sale” does not include sales “by a third-party food delivery service that delivers food from an unrelated restaurant to a customer, regardless of whether the customer orders and pays for the food through the delivery service or whether the delivery services adds fees or upcharges for the price of the food.”

Additionally, although the new law shifts sales tax collection obligations to marketplace facilitators, it also allows marketplace sellers with over $1 billion in annual sales to retain sales tax collection and remittance obligations by agreement with the marketplace facilitator.

The Ninth Circuit concluded that a plaintiff had standing to continue her lawsuit against a clothing company alleging that the company wrongly failed to pay interest on refunded Alaska sales taxes. After a related lawsuit was filed alleging that sales taxes were incorrectly collected, LuLaRoe, Inc. refunded the plaintiff $531.25 in sales tax charges. The company did not pay interest on the refunded sales taxes. Plaintiff brought a putative class action in federal district court alleging that the failure to pay interest was unlawful and the district court dismissed the case, concluding that the $3.76 in estimated interest charges was insufficient to establish an injury in fact. The Ninth Circuit reversed, holding that the loss of the $531.25 in sales tax, although temporary, was sufficient to show that the plaintiff suffered a cognizable and concrete injury. The court relied on Habitat Education Center v. U.S. Forest Services,¹ which held that “[e]very day that a sum of money is wrongfully withheld, its rightful owner loses the time value of the money.”

Katie Van v. LLR, Inc., DBA LuLaRoe; LuLaRoe, LLC, Case No. 19-35242 (9th Cir. June 24, 2020).

¹607 F.3d 453, 457 (7th Cir. 2010).

On June 30, Tennessee’s governor signed SB 2932 into law as Public Chapter 759. Effective October 1, 2020, the law requires a dealer or marketplace facilitator with no physical presence in the state and $100,000 in total sales in the state in the previous 12 months to register and collect sales and use tax. The previous threshold was $500,000 of total sales.

The New York State Assembly will consider AB 10706, the Digital Ad Tax Act or DATA, which would impose a sliding scale of taxes on digital advertising services that use personal information about the people the advertisements are targeting. The tax starts at 2.5% imposed on the annual gross revenues derived from digital advertising services in New York of a taxpayer with global annual gross revenue of $100 million to $1 billion, increases to 5% on revenues over $1 billion through $5 billion, 7.5% on revenues above $5- to $15 billion, and tops out at 10% on revenues exceeding $15 billion. If passed, the measure would go into effect immediately and apply to taxable years after Jan. 1, 2021. Note that the bill is identical to SB 8056A, which was introduced in March. For additional coverage, please see this Eversheds Sutherland legal alert.

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In 2019, these two states entered into a “truce” to limit offering incentives for companies relocating between their borders.

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The Arkansas Department of Finance & Administration issued an opinion stating that the provision of certain “virtual services,” including bookkeeping, project management, business analysis, email management, research, and customer service, provided via the Internet, are not subject to Arkansas sales tax. Arkansas sales tax is imposed on the gross proceeds from all sales of tangible personal property, specified digital products, and certain enumerated services. The opinion states that the services at issue are not specifically enumerated services subject to sales tax, regardless of whether the services are performed virtually or in person.

On June 5th, the Maryland Court of Appeals held that a reduced interest rate on refunds paid to taxpayers as a result of the U.S. Supreme Court’s decision in Comptroller of Maryland v. Wynne did not violate the U.S. Constitution’s dormant Commerce Clause.

In 2018, the U.S. Supreme Court held that a Maryland statute that authorized a credit for taxes paid to other states was unconstitutional to the extent it applied only to the state portion of Maryland’s income tax, and not to the county “piggyback.” After the Court’s ruling, the Maryland General Assembly made two relevant amendments to the law. It amended the credit so that it would also apply to the county portion, and it also authorized interest on refunds related to the county portion of the credit at a prime rate of 3%, rather than the 13% interest rate paid on certain other tax refunds.

After their successful challenge to the constitutionality of the underlying credit provision, the Wynnes brought a new action challenging the reduced interest rate. The Wynnes again invoked the dormant Commerce Clause, arguing that the Comptroller must pay the same 13% interest rate that it uses for other income tax refunds.

The Maryland Court of Appeals disagreed. The court first determined that a tax refund is distinct from interest paid on a refund, and that the latter does not “implicate[] interstate commerce sufficiently to awaken the dormant Commerce Clause.” The court explained that the payment of interest on tax refunds is a matter of legislative grace, and that the legislature may periodically adjust the interest rate. The court noted that in many instances, the Comptroller pays no interest, and here, the 3% rate paid was tied to the prime rate used by banks, which ensured “fair compensation,” while maintaining the state’s “fiscal integrity.” By reducing the rate from 13% to 3% for Wynne refunds, the state saved an estimated $38 million.

Although the court determined that interest rates do not implicate the dormant Commerce Clause, it nevertheless analyzed the constitutional issue and determined that even if the dormant Commerce Clause were implicated, the reduced interest rate did not create interstate discrimination. Rather, the court reasoned that both the reduced 3% rate and the ordinary 13% rate would produce windfalls for the Wynnes, because both rates exceeded the rate of inflation. Thus, the court determined that even with the reduced interest rate, the Wynnes are better off than taxpayers who engaged solely in intrastate business, received full credit for income taxes they paid to other states, and never had to seek refunds.

Wynne v. Comptroller of Maryland, No. 12 (Md. June 5, 2020)