The Commonwealth Court of Pennsylvania reversed the Board of Finance and Revenue’s (Board) order, in part, and determined that when a retailer’s receipt separately states the coupon presented and sufficiently identifies the item to which the coupon applies, a taxpayer is only liable for sales tax based on the price as reduced by the coupon and not the full price.

Two individual taxpayers requested refunds of sales tax a retailer collected on taxable items paid for, in part, using coupons. For each purchase, taxpayers presented coupons at the point of sale and the receipt from the sale separately reflected the value of the coupon and the reduced sales price after applying the coupon. However, the retailer collected sales tax based on the full purchase price, without a reduction of the price after application of the coupons.

Pennsylvania regulation provides that the use of coupons at the point of sale will establish a reduced purchase price if “both the [taxable] item and the coupon are described on the invoice or cash register tape.” 61 Pa. Code § 33.2(b)(2). Relying on this regulation, the Board denied taxpayers’ requests for refunds because the receipts provided by the retailer did not adequately describe the coupons and did not indicate to which item the coupon relates.

After agreeing that the regulation is consistent with the applicable statute, the court held that the Board erred in finding that the regulation requires the receipt to specify to which taxable item the coupon relates. Further, the court held that the regulation did not require the receipt to identify the nature of the coupon, whether a rebate or a store or manufacturer’s coupon. Instead, the court held that the receipt must simply present a description allowing one to discern that the coupon was accepted and applied toward the purchase of a taxable item.

Thus, the court found in favor of the taxpayer, and determined that sales tax is imposed on the reduced price, where the applicable receipt separately stated the value of the coupon and the receipt only included taxable items. In contrast, the court upheld the Board’s decision to deny taxpayer’s refund where the receipt consisted of both taxable and nontaxable items. The court found that where it could not be discerned from the receipt whether the coupon applied to a taxable or non-taxable item, the sales tax should be collected on the full purchase price. The retailer intervened in the case and argued on the side of the state.

Meyers v. Commonwealth of Pennsylvania, No. 275 F.R. 2016 (Commw. Ct. May 11, 2020).

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During a series of remote committee hearings, the Kansas House Committee on Taxation discussed revisions and amendments to marketplace facilitator legislation. Kansas is currently one of the few states without a marketplace facilitator or remote seller law, and the only state that has a remote seller rule without any thresholds for application. As initially drafted, H.B. 2657, did not include the revenue or transaction thresholds used by other states. The committee amended the bill to include a $100,000 revenue threshold for remote sellers and marketplace facilitators. Kansas’s current remote seller rules were created by regulatory notice rather than by statute.

As a matter of legislative procedure, the amended language was added to a bill that has already passed the state senate, S.B. 266. If passed, the bill would become effective July 1, 2020. The Kansas legislature is convening for its final day of the session on Thursday, May 21.

By legislation, Illinois has required marketplace facilitators to collect and remit use tax since January 1, 2020. On May 8, the Illinois Department of Revenue published proposed regulation 150.804 clarifying the state’s marketplace facilitator legislation. Under the proposed regulations, a marketplace facilitator must certify to marketplace sellers that it assumes the rights and duties of a retailer for Illinois use tax purposes, must maintain records of its marketplace sellers, and must clearly indicate to sellers that it is listing goods on behalf of a clearly identified seller. The proposed regulations also provide detail and definitions regarding the $100,000 annual revenue or 200 annual transactions thresholds. Finally, the proposed regulation clarifies that the marketplace requirements apply only to use tax obligations and marketplace facilitators are not authorized to remit sales tax obligations (related to orders fulfilled from in-state inventory).

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On February 28, 2020, the Oregon Tax Court held that multiple airlines operating as a unitary business should aggregate not only transportation revenue but also other metrics, such as departure ratios, that are factored into the apportionment formula used by Oregon for airline taxpayers. Oregon regulations provide a modified single sales factor apportionment rule for airlines whereby the numerator of the sales factor includes, in part, the taxpayer’s total transportation revenue multiplied by its departure ratio. The Oregon Department of Revenue challenged the taxpayer’s amended returns which did not include a unitary affiliate’s departure ratio, i.e., the ratio of departures of aircraft in Oregon (weighted by cost and value of the aircraft) compared to total departures of aircraft similarly weighted, in the taxpayer’s sales factor. The taxpayer argued that each airline should be considered separately with regard to its departures within the state, citing to the fact that each airline has a separate license and operating certificate form the Federal Aviation Administration. The court disagreed, stating that the Plaintiff’s reading is contrary to the apportionment of business income of a unitary group filing a consolidated return in Oregon. The court held that because the base of income to be apportioned represents the business activity of the entire unitary group, then other metrics incorporated into the apportionment formula, such as the departure ratio, must also reflect the business activity of the entire group.

In addition to the court’s determination of the taxpayer’s unitary group question, the court also held that revenue generated by taxpayer for codeshare sales, i.e., sales made by taxpayer for seats on non-affiliated airline flights, are not considered “transportation revenue” and therefore not included in the taxpayer’s sales factor. Citing to the relationship between the flight data used in the departure ratio and the relationship between the departure ratio and transportation revenue, the court agreed with the taxpayer that such codeshare revenue is not “transportation revenue” because third party airlines, not the taxpayer, operate the flights underlying such sales and thus taxpayer does not receive the benefit of the third party’s flight data for such flights when calculating taxpayer’s departure ratio. Further, the court found that certain income from taxpayer’s rents, interest, and proceeds on the sales of aircraft constituted passive income that should be excluded from the sales factor.

Alaska Airlines, Inc. v. Oregon Department of Revenue, TC-MD 180065N (Oregon Tax Ct. 2020).

On May 4, the California Department of Tax and Fee administration posted Proposed Regulation 1684.5, as well as an April 16 memorandum requesting permission to begin the rulemaking process. The proposed regulations provide definitions for statutory terms, clarify requirements for marketplace facilitators and marketplace sellers to register with the Department for a seller’s permit, and explain the mechanics of a delivery network company’s ability to elect to be deemed a marketplace facilitator.

Louisiana S.B. 476 has will be introduced for debate and vote in the state senate. The bill would require online marketplaces to obtain identifying information of “high-volume third-party sellers.” A third-party high-volume seller is a seller that makes 200 or more sales per year resulting in $5,000 or more in gross revenue. The required identifying information includes bank account information, government-issued identification for an individual representative, government-issued contact information records, and a tax identification number. Online marketplaces would additionally be required to require high-volume third-party sellers to include basic identifying information on consumer product listings and verify that intellectual property is not being infringed. An online marketplace’s failure to comply with the identification requirements would be penalized as a violation of the state’s Unfair Trade Practices and Consumer Protection Law. If passed, the bill would become effective August 1, 2020.