On June 5, 2020, Governor Cooper signed HB 1079, which will exclude sales of certain digital audio and visual works from the state’s sales and use tax, and make other tax changes. The law exempts sales of digital educational services and the sales of digital audio or digital audiovisual works that consist of nontaxable service content when the transfer happens at the same time as a nontaxable service in real time, effective retroactively to Oct. 1, 2019. It also offers a grace period from sales and use tax enforcement on sales of some digital property by certain continuing education and professional development providers from Oct. 1, 2019, through Aug. 1, 2020.

 

The Colorado Department of Revenue has proposed several regulations related to taxation of digital goods, remote sales, and marketplace collection. First, it proposed a “doing-business” rule, which clarifies a person maintains a business in Colorado if the person meets the economic nexus test of $100,000 annual retail sales in Colorado. It also proposed another rule that provides guidance on when a retailer must obtain a sales tax license, including those doing business in Colorado for economic nexus purposes, as well as a sourcing rule clarifying when retail sales are sourced to Colorado.

Next, it proposed a special rule that establishes requirements and conditions for marketplace sales. The marketplace facilitator must collect and remit state-level and state-administered local taxes and must acquire a single sales tax license for both direct and facilitates sales unless functions performed by distinct entities. A marketplace seller is only relieved of collections obligations if they have obtained a certification that the marketplace facilitator will collect Colorado taxes.

In addition, the Department of Revenue also proposed amendments to its tangible personal property definition. The amendments note that the method of delivery does not impact the taxability of a sale of tangible personal property and offer clarifying examples: e.g., purchasing a downloaded movie is the same as purchasing a tangible DVD.

Kansas lawmakers did not take their second bite at the remote-seller and marketplace-facilitator apple during a special legislative session. On June 3, 2020, Representative Steven Johnson re-introduced HB 2014, which would have required remote sellers with $100,000 or more in annual in-state sales to collect and remit taxes and would have required marketplace facilitators meeting the $100,000 threshold to collect and remit taxes on behalf of their third-party sellers. It also would have made marketplace facilitators responsible for local transient guest taxes and some prepaid wireless 911 fees. The measure was previously introduced during the regular session, but it died in committee, and lawmakers failed to address it before the special session adjourned on June 4. Kansas remains the only state with a tax obligation for remote sellers without a legislative threshold.

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The Washington Department of Revenue’s Administrative Revenue and Hearings Division ruled that a company’s audit disqualifies its affiliates from participating in the state’s voluntary disclosure (VDA) program. One of the criteria for participating in the program requires that a business must have never been contacted by the Department for enforcement purposes including audits. The Division noted that the audit notice letters sent to the company indicated that the audit might reach the company’s affiliates and subsidiaries.
The Division concluded that while the separate treatment of incorporated entities is a key feature of the state’s tax structure, the audit of an affiliated entity constituted a prohibited contact for purposes of the voluntary disclosure program.

Wash. Dept. Rev. Det. No. 18-0070, 39 WTD 001 (2020).

States continue to consider tax legislation to balance their budgets in reaction to the COVID-19 pandemic. On May 27, 2020, Mayor Muriel Bowser signed D.C. Act 23-326, the Coronavirus Support Emergency Amendment Act of 2020. In part, this act limits net operating loss carryovers. For tax years beginning after December 31, 2017, corporations, unincorporated businesses, and financial institutions will now be allowed only an 80% deduction for their D.C. net operating loss carryovers.

This podcast is hosted by Tim Gustafson and features excerpts from the webcast of a casual conversation with Peter Blocker, Vice President of Tax Policy at CalTax. Tim speaks with Peter about his role at CalTax, as well as how the organization is analyzing certain California tax-related legislation, current bills he is following, and the impact of COVID-19 on his organization’s work.

More information about the California Taxpayers Association (CalTax) can be found here.

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The Mississippi Supreme Court held that a state chancery court erred in deferring to the Mississippi Department of Revenue and Mississippi Gaming Commission’s  regulatory interpretation of a Mississippi tax statute governing the computation of the state gaming license fee. However, the court agreed with the chancery court that costs of prizes from casino rewards program drawings were not deductible from gross revenue, based on the plain language of the statute.

Read our full legal alert here.

Washington has required remote sellers meeting the $100,000 annual revenue of 200 annual transaction threshold to collect and remit sales tax since October 1, 2018. The requirement was first introduced by regulation and later confirmed and clarified by statute. In a May 22 emergency regulation, the Washington Department of Revenue warned taxpayers not to rely on current sales and use tax regulations, which are outdated and incomplete regarding marketplace sellers. As the Department of Revenue works on updated regulations through the formal rulemaking process, taxpayers may find additional guidance and update on the Department of Revenue website.