A New York appellate court affirmed the Division of Tax Appeals (DTA) denial of a telecommunications company’s refund request on sales tax paid on its purchases of electricity. The telecommunications company argued that its electricity purchases were exempt from sales tax under one of two alternative grounds. First, the company argued that its purchase of electricity was an exempt sale for resale N.Y. Tax Law § 1105(a) because the electricity was resold to its customers “as a component part of the telecommunication services that it provides.” Alternatively, the company argued that, as a public utility, its purchases qualified for the exemption under N.Y. Tax Law § 1105(b) for purchases of electricity by a utility for resale as such – i.e., buying electricity to resell as electricity.

The court affirmed the DTA’s conclusion that the company did not meet its burden of proving that it purchased electricity for resale under either resale exemption theory. N.Y. Tax Law § 1105(a) requires that, in order to qualify for the resale sales tax exclusion, items purchased and resold must be tangible personal property. The court not only concluded that the electricity, in this context, was not tangible personal property within § 1105(a)’s sale for resale exemption, but cited a previous decision involving the company’s predecessor reaching the same conclusion. Matter of XO N.Y., Inc. v Comm’r of Taxation & Fin., 51 A.D.3d 1154 (N.Y. App. Div. 2008). The court also concluded that the exemption in N.Y. Tax Law § 1105(b) was not met because the company did not purchase electricity to resell as electricity. Instead, finding that the electricity was purchased to provide company’s telecommunications services.

Matter of XO Communications Services LLC v Tax Appeals Tribunal of the State of New York et al., No. 527336, 2020 WL 1705288 (N.Y. App. Div. Apr. 8, 2020).

On April 23, 2020, the Multistate Tax Commission (MTC), as part of its 2020 Spring Committee Meetings, held a meeting of its Executive Committee by teleconference. Over the prior two days, the MTC also held meetings of its Uniformity, Nexus, and Audit Committees.

The Eversheds Sutherland SALT group attended the Executive Committee’s public meeting. This committee is the “primary policy and administrative decision-making body of the MTC between meetings of the full Commission.” Keith Richardson, the Deputy Chief Financial Officer for the District of Columbia chairs the committee. In particular, the committee:

  • discussed the MTC’s recent decision to allow taxpayers to provide their own narratives during MTC audits;
  • announced MTC staffing changes;
  • approved potentially holding the annual meeting electronically; and
  • approved the Uniformity Committee’s Finnigan and P.L. 86-272 projects for public hearings.

Read our full legal alert here.

For the first time in its history, the Multistate Tax Commission (MTC) held its 2020 Spring Committee Meetings via teleconference in lieu of the in-person meetings originally scheduled to take place in Alexandria, Virginia. The Uniformity Committee held its meeting on April 22, while the Nexus and Audit Committees held meetings on April 21. Portions of each meeting were open to the public.

The Eversheds Sutherland SALT group attended all of these public sessions. Several interesting topics were discussed during these meetings, including:

  • an updated P.L. 86-272 Statement of Information;
  • the Multistate Voluntary Disclosure Program (MVDP);
  • and the status of MTC’s Joint Audit Program.

Read our full legal alert here.

The New Jersey Division of Taxation (Division) quietly issued special regulations addressing the inclusion and apportionment of global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII) for purposes of the Corporation Business Tax (CBT).

Taking advantage of special authority granted by the New Jersey Legislature in conjunction with 2018 amendments to the CBT,1 the Division issued the regulations without complying with the notice and comment requirements of New Jersey’s Administrative Procedure Act (APA).2 The regulations are effective beginning April 8, 2020 and expire on October 5, 2020, by which time it is expected that the Division will promulgate replacement regulations consistent with the APA’s procedures.

For the most part, the regulations track the Division’s recent guidance posted on its website on the treatment of GILTI and FDII. The regulations also provide new guidance on the circumstances when a taxpayer may have to include net GILTI or FDII amounts in the numerator of the New Jersey allocation factor.

Read our full legal alert here.

Join us on Friday, April 24 at 2:00 pm ET for a casual conversation with Duncan Riley, Director of the Conciliation Bureau at the New York City Department of Finance. Duncan has been the Director of the Conciliation Bureau since the Bureau’s inception in 1992. Previously, Duncan held positions in the Department as Deputy Director of the Office of Technical Services in the Tax Policy Division, and as Assistant Unit Manager in the Audit Training Group.

The Conciliation Bureau provides an informal and confidential avenue to resolve tax disputes related to a variety of New York City taxes, including the Business Corporation Tax, Unincorporated Business Tax, Real Property Transfer Tax, Commercial Rent Tax, and Utility Tax.

Duncan and his fellow Conciliators regularly settle disputes prior to any administrative or judicial appeal. In our experience, Duncan and his fellow Conciliators settle the vast majority of disputes that they hear.

We will talk to Duncan about his perspective on the Conciliation Bureau’s role in heading off litigation and brokering resolutions to tax disputes, as well as the impact of COVID-19 on the Conciliation Bureau’s work.

The webinar will be moderated by Eric Tresh and Open Weaver Banks

Register Now

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.

Today’s Question
What was the first state to enact a net income tax on corporations?

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 Monday. Be sure to check back then!

With the majority of the nation facing limitations on business travel and mandatory stay-at-home orders, states and localities are beginning to issue guidance on the impact that COVID-19 disruptions will have on withholding obligations for multistate employers. Some states have responded to COVID-19 telework requirements in a variety of ways:

  • New Jersey and Mississippi have altered their withholding policies to allow businesses to retain their same withholding for employees’ temporary pandemic-related telework location. In general, businesses likely will not incur new withholding obligations in these states as a result of in-state teleworkers who regularly work out-of-state.
  • Minnesota and Maryland issued guidance indicating that teleworkers may create new withholding obligations. Businesses in these states may need to change their withholding to reflect employees’ states of residence as their place of work. However, Maryland’s reciprocity agreements with most neighboring states could mean few changes for Maryland employers.
  • Ohio passed legislation providing that pandemic-related remote work does not count toward the 20-day withholding threshold for municipal income taxes.
  • For corporate income tax purposes (as opposed to withholding), the District of Columbia, Indiana and North Dakota indicated that they will not impose corporate income tax nexus due to the temporary presence of new teleworkers without specifying what impact this will have on withholding obligations.

This legal alert reviews some of the recent COVID-19 withholding guidance issued by states and localities so far, including its potential impact on employers and employees.

Thank you to everyone who participated in last week’s trivia question!

Last Week’s Question:
What was the first state to adopt a single-factor sales factor formula for apportioning an interstate corporation’s income for state income tax purposes?

The Answer:
Iowa. In Moorman Mfg. Co. v. Bair, 437 U.S. 267 (1978), the U.S. Supreme Court held that Iowa’s use of a single-sales factor did not violate the U.S. Due Process Clause or Commerce Clause, paving the path for a trend towards increasing weight placed on sales factors, while reducing the emphasis on property and payroll factors.

The dissent noted this particularity, with Justice Powell noting that “[i]t suffices to dispose of this case that nearly all the other States use a basic three-factor formula, while Iowa clings to its sales-only method.” Moorman Mfg. Co., 437 U.S. at 297, n.9.

Keep an eye out for our next trivia question on Wednesday!

The New York State Tax Appeals Tribunal affirmed a New York State Division of Tax Appeals determination denying a refund claim to a taxpayer that sought to apply the income sourcing rules for registered broker-dealers to receipts from its separate investment advisory business. The taxpayer structured its broker-dealer operations and investment advisory operations into two separate single-member limited liability companies (LLCs). The taxpayer claimed that it was entitled to apply the customer-based sourcing rules for registered broker-dealers under former N.Y. Tax Law § 210(3)(a)(9) to income from its investment advisory business because the LLCs were disregarded and deemed divisions under the federal check-the-box regulations. However, the Tribunal concluded that the taxpayer could not carry over one LLC’s status as a broker-dealer to the non-broker-dealer receipts earned by the other LLC. The Tribunal agreed with the Administrative Law Judge at the Division of Tax Appeals, who concluded that “even a disregarded entity that is not a registered broker-dealer is not disregarded under the check-the-box regulations in determining where its receipts are sourced for New York State corporate franchise tax purposes.”

In re BTG Pactual N.Y. Corp., DTA No. 827577 (N.Y.S. Tax App. Trib., Mar. 24, 2020).

New York State and City taxpayers should be aware that, at least publicly, State and City administrative bodies have taken different approaches regarding the applicability of Executive Orders tolling statutes of limitations.

Almost one month ago, New York Governor Andrew Cuomo issued Executive Order No. 202.8, which referenced a directive of the Chief Judge of the State to limit court operations to essential matters during the pendency of the COVID-19 health crisis. In furtherance of that directive, Governor Cuomo ordered the tolling of deadlines “for the commencement, filing, or service of any legal action, notice, motion, or other process or proceeding, as prescribed by the procedural laws of the state” from March 20, 2020 until April 19, 2020. (See our prior Legal Alert.) On April 7, 2020, Governor Cuomo issued Executive Order No. 202.14, which suggests that tolling periods are extended through “through May 7, 2020.” On April 16, 2020, Governor Cuomo issued Executive Order No. 202.18, which further extended Executive Order No 202.14 “through May 16, 2020.”

While Executive Order No. 202.8 specifically referenced its application to various legal actions, administrative tax appeal deadlines were not explicitly covered.

New York State and New York City have separate administrative forums for the resolution of disputes between taxpayers and their respective tax departments. The New York City Tax Appeals Tribunal (“City Tribunal”) consistently provided guidance stating that these Executive Orders are applicable to its matters. The City Tribunal’s website was first updated to state the following:

Per the Governor’s Executive Order 202.8 issued on March 20, 2020 the time limitations relating to the “commencement, filing, or service” in connection with a New York City Tax Appeals Tribunal proceeding are, as of March 20, 2020, tolled until April 19, 2020.

Subsequent to the issuance of Executive Order No. 202.14, the City Tribunal updated its guidance to reference the new Executive Order and state that time limitations are tolled until May 7, 2020.

Public guidance from the State’s administrative forum, however, suggests that the Executive Orders are not applicable to its matters, and that its statutes of limitations will not be tolled. Guidance on the New York State Division of Tax Appeals’ (“New York DTA”) website has consistently stated the New York DTA does not have “the authority to waive statutory deadlines” and, therefore “any petition, exception, or request for an extension of time to file an exception must be filed . . . by the current statutory deadline.” While the New York DTA is working with reduced staff and taking other distancing measures, such as adjourning hearings, it appears that the New York DTA is operating under the assumption that the Executive Orders only apply to the tolling of deadlines in courts, and the New York DTA is an administrative body rather than a court.