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Which president once handled state tax cases, securing favorable rulings for taxpayers involving property taxes and local gross receipts taxes?

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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).

Learn how your company may benefit from special property tax relief provisions that may apply to disaster declarations concerning COVID-19 including:

  • How to file claims
  • The importance of statutes of limitations
  • Quantifying damages
  • Comparison with business interruption insurance claims

 

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View the entire webcast, “COVID-19 Property Tax Relief Opportunities,” here.

 

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.

The Texas Supreme Court held that a defense contractor was entitled to a refund of franchise tax because it had incorrectly sourced certain sales of military aircraft made to foreign governments to Texas on its originally-filed returns for the 2005 through 2007 tax years. The contractor produced military aircraft in Texas, which it sold to the US government as well as certain foreign governments. Under federal arms-control laws, defense contractors are not permitted to sell certain products directly to foreign governments. Instead contractors must make these sales through the federal government, which acts as an intermediary by contracting with the foreign government and taking title to the property before it delivers the property to the foreign government. The contractor argued that these sales did not constitute Texas gross receipts because the foreign government was its customer, despite the fact that legal title in the aircraft transferred from the contractor to the US government at the contractor’s facility in Texas. The Comptroller argued that the transactions consisted of two distinct sales: one from the contractor to the US government and a second from the US government to the foreign purchaser. The Comptroller further argued that even if the foreign governments were the relevant buyers of the aircraft at issue, these aircraft were delivered in Texas and thus the receipts from such sales were properly sourced to Texas.

The Texas Supreme Court agreed with the contractor, holding that the US Government’s involvement as intermediary in sales of aircraft to foreign governments was a “condition of sale” and thus disregarded for franchise tax purposes under Texas’ statute, which was modeled on the Uniform Division of Income for Tax Purposes Act provisions governing the sale of tangible personal property. In particular, the Court found that under the “unique circumstances” presented by the contractor’s transactions, the pertinent customers for Texas franchise tax purposes were the foreign governments for whom the aircraft were manufactured and to whom they were ultimately delivered. The Court did not address the secondary question raised in the case, regarding whether Texas is a place of delivery state or an ultimate destination state. Instead, the Court ruled that the sales were sourced outside of Texas under either interpretation because the buyer was the foreign government and the jets were delivered to the foreign governments outside of Texas.

Lockheed Martin Corp. v. Hegar, Dkt. No. 08-0566 (Tex. May 1, 2020).