This podcast discusses state and local tax issues arising from the COVID-19 crisis including:
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Thank you to everyone who participated in last week’s trivia question!
Last Week’s Question:
The Internal Revenue Service was created by which U.S. President?
The Answer:
In July 1862, President Abraham Lincoln and Congress passed the Revenue Act of 1862, creating the office of Commissioner of Internal Revenue and enacting a temporary income tax to pay for expenses arising from the Civil War.
Keep an eye out for our next trivia question on Wednesday!
In a recent private letter ruling, the South Carolina Department of Revenue concluded that a motor vehicle rental company is responsible for remitting sales tax on short-term vehicle rentals entered into through its online peer-to-peer rental program. Applying South Carolina’s statutory definition of “gross proceeds of sales,” which includes the proceeds of sales through a marketplace by a marketplace facilitator, the Department found that the peer-to-peer short-term vehicle rentals in South Carolina are subject to sales tax. Specifically, the Department found that the company is a marketplace facilitator within the state’s statutory definition because of its website and mobile application where third parties advertise and rent vehicles. Therefore, the Department concluded that the company, as a marketplace facilitator, must remit sales tax on short-term vehicle rentals entered into through its online peer-to-peer rental program.
The Washington Court of Appeals held that taxpayer’s receipts for referral services are sourced to Washington for B&O tax purposes to the extent that such receipts are received from a lender located in Washington. The taxpayer operates an online platform through which the taxpayer offers educational tools on the loan process to prospective borrowers, analyzes their financial information and other data and refers them to potential lenders. Washington B&O tax law provides that a service-related business must apportion the receipts from its services to the state “[w]here the customer received the benefit of the taxpayer’s service.” RCW 82.04.462(3)(b)(i). Further, “the benefit is received where the customer’s related business activities occur.” WAC 458-20-19402(303)(c). Here, the Washington Court of Appeals determined that the benefit of the taxpayer’s referral services is received at the business location of the taxpayer’s customer. The Department argued that the taxpayer provides advertising services for its customers, i.e. the lenders, and thus the benefit of the taxpayer’s services is received in the states where prospective borrowers are located. The court disagreed with the Department’s characterization of the taxpayer’s services and the related business activity of the lenders. The court found that the taxpayer does not provide advertising services, citing that the taxpayer does not use the lenders’ names in its advertisements to prospective borrowers and the relationship with each borrower is initiated by the taxpayer and remains with the taxpayer until a referral is made. Therefore, the court held that the services provided by the taxpayer were most closely related to its customers’ lending services, which occurred at the customers’ places of business.
LendingTree LLC v. State, Dept. of Revenue, No. 80637-8-I (Ct. of App. Wash., March 30, 2020).
The Tennessee Governor signed a bill that requires marketplace facilitators to collect and remit sales and use tax on behalf of third party sellers on April 1, 2020. Under S.B. 2182, marketplace facilitators that made or facilitated total sales of more than $500,000 during the previous 12 months to consumers in Tennessee will be required to collect and remit sales and use tax. The bill will take effect on October 1.
On March 31, the South Carolina Department of Revenue issued a private letter ruling (PLR) finding that a car rental company in the state is responsible for sales tax on short-term rentals because it qualifies as a marketplace facilitator. The DOR determined that the company was a marketplace facilitator because it operates on a website through which cars are listed for rent from one third party user to another.
The Missouri Supreme Court held that a company’s sales of linens, mattresses, desks, garbage cans, and DVD players to a company operating a chain of hotels were not exempt from sales tax as sales for resale. The court rejected the furnishing company’s argument that the sales were exempt because the hotels built the cost of the furnishings into their nightly room rates. The court explained the sale-for-resale exemption applies only if there is a transfer of title or ownership for consideration. Hotel guests may have received the right to use the furnishings, like linens, mattresses, and desks, but they did not acquire title or ownership of those items.
The court acknowledged that prior cases suggested that mere use would be sufficient, and attributed that to the court’s prior “tangled analysis” conflating the sales tax and use tax definitions of “sale.” The court clarified that for purposes of the sale-for-resale exemption, one must look only to the sales tax definition of “sale,” and not the use tax definition.
DI Supply I, LLC v. Missouri Director of Revenue, No. SC97932 (Mo. Mar. 17, 2020) (en banc).
Please join Michele Borens, Charlie Kearns and Liz Cha on April 15 at 12 pm ET for a webcast that looks at the latest developments in online marketplace litigation.
The recently enacted federal CARES Act makes significant changes to the I.R.C., including rolling back certain limitations on NOL utilization and increasing the interest expense limitation in I.R.C. § 163(j). Because of states’ differing rules on NOLs and conformity to the I.R.C., the CARES Act’s changes to the federal rules will have varying SALT implications. While designed to alleviate the economic repercussions of the COVID-19 pandemic, companies should consider the interaction of the changes made by the CARES Act with other provisions of the I.R.C. and states’ conformity therewith. Paramount is the interaction of the NOL and I.R.C. § 163(j) changes with companies’ GILTI calculation and states’ conformity to the I.R.C. § 250 deduction. Please join Todd Betor and Justin Brown on Tuesday, April 14 at 12 pm ET as discuss these points and other SALT implications of the CARES Act.
