On March 7, 2020, Governor Andrew Cuomo issued Executive Order No. 202, declaring a State disaster emergency in New York in response to the COVID-19 outbreak. Since that date, Gov. Cuomo has issued a series of Executive Orders providing New York taxpayers with some initial relief in response to the COVID-19 health crisis.
Read the full Legal Alert here.
The California Office of Tax Appeals (OTA) has announced an Interested Parties Meeting to discuss, in an informal proceeding, proposed changes to its rules for tax appeals. The meeting is scheduled for April 3rd and will be held telephonically and live streamed. Both the Notice and the proposed changes can be found on the OTA website.
This podcast discusses the Seventh Circuit Court of Appeals’ recent decision in A.F. Moore v. Pappas, which permitted a group of taxpayers to challenge their Cook County property tax assessments in federal court notwithstanding the Tax Injunction Act. It discusses:
Listen to the full podcast here.
The Florida Department of Revenue determined that a platform software company should source its income from user fees and from its sale of services on a market basis, based on the location of the customer to which the services are provided. The platform software company provided a platform for developers to create and sell software applications, collecting user fees for access to its platform and for purchases from the platform. Florida law sources such sales to Florida if the “income producing activity” is entirely or predominantly performed in the state. Under the Department’s ruling, the income producing activity for the user fees is for access and for purchases, which occurs where the customer is located. Accordingly, the Department concluded that such sales should be sourced based on the user’s billing address. The determination of the “income producing activity” in Florida remains a hotly debated topic. Software service providers should take care to consider their individual facts and circumstances associated with Florida income tax sourcing.
Fla. Tech. Assistance Advisement No. 20C1-001, Fla. Dept of Rev., (Jan. 13, 2020)
The Washington Court of Appeals held that Seattle’s method of apportioning the City’s business and occupation tax (B&O tax) was unconstitutionally applied and unfairly apportioned when the City excluded compensation paid to independent representatives from the apportionment payroll factor. The taxpayer, a financial services firm headquartered in Seattle, generated most of its income through the sale of securities by registered representatives based outside the City. In calculating the payroll factor for its B&O tax liability, the taxpayer included the compensation paid to these registered representatives. The City disagreed with this method and argued that the taxpayer’s representatives were independent contractors, not employees, and therefore should be excluded from the payroll factor (which roughly tripled the taxpayer’s B&O tax liability). The court, however, concluded that the City’s method was not externally consistent as applied to the taxpayer because the City failed to consider where and how the taxpayer generated its income. It did not matter whether income was generated by independent contractors or employees working outside the city. The court reasoned that “either way they are not working in the city” and thus, “the city has no claim to a ‘fair share’ of the income they generate.”
City of Seattle v. KMS Financial Srvs. Inc., Dkt No. 78946-5-I (Wash. Ct. App. Feb. 24, 2020).
On March 2, 2020, the Oregon Tax Court held that the application of the state’s E911 Tax to a provider of interconnected VoIP services (“Taxpayer”) did not violate the Due Process and Commerce Clauses of the U.S. Constitution. The E911 Tax is imposed on each person with access to Oregon’s emergency communications system, whether through VoIP or through a wired or wireless telecommunications service. The Oregon Department of Revenue assessed E911 Tax on VoIP services for the quarters ending March 2013 through March 2016. Rather than challenge the taxability of the VoIP services, Taxpayer protested the assessment on Due Process and Commerce Clause grounds. The Tax Court succinctly rejected these arguments. First, the court held that the E911 Tax satisfied the Due Process Clause. Taxpayer had minimum contacts with the state. It purposefully availed itself of Oregon’s market based on the nature of its business as a seller of ongoing services, the number and dollar volume of its Oregon sales, and the pattern of its growth. And the E911 Tax was rationally related to values connected with Oregon. The tax revenue is spent to maintain Oregon’s emergency communication network, to which, by federal law, Taxpayer must provide its customers access. Second, the court held that the E911 Tax satisfied the Commerce Clause. Rejecting Taxpayer’s argument that the court should apply a physical presence nexus standard, the court held that Taxpayer had substantial nexus with the state because its annual Oregon revenue exceeded the $100,000 South Dakota threshold approved by the U.S. Supreme Court in South Dakota v. Wayfair, Inc. And the E911 Tax was sufficiently related to the services Oregon provides because the tax applies on a “per line” basis—finding there to be a strong connection between the number of lines and Taxpayer’s revenue. Ooma, Inc. v. Oregon Dep’t of Revenue, No. TC 5331 (Or. Tax Ct., Reg. Div. Mar. 2, 2020).
To submit your pet for our SALT Pets Working from Home series, send us a photo of your pet working from home on Twitter using #SALTPets or email saltonline@eversheds-sutherland.com.
Meet Whiskey, a six-and-a-half-year-old Cavalier King Charles Spaniel. With his doggy-day-office recently closed until further notice, Whiskey began a work-from-home internship with his boss-mom, Teresa Chiftis, Director, Tax Controversies, at Microsoft.
So far, Whiskey has embraced his new responsibilities, which include fetching coffee, making leash payments, serving as office security, and greeting visitors. Whiskey is the first to admit that the mornings have been a little ruff, but after that first cup of joe, his team is ready to tackle the day.
In his new position, Whiskey has tried to make it a point to stand up for himself, and not roll over to unnecessary demands. To that end, he insists on sitting on Teresa’s lap throughout the work day, and when it comes to the heavy lifting, he leaves that to his office mate and big-brother, Rocky!
To submit your pet for our SALT Pets Working from Home series, send us a photo of your pet working from home on Twitter using #SALTPets or email saltonline@eversheds-sutherland.com.
This podcast discusses recent state proposals related to the Interstate Compact Agreement to Phase Out Corporate Incentives, which attempt to create an agreement among state governments to curtail company-specific tax incentives and grants as a method to lure companies into relocating existing facilities by member states.
It discusses:
Listen to the full podcast here.
Not even state taxes are immune from the COVID-19 pandemic. Below is a quick checklist – as of the time of publication – of coronavirus-related items and concerns affecting California state taxes.
The Michigan Court of Appeals recently held that the state’s statutory apportionment formula was unconstitutionally distortive as applied to a taxpayer’s Michigan Business Tax (MBT) liability. Therefore, the taxpayer was entitled to use an alternative formula. The court noted that this is an exceptional case where the taxpayer met its burden to show that the business activity attributed to it was “out of all appropriate proportion to the actual business activity transacted in Michigan,” leading to a grossly distorted result.
The taxpayer is the successor company to MLI, an S corporation engaged in oil and gas pipelines and providing HAZMAT response services. During the period prior to the sale, MLI was retained to assist in the cleanup of a severe oil pipeline spill in Kalamazoo, Michigan. MLI operated a multistate business but did not maintain a permanent business location in Michigan or retain permanent employees in the state. During the cleanup project, MLI sold all its assets to the taxpayer on March 31, 2011 and elected to treat the sale of its stock as a sale of its assets under IRC § 338(h)(10).).
In its return for the short year, MLI included the sale in its tax base and in the denominator of the sales factor, resulting in a sales factor of approximately 15 percent. On audit, Michigan excluded the sale from the sales factor denominator, increasing it to almost 70 percent due to the Kalamazoo cleanup activity compared to its historic 7% Michigan sales factor.
The court held that to impose a tax on 70 percent of the gain of the sale was not commensurate with the “protection, opportunities and benefits” that Michigan conferred on MLI, where the majority of the activities making up MLI’s fair market value at the time of the sale had occurred outside Michigan’s borders. By looking at the short year and its unusual concentration of activity in Michigan, an unconstitutional distortion was created that ran afoul of the Due Process and Commerce Clauses, incorporated in Michigan’s apportionment statute, because it did not fairly determine the portion of income from the sale reasonably attributed to in-state activities.
