The Florida Department of Revenue issued a Technical Assistance Advisement concluding that an internet-based streaming video subscription service is subject to Florida’s communication services tax. The Taxpayer maintains a website where viewers can watch live or on-demand video of individuals (or, “Broadcasters”) playing video games, music or e-sports events. Among other things, the website provides a chat function, whereby viewers may interact with the Broadcasters. Viewers may access this content free of charge or purchase a variety of site-wide or Broadcaster-specific subscriptions to receive additional benefits.

The Taxpayer argued that their services are distinguishable from other streaming subscription services because subscribers purchase subscriptions primarily to support Broadcasters, rather than to receive access to streaming video content (the vast majority of which is available for free to non-subscribers).

The Department nevertheless concluded that the Taxpayer provides a video service subject to the communications services tax. However, because the communications services tax applies only when consideration is paid, the provision of free access to the website is not subject to the tax. Separately, the Department concluded that the Taxpayer’s services did not constitute a sale of tangible personal property or a sale of a taxable service for Florida sales tax purposes.

Florida Technical Assistance Advisement No. 19A19-001, 8/7/2019

The quarterly Eversheds Sutherland SALT Scoreboard tallies significant state and local tax litigation wins and losses. Twice each year, Eversheds Sutherland releases a videocast analyzing recent results.

In this Bottom Line videocast, Charles Capouet and Samantha Trencs discuss:

  • the overall results for 2019, including a breakdown of corporate income tax and sales and use tax case results
  • comparisons with the results from prior years
  • significant Q4 2019 cases, including Matter of Mackenzie Hughes LLP v. New York State Tax Appeals Tribunal

Watch the full video here.

A Louisiana legislator has pre-filed S.B. 138 ahead of the legislative session beginning March 9. The bill would require marketplace facilitators to collect and remit sales and use tax if they have either $100,000 of in-state sales or 200 total in-state sales. A person can be a marketplace facilitator even if it does not receive compensation for its services. Louisiana’s remote seller law, which takes effect July 1, 2020, created a central commission for the administration and collection of taxes for remote sellers. Marketplace facilitators would report and remit taxes to that same commission, rather than individual localities. If passed, the law would become effective January 1, 2020.

Mississippi H.B. 379, introduced in late January, has been approved by the House 106-13 and advanced to the Senate. The bill obligates marketplace facilitators with sales in excess of $250,000 to collect and remit sales and use tax. A person can be a marketplace facilitator even if it does not receive compensation for its services. Additionally, marketplace facilitated sales will not count towards the same $250,000 threshold present in the state’s remote seller law. If passed, the bill will become effective July 1, 2020.

On February 28, 2020, Maryland’s proposed Digital Advertising Tax was the subject of a hearing by the Maryland House of Delegates’ Ways and Means Committee. House Bill 695 would impose a tax on Maryland gross revenues from digital advertising services at a rate of up to a 10%. An archived video of the hearing is available here.

After introductions by the bill’s sponsor – Delegate Washington – the Ways and Means Committee heard testimony from numerous witnesses, both supporting and opposing the bill. Delegate Washington noted that he had amendments to the bill that have not been introduced or described in any detail, although there was commentary that the amendments would address the bill’s sourcing provision and potential Internet Tax Freedom Act violations.

Read the full Legal Alert here.

This year’s TEI Audits & Appeals: State and Local Tax Controversy Program focuses on issues and practical techniques to resolve state tax controversies at the audit level. Sessions include:

  • Panel of state tax judges from around the country, moderated by Professor Richard Pomp
  • Negotiation strategies led by an expert negotiator
  • Writing workshop focused on protests and IDRs
  • Panel of department of revenue tax auditors

Featured session: How to Write a State Tax Protest and Response to State Tax IDRs Effectively

Legal Writing Works’ Kiko Korn will join Partner Tim Gustafson to present this interactive session that teaches tools for powerful persuasion and effective strategies for streamlining prose.

Register for TEI’s Audits and Appeals Seminar.

Valentine’s Day might have come and gone, but there’s still plenty of love to go around, and we just love Lucy, the adorable dog that belongs to Olga Tsipursky, Senior Manager of International Tax at Amazon.

However, Lucy is still looking for her own Ricky Ricardo, and in the spirit of Valentine’s Day, we thought we would give her a paw and feature her dating profile for our February Pet of the Month.

Name: Lucy Tsipursky
Nickname: Lucille
Breed: Tri-Colored Cavalier King Charles
Age: 6. I was basically born on Valentine’s Day (February 15), so I’m a hopeless romantic with a ton of love to give.
Ideal date: A coffee house. Just put a Starbucks puppuccino in my paws and I’m happy dog!
What does your typical weekday look like: I’m generally at the office with Olga first thing in the morning. I’ll join her for some tax meetings, but sometimes I’ll need to excuse myself for another project or important meeting – tracking down food. I’ll then make my rounds around the office, pick a target and stare them down for treats – you would be surprised at how high the success rate is.
Favorite activities: On the weekends, I love going for hikes, playing fetch in the parks (what Lucille doesn’t like a ball??), and lazy day snuggles with Olga when watching a movie.
Favorite outfit: My red Eversheds Sutherland Tax Hoodie of course!
Bad Habit: Olga would say it’s my snoring, but it’s probably how I twist and pull anytime I’m on a leash. I’m perfectly fine when I get to walk off-leash, so I think I should be allowed to walk without a leash all the time!
Special Talent: People tell me that I melt hearts everywhere I go and those who meet me tend to fall in love. I’m calm and friendly and apparently have a cute habit of letting my tongue stick out while sleeping. I think those are a few examples of some of my endearing qualities that hopefully some lucky pup will come to love!

We are thrilled to feature Lucy as our February Pet of the Month!

In 2020, state and local tax practitioners have witnessed the emergence of a new trend: the proposed taxation of advertising services and data usage. In this Bottom Line webcast, Charles Capouet and Samantha Trencs discuss:

  • the proposed Maryland tax on gross revenues from digital advertising services
  • potential expansions of the Nebraska and South Dakota sales taxes
  • proposals for new taxes on data and data mining in New York and West Virginia

Check out the webcast here.

On February 6, 2020, the Ohio Board of Tax Appeals held that a captive automobile financing company was not subject to commercial activity tax (CAT) on receipts that it earned in connection with three types of revenue streams:

  1. receipts from sales of retired leased vehicles,
  2. receipts from securitization transactions, and
  3. interest subvention payments.

Background: The CAT is a gross receipts tax imposed at a rate of 0.26% of a taxpayer’s total gross receipts. Tax is imposed on total gross receipts; deductions for costs of goods sold or other expenses incurred in producing the receipt are generally not allowed. While the term gross receipts is broadly defined, the statute imposing CAT contains a long list of receipts excluded from the definition of “gross receipts.” Among the exclusions are (i) receipts from the sale of a capital asset (as defined in IRC § 1221) or an asset used in the taxpayer’s trade or business (as defined in IRC § 1231), (ii) receipts constituting interest income, and (iii) receipts from the proceeds of a loan. Ohio Rev. Code Ann. § 5751.01(F)(2)(a), (c), and (e).

These three exclusions were the focus of Hyundai Motor Finance Co v. McLain. The Board held that the taxpayer’s receipts each qualified for exclusion, and thus, did not constitute “gross receipts” for the purposes of the CAT.

1) Sales of Retired Leased Vehicles
The taxpayer was in the business of leasing vehicles to consumers. At the termination of the leases, it sold the vehicles to third-parties, or at the lessee’s option, to the lessee. The Board agreed with the taxpayer that the leases were assets used in the taxpayer’s trade or business within the meaning of IRC § 1231 – notwithstanding the fact that the vehicles were available for purchase to the lessees. Therefore, receipts from disposition of the vehicles were excluded from the CAT under Ohio Rev. Code Ann. § 5751.01(F)(2)(c). In concluding that the assets were IRC § 1231 property, the Board relied on federal case law involving similar vehicle lessors and the fact that the vehicles were subject to depreciation under IRC § 167 (as IRC § 1231(a) requires).

2) Securitization Transactions
The second revenue stream at issue was the taxpayer’s receipts from the securitization of vehicle retail installment sale contracts (RISCs). The taxpayer transferred the RISCs to bankruptcy-remote entities, which issued notes backed by the RISCs as collateral. These securitization transactions are “secured financing” (not sales) for federal income tax purposes under IRC 1001 and IRS Technical Advice Memorandum (“TAM”) 9839001. The Board held that although “not binding,” the federal treatment of the transactions was “persuasive,” and therefore, the financing receipts were excluded from the CAT as proceeds of loans under Ohio Rev. Code Ann. § 5751.01(F)(2)(e).

3) Subvention Payments
Finally, the taxpayer received payments from manufacturers and dealerships for its role in special financing programs that provide below-market interest rates for RISCs and customer vehicle leases. Although the taxpayer identified the payments as “subsidy amounts” in its financial statements, the subvention payments are treated as interest for GAAP and federal income tax purposes. While remarking that the accounting and federal treatment of these payments was “not necessarily controlling,” the Board found them to be “persuasive” and held that the payments were for the use of money and properly excluded from CAT as interest under Ohio Rev. Code Ann. § 5751.01(F)(2)(a).

Hyundai Motor Fin. Co. v. McClain; Case No. 2015-785, Ohio Bd. Tax. App. (Feb. 6, 2020)

On February 20, 2020, the Maryland House of Delegates introduced HB 1628, which would reduce the sales tax rate from 6% to 5% and expand the base to tax almost all services. If passed, the bill would take effect January 1, 2021. This bill is sponsored by key members of House leadership, including the House Majority Leader, the Chief Deputy Majority Whip, and the Chairs of the Ways and Means, Economic Matters, and Appropriations Committees. The bill is currently assigned to the House Rules and Executive Nominations Committee.

The Eversheds Sutherland SALT Team will continue to follow HB 1628, along with Maryland legislators’ attempts to tax digital goods and digital advertising services.