The Supreme Court of Texas ruled that a corporation that owns and operates correctional facilities was not exempt from sales and use taxes as an unincorporated instrumentality of the United States or Texas. The corporation runs private prisons and enters into contracts with federal and state government agencies to house inmates. The Comptroller assessed the corporation for unpaid sales and use tax on supplies necessary to operate the facilities.  The corporation contended that it was a tax-exempt unincorporated instrumentality of the United States and Texas – a type of “governmental entit[y]” – because it performed quintessential government functions.

On appeal, the court concluded that the corporation failed to establish by a preponderance of the evidence that it was an unincorporated instrumentality of the federal and state governments. First, the corporation did not establish that it was an entity identified by the regulation as exempt. It could not prove that: (1) it is a military entity; (2) its contracts explicitly and unequivocally state that it was an agent of the governments; (3) it is wholly owned by the federal or state government, and (4) its contracts specifically named the corporation as an agent of the United States or Texas. Second, the court determined that the corporation also did not satisfy four of the six required characteristics to qualify as an otherwise exempt government instrumentality. 

GEO Group, Inc. et al. v. Hegar, No. 23-0149 (Tex. Mar. 14, 2025).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: The House of which midwestern state recently passed a bill that would changed the progressive tax structure with a flat tax structure?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Nevada Supreme Court found that the Nevada Department of Revenue’s (Department) attempt to ignore its email correspondence with a taxpayer violated “basic notions of justice and fair play.”

A Nevada statute requires that, in order to file a petition for judicial review of a tax deficiency, a taxpayer must first either pay the entire deficiency or enter into a “written agreement” with the Department. Prior to filing its petition, the taxpayer’s counsel communicated with a Department lawyer who responded with an email acknowledging an agreement. Nevertheless, the Department (amazingly) moved to dismiss the petition based on the startling contention that its email correspondence did not constitute a “written agreement.”

The Nevada Supreme Court found that the Department’s argument, that an email did not constitute a “written agreement” was “unpersuasive.” The court determined that the “most natural reading of the email is that the Department had come to an agreement” with the taxpayer. The court stated that a taxpayer should be able to rely on the advice they receive from the Department and that the Department “violated basic notions of justice and fair play.”

Hohl Motorsports, Inc. v. Department of Revenue., No. 87189 (Nev. Feb. 10, 2025).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state recently proposed a bill to provide various tax exemptions for the Women’s National Basketball Association All-Star Game when held in the state?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Merrimack County Superior Court held that the carryback long-term capital losses of one member of a unitary combined group can be used to offset the long-term capital gains of a different member of the group for purposes of computing the group’s Business Profits Tax. The New Hampshire Department of Revenue Administration argued that the group was not allowed to offset because its rule, N.H. Admin. R. Rev. 302.09, required each member of a unitary combined group to compute its gross business profits on an individual basis and did not allow the losses from one member to offset the gains of another member. The court held that the statute that required unitary combined reporting was ambiguous regarding the treatment of capital gains and losses. The legislative history, however, made clear that the purpose of unitary combined reporting was to treat the parent corporation and its subsidiaries as a single taxpayer and to prevent profit shifting across state lines. Thus, unitary combined groups are authorized to net the gains and losses of the group for purposes of computing the group’s gross business profits. The court also held that the rule improperly added and modified the statute, N.H. Rev. Stat. Ann. 77-A:6, IV, which “requires that members of a water’s edge combined to be treated as ‘one business organization.’”

Hologic, Inc. v. Stepp, Dkt. No. 217-2023-CV-282 (N.H. Super. Ct. Feb. 21, 2025).

Maryland is facing a $3 billion budget gap and is considering a host of tax hikes. On March 24, 2025, the Maryland House of Representatives Committee on Appropriations amended the state’s budget bill, House Bill 352 (cross-filed with Senate Bill 321) to include, among other things, a proposal to expand the sales and use tax base “to the licensing of media or software rights and other intellectual property,” certain “data or information technology service[s]” and “software or application software publishing service[s].”

If enacted, Maryland would become the first state to impose a retail sales and use tax on media rights in such a broad manner.[1] In 2021, Maryland expanded its tax to include streaming services. Now, under this proposal, Maryland would expand its tax to include the content licensed by the streaming services. A little bit of silver lining stems from the fact that this tax expansion is only at 3%, which is half of Maryland’s general sales tax rate. These changes – if enacted – take effect July 1, 2025. 

Background

The Maryland General Assembly has considered a number of business tax proposals to raise revenues to close the state’s significant budget gap. Assuming House Bill 352, as amended, is approved by the House, the legislation and its Senate companion will be finalized in conference committee where negotiations may result in subsequent amendments before the final version of the budget bill must be passed no later than Monday, April 7, 2025.

Media Rights and Other Intellectual Property

Examples of taxable media rights subject to sales and use tax in House Bill 352 include:

(i) software protected by copyright; licensing of rights to produce and distribute computer; (ii) licensing of rights to use intellectual property, including intellectual property protected by trademark or copyright; (iii) licensing of sporting event broadcast and other media rights; (iv) licensing of rights to broadcast television programs; (v) licensing of rights to broadcast television programs; licensing of rights to distribute specialty programming content; and (vi) licensing of rights to syndicated media content.

At this point, it is unclear how expansive “other intellectual property” will be interpreted by the Comptroller.

Data Processing, Information Services, and Software Publishing

House Bill 352 would also tax data processing and information technology services, including information services, as described in the 2022 Edition of the North American Industry Classification System (NAICS) sectors 518, 519, or 5415. Similarly, software publishing as described in NAICS sector 5132 would be subject to sales and use tax. This base expansion follows Maryland’s tax on digital products, including SaaS, that took effect on March 14, 2021. 

[1] Some states that impose broad gross receipts taxes, like New Mexico and Hawaii, tax some forms of intellectual property transactions, but not to the extent contemplated by House Bill 352, as amended.

On January 29, 2025, the Commonwealth Court of Pennsylvania held that a telecommunications company’s “non-voice” private line services were subject to the state’s gross receipts tax (GRT). The taxpayer described its services as offering “a dedicated, uninterrupted communications channel” by which their customers could “securely … and continuously transport voice, video and/or data as packets between specific fixed points.” After the Board of Appeals denied the taxpayer’s GRT refund petitions, the taxpayer appealed to the Commonwealth Court of Pennsylvania.

Pennsylvania imposes its GRT on the gross receipts from the “telegraph or telephone messages transmitted” of “every telephone company, telegraph company or provider of mobile telecommunications services.” 72 Pa. Stat. Ann. § 8101(a)(2). The taxpayer contended that its services were not subject to the GRT because they were “not voice services or otherwise telephone related.” Its private line services transported “high volumes of data at a capacity far in excess of low-capacity telephone messaging transmission to sophisticated customers.” 

However, in Verizon, the Pennsylvania Supreme Court previously made “clear that the [GRT] statute encompasses all technologies that have the function of transmitting messages, regardless of whether the mode is ‘voice, data, and/or video.’” (Emphasis added.) Further, the Pennsylvania Supreme Court had interpreted “telephone messages transmitted” to mean any service that makes “telephone communication more satisfactory.” The court also found persuasive that the Pennsylvania legislature has specifically exempted certain services sold by telecommunications companies, but not the non-voice private line services at issue here. The court thus concluded that the private line services were subject to the GRT because they “fulfill the purpose of making the process of transmitting messages more satisfactory.”

Level 3 Communications, LLC v. Commonwealth of Pennsylvania, Nos. 121 & 122 F.R. 2018 (Pa. Commw. Ct. Jan. 29, 2025) (unreported).

The California Franchise Tax Board’s method of taxing banks and financial institutions is consistently complex, and a bit messy. This complexity would worsen under the January budget proposal of California Governor Gavin Newsom to tax banks (and savings and loans) using single-sales-factor apportionment.

In this installment of “A Pinch of SALT” published by Tax Notes State, Eversheds Sutherland attorneys Eric Coffill and Megan Long explore the governor’s proposal and its potential implications. 

Read the full article here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state’s governor recently proposed eliminating its sales tax on groceries?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!