The South Carolina Administrative Law Court ruled that the taxpayer was required to collect sales tax on its retail sales of prepaid cellular telephone service.  The taxpayer argued that its sales did not constitute “prepaid wireless calling arrangements,” which must be “sold in units or dollars which decline with use in a known amount.”  Because it sold unlimited plans, the taxpayer contended its sales did not meet this test.  The court disagreed, finding the statute to unambiguously subject prepaid plans to sales tax.  Although the taxpayer’s prepaid plans were unlimited, they were still subject to a known unit and known expiration date of 30 days.

The Minnesota Tax Court held that  a tobacco distributor was entitled to a refund of Minnesota tobacco tax that it paid on federal excise tax (FET) that was passed through by the tobacco manufacturer, but only if the FET was separately stated on the manufacturer’s invoice. The court looked to the plain language of the statute, and decided that the FET is not included in the “wholesale sales price,” as statutorily defined, upon which the tobacco tax is imposed. However, if the FET is not separately stated on the invoice from the manufacturer to the wholesaler, then the entire amount is taxable.

Winner Tobacco Wholesale, Inc. v. Commissioner of Revenue, Dkt. No. 9049-R (Minn. Tax Ct., Aug. 6, 2018)

The Texas State Office of Administrative Hearings (“SOAH”) found that the receipts of a non-nexus member of a combined group (Company A) “should be deleted” from the computation of the group’s gross receipts for purposes of apportioning revenue to the state.  The group was in the business of franchising fast food restaurants.  On audit, the Texas Comptroller of Public Accounts determined that Company A had nexus with Texas because the group’s Texas franchisees were required to purchase their food products and supplies from an unrelated distributor that purchased the same items from Company A.  The Comptroller contended the distributor was acting as an agent for Company A in Texas and imputed the distributor’s nexus in Texas to Company A.  SOAH disagreed with the auditor’s determination and concluded that an agency relationship did not exist between the distributor and Company A.  An agency relationship only exists if: (1) one person acts for another, (2) both consent to the arrangement, and (3) the agent is under the principal’s control.  SOAH determined that there was insufficient evidence that Company A controlled the distributor.  In addition, Company A did not have nexus with Texas based on its own activities with Texas because it did not have physical assets or employees working in Texas.

Read our September 2018 posts on stateandlocaltax.com or read each article by clicking on the title. For the latest coverage and commentary on state and local tax developments delivered directly to your phone, download the latest version of the Eversheds Sutherland SALT Shaker app.

  • SALT Pets of the Month: Bear and Bacco
    Meet Bear and Bacco, the dynamic lab duo belonging to Eversheds Sutherland tax partner Brad Seltzer and his wife, Jenny.
  • New Jersey Tax Court Upholds Division’s Use of 25/50/25 Sourcing Rule
    The New Jersey Tax Court upheld the New Jersey Division of Taxation’s use of the 25/50/25 sourcing rule for “certain services” against a provider of mass messaging services by fax, email and voice. Specifically, the court upheld the Division’s determination of a 76% receipts factor, which consisted of 25% for all transactions originating in New Jersey, 50% for all transactions performed in New Jersey, and 1% for the percentage of transactions that terminated in New Jersey. Because the court determined that the taxpayer performed its service entirely in New Jersey, it stated that a 100% receipts factor could also have been appropriate under a cost-of-performance sourcing method.

FEATURED VIDEOS

  • Videocast: Reactions to Wayfair
    The US Supreme Court recently overruled the long-standing “physical presence rule” that barred states from imposing sales tax collection requirements on certain out-of-state sellers. However, in South Dakota v. Wayfair, Inc., the Court did not clearly state a new standard to replace the physical presence rule. States are responding to the decision in different ways. In this Bottom Line videocast, Eversheds Sutherland attorneys Todd Lard and Jessica Eisenmenger discuss:

    • the US Supreme Court’s decision in Wayfair;
    • the ambiguity of the new nexus standard; and
    • three approaches to nexus that states are taking in the wake of the Wayfair decision
  • Videocast: SALT Scoreboard – 2018 Mid-Year Review
    The quarterly Eversheds Sutherland SALT Scoreboard tallies significant state and local tax litigation wins and losses. In this Bottom Line videocast, Eversheds Sutherland attorneys Charles Capouet and Justin Stone discuss the results from the first two quarters of 2018, including:

      • how taxpayers have fared in litigation in the first two quarters of 2018 compared to 2016 and 2017;
      • three of the main cases from the second quarter of 2018: South Dakota v. Wayfair, Inc., Health Net, Inc. v. Oregon Department of Revenue, and Matter of XO Communications Services, LLC; and
      • the recent Cook County Circuit Court decision, Labell v. City of Chicago, which upheld Chicago’s amusement tax on streaming services.

    SALT SOCIETY

    SALT Society features events in the lives of tax practitioners. Check out our recent posts: Women in Tax Rock! and The Tale of Two Todds.

    We want to hear from you! Please share pictures from your vacation, a favorite hobby, family news or a new house!

The New Mexico Court of Appeals upheld the imposition of gross receipts tax on certain trademark-related royalty fees received by an out-of-state corporation pursuant to its franchise agreements with New Mexico businesses. The court examined whether, following statutory amendments in 2007, the royalty fees flowing from a limited trademark license provision contained within the franchise agreements “should be treated as being received from the grant of a franchise” and, thus, subject to the gross receipts tax, “or from the licensing of a trademark” and, therefore, not subject to the gross receipts tax. The court concluded that the trademark licensing provision was “central to the overall franchise and should be treated as part of the franchise,” and not as a standalone trademark licensing agreement, even though the provision was separately stated and itemized in the agreements.

A&W Rests., Inc. v. Taxation & Revenue Dep’t of New Mexico, No. A-1-CA-35999 (N.M. Ct. App. Aug. 22, 2018).

Meet Bear and Bacco, the dynamic lab duo belonging to Eversheds Sutherland tax partner Brad Seltzer and his wife, Jenny. Bear, a five-year-old chocolate lab, may have a tough name, but he gets along with everyone and loves snuggling. Bacco, named for Bacchus, the Roman god of wine, is a three-year-old charcoal lab who joined the Seltzer family as a companion for Bear. While Bear may put on a tough act and bark at strangers, Bacco has become the alpha male, protecting his home and family. When Bacco isn’t chasing Bear, stealing food off the kitchen counter or pulling down an entire fruit tree just to grab a peach, he loves playing with Bear and with the couple’s children and grandchildren. Bear and Bacco are so gentle; the kids regularly put their hands in the dogs’ mouths without any fear of being bitten. When they’re not at home playing with Frisbees, bones and sticks, Bear and Bacco love their daily hikes with Brad and Jenny in the hills near their Southern California home.

To submit YOUR pet to be featured, visit the Eversheds Sutherland SALT Shaker App, click the Pet of the Month in the drop-down menu, then click “Submit A Pet.”

The New Jersey Tax Court upheld the New Jersey Division of Taxation’s use of the 25/50/25 sourcing rule for “certain services” against a provider of mass messaging services by fax, email and voice. Specifically, the court upheld the Division’s determination of a 76% receipts factor, which consisted of 25% for all transactions originating in New Jersey, 50% for all transactions performed in New Jersey, and 1% for the percentage of transactions that terminated in New Jersey. Because the court determined that the taxpayer performed its service entirely in New Jersey, it stated that a 100% receipts factor could also have been appropriate under a cost-of-performance sourcing method.

 

Full cite: Xpedite Sys., Inc. v. Division of Taxation, No. 018847-2010

The signs that fall has arrived are everywhere: kids are back in school, Starbucks is promoting its pumpkin spice latte, and third quarter estimated taxes have been paid. Even though this weekend marks the official start of fall, some of us are still scrolling through pictures from our summer adventures. 

Associate Todd Betor and his wife, Michelle, spent part of the summer honeymooning in France. Before finding their inner Francophile, Todd and Michelle kicked off their trip with their friends’ wedding in London and idyllic Surrey. One of their trip highlights was biking throughout Ile de Ré, a small island off France’s western coast, where they stopped at coastal oyster shacks on their way to the beach. From there, Todd and Michelle rounded out their European honeymoon with stays in Bordeaux, Saint-Tropez, and Paris. Maybe Todd still has some French wine he could share with his colleagues.

Partner Todd Lard spent his summer vacation on a photo safari in Rwanda. After going on an African safari a few years ago, Todd and his partner, Brian, were inspired to visit another part of the continent. Rwanda is one of the few places in the world to see mountain gorillas in the wild and is devoting a lot of resources to protecting the wildlife. Todd remarked that the Rwandans were also some of the friendliest people he’s met on his travels. The highlight of the trip? Spending time with the gorillas in the wild, where Todd and Brian saw the oldest silverback in the park and a one-day-old baby gorilla. Todd was so inspired by his experience that he donated to Gorilla Doctors, an organization that provides medical care to the mountain gorillas. A true traveler, Todd is already looking ahead to a spring trip to Japan and a Canadian adventure to see the polar bears.

We hope the tale of two Todds inspires you to think about more than taxes.

September 26, 2108

TEI Chicago Chapter

State Tax – Indirect and Direct

Eversheds Sutherland is a proud sponsor of the Chicago chapter of TEI’s September 26, 2018 program on indirect and direct state tax. Join us for this engaging, day-long program. Registration information can be found here.

Eversheds Sutherland SALT lawyers are presenting on several panels including:

We hope to see you in Chicago!

 

From global tax planning to off-road driving adventures in the wilds of Pennsylvania – these women in tax rock!  Counterclockwise from the driver, Carol Wuerffel of Ameren, Chanel Frazier of BlackRock, Sharon Heck of Intel and our very own Eversheds Sutherland SALT partner, Maria Todorova.