On April 29, 2022, the New York State Department of Taxation and Finance issued two sets of “final draft” regulations relating to the corporation franchise tax reform that took effect for tax years beginning on or after January 1, 2015. Since the sweeping corporate tax reform was enacted, the Department has published a series of proposed updates to the Article 9-A corporation franchise tax regulations, but the two sets of regulations issued on April 29 are the first to be identified as “final drafts.” One set relates to regulation Parts 1 – 3 (definitions, nexus, losses, etc.), and the other set relates to regulation Parts 5 – 10 (tax credits, reports, assessments, etc.). The Department has indicated that a third set of “final draft” regulations, regarding Part 4 (apportionment), will be published in “summer 2022.”

According to the Department’s website, the Department “intends to begin the State Administrative Procedure Act (SAPA) process to formally propose and adopt these regulations” this fall, and requests comments on the two sets of draft regulations by June 30, 2022.  

The Department’s website continues to include a “reminder” that “these draft regulations are not yet final and should not be relied upon.”

The draft regulations can be found on the Department’s website here.

The Minnesota Tax Court ruled that a separately stated surcharge covering credit card processing fees was subject to sales tax. The taxpayer, a sole proprietor, operates vacation rental properties that are held out for booking either directly through the taxpayer or through third-party marketers. The taxpayer charges a 4% separately stated surcharge for reservations booked directly with him as a reimbursement of his credit card fees. The taxpayer had not collected sales tax on the surcharge. The Tax Court concluded that the credit card surcharge is included within the broad statutory definition of “sales price,” and thus is subject to sales tax. The Tax Court reasoned that the surcharge is an expense of the seller that cannot be deducted from the sales price and that the fee did not qualify for the exception for “carrying charges from credit extended on the sale of personal property or services.”

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

We will award prizes for the smartest (and fastest) participants.

This week’s question: Who was our April 2022 SALT Pet of the Month?

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. Answers will be posted on Saturdays in our SALT Shaker Weekly Digest. Be sure to check back then!

It is still early in the 2022 session of the California Legislature, which reconvened on January 3, and goes on final recess on August 31. However, a number of proposals to increase taxes are already under consideration.

In his article for Financial Advisor Magazine, Eversheds Sutherland Senior Counsel Eric Coffill details current tax increase proposals to watch.

Read the full article here.

This week, Eversheds Sutherland attorneys Maria Todorova, Eric Tresh and Liz Cha will participate in panel sessions during TeleStrategies’ 2022 Communications Taxation Conference in New Orleans, LA. The conference addresses the challenging and complex domain of telecommunications taxation, regulatory compliance and fees.
On May 5, Eric and Liz will provide an update on key litigation and controversies involving the taxation of newer technologies and the proliferation of cross-over products that integrate with telecommunications services, as well as the taxation of traditional voice, applications and data services. The session will also review legislative initiatives impacting the telecommunications industry. On May 6, Maria will cover the policy considerations for and against gross receipts taxes (such as pyramiding) and current issues and controversies associated with the proper application of those taxes.
View and learn more about past and upcoming events and presentations for the SALT team.

“Business-friendly” Texas has been the leading poacher of California-based companies for over a decade, with relocations from tech-dominated California only accelerating during the pandemic. Oddly enough, at a time when Texas’s highest-profile new neighbors are known for cutting-edge research, the state seeks to narrow the scope of its research and development credit applicable to some internal-use software.

Last fall the Texas Comptroller of Public Accounts adopted amended rules concerning the state’s R&D credit applicable to franchise and sales taxes. These amendments provide detailed guidance regarding how the comptroller seeks to administer the credit in the future.

However, the way in which Texas conforms to the Internal Revenue Code has led the comptroller to misapply the federal regulations to Texas’s R&D credit. This misapplication may create unpleasant surprises for Texas taxpayers, particularly those relocating operations to the Lone Star State.

In this installment of A Pinch of SALT for Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman, Mary Monahan, Dennis Jansen and Mary Kate Nicholson look at Texas’s recently amended rules and their impact.

Read the full article here.

The New York State Supreme Court, Appellate Division, affirmed a New York trial court decision denying a taxpayer’s motion to dismiss a False Claims Act suit brought against the taxpayer in relation to its sales of artwork to an alleged art collector under a resale exemption. According to the complaint, an employee of the taxpayer advised an individual purchaser of artwork to submit a resale certificate in order to avoid paying New York sales tax on his purchase of artwork, despite knowing that the purchaser’s occupation was as a shipping executive and that he had no plans to sell the artwork. The taxpayer’s employee allegedly provided the purchaser with the resale certificate and partially completed the certificate on his behalf. Over the course of five years, the purchaser bought artwork totaling $27 million from the taxpayer without paying New York sales tax, based on the resale certificates. The Appellate Division held that the alleged facts, if proven, would demonstrate that the taxpayer had actual knowledge that the purchaser’s purported exempt status was false and the taxpayer therefore violated its obligation to collect sales tax owed on the purchases. The Appellate Division further found that the facts alleged in the complaint permitted the inference that facilitation of knowingly false resale certificates by the taxpayer’s employees fell within the scope of their employment and was committed in furtherance of the taxpayer’s commission-based business. As a result, the Appellate Division, in a unanimous decision, upheld the trial court’s denial of the taxpayer’s motion to dismiss the complaint for failure to state a cause of action.

N.Y. v. Sotheby’s Inc., Case No. 2021-03657 (N.Y. App. Div. Apr. 14, 2022).

In this episode of the SALT Shaker Podcast, host and Eversheds Sutherland Associate Jeremy Gove welcomes Associates Dennis Jansen and Mary Kate Nicholson for a discussion about Texas’s R&D credit, and the impact of the state’s recently amended rules. In addition, they address an article they recently authored in Tax Notes State covering the topic.

During the conversation, Dennis offers background and analysis of the Texas R&D credit and the Comptroller’s recently promulgated (and retroactive) rules regarding internally developed software. As these rules rely on their federal counterpart, Mary Kate is called upon to dissect the federal research and experimentation (R&E) credit for internally developed software and its interesting history.

They conclude with Jeremy’s weekly question – overrated/underrated? This week, it’s simple. How do you feel about sleep?

Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

 

 

 

 

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

We will award prizes for the smartest (and fastest) participants.

This week’s question: What was the first state to pass legislation decreasing corporate and individual income tax rates this year?

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. Answers will be posted on Saturdays in our SALT Shaker Weekly Digest. Be sure to check back then!

 

 

On April 21, the Connecticut Department of Revenue Services released Ruling no. 2022-2, finding that online learning plans were not taxable digital goods. The company offers various learning plans which address educational needs through virtual learning and on-demand digital courses in academic subjects, professional topics, and vocational licensure preparation courses. The company’s platform is accessed from computers or via the company’s mobile device application. Because the company’s service consists of both taxable digital goods and enumerated taxable services, the Department applied the “true object test” to determine taxability of the service. In this case, the “true object” of the transaction is the is the education or training offered, including live tutors, practice quizzes, and credit toward academic, vocational or professional accreditation, rather than the sale of a digital good. The Department concluded that while the learning plans are generally not subject to sales tax as digital goods, under certain circumstances, the learning plans could be treated as taxable job-related training, computer training, or software training.