Bundled and mixed transactions continue to play an ever‑increasing role in New York sales tax determinations, particularly where nontaxable services are sold with software or other taxable property for one nonitemized price.

In this installment of “A Pinch of SALT,” published by Tax Notes State, Eversheds Sutherland attorneys Jeremy Gove and Periklis Fokaidis examine how New York’s recent decisions evaluating bundled transactions have led to confusion – and how the Appellate Division’s decision in Matter of Beeline may finally be providing clarity.

Read the full article here.

On April 2, 2026, the Supreme Judicial Court of Maine ruled that a liquor supplier was subject to Maine income tax and owed nearly $750,000 in state income tax, penalties, and interest for the 2011-2017 tax years.

The liquor supplier argued that it was not subject to income tax because it did not have nexus with the state and because PL 86-272 protections applied in any event. The Court rejected both arguments. It found that the taxpayer had nexus because Maine’s law applicable to liquor sales required the supplier to ship liquor to a bailment warehouse in Maine under contracts that provided the supplier retained title to the liquor until removed from the warehouse. The Court thus concluded that the taxpayer owned property at the bailment warehouse in Maine and made sales from that warehouse, sufficient to give it nexus under Maine’s income tax statute. The Court rejected the taxpayer’s PL 86-272 argument for the same reason, finding that the compelled bailment and compelled delay in transfer of title exceeded the protected activities of PL 86-272, and thus the Company was subject to income tax.

State Tax Assessor v. Fifth Generation, Inc., No. Ken‑24‑490 (Me. Apr. 2, 2026).

In Det. No. 23-0004, 45 WTD 013 (2026), the Washington Department of Revenue (DOR) concluded that professional implementation services and associated travel reimbursements are subject to retail sales tax when provided exclusively in connection with a Digital Automated Service (DAS).

The taxpayer was a software provider that offered cloud-based solutions to state and local governments. Its primary product was a platform used for public interactions, such as permitting and licensing, supplemented by a payment processing application. Because these applications are transferred electronically and utilize software applications to perform tasks, the Department classified them as Digital Automated Services.

The dispute centered on the taxability of “Time and Materials” (T&M) charges for implementing the product, and “Time and Expense” (T&E) charges for reimbursed costs (e.g., airfare). Under Washington law, services that are provided “exclusively in connection with” the sale of a DAS are considered a retail sale, even if such service would otherwise be non-taxable. RCW 82.04.050(8)(b). 

With respect to the time and material charges, the taxpayer argued that its T&M work constituted the “customization of prewritten computer software,” which is specifically excluded from the definition of a retail sale under RCW 82.04.050(6)(b). With respect to the taxability of reimbursed costs, the taxpayer contended that it should not be required to collect sales tax on reimbursements for airfare, lodging, and meals, because it had already paid sales tax to the original vendors when these expenses were incurred.

The Department maintained that because the products was a digital automated service, any services provided “exclusively in connection with” those products are inherently part of the retail sale under RCW 82.04.050(8)(b). The Department further argued that the statutory “sales price” includes the total consideration received by the seller, including cost reimbursements, with no deductions allowed for the seller’s own business expenses.

The Administrative Review and Hearings Division (ARHD) denied the taxpayer’s petition, affirming that both implementation fees and travel reimbursements are taxable. The ARHD found that while the taxpayer’s work involved customization, these services were performed specifically to implement the digital automated services. Since the taxpayer did not demonstrate that these services were sold on a standalone basis independent of the sale of the digital automated service, they were deemed to be provided “exclusively in connection with” a digital automated service. Accordingly, the general exclusion for software customization did not apply.

With respect to the reimbursed costs, the ARHD relied on RCW 82.08.010, which defines the “sales price” as the total amount of consideration for which a product is sold. Because the underlying implementation was a taxable retail service, any reimbursements for business costs incurred during that service – such as travel – are included in the taxable gross income.

This week, members of our SALT team are on the speaking circuit, addressing foundational and emerging SALT issues at TEI programs and COST’s 2026 Spring Meeting.

Partner Jeff Friedman will present “Unitary Business Principle & Combined Reporting” as part of TEI’s virtual SALT Essentials Course on April 20. The session will address core concepts underlying unitary business determinations and combined reporting regimes, with a focus on practical considerations for navigating complex state tax compliance and planning issues.

In addition, Partners Jeff Friedman, Charlie Kearns, and Jonathan Feldman are pleased to join the speaker lineup at the Council On State Taxation (COST) 2026 Spring Meeting. Conference sessions will provide income and sales tax developments, legislative and judicial updates, and practical considerations for multistate businesses.

Topics will include:

  • When One Size Doesn’t Fit All: The Limitations of the Single Sales Factor: How the growing use of single sales factor apportionment raises concerns around fairness, distortion, and constitutional risk—particularly when foreign source income is in play.
  • Federal Moves, State Ripples: Tariffs and the End of the Penny: The ripple effects of recent federal actions, including tariffs and the potential elimination of the penny, on state tax revenue, sourcing, compliance, and audit practices.
  • Conformity Chaos? Corporate Income Tax Issues Resulting from H.R. 1: The challenges taxpayers face as states consider whether to conform to or decouple from federal changes under H.R. 1, with a focus on practical compliance, planning, and risk management.

Finally, Partners Jeremy Gove and Chelsea Marmor will join the TEI Dallas and Fort Worth Chapters’ annual Tax School Conference, which will feature timely discussions on tax reform developments, artificial intelligence in tax, state tax legislative updates, federal litigation, international tax, and other cutting‑edge topics. Chelsea and Jeremy’s State Tax Family Feud session will deliver an interactive look at key multistate tax updates. 

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: Washington recently enacted a bill that eliminates part of a sales tax exemption for what high tech industry?

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

The prize for the first correct 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 North Carolina Superior Court held that intercompany transfers of product between affiliated entities do not constitute “sales” subject to sales tax when those transfers are not supported by bargained-for consideration, even if the taxpayer records the transfers using hypothetical “due to/due from” accounting entries.

The taxpayer, Asphalt Emulsion Industries, LLC (AEI), was a single-member North Carolina LLC wholly owned by Slurry Pavers, Inc. (SPI), a Virginia-based road construction company. AEI operated a facility in Dunn, North Carolina, where it manufactured asphalt emulsion.

During the audit period, AEI’s business model was primarily limited to supplying asphalt emulsion to SPI and other of AEI’s affiliates. At the direction of its parent, SPI, AEI transferred the vast majority of its finished product to SPI and another affiliate, Whitehurst Paving Company (WPC), for use in paving projects. These transfers occurred without invoices, purchase orders, or actual payments. Instead, the entities used a centralized accounting software a to track the movement of inventory.

Following an audit, the North Carolina Department of Revenue (Department) issued an assessment of over $2.5 million in taxes, penalties, and interest. The Department’s position was rooted in how AEI recorded these transfers. For internal bookkeeping, AEI used “due to/due from” entries in the centralized accounting system. These entries were based on a hypothetical markup – the price a third party might have paid – rather than the actual cost of production. Accordingly, the emulsion product “was ultimately reported for tax purposes as being transferred at cost rather than at the hypothetical markup amount.”

The Department contended that the taxes should have been remitted based on the hypothetical markup price, and that AEI erroneously treated itself as a mere division of SPI.

The core of the dispute turned on the definition of a “Sale” under N.C. Gen. Stat. § 105-164.3(235), which requires a “transfer for consideration.”

AEI argued that no sales occurred because there was no consideration. The “due to/due from” entries were purely internal recordkeeping tools used for management purposes and did not represent an obligation to pay. AEI emphasized that SPI already paid sales and use tax on the cost of the raw materials used to make the emulsion.

The Department argued that the accounting entries were, in effect, “accounts receivable.” They argued that even if cash didn’t change hands, the entries represented a legal right to payment. Furthermore, the Department pointed to the “cash infusions” and centralized services (like payroll and accounting) provided by SPI to AEI as the “consideration” AEI received in exchange for the emulsion.

The Superior Court agreed with the taxpayer, affirming the Administrative Law Judge’s grant of summary judgment for AEI. The court explained that the plain meaning of consideration requires a bargained-for exchange. The Court rejected the notion that “due to/due from” entries are “accounts receivable.” Under North Carolina law, an account receivable requires an actual amount owed. Here, the evidence showed that no party ever intended for these hypothetical amounts to be paid. 

The Court further found no link between the general support SPI provided to AEI (like paying its payroll) and the specific transfers of emulsion. To be “for consideration,” the sale, the benefit must be sought in exchange for the specific promise or performance. SPI’s general funding of its subsidiary was simply the behavior of a parent company, not a quid pro quo for individual batches of asphalt.

N.C. Dep’t of Revenue v. Asphalt Emulsion Indus., LLC, 2026 NCBC 5 (Jan. 21, 2026).

In a recent letter ruling, the Virginia Tax Commissioner granted a corporate taxpayer relief from Virginia’s intercompany interest add‑back requirement, concluding that the taxpayer satisfied the statutory business purpose exception.

The case arose from a centralized cash management structure in which subsidiaries deposited cash with the parent entity and relied on intercompany loans when they needed cash. Interest on those loans offset the subsidiaries’ liability to the parent. Additionally, one subsidiary owned intangible property, and other affiliates paid royalties for the use of those intangibles to the parent. Because all cash flows were routed through the centralized system, the taxpayer could not reliably distinguish between royalty payments to the parent and repayments of intercompany debt.

Virginia law requires taxpayers to add back intercompany interest expenses when those expenses are directly or indirectly related to intangible property, such as royalties. See Va. Code §§ 58.1‑402(B)(9), 58.1‑302. However, the statute provides an exception where the taxpayer can establish, by clear and convincing evidence, that the intercompany arrangement was supported by a valid business purpose other than tax avoidance. Va. Code § 58.1‑402(B)(8)(b).

The Commissioner found that the taxpayer met its evidentiary burden under the valid business purpose exception. The centralized cash management system served valid business objectives by enhancing efficiency, decreasing costs, and increasing profitability. Furthermore, the related interest income was subject to tax in other states, suggesting the organization’s structure was not designed to avoid taxation.

Va. Dep’t of Tax’n, Ruling Request: Corporate Income Tax—Intercompany Interest Expenses and Costs Add‑Back, Doc. No. 26‑6 (Jan. 26, 2026).

In this episode of the SALT Shaker Podcast, hosts and Partners Jeremy Gove and Chelsea Marmor welcome Lauren Loricchio, Investigations Editor at Tax Notes, to discuss the publication’s long‑standing commitment to government transparency and access to primary tax materials.

Lauren traces the origins of Tax Notes back to its 1972 lawsuit against the IRS, which paved the way for public access to the Service’s private letter rulings. She explains how her team continues that mission through its newly launched monthly newsletter, FOIA Findings, which uses the Freedom of Information Act (FOIA) and other open records laws to shed light on tax policy and tax administration.

Their discussion explores the realities of the FOIA process – including delays, redactions, and litigation – and why access to original source material remains critical for tax practitioners, academics, and others monitoring tax administration and enforcement.

The episode wraps up with a seasonal overrated/underrated segment: What are your thoughts on wearing shorts?

For questions or comments, email SALTonline@eversheds-sutherland.com. Subscribe to receive regular updates hosted on the SALT Shaker blog.

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The Washington Court of Appeals held that a company’s title insurance and escrow services provided remotely should be sourced to Washington because the company’s customers made “first use” of the services in Washington. The trial court held that the services were sourced out-of-state to the remote location where the title company performed its services under RCW 82.32.730(1)(a). Under RCW 82.32.730(1)(a), if the purchaser receives services at the seller’s business location, the services are sourced to that business location. The Court overruled the trial court, holding that subdivision (a) did not apply because the company’s customers did not receive its services at the company’s business locations. The Court ruled that the services should be sourced under subsection (b), which requires sales be sourced to the location where the purchasers “receive” or “make first use of” the taxpayer’s services in Washington.

Chicago Title Ins. Co. v. Dep’t of Revenue, 585 P.3d 162 (Wash. Ct. App. 2026).

We have recently learned from taxpayers that filed refund claims of the Maryland Digital Advertising Tax (DAT) that the Maryland Comptroller is issuing responses entitled “Request Received Does Not Constitute a Refund Claim.”  The Comptroller’s notices state that it rejects refund claims if they do not “disclose[ ] sufficient information about the taxpayer’s annual gross revenues derived from digital advertising services and the Maryland apportionment of those revenues to allow computation of the tax.” Taxpayers that receive a “rejection” notice should consider whether to refile another refund claim to address the Comptroller’s claim that its first claim is defective. The statute of limitations to file a refund claim is three years.