By Maria Todorova and Suzanne Palms

The Washington Court of Appeals recently held that Seattle could not impose a utility tax on revenue derived from international roaming charges (charges for mobile telephone communications that originate in a foreign country). City of Seattle v. T-Mobile West Corp., No. 75423-8-1 (Wash. Ct. App. May 22, 2017). Washington law grants cities the authority to tax revenue derived from “intrastate toll telephone services” (services that incur a fee and that originate and terminate within the same state). See RCW 35.21.714(1). The Court of Appeals found that because roaming charges involve communications originating in a foreign country, they are not derived from intrastate telephone services, and are therefore exempt from the City’s utility tax. The appellate court further held that the City’s reliance on the federal Mobile Telecommunications Sourcing Act (MTSA) conflated the sourcing of roaming revenue—which is governed under the MTSA—with the taxability of that revenue in the first place—which is governed under state law.

By Andrew Appleby and Dmitrii Gabrielov

The New York State Tax Appeals Tribunal released its precedential decision in Stewart’s Shops, affirming an Administrative Law Judge’s determination that payments by a corporation to its captive insurance company did not qualify as deductible insurance premiums because the arrangement did not constitute insurance for federal income tax purposes. (see prior coverage here).

The taxpayer owned and operated convenience stores and gas stations. It insured risk related to these operations with its captive insurance company, which it did not treat as an insurance company for federal tax purposes. The Tax Appeals Tribunal determined that because the transactions did not constitute “insurance” for federal income tax purposes—because they lacked risk shifting and risk distribution—the premiums were not deductible for New York State corporate franchise tax purposes. The Tax Appeals Tribunal also found that neither the 2009 nor 2014 amendments to New York’s captive insurance combination regime authorized the taxpayer to deduct its premiums in the tax years at issue (2006 through 2009). The outcome may have been different if the taxpayer had a parent holding company with multiple subsidiaries (including the captive) below it, as the arrangement may have qualified as insurance under federal tax law. In re Stewart’s Shops Corp., DTA No. 825745 (N.Y. Tax App. Trib. July 27, 2017).

By Maria Todorova and Chris Beaudro

Effective July 1, 2017, Indiana has added an economic nexus provision to its sales tax law. Indiana Code Section 6-2.5-2-1 has been amended to provide that a retail merchant with no physical presence in Indiana must collect sales tax on its sales made into the state if the retail merchant has gross sales derived from the state in excess of $100,000 or has 200 or more separate sales transactions into the state during the current or previous calendar year. Two trade associations have filed suit against the Indiana Department of Revenue alleging that this provision violates Quill’s physical presence nexus standard. Am. Catalog Mailers Ass’n. v. Krupp, No. 49D01-1706-PL-025964 (Ind. Super. Ct. complaint filed 6/30/17). Eversheds Sutherland will continue to monitor this case as it proceeds. 

Read our July 2017 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.

FEATURED PUBLICATIONS

  • Eversheds Sutherland SALT Scoreboard Publication – Second Quarter 2017
    Eversheds Sutherland SALT releases the sixth edition of its SALT Scoreboard, a quarterly publication that tracks significant state tax litigation and controversy developments. This edition of the SALT Scoreboard also includes observations regarding beverage tax issues and California’s documentary transfer tax.
  • Imposing Documentary Transfer Taxes in California after Ardmore
    Rarely does a subject as mundane as a documentary transfer tax become worthy of its own article. However, the June 29, 2017, decision of the California Supreme Court in 926 North Ardmore Avenue LLC v. County of Los Angeles is a worthy exception. Read this Law360 article by Eversheds Sutherland (US) attorneys Eric Coffill, Robert Merten and Nicholas Kump, which discusses three criteria that must be met in order for California’s documentary transfer tax to be imposed; background on the state’s Documentary Transfer Tax Act; The California Supreme Court’s ruling in North Ardmore v. County of Los Angeles; what’s to come.
  • A Pinch of SALT: Taxes, Fees and “Something Else”: California’s Morning Star Decision
    On April 6, the Third District California Court of Appeal decided Morning Star Packing Company v. California Air Resources Board, which challenged the state’s cap-and-trade auction process as an unconstitutional tax. View this latest edition of A Pinch of SALT, by Eversheds Sutherland (US) attorneys Eric Coffill and Robert Merten, which discusses background on the California cap-and-trade case; the Morning Star opinion; what’s next?

Our SALT Team has continued to be active in presenting on dynamic, hot topics in state and local tax around the country. We have an ongoing involvement with various tax, state tax and industry-specific organizations and interest groups. Learn more about past and upcoming events.

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Meet Caldwell, the newest family member of Eversheds Sutherland Associate Todd Betor and his fiancée Michelle. Caldwell, a Kentucky gentleman, is a six-month-old Labradoodle. Before joining Todd and Michelle, Caldwell’s blue steel look captured their hearts from the computer screen. Michelle’s “puppy proposal” sealed the deal, and Todd was off to the Blue Grass State. Michelle, Todd and Caldwell have not looked back since.

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When not sleeping, Caldwell enjoys being out on the town, racking up OpenTable points and the hearts of wait-staff throughout the DC area. In addition to his affinity for dining al fresco with some “Sauvignon Bark,” Caldwell has completed two 5Ks and is eager to have another go at the waves of the Atlantic.

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Caldwell is also very fond of playing “pick something up and jump on the couch with it.” The object of the game is for you to catch him getting something that he should not. Rest assured, as long as the item is not a makeup brush, it will be unharmed. Hijinks aside, Caldwell’s party tricks include knowing the meaning of sit, down, place, come, leave it and drop it. He is always ready to show off!

 

We are thrilled to feature Caldwell as our July Pet of the Month!

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

By Jessie Eisenmenger and Jonathan Feldman

The Texas Supreme Court held that a non-discriminatory tax on stored gas held for future resale does not violate the Commerce Clause of the US Constitution. Harris County imposed an ad valorem tax on natural gas stored in the county on January 1 of the tax year. Applying the four-prong Complete Auto test after first finding that the gas was in interstate commerce, the court reasoned that: (1) the gas had substantial nexus with the county because it was not merely in transit through the county; (2) the tax was fairly apportioned because it was limited only to the amount of gas in the county on a certain day and therefore was internally consistent; (3) the tax did not discriminate against interstate commerce because it applied equally to gas that will be sold in the state and gas that will be sold outside the state; and (4) the tax was fairly related to services provided by the state because the stored gas benefited from services (specifically, fire department services). The ruling is consistent with similar cases in Oklahoma and Kansas. ETC Marketing Ltd. v. Harris County Appraisal District, No. 15-0687 (Tex. Dec. 6, 2016).

By Jeff Friedman and Stephanie Do

A new landmark sales tax statute has been adopted in Minnesota, which expands sales tax collection requirements to those retailers that sell their goods on certain “marketplaces.” Generally, only a retailer that is physically present in a state is required to collect and remit the state’s sales tax. The US Constitution’s dormant Commerce Clause requires that a person or transaction have “substantial nexus” with a state before the state may impose its sales tax on that person or transaction. Complete Auto Transit v. Brady, 430 U.S. 274 (1977).

In 1992, the US Supreme Court clarified in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), that “substantial nexus” only exists when there is a non-trivial physical presence for sales tax purposes. Given the changes in technology and consumer sophistication since Quill was decided, states have been enacting broader sales tax nexus laws in an effort to increase revenues, especially from ecommerce. There also have been various attempts to expand the definition of substantial nexus or what constitutes a physical presence.

In the most recent attempt, Minnesota statutorily expanded its sales tax collection obligation to “marketplace providers” that provide their platforms to retailers to sell their goods. On May 30, 2017, H.F. 1 was passed, which effectively creates a sales tax collection requirement for any retailer that makes sales through a “marketplace provider,” even if the retailer is not actually physically present in Minnesota. The legislation also requires a “marketplace provider” to collect and remit sales tax for the retailer’s sales it facilitates. A “marketplace provider” is defined as “any person who facilitates a retail sale by a retailer” by: (1) listing or advertising sales by the retailer; and (2) collecting payments from the retailer’s customers and transmitting those payments to the retailer.

A marketplace provider is obligated to collect and remit Minnesota sales tax regardless of whether it facilitates payment collection and transmission or whether the marketplace provider is compensated for its services. The marketplace provider is relieved of its collection obligation if the retailer is already registered to collect Minnesota sales tax. There is also a de minimis threshold—if a retailer makes less than $10,000 in taxable sales in the previous year, then there is no collection obligation. The law goes into effect on July 1, 2019, or sooner if the US Supreme Court overturns Quill. Minnesota became the first state to enact this type of law. Other states are quickly joining Minnesota, including Washington, which also extended sales tax collection obligations to marketplace operators on July 7, 2017 (H.B. 2163).

Published in the July edition of the Eversheds Sutherland Global Tax Brief.

On July 25, 2017, the US House of Representatives Judiciary Committee’s Subcommittee on Regulatory Reform, Commercial and Antitrust Law conducted a hearing on “No Regulation Without Representation: HR 2887 and the Growing Problem of States Regulating Beyond Their Borders.” This hearing was important for several reasons:

  • State tax nexus legislation has been one of the most prevalent tax issues debated by state legislatures in the last few legislative seasons.
  • This legislation would preempt many of the state attempts to expand physical presence nexus.
  • This bill also limits a state’s ability to regulate only those persons who establish a physical presence within the state.

View the full Legal Alert

By Chelsea Marmor and Open Weaver Banks

The Administrative Review and Hearings Division at the Washington Department of Revenue (the Division) determined that administrative activities qualify as business activities for purposes of applying Washington’s throw-out rule under the Washington business and occupation (B&O) tax. The taxpayer, a single member LLC, performed airplane certifications on aircraft worldwide. While the certifications were performed outside of Washington, the taxpayer’s member took calls, arranged scheduling, and managed travel and billing from his home office in Washington. Washington’s throw-out rule excludes gross income from the denominator of the receipts factor if at least some of the activity that generated the gross income was performed in Washington. The taxpayer argued that the activities that generated the gross income were the certifications performed outside of Washington and not the administrative activities performed at the member’s home office. The Division disagreed, determining that the taxpayer performed activities in Washington in support of the taxpayer’s business contracts and, therefore, the throw-out rule exclusion applied to such gross income. Det. No. 16-0226, 36 WTD 344.

Eversheds Sutherland (US) LLP’s SALT Team is a proud sponsor of the Georgetown Law 2017 Advanced State and Local Tax Institute taking place July 27-28, 2017, in Washington, DC. (US) Partner Todd Lard presents, “Digging In: State Perspectives on Federal Tax Reform,” and (US) Partner Jeff Friedman presents, “Match Point: Debate on All Topics SALT.” Eversheds Sutherland hosts and sponsors a welcome reception at our DC office from 6:00 -7:30 p.m. Eastern, on July 26, 2017.

View the full program brochure. An estimated 12.5 CPE credits or 10.75 CLE credits (based on a 60 minute hour) will be available.

View details and register now!