By Ted Friedman and Charlie Kearns

On August 3, 2017, the Arizona Court of Appeals held that the issuance of a sales tax assessment by the City of San Luis violated the due process rights of a company that calculated its tax liability based on publicly available versions of the tax code that showed a franchise fee credit was still in effect, despite the credit having been repealed by an unpublished ordinance. The City passed an ordinance that repealed a tax credit for franchise fees paid by public utilities, but the City did not amend, or attach the ordinance to, the tax code on file with the City Clerk, the Arizona Department of Revenue, the League of Arizona Cities and Towns or the Municipal Tax Code Commission to reflect the repeal. The company calculated its tax liability using the repealed franchise fee tax credits, and the City issued an assessment for additional sales tax, penalties and interest. The Court of Appeals explained that it “violates taxpayers’ due process rights for a taxing authority to play hide-and-seek with taxpayers by publishing an incorrect version of a tax code, not attaching amendatory ordinances, and then penalizing taxpayers when they abide by the published code.” Ariz. Pub. Serv. Co. v. City of San Luis, No. 1 CA-TX 16-0009 (Ariz. Ct. App. Aug. 3, 2017).

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The quarterly Eversheds Sutherland SALT Scoreboard tallies significant state and local tax litigation wins and losses. In this videocast, Charles C. Capouet and Hanish S. Patel share the second quarter highlights from the SALT Scoreboard, including a breakdown of corporate income tax and sales and use tax case results, an overview of the most significant cases of the quarter, and a recap of the Maine Supreme Judicial Court’s holding in State Tax Assessor v. MCI Communications Services, Inc. Stay tuned for our Eversheds Sutherland SALT Scoreboard 2017 Year in Review!

View the SALT Scoreboard Videocast.

The Eversheds Sutherland SALT Team is always excited to see what kind of pets our clients and friends have. Our team features a different pet at the end of every month, and we want to feature YOURS! Featured pets will receive a fun prize from the SALT Team. The deadline for August submissions is Friday, August 25.

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

Don’t have the app? It is available for download in the Apple App Store, Google Play and the Amazon Appstore.

View previously-featured furry friends.

By Maria Todorova and Charles Capouet

The Rhode Island Division of Taxation ruled that a monthly or annual membership fee that allowed customers to access various benefits associated with shopping on a taxpayer’s website—including discounted shipping benefits; streaming or downloading movies and music; photo storage; and access to games and in-game content—is subject to sales and use tax. The Division reasoned that although membership fees are generally not taxable in Rhode Island, the membership fee charged by the taxpayer constituted a bundled transaction whose true object was ready access to non-taxable and taxable items. The Division also ruled that a free one-month trial subscription was not subject to sales and use tax because no consideration was paid for the transaction. Ruling Request No. 2017-01, R.I. Div. of Tax., Mar. 31, 2017.

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).