By Charles Capouet and Tim Gustafson

On June 15, 2017, the Maine Supreme Judicial Court held that property tax recovery charges and carrier cost recovery charges imposed by a telecommunications service provider of long distance telephone service on its customers were not subject to service provider tax for the tax years 2008 – 2010. The charges were calculated with reference to revenue from interstate and international telecommunications services and were not collected from customers with only intrastate services. 

As a preliminary matter, the court held that the charges were included within the “sale price” of telecommunications services. Prior to July 18, 2008, Maine excluded the sale price of interstate and international telecommunications services from taxation. Because the charges were only included in the sale price of interstate and international telecommunications services, the charges were also excluded from taxation. Beginning July 18, 2008, Maine instead exempted from service provider tax the “sales of” interstate and international telecommunications services. The court held that the term “sale” is “broader than and inclusive of the price.” Thus, any charge that is part of the sale price of interstate or international services is also part of the sales of those services. As a result, the charges were part of the sales of exempt interstate and international telecommunications services and exempt from service provider tax under the amended statute as well. State Tax Assessor v. MCI Commc’ns Servs., Inc., Dkt. No. Ken-16-358 (Me. June 15, 2017).

By Jessica Eisenmenger and Open Weaver Banks

The Commonwealth Court of Pennsylvania upheld the Philadelphia Beverage Tax (PBT) against a challenge by the American Beverage Association and other challengers. The PBT imposes a 1.5¢ per fluid ounce tax on sugar-sweetened beverages and is generally payable by the distributor of the beverages. The court decided in favor of the City of Philadelphia, finding that:

  1. The PBT was not impermissibly duplicative of the Commonwealth’s Sales Tax under Pennsylvania’s Sterling Act, which precludes the imposition of a local tax on subjects that are taxed by the state, because the subject matter and the incidence of the PBT are different from those of the Sales Tax;
  2. The PBT was not preempted by the federal Food Stamp Act, its regulations, and Section 204(46) of the Internal Revenue Code, which prohibit the imposition of tax on items purchased at retail with food stamps, because the PBT is imposed on distributors, rather than on end customers;
  3. The PBT does not violate the uniformity clause in the Pennsylvania Constitution because it is not a property tax imposed on a quantity, rather than an ad valorem basis; and
  4. The trial court had reasonable grounds to deny the challengers’ request for a special injunction.

In her dissent, Judge Anne Covey stated her belief that the PBT violates the Sterling Act because it is only triggered when the beverages are held out for retail sale, and therefore it is impermissibly duplicative of the Sales Tax. Williams v. City of Philadelphia, Nos. 2077 and 2078 C.D. 2016 (Pa. Commw. Ct. June 14, 2017) (en banc).

SACRAMENTO—Eversheds Sutherland (US) LLP is pleased to announce that state and local tax (SALT) attorneys Carley A. Roberts and Eric J. Coffill were selected as top Northern California attorneys by Super Lawyers. The designations are the result of an annual survey conducted by the publication, which focuses on professional achievement and peer recognition.

View the full press release

By Robert Merten and Andrew Appleby

The Maryland Tax Court granted a summary judgment motion exempting a Vermont-licensed insurance company from almost $24 million in corporate income tax, interest, and penalties. The short two-page order swiftly cites to and expressly follows the court’s previous order in the 2015 case, Nat’l Indem. Co. v. Comptroller of the Treasury, M.T.C. No. 14-IN-OO-0433 (Md. Tax Ct. 2015), in which the court determined taxpayers “engaged as a principle in the business of writing insurance contracts, surety contracts, guaranty contracts, or annuity contracts” are statutorily exempt from Maryland corporate income tax. The court determined in this case that because the insurance company was “engaged in the insurance business,” the court saw “no reason to distinguish this case from National Indemnity and will rely on the analysis therein,” resulting in a full taxpayer victory at the summary judgment stage. Leadville Ins. Co. v. Comptroller of the Treasury, M.T.C. No. 13-IN-OO-0035 (Md. Tax Ct. Mar. 30, 2017).

Read our June 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.

  • SALT Pets of the Month: Chloe and Bella:
    Meet Chloe and Bella, twelve and eleven year old Shih Tzu’s belonging to Valerie Saines, Director – State Income Tax at T-Mobile. Also known as Chloe-Poo and Bella-Roo, these two girls are best friends who go everywhere and do everything together despite their very different personalities.
  • New York Sales Tax Price of Being a Member of the Club
    In an Advisory Opinion, the New York Department of Taxation and Finance concluded that fees paid to a social club by non-members for certain activities (tennis lessons, children’s camp, basketball court use, etc.) are not subject to tax, although membership fees that provide access to the same activities are subject to tax.
  • FEATURED PUBLICATIONS
    • A Pinch of SALT: Trends and Developments in Alternative Apportionment of State Income
      In this edition of A Pinch of SALT, Eversheds Sutherland (US) attorneys Christopher Lutz, Robert Merten and Nicholas Kump report on the latest cases and regulatory efforts regarding alternative apportionment, and discuss the Multistate Tax Commission’s amended model section 18, designed to provide fairness to taxpayers.
    • Developing Strategic Solutions to Multistate Tax Litigation
      In their article for State Tax Notes, Eversheds Sutherland (US) attorneys Jeffrey Friedman and Stephanie Do along with Pilar Mata, Tax Counsel at Tax Executives Institute, discuss the complexities of challenging tax assessments in a multistate setting and the importance of developing a comprehensive strategy for multistate tax litigation.
    • Some Observations on Gross Receipts Taxes
      The majority of states impose a form of a corporate income tax. However, currently five states—Delaware, Ohio, Nevada, Texas, and Washington—impose a broad-based, statewide corporate gross receipts tax. The most recent addition to that list is Nevada, which in its 2015 Legislative Session enacted a new Commerce Tax that is imposed on gross revenue. More recently, there have been and are, at the time of writing, ongoing efforts in Oregon to enact a corporate gross receipts tax, either as a separate tax or as an alternative tax to the existing Oregon corporate income/excise tax. Even more recently, both West Virginia and Louisiana have considered a gross receipts tax. Such existing and proposed gross receipts taxes present a variety of policy and legal issues. In their article for the Journal of Multistate Taxation and Incentives, Eversheds Sutherland (US) attorneys Eric Coffill and Jessica Allen discuss a number of those issues and what appears to be a recent upsurge in interest in gross receipts taxes, with a discussion of the most recently enacted gross receipts tax (Nevada) and the most serious current effort to enact a gross receipts tax (Oregon).

Chloe Bella.jpgMeet Chloe and Bella, twelve and eleven year old Shih Tzu’s belonging to Valerie Saines, Director – State Income Tax at T-Mobile. Also known as Chloe-Poo and Bella-Roo, these two girls are best friends who go everywhere and do everything together despite their very different personalities.

Chloe is a true little princess. Her most favorite things in life are toys and snuggling. Chloe.jpgShe is a sponge for a good tummy rub anytime and gives lots of sweet kisses in return. Chloe makes sure there’s plenty of play time in every day. Her signature “toy chasing move,” which she has perfected over many years, is to start running on the family room carpet then go into a long slide when she reaches the kitchen hardwood floor and snag her toy just before the refrigerator!

Bella.jpgBella is an active outdoors girl—She loves soaking up the sun, rolling in the cool grass, collecting twigs and chasing rabbits in the backyard. She also makes sure geese at the park stay off the grass. Bella is an accomplished escape artist—she has springs in her feet jumping high over obstacles and can squeeze through small spaces to make her stealth move into the neighborhood. Toys just don’t interest her—the real fun for Bella is chasing Chloe!

These cuties love walks along Lake Washington, meeting new pups and people on the way. At the end of the day, you’ll find Bella curled up in Valerie’s lap with Chloe snuggled by her side. 

Lake Washington.jpg

We are thrilled to feature Chloe and Bella as June’s SALT Pets of the Month!

Chloe Bella - Outdoors.jpg

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 Dmitrii Gabrielov and Jonathan Feldman

An Indiana federal court remanded a lawsuit brought under the Indiana False Claims and Whistleblower Protection Act (False Claims Act) back to Indiana state court. The relator, Michael Harmeyer, alleges that Kroger and affiliates violated the False Claims Act by failing to collect sales tax on various items at grocery stores in Indiana. Kroger tried to remove the case to federal court on the basis of diversity jurisdiction, arguing that Indiana was not a party because Indiana’s Attorney General and Inspector General declined to intervene in the case. The court disagreed and held that Indiana is the real party in interest even if it does not intervene because the action is brought “on behalf of the State.” Indiana’s presence in the litigation destroyed diversity jurisdiction because Indiana is not a citizen of any state. Indiana ex rel. Harmeyer v. Kroger Co., No. 1:17-cv-00538-JMS-DML (S.D. Ind. June 13, 2017).

While alternative apportionment is an important relief mechanism to avoid unjust taxation, it is often used to justify the ad hoc administration of tax. View the latest edition of A Pinch of SALT, by Eversheds Sutherland (US) attorneys Christopher Lutz, Robert Merten and Nicholas Kump, which reports on:

  • Recent case law regarding alternative apportionment
  • Recent state regulatory efforts to address alternative apportionment
  • The Multistate Tax Commission’s amended model section 18

View the full article.

On June 15, the California Legislature passed Assembly Bill 102, the Taxpayer Transparency and Fairness Act of 2017, which divests the California State Board of Equalization (BOE) of several key functions and creates two new government agencies—the California Department of Tax and Fee Administration and the Office of Tax Appeals—to perform many of the BOE’s previous duties. Effective July 1, 2017, the Act:

  • Confers all of the BOE’s collection and administrative responsibilities related to various taxes and fees, such as tobacco taxes, cannabis taxes, and sales and use tax, on the California Department of Tax and Fee Administration.
  • Grants the Office of Tax Appeals the authority to perform the BOE’s appellate duties.
  • Maintains the BOE’s duties as provided in the California Constitution including reviewing and adjusting certain property tax assessments and setting certain tax rates.

View the full Legal Alert.

By Jeff Friedman and Stephanie Do

Following an unfavorable court decision, state legislatures have been able to effectively reverse a decision by retroactively changing the law. Several taxpayers have challenged the validity of retroactive state tax changes by arguing that the retroactive laws violate the US Constitution’s Due Process Clause, which requires that no state may “deprive any person of life, liberty, or property without due process of law.”

The US Supreme Court last addressed the constitutionality of retroactive tax legislation in 1994 in United States v. Carlton, 512 U.S. 26 (1994). In Carlton, the Court upheld retroactive tax legislation because it was enacted for a “legitimate legislative purpose furthered by rational means” and the legislature “acted promptly and established only a modest period of retroactivity.” Carlton involved a one-year retroactive effective date. The standard provided in Carlton, however, does not give clear guidance on a constitutionally acceptable length of time for retroactive tax changes and what is considered a “modest period of retroactivity.” On May 22, 2017, the US Supreme Court declined two opportunities to clarify what is an acceptable length of time: (1) Dot Foods Inc. v. Wash. Dep’t of Revenue, 372 P.3d 747 (Wash. 2016), where the taxpayer challenged Washington’s retroactive application of tax law changes going back 27 years; and (2) six cases, including Gillette Comm. Ops. N. Am. v. Mich. Dep’t of Revenue, 878 N.W.2d 891 (Mich. Ct. App. 2015), denying appeal, 880 N.W.2d 230 (Mich. 2016), challenging Michigan’s retroactive repeal of an alternative apportionment method going back six years. Both cases involve decisions upholding a statutory amendment applied retroactively after the statute had been reviewed by the states’ supreme courts in favor of the taxpayers. In the absence of additional guidance by the US Supreme Court, victorious taxpayers may find their hard-fought successful litigation undone by a retroactively applied tax law.

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