By Liz Cha and Eric Coffill

The United States District Court for the Middle District of Tennessee held that Tennessee’s sales tax on railroad carriers for the purchase or use of diesel fuel was not discriminatory under the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act) even though it did not similarly apply to motor carriers because motor carriers are subject to a comparable excise tax on motor carrier fuel. This case was on remand from the Sixth Circuit Court of Appeals following the U.S. Supreme Court’s decision in Alabama Dept. of Revenue v. CSX Transportation, Inc., 135 S.Ct. 1136, 1143 (2015), holding that a rail carrier can show discrimination under the 4-R Act by demonstrating that it is subject to differential tax treatment compared to its competitors; although, tax disparity may be nondiscriminatory if competitors are subject to an alternate, comparable tax. 

Railroad carriers are subject to a sales or use tax on their purchase, consumption or use of diesel fuel in Tennessee while competing motor carriers are exempt from such tax. However, in lieu of the sales tax, motor carriers pay a motor fuel tax. For the tax years at issue, the railroad carriers were subject to a 7% tax on diesel fuel and motor carriers paid a motor fuel tax of 18.4 cents per gallon. Despite the effect of varying fuel prices on the amount of taxes paid by railroad carriers and motor carriers in recent years, the court determined that the tax burden bore by motor carriers was historically higher than railroad carriers and that over the years the tax burden on both motor and railroad carriers was “roughly” equivalent. In addition, the court agreed with the Tennessee Department of Revenue that there was sufficient justification for a different tax imposed on railroad carriers because railroad carriers purposely choose to use dyed fuel instead of clear fuel, which is exempt from the sales and use tax. The railroad carriers could, like the motor carriers, use clear diesel fuel and be subject to the same tax scheme as motor carriers but choose not to do so to avoid a federal excise tax on the use of clear diesel fuel. Accordingly, the court determined that the Department provided sufficient justification for the sales tax on railroad carriers for their purchase or use of diesel fuel and that there was no violation of the 4-Act. Illinois Central Railroad Co. v. Tennessee Dep’t of Revenue, No. 3:10-cv-00197 (M.D. Tenn. April 12, 2017).

The U.S. Supreme Court recently ruled in Expressions Hair Design v. Schneiderman that a New York statute that prohibits identifying a surcharge to customers for credit card payments regulates speech and is therefore subject to heightened scrutiny. 

The court remanded the case to the U.S. Court of Appeals for the Second Circuit to determine whether New York’s statute violates the First Amendment. While the court’s decision has many important implications, its impact on how businesses collect or seek reimbursement for the costs of state and local taxes from their customers could be significant.

In their article for Law360, Eversheds Sutherland (US) attorneys Eric Tresh and Alla Raykin break down the case and analyze its implications. 

View the full article

A state or locality in need of revenue, or possibly seeking a narrow policy goal, may enact a statute or ordinance imposing a tax that targets a specific company and applies to no other taxpayer. View this article, which:

  • Evaluates the merits of challenging taxes that target a single company on US constitutional grounds
  • Provides an overview of the minimum requirements to challenge a state or local tax provision under the Equal Protection Clause and the Eighth Amendment
  • Assesses the relevance of the “tax” versus “fee” distinction in this context 

View the full article

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 May submissions is this Friday, May 26.

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 Chris Lutz and Andrew Appleby

In Georgia Letter Ruling SUT-2016-24, the Georgia Department of Revenue ruled that sales of software equipment delivered to a Georgia assembly facility on an out-of-state customer’s behalf were subject to Georgia sales and use tax. In the ruling, the taxpayer sold technology solutions, which were comprised of licenses of software, sales of hardware and the performance of services. The sales agreement between the parties reflected that title did not pass to the customer until payment was received in full by the seller. Nonetheless, prior to the passage of title, the seller would send the equipment to an assembly facility located in Georgia. The Department concluded that the assembly facility was accepting the equipment on the purchaser’s behalf notwithstanding the fact that unencumbered title had not yet passed to the purchaser. Because O.C.G.A. § 48-8-77(b)(1) provides that sales should be sourced to Georgia for sales tax purposes when the purchaser receives the item in Georgia, the sales were Georgia sales even where the customer was located outside the state. Georgia LR SUT-2016-24.

By Chelsea Marmor and Open Weaver Banks

The Appellate Court of Illinois reversed the Circuit Court’s $29.1 million Chicago Hotel Accommodations Tax (CHAT) award for Chicago holding that Defendant’s online facilitation and service fees were not subject to CHAT. CHAT applies to the “gross rental or leasing charge,” which was not defined during the years at issue Chicago argued that the facilitation and services fees must be included in the tax base because the facilitation and services fees are in the nature of rent. The Court disagreed with Chicago finding that the Defendant’s facilitation and service fees were in exchange for the booking convenience the Defendant offered (such as being able to book multiple services in one transaction) and the benefits of the Defendant’s prenegotiated hotel rates. The facilitation and services fees were not for the right to occupy hotel rooms and therefore, could not be subject to CHAT. City of Chicago v. Expedia, Inc. et al, No. 1-15-3402 (Ill. App. Ct. 2017).

Eversheds Sutherland is a proud co-sponsor of the 2017 TEI Region II Tax Forum taking place June 5-6, 2017, at the Borgata Hotel in Atlantic City, New Jersey. The Tax Forum will include five plenary and eight breakout sessions offering a wide selection of federal, international, and state and local topics. View the full program brochure. An estimated 11.5 hours of CPE credits or 11.5 hours of CLE credits will be available.

The Eversheds Sutherland Tax Team presentations are listed below. Eversheds Sutherland will also sponsor the hospitality reception from 5:00 p.m. – 6:30 p.m. on June 5.

View details and register now!

 

Notes:

  • The $225 registration fee covers all of the technical sessions, breakfast, lunch and refreshments on both days, as well as our Monday evening reception.
  • Breakfast, luncheons and the reception are open to spouses, guests and vendor-sponsors as well.
  • To reserve your hotel room, use the Tax Executives On-Line Booking Link or call (866) 692-6742 and mention the TEI Conference Code GBTAX17A.
  • Golf, casinos, transportation to the Boardwalk, spa and other activities are available at all times; arrangements can be made. Attendees will be responsible for fees/costs.

By Madison Barnett and Stephanie Do

Many foreign companies are surprised to learn that US states are not generally bound by income tax treaties entered into by the US with foreign countries. Under these treaties, for US federal income tax purposes, certain non-US corporations and residents of foreign countries may be exempt from tax or taxed at a reduced rate. Most US states, however, also impose income taxes on corporations and individuals, and US tax treaties are generally not binding on states. As a result, the applicability of US tax treaties to state income taxes must be determined on a state-by-state and treaty-by-treaty basis. Some states expressly respect US tax treaties, such as Florida, Massachusetts, South Carolina and Virginia. Other states do not expressly respect treaties, but may implicitly do so by tying the state tax base to the US federal tax base in a manner that effectively conforms to federal treaty protections.

Some states will only apply a treaty to their state income taxes if the treaty specifically limits state taxation. Consequently, foreign taxpayers that are protected from US federal income tax by an income tax treaty may nevertheless have a state income tax filing obligation and potential state tax liability in the US states in which they do business.

On March 13, 2017, the State of Arkansas Department of Finance and Administration (the Department) issued Legal Opinion No. 20170217 addressing the applicability of the US-Canada Income Tax Treaty to Arkansas personal income tax. The Department determined that the treaty applies only to US federal income taxes, such that “income taxes levied by individual states, such as Arkansas, do not fall within the treaty’s jurisdiction.” As a result, “the treaty’s provisions are generally not recognized by this state.”

The Department also determined that the Arkansas credit for personal income taxes paid to another US state does not extend to taxes paid to the Canadian government or a Canadian province. Non-US taxes may be deducted from gross income for Arkansas personal income tax purposes, but not credited.

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

Read our April 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.

Lexi 1.jpgLovely Lexie is owned by Eversheds Sutherland Associate Jessie Eisenmenger.

Lexie is approximately 10 years old, and Jessie adopted her in 2013 from the Anne Arundel County Animal Control shelter. When Jessie first brought her home from the shelter, Lexie was terrified and climbed in a hole between Jessie’s dishwasher and the wall. She hid in there for eight hours before Jessie was able to lure her out with food.

Jessie has a wifi security camera so she can keep an eye on Lexie when Jessie is not home. From what Jessie sees, Lexie just literally just sleeps all day. Living the dream! Lexi 2.jpg

 

 

Other interesting things about Lexie:

  • She loves sitting on books or in her kitty cabana.
  • She tolerates Halloween costumes.
  • She loves to show her belly when she is sleeping, but hates having her belly touched.
  • She loves hiding out in cardboard boxes or pillow forts.
  • She loves to cuddle and will follow me around the apartment until I sit down long enough for her to climb in my lap.

We are thrilled that Lexie is our April Pet of the Month!

Lexi 3.jpg