By Alla Raykin and Jonathan Feldman

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. Membership fees are taxable under New York Tax Law § 1105(f) because members purchase ownership of the club, not directly for activities. However, the Opinion determined that the fees paid by non-members directly for specific activities would be taxable only if the nature of the activity or service was taxable. The Opinion then separately analyzed the activities in question and determined whether they themselves were taxable. TSB-A-17(5)S (NY Dep’t of Taxation & Finance Mar. 3, 2017).

Managing state tax controversies is challenging not only because of the complexities that a particular case presents, but also because of the multidimensional considerations of litigating similar cases in multiple forums. View this article, which highlights the importance of developing a comprehensive strategy to avoid the pitfalls of multistate tax litigation, such as:

  • Setting goals, including settlement strategies
  • Prioritizing individual multistate tax cases
  • Understanding the procedural rules of each forum
  • Limiting information sharing among the states

In their article for State Tax Notes, Eversheds Sutherland (US) attorneys Jeff 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.

View the full article.

Read our May 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.

 

Doodle.jpgMeet Doodle, the family member of Cooper Monroe, State and Local Tax Director at Duke Energy. Doodle is a rescue dog from a Dachshund rescue place in York, South Carolina. Cooper and his family were told that Doodle was a wire-haired dachshund; however, because the vet says Doodle’s legs are too long, he is a type of mutt. Cooper and his family got him when he was about one and he has been part of Cooper’s family for about three years.

He is pictured in his hunting pose, which he patiently assumes for hours at a time. Early in his life, Doodle managed to catch a bird using this technique. He’s been trying to repeat that feat ever since with no success. Squirrels are Doodle’s arch enemy that send him into a fit of barking. Cooper thinks Doodle doesn’t like squirrels so much because he knows they’re the most frequent cause of power outages (proof can be found here).

Doodle’s best attribute is his method of greeting you. He will stand at your feet, wag his tail vigorously and howl loudly. He also likes to wrestle with Cooper’s other dogs, Mocha the yorkie and Pogo the shih tzu/Boston terrier mix. While Doodle is a fun-loving blonde, don’t be fooled. He’s the alpha dog and never lets the other dogs win at wrestling.

Doodle 2.jpg

We are so excited to feature Doodle as our May 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 Nick Kump and Todd Lard

The Texas Comptroller of Public Accounts has issued a private letter ruling finding that a Texas company’s revenue from sales of real-time payment risk and fraud prevention services should be sourced to the location of Taxpayer’s customers. In Texas, receipts from a service are sourced to the location where the service is performed, and in determining where a service is performed, the Ruling notes, “the focus is on the specific, end-product act for which the customer contracts and pays to receive, not on non-receipt producing, albeit essential, support activities” (citing previous Comptroller Decisions). Taxpayer’s customers access Taxpayer’s services by submitting certain information on Taxpayer’s website and then receiving a response within seconds of the submission after Taxpayer’s servers access the databases of third-party vendors. The Comptroller explained that “while the processing of information is essential to the performance of Taxpayer’s service, it is nonetheless a support activity and not the service for which the customers contract.” Instead, Taxpayer’s customers pay to receive Taxpayer’s response at the customers’ location. Therefore, for purposes of the Texas franchise tax, gross receipts from providing that response should be sourced based on the customers’ location. (Tex. Private Letter Ruling No. 201703005L (Mar. 15, 2017) (released May 2017).)

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.