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

Judges Panel announced!

Eversheds Sutherland is delighted to participate in a full-day program (May 3, 2017) on Managing State and Local Tax Controversies during TEI’s 2017 Audits & Appeals Seminar. Moderated by Professor Richard Pomp, our lunch session will feature the following state tax judges:

  • Richard D. Pomp, Moderator, University of Connecticut School of Law
  • Steven Lasher, Michigan Tax Tribunal
  • Terry Charlton, Illinois Informal Conference Board
  • David Wilmoth, Wisconsin Tax Appeals Commission

More day 3 sessions:

  • Beyond Paper Pushing – Consequences of State Tax Filings
    Speakers: Michele Borens and Andrew Appleby
  • Overcoming the Challenges of State Tax Audit Management
    Speakers: Jeff Friedman and Carley Roberts
  • Pay Up or Protest! Challenging Assessments
    Speakers: Marc Simonetti and Tim Gustafson
  • Resolution Through the Courts
    Speakers: Eric Coffill and Maria Todorova
  • Navigating Through State Tax Controversy – Considerations Everyone Should Know About
    Speakers: Jonathan Feldman and Madison Barnett
  • Industry Perspective of Managing Audits and Litigation
    Featuring:
    • Jim Kennedy, OppenheimerFunds
    • Cooper Monroe, Duke Energy
    • Tom Pucci, Expedia
    • Elena Xu, Facebook

TEI’s Audits & Appeals Seminar will take place May 1-3, 2017, in Seattle, Washington:

  • May 1-2: Insights and Skills for Federal Tax Controversy Success
  • May 3: Managing State and Local Tax Controversies, sponsored by Eversheds Sutherland

View details and register now!

 

By Eric Tresh and Liz Cha

On April 10, 2017, a Tennessee Chancery Court ordered that the Tennessee Department of Revenue is temporarily prohibited from enforcing a regulation that requires out-of-state retailers making annual sales in excess of $500,000 to collect and remit sales tax. The Order arises out of a dispute between the Plaintiffs and the Department of Revenue regarding the Constitutionality of the regulation. The regulation, which became effective January 1, required out-of-state retailers to register with the Department of Revenue by March 1 and to begin collecting state sales taxes after July 1. The Department of Revenue and Plaintiffs, American Catalog Mailers Association and NetChoice jointly requested the court’s order to limit uncertainty in the marketplace while the case is pending. The Court’s order also provides that retailers who may be subject to the regulation may voluntarily comply with the regulation during the pendency of the litigation. Am. Catalog Mailers Ass’n v. Tenn. Dep’t of Revenue, Tenn. Ch. Ct., No. 17-307-IV (complaint filed Mar. 30, 2017).

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 April submissions is Tuesday, April 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.

Hotel information below:

The TEI room block at the Renaissance Seattle Hotel is now sold out. However, a limited number of rooms are still available at prevailing rates. Other hotels in walking distance are:

Eversheds Sutherland is delighted to participate in a full-day program on Managing State and Local Tax Controversies (May 3, 2017) during TEI’s 2017 Audits & Appeals Seminar. Session details:

  • Beyond Paper Pushing – Consequences of State Tax Filings
    Speakers: Michele Borens and Andrew Appleby
  • Overcoming the Challenges of State Tax Audit Management
    Speakers: Jeff Friedman and Carley Roberts
  • Pay Up or Protest! Challenging Assessments
    Speakers: Marc Simonetti and Tim Gustafson
  • Resolution Through the Courts
    Speakers: Eric Coffill and Maria Todorova
  • Navigating Through State Tax Controversy – Considerations Everyone Should Know About
    Speakers: Jonathan Feldman and Madison Barnett
  • Industry Perspective of Managing Audits and Litigation
    Featuring:

    • Jim Kennedy, OppenheimerFunds
    • Cooper Monroe, Duke Energy
    • Tom Pucci, Expedia
    • Elena Xu, Facebook
  • Lunch panel featuring state tax judges
    • Richard D. Pomp, Moderator, University of Connecticut School of Law
    • Steven Lasher, Michigan Tax Tribunal
    • Terry Charlton, Illinois Informal Conference Board
    • David Wilmoth, Wisconsin Tax Appeals Commission

TEI’s Audits & Appeals Seminar will take place May 1-3, 2017, in Seattle, Washington:

  • May 1-2: Insights and Skills for Federal Tax Controversy Success
  • May 3: Managing State and Local Tax Controversies, sponsored by Eversheds Sutherland

View details and register now

By Open Weaver Banks and Liz Cha

The Arizona Department of Revenue (Department) issued a taxpayer information ruling stating that a taxpayer’s gross income from transactions provided through the use of computer software is not subject to tax under the personal property rental classification for Arizona Transaction Privilege Tax purposes.

The taxpayer’s software provides its customers with subscription billing and reoccurring payment provider services through a web-based portal. The taxpayer charges its client a percentage of successful billing transactions made during a particular time period. If a client violates the payment agreement with the taxpayer, the taxpayer will discontinue provision of its payment processing services and disable access to its software and web-based portal.

Under Arizona case law, software is treated as tangible personal property. The Arizona Transaction Privilege Tax generally subjects tangible personal property to tax when a taxpayer grants its customer the right to the tangible personal property for a perpetual duration (i.e., a sale) or for a fixed period of time at a fixed amount (i.e, a rental). The Department determined that the taxpayer’s activities would not be considered retail sales because the taxpayer’s billing practices were based on (1) a periodic fee and (2) the taxpayer could discontinue service if the customer failed to pay. With regard to whether the taxpayer’s services constituted a rental, the Department relied on Arizona precedent that taxpayer’s customers must gain sufficient control and use of software to constitute the rental of tangible personal property. In this case, the taxpayer’s customers lacked sufficient control of the software because both the taxpayer and customer used the software and the taxpayer updated information on the portal either manually or automatically so that the clients could view the status of payments processed and other analytical information. Accordingly, the Department determined that gross income from taxpayer’s software services was not a taxable activity under the Arizona Transaction Privilege Tax.

Arizona Taxpayer Information Ruling LR 16-011, Arizona Department of Revenue (September 23, 2016).