By Samantha Trencs and Eric Tresh

The New York State Department of Taxation and Finance issued an advisory opinion concluding that a detailed report of customer behavior that includes both client-specific and industry-related information is a service subject to sales and use tax. Tax Law § 1105(c)(1) imposes sales and use tax on information services; however, the tax is not imposed on information that is personal or individual in nature which cannot be substantially incorporated in reports furnished to other persons. The Department determined that the personal or individual information exclusion did not apply in this case because a portion of the information in the client reports came from public sources that could be utilized in other reports for similarly situated clients and thus was not personal or individual in nature. The Department further determined that the non-personal information included in the client reports was not de minimis. Without the use of the non-personal information about a client’s particular industry, a comparison of the client’s performance relative to its competitors would not be possible. TSB-A-16(33)S. The advisory opinion is consistent with the Department’s expansive interpretation of sales tax on information services. 

Earlier this week, the Multistate Tax Commission held its 2017 March Committee Meetings. Eversheds Sutherland Attorneys were on the scene for all committee meetings. Several interesting and enlightening items were discussed. This alert highlights key developments from the meeting, including:

  • Considerations of developing a model entity-level tax on pass-through entities;
  • The return of the Use Tax Information Reporting Model;
  • The Section 18 Regulatory Project; and
  • State tax implications of federal tax reform.

View the full Legal Alert.

Last week, the Michigan Department of Treasury issued a Notice to Taxpayers explaining its approach in administering the now final Michigan Court of Appeals decision in LaBelle Management, Inc. v. Department of Treasury, 888 N.W.2d 260 (Mich. Ct. App. 2016), leave to appeal denied by 889 N.W.2d 250 (Mich. 2017) (mem.). The Court invalidated the Department’s position of indirect ownership rules for purposes of determining whether companies are more than 50% owned and included in a unitary business group. The Notice explains that:

  • LaBelle applies retroactively;
  • The Department expects taxpayers to make corrective filings for all open tax years for purposes of both the Michigan Business Tax and the Michigan Corporate Income Tax; and
  • Corrected filings resulting from LaBelle will not be subject to penalties and the Department will waive interest for returns filed by December 31, 2017.

View the full Legal Alert.

By Chris Lutz and Carley Roberts

The Kentucky Court of Appeals held that the Kentucky Department of Revenue must publish final administrative rulings, even when those rulings are not appealed to the Board of Tax Appeals. The Office of Attorney General had previously determined that the Department’s decision not to provide even redacted copies of final rulings in administrative protests was supported by Kentucky law, which prohibits or restricts disclosure of certain taxpayer information. After a trial court held that all rulings should be disclosed, the Department appealed, contending that final rulings not subsequently appealed should not be subject to inspection because they contain private taxpayer information that is not otherwise a matter of public record and that cannot easily be segregated from non-exempt information.

Ruling against the Department, the Court of Appeals concluded that the Department had “taken an unreasonably and overly broad view of” the state’s privacy laws. The court explained that final rulings by the Department must contain a general statement of the issues in controversy and the Department’s position with respect to those issues; “[c]onsequently, the substantive portions of final rulings contain a wealth of information relative to the implementation of [Kentucky’s] tax laws.” Because redacting the rulings would sufficiently protect the privacy of the taxpayers involved in the rulings, the Open Records Act requires their publication. Finance and Administration Cabinet v. Sommer, No. 2015-CA-001128-MR (1/13/2017).

By Jessica Eisenmenger and Open Weaver Banks

The Wisconsin Court of Appeals for District III upheld the Tax Appeals Commission’s decision that separating dredged material from contaminated river water into its constituent parts for the purpose of water pollution remediation constitutes “processing” of tangible personal property and is therefore a taxable service. Tetra Tech EC, Inc. v. Wisconsin Dep’t of Revenue, No. 2015AP2019 (Wis. Ct. App. Dec. 28, 2016).

Traditionally, mandatory worldwide combined reporting was the state corporate tax issue of most concern to companies engaged in international business. States are now moving toward a water’s-edge unitary combination method for both US and foreign-based companies.

In his article for the Spring 2017 edition of Partnering Perspectives, Eversheds Sutherland (US) Senior Counsel Eric Coffill covers four trends towards increasing the tax base of a state by expanding the water’s-edge.

View the full article.

By Doug Upton and Madison Barnett

The Michigan Court of Appeals held that a taxpayer was precluded from recovering sales tax it voluntary paid in response to a preliminary audit determination, even though assessment of the tax may have otherwise been barred under the four-year statute of limitations. The court reasoned that a preliminary audit determination is not an “assessment” and, as a result, the four-year statute of limitations on assessments was not triggered to bar the audit determination. Because the statute of limitations did not apply, the court declined to review whether an amendment to the statute of limitations period applied retroactively to prevent the Department from assessing tax at the time it issued its preliminary determination or to prevent the taxpayer’s resulting claim for refund. W. Soule & Co. v. Dept. of Treasury, No. 329213 (Mich. Ct. App. Jan. 17, 2017) (unpublished).  

In a rare special meeting on February 24, 2017, the Multistate Tax Commission (MTC) adopted amendments to the MTC’s Model General Allocation and Apportionment Regulations that it has worked on since 2014. Among other things, the 94-page Model Regulations:

  • Provide a new section related to market-based sourcing of receipts from the sale of services and intangibles.
  • Clarify the definition of “apportionable income,” narrow the definition of “receipts” and remove the requirement for equal weighting of the three-factor apportionment formula.
  • Eliminate the portion of Section 18 related to the receipts factor along with the corresponding examples.

View the full Legal Alert.

Read our February 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.

up square.jpgMeet Raven, the lovely Labrador retriever belonging to Sacramento SALT receptionist Sheryl Burns and her family. Raven turns 14 in April and has been a member of the Burns household since she was only six weeks old.

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Also known as Ravey Gravy and Nini Bear, Raven will not hesitate to lick visitors, and she loves to drink out of the toilet. She is a very sociable girl who wants to be where the action is and stays near Sheryl and her husband almost constantly when they’re at home.

In her younger years, Raven spent her days on squirrel patrol, happily chasing squirrels away from the yard. These days, her hips don’t allow her to run and jump like she used to, so she prefers to nap in the sun or carry around her babies (toys). Currently, her favorite toy is her quail, and if she can’t find her quail, her penguin will do.

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This sweet senior gal is honored to be February’s Pet of the Month!

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