By Mike Kerman and Charlie Kearns

The New York Department of Taxation and Finance issued an advisory opinion concluding that a taxpayer that collects and furnishes healthcare information on behalf of healthcare providers, such as medical practices and hospitals, to persons requesting copies of medical records is not performing a service subject to New York sales and use tax. The Department also determined that the taxpayer’s coding service, by which the taxpayer transforms narrative descriptions of diseases, injuries and similar information into numeric or alphanumeric codes is not taxable if performed for healthcare provider customers or persons authorized to request medical records. These services are non-taxable information services that are personal or individual in nature. However, the Department determined that if the taxpayer provided coded information to third parties, such as persons seeking information for research or education purposes, the records would no longer be personal or individual to the person requesting such information, and would therefore be taxable. TSB-A-16(31)S.

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The quarterly Eversheds Sutherland SALT Scoreboard tallies significant state and local tax litigation wins and losses. In this videocast, Charles C. Capouet and DeAndre R. Morrow share 2016 year-end observations, including results for income tax apportionment cases, sales tax manufacturing exemption cases, and a recap of Avnet, Inc. v. Washington Department of Revenue. Stay tuned for upcoming 2017 editions of the Eversheds Sutherland SALT Scoreboard!

View the SALT Scoreboard Videocast.

On January 30, 2017, the California Legislature Assembly Committee on Revenue and Taxation held an informational hearing on “Life after Lucent: Administering California’s Technology Transfer Agreement Law.” The California State Board of Equalization and the Board’s staff are currently wrestling with the meaning of the Technology Transfer Act provisions in sections 6011 and 6012 of the Revenue and Taxation Code in connection with implementation of the California Court of Appeal decision in Lucent Technologies v. Board of Equalization, 241 Cal. App. 4th 19 (2015). The January 30 hearing demonstrates that the Legislature is now apparently interested in this issue. 

View the full Legal Alert.

By Zack Atkins and Eric Coffill

The Illinois Supreme Court invalidated a Chicago ruling obligating suburban car rental companies to collect Chicago’s personal property lease transaction tax on rental transactions occurring outside the city on the grounds that it violated the Illinois Constitution. The ruling, which the City of Chicago Department of Revenue issued in 2011, required companies doing business in the city to maintain written records, when renting a car from a location within three miles of the city’s boundaries, to support a claim for exemption from the tax. Without these records, the department would assume that a Chicago resident was using the car primarily in the city, thereby subjecting that individual to tax, and that a non-resident was using the car primarily outside the city. If the customer indicated in the rental agreement that he or she intended to use the car primarily inside or outside the city, the department would deem that acceptable evidence of a taxable or a non-taxable transaction, respectively. The Illinois Supreme Court held that the ruling violated the “home rule provision” of the Illinois Constitution, which prohibits extraterritorial taxation by home rule jurisdictions without a specific grant of authority by the state legislature. The court observed that the ruling imposed the tax based on the customer’s stated intent to use the property in Chicago—not actual use in Chicago—or on a presumption of use based on the customer’s place of residence. In either case, the court said the connection between the rental transaction and the city was too tenuous. Hertz Corp. v. City of Chicago, 2017 IL 119945.

By Eric Coffill

FTB announced that it will pay 1% interest on corporation tax overpayments for the period July 1, 2017 through December 31, 2017. Previously, the last time FTB paid interest on corporation tax overpayments (i.e., refunds) was for the period ending June 30, 2009 (for which the interest rate on overpayments was 2%). Under California Revenue and Taxation Code section 19521, interest rates are re-set every six months in accordance with provisions (as modified) of the Internal Revenue Code. Jan. 12, 2017 Memorandum from FTB Economic and Statistical Research Bureau.

Read our January 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 Sutherland SALT Shaker app.

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Meet Lola, the sweet Boxer mix belonging to Sutherland SALT Associate Doug Upton and his family. Lola turns two years old in May and has been with the Uptons since she was just a six-week-old pup.

She is a confident, sociable girl who is quick to greet everyone she meets. She spends her weekdays at doggy daycare with her many canine friends, and most days, she returns home worn out and ready to relax.

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She loves playing tug with her chew toys and enjoys running around the dog park in search of the perfect stick to chew on. She especially enjoys making Doug run after her to take the stick away when he sees that she is no longer chewing, but instead, trying to eat it.

Lola is a very intelligent gal who enjoys her freedom and does not appreciate her family’s attempts to contain her. She has scaled gates to get out of the kitchen and has mastered the art of escaping from her crate—either by simply unlocking the latch or pulling one of the sides loose until she’s able to disassemble it entirely.

This sneaky girl has her own bed but would prefer to sleep with Doug and his wife. Oftentimes, she will wake up Doug in the middle of the night as though she needs to be taken out for a potty break. As soon as Doug is up and out of bed, Lola jumps in and curls up sweetly in Doug’s warm spot.

This clever pup is so very pleased to be January’s Pet of the Month!

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On December 29, 2016, a New York City administrative law judge (ALJ) determined that Sprint’s long distance telecommunications service fees were exempt from the City’s Utility Tax. In the Matter of the Petitions of U.S. Sprint Communications Co., LP, TAT (H) 14-12 (UT) et al. Sutherland represented Sprint in the matter.

  • The ALJ concluded that the Utility Tax enabling statute—which limits the scope of the Utility Tax to transactions occurring within City limits—applies to “transactions” and not “services.” As such, once an exempt transaction has been identified, the exemption applies to the transaction itself plus all revenue associated with the transaction.
  • Applied to telecommunications services, the ALJ determined that exempt long distance telecommunications transactions include not only the charge for the long distance telephone call itself but also charges related to the long distance transaction, regardless of the billing method.
  • Additionally, charges for Internet access are exempt from the Utility Tax pursuant to the Internet Tax Freedom Act, as the City historically did not tax such charges prior to the moratorium on Internet taxes imposed by the Internet Tax Freedom Act.

View the full Legal Alert.

By Robert Merten and Madison Barnett

The San Diego County Superior Court  determined that California’s combined filing regime—which requires interstate taxpayers to use combined reporting but permits intrastate taxpayers to choose between combined or separate reporting—does not violate the US Constitution’s Commerce Clause. The court acknowledged that (1) the interstate and intrastate unitary businesses were being treated differently, and (2) a triable issue of fact existed on whether such differential treatment resulted in discrimination against interstate businesses. The court nevertheless upheld the constitutionality of California’s statute granting intrastate taxpayers the option to file a separate return. The court reasoned that, even if discrimination against interstate taxpayers could be shown, the statute would survive strict scrutiny because the state has a legitimate interest “in preventing the manipulation and hiding of taxable income” by requiring combined reporting “to ensure that all business income from interstate business is accurately accounted for and that it is fairly apportioned.” 

The court’s order was issued on remand from a 2015 Court of Appeal opinion that reversed the trial court’s previous order dismissing the taxpayer’s constitutional challenge. The taxpayer has appealed this order, bringing the case back to the Fourth District Court of Appeal for further disposition. Harley Davidson, Inc. v. California Franchise Tax Board, Minute Order, Case No. 37-2011-00100846-CU-MC-CTL (Oct. 31, 2016), on remand from, 187 Cal. Rptr. 3d 672 (Cal. App. 4th 2015), appeal docketed, Case No. D071669 (Cal. App. 4th Dec. 27, 2016).

Sutherland SALT releases the fourth edition of the “SALT Scoreboard,” a quarterly publication that tracks significant state tax litigation and controversy developments and tallies the results of taxpayer wins and losses across the country. Our quarterly publication features Sutherland’s observations regarding important state tax decisions and will identify trends by issue, state and forum as they emerge during the year. This issue of the SALT Scoreboard includes Sutherland’s year-end observations for 2016, insights regarding the Ohio Supreme Court’s decision in Crutchfield Corp. v. Testa, and a spotlight on New Jersey. We are closing the book on 2016 and are gearing up for a fresh start in 2017. We have reset our tallies and are tracking the results as they are issued in the new year.

View our Sutherland SALT Scoreboard results from the fourth quarter of 2016!

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