By Charles Capouet and Andrew Appleby

The Florida Department of Revenue determined that a reinsurer did not have nexus with Florida for corporate income tax purposes.  The Department first asserted that an insurer or reinsurer would have nexus with Florida if it was authorized to transact business in the state.  The Department also stated that nexus would exist if an approved reinsurer reinsured policies from an insurer domiciled in Florida.  In this case, the reinsurer did not have nexus with Florida because: (1) it was not an approved reinsurer and was not registered with the Florida Office of Insurance Regulation; and (2) the ceding companies were not domiciled in Florida.  The Department also addressed an insurance company’s apportionment factor, which depends on whether the ceding insurance companies are resident, or have a regional home office, in Florida.  Fla. Technical Assistance Advisement No. 17C1-001, Fla. Dep’t of Rev., Jan. 13, 2017.

By Zack Atkins & Open Weaver Banks

The Utah State Tax Commission ruled that machinery and equipment purchased by the owner of a social networking community qualified for the state’s exemption for purchases and leases of certain property used in the operation of a web search portal.  In connection with its proposed construction and operation of a data center campus in Utah, the taxpayer anticipated buying, among other things, computer servers, fiber infrastructure and network equipment, power equipment and infrastructure, backup generators, fire suppression equipment, security equipment, electrical substations, and cooling equipment.  Utah exempts from sales and use tax purchases and leases by an in-state establishment described in NAICS Code 518112, Web Search Portals, of machinery, equipment, and parts used in the operation of a web search portal and with an economic life of at least three years.  The Commission concluded that the taxpayer was described in the requisite NAICS Code and the proposed data center qualified as an in-state establishment.  It also determined that the taxpayer’s anticipated machinery and equipment purchases would qualify for the exemption, with three exceptions.  Fire suppression, security and cooling equipment, the Commission said, would not be used in the operation of the web search portal; rather, that equipment would be used to provide a proper environment for other categories of machinery and equipment to operate the web search portal. Utah State Tax Comm’n, Private Letter Rul. No. 16-001.

By Nicole Boutros and Eric Coffill

The Alabama Tax Tribunal held that a taxpayer banking corporation properly deducted dividends received from an affiliated real estate investment trust (REIT) for financial institution excise tax purposes because the REIT qualified as a “corporation.” The Tribunal rejected the Department of Revenue’s assertion that the REIT was not a corporation based on its tax treatment as a REIT, explaining that the deduction applies more broadly to dividends received from payor entities that are corporations organized and existing under Alabama law. The Tribunal further disagreed with the Department of Revenue’s assertion that the REIT was a financial institution and therefore was not a “corporation,” finding that the REIT did not meet the requirements to qualify as a bank. Ameris Bank v. Ala. Dep’t of Revenue, Docket No. BIT. 16-255 (Ala. Tax Trib. Feb. 9, 2017).

For more than 25 years, The Tax Executives Institute has met the tax controversy needs of the in-house professional community through its Audits & Appeals Seminar. Leading practitioners, regulators, policymakers and jurists join TEI annually to discuss the nuts, bolts and nuances of tax controversy.

Eversheds Sutherland is delighted to participate in a full day (May 3, 2017) on Managing State and Local Tax Controversies, which includes sessions on:

  • Filing strategies
  • Audit management
  • Assessments and protests
  • Litigation and select controversy issues
  • Panels featuring state tax judges and industry professionals

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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

You are invited to register for all three seminar days, the first two days or the final day devoted to state and local tax controversy, depending on your individual needs.

View details and register now!

The Georgia Tax Tribunal, in its first published decisions in more than a year, held that:

  • Scholastic Book Clubs has nexus in Georgia and must collect sales tax as a result of its relationship with teachers in the state; and
  • In a case affording significant deference to the Department’s regulations, a taxpayer that elects to claim one tax credit for creating jobs cannot change its election in later tax years and instead claim an alternative credit.

View the full Legal Alert.

By Chelsea Marmor and Amy Nogid

The US Court of Appeals for the Eighth Circuit affirmed the district court and held that it lacked jurisdiction under the Tax Injunction Act  and the principles of comity to “enjoin, suspend or restrain the assessment, levy or collection” of any Ohio tax where a “plain, speedy and efficient remedy” exists in an Ohio court. Diversified Ingredients, Inc. (Diversified), a Missouri company not registered to do business in Ohio and having no employees or offices in Ohio, sold goods manufactured outside of Ohio to customers in Ohio. Diversified sought a declaration that the Interstate Income Act (IIA), 15 U.S.C. § 381, often referred to as Public Law 86-272, which limits the authority of states to impose net income taxes, deprived Ohio of the jurisdiction to assess and collect commercial activity tax (CAT). Diversified argued that because the CAT statute provides that the CAT is not subject to the IIA, a plain remedy does not exist. Diversified also argued that federal courts have exclusive jurisdiction over the interpretation and enforcement of the IIA. The court disagreed, holding that the IIA does not explicitly provide for exclusive federal jurisdiction, and that Ohio provides the right to appeal to an appellate court that can determine whether the statute violates the IIA “regardless of the Ohio Legislature’s contrary intention.” Diversified Ingredients, Inc. v. Testa, No. 16-2791 (8th Cir. Jan. 23, 2017).

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.