By Chris Mehrmann and Andrew Appleby

The Oregon Supreme Court held that property owned by DirecTV, Inc., a satellite television provider, was subject to central assessment because DirecTV was engaged in the business of providing “data transmission services,” making it a “communications” business. In reaching its decision, the court explained that data transmission services include “services that provide the means to send data from one computer or computer-like device to another across a transmission network.” The court concluded that DirecTV provided such services, because the company was in the business of transmitting electronically coded data between computer-like devices, including set-top boxes. DIRECTV, Inc. v. Dep’t of Revenue, 360 Or. 21 (Or. 2016).

By Hanish Patel and Eric Coffill

The Supreme Court of Virginia held that a city could not impose its consumer utility tax on the natural gas consumed by an electric power company solely for the purpose of generating electricity. Virginia localities are authorized to impose the tax on consumers of natural gas provided by a pipeline distribution company, defined as a corporation which transmits natural gas to a purchaser “for purposes of furnishing heat or light.” The city argued that the electric power company was subject to the tax because it consumed natural gas to create heat in order to power its electricity-generating turbines. The court disagreed, concluding that the statute was not intended to tax natural gas consumed for generating electricity because the definition of a pipeline distribution company omitted the word “power” in the context of “furnishing heat or light”. Additionally, a concurring opinion reasoned that although the electric power company produced heat, it was an incidental byproduct from the generation of electricity. City of Richmond v. Virginia Elec. & Power Co., 292 Va. 70, 787 S.E.2d 161 (2016).

By Robert Merten and Madison Barnett

The South Carolina Department of Revenue issued a revenue ruling concluding that charges paid by customers to stream media content over the Internet, such as movies, music and television programs, are subject to state sales and use tax. Under South Carolina law, the statutory definition of “tangible personal property” includes “services and intangibles, including communications.” The Department has long viewed cable and satellite television and other electronic services as taxable communications services, and the revenue ruling characterizes streaming media as the newest method of delivering taxable communications services. The Department’s ruling also said that streaming media charges are taxable regardless of whether they are paid as part of a subscription service, per item or per event. South Carolina Revenue Ruling No. 16-5 (July 16, 2016). 

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Sutherland SALT tracks and tallies significant state and local tax litigation wins and losses in the quarterly Sutherland SALT Scoreboard publication. In this videocast, Charles C. Capouet and Elizabeth S. Cha share the second quarter highlights from the SALT Scoreboard, including the shift in momentum for state revenue departments and recent results regarding states’ manufacturing exemptions for sales taxes.

View our SALT Scoreboard Videocast.

 

By Chris Mehrmann and Carley Roberts

An administrative law judge (ALJ) of the Arkansas Department of Finance and Administration upheld the denial of a taxpayer’s corporate income tax refund claim, after the taxpayer attempted to amend its returns to apply the cost of performance method of sourcing income. Arkansas has adopted section 18 of the Uniform Division of Income for Tax Purposes Act, which grants the Department discretionary authority to require taxpayers to utilize alternative apportionment methods when the prescribed method produces an inequitable result. By refusing to process the taxpayer’s amended returns, the Department required the taxpayer to use market-based sourcing in place of the applicable cost of performance method. In finding that the Department did not abuse its discretion, the ALJ stated that application of the cost of performance method would omit three of the taxpayer’s four Arkansas revenue streams. Notably, the ALJ explained that the Department’s determination was not unreasonable, because the taxpayer had originally used market-based sourcing for its interstate sales on its returns. Redacted Decision, Docket Nos.16-267, 16-268, 16-269 (Ark. Dep’t of Fin. & Admin, June 21, 2016).

Read our July 2016 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.

Noel & Honey.jpgMeet Noel and Honey, the beloved guinea pigs of Sutherland SALT Counsel Open Weaver Banks.

Noel, the white guinea pig, is roughly three years old, and Honey is about a year old.

Open has had a constant stream of guinea pigs since she was a teenager, except for a few years when her children were little. Though it was really Open who needed the guinea pigs, she convinced her husband that it was their kids who needed them, and he built a deluxe double-decker guinea pig cage for the new arrivals.

Guinea pigs become accustomed to your day–to-day routine. As soon as Honey and Noel hear Open’s voice in the morning, they start calling “weep, weep, weep!” in their loud, squeaky voices.  When they hear Open chopping vegetables in the kitchen, they “weep, weep, weep” incessantly because they know they’ll get the end of a carrot or the top of a strawberry. Noel and Honey’s diet consists of lots of carrots, red peppers, cucumbers, broccoli, brussel sprouts and watermelon rinds. During the summer, they enjoy lettuce and kale from Open’s garden.

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A favorite activity for Noel and Honey is “maze running.” When Open hasn’t dropped off the family’s recycling for a while, her son will set up a maze for the guinea pigs on the kitchen floor using all of the boxes and whatever else he can find. He’ll hide little treats for the guinea pigs throughout the maze and then let them run around. Honey and Noel scuttle all over the place and seem to enjoy the exercise and change in routine.

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Noel and Honey are incredibly honored to be the first guinea pigs featured as Pets of the Month!

By Charles Capouet and Jonathan Feldman

The Wisconsin Court of Appeals held that Wisconsin courts lacked personal jurisdiction over the Mississippi Department of Revenue so as to subject it to a lawsuit in the state. An individual taxpayer asserted that the Mississippi DOR had filed a fraudulent tax lien against him. The taxpayer moved from Mississippi to Wisconsin and sued the DOR in Wisconsin court for improperly attempting to collect on the tax lien. The court engaged in a due process analysis to determine whether a Wisconsin court would have personal jurisdiction over the DOR. The court held that the DOR did not have minimum contacts with Wisconsin when the only contacts asserted involved sending letters and making phone calls to the taxpayer at his Wisconsin residence in an attempt to collect on the alleged delinquent tax debt. Bernegger v. Thompson, No. 2015AP2168 (Wis. Ct. App. July 21, 2016).

By Ted Friedman and Madison Barnett

The North Carolina Court of Appeals held that it would violate Due Process to impose income tax on an out-of-state inter vivos trust because the trust lacked a sufficient connection with North Carolina. The trust was created and governed by laws outside of North Carolina, the Trustee resided outside of North Carolina, and the trust did not own property in North Carolina. Although a beneficiary of the trust resided in North Carolina, she had no control over the trust. Accordingly, the Court upheld an order directing the Department of Revenue to refund income taxes and penalties paid by the trust to the State. Kimberly Rice Kaestner 1992 Family Trust v. N.C. Dep’t of Revenue, No. COA15-896 (N.C. Ct. App. July 2, 2016).

Sutherland SALT releases the second 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 Sutherland SALT Scoreboard also includes our observations on states’ conformity to insurance tax law, states’ manufacturing exemptions for sales taxes, and states’ treatment of the Multistate Tax Compact.

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

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