By Charles Capouet and Charlie Kearns

The Georgia Department of Revenue released a letter ruling stating that a taxpayer’s health-related information service was not subject to sales and use tax. The service includes a web portal to provide health information and track the user’s personal results and the in-person performance of an annual biometric health assessment. The taxpayer’s service was not taxable because Georgia does not expressly designate the service as taxable. Ga. Letter Ruling SUT-2015-03, Ga. Dep’t of Revenue (issued Apr. 16, 2015, released Feb. 2016).

By Mike Kerman and Andrew Appleby

The Louisiana Court of Appeals held that a paperboard products manufacturer was entitled to refunds of sales tax it paid on purchases of chemicals it used in the manufacturing process under the “further processing” exclusion. The chemicals met the exclusion’s three-part test because they: (1) were identifiable components of the end paperboard product; (2) benefitted the paperboard by increasing its mass, conductivity, size and strength; and (3) were purchased with the purpose of being included in the paperboard. Graphic Packaging Int’l, Inc. v. Lewis, No. 50,371-CA (La. Ct. App. Feb. 3, 2016).

Yesterday, the U.S. Court of Appeals for the Tenth Circuit issued its opinion in Direct Marketing Association v. Brohl, reversing the district court’s order granting summary judgment. The Tenth Circuit held that Colorado’s notice and reporting requirements imposed on non-collecting retailers did not violate the dormant Commerce Clause because they neither discriminated against, nor unduly burdened, interstate commerce. In determining that Colorado’s law did not violate the dormant Commerce Clause, the Tenth Circuit further held that the application of Quill v. North Dakota is narrowly limited to sales and use tax collection.

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By Stephen Burroughs and Tim Gustafson

The Massachusetts Supreme Judicial Court denied a freight company’s Commerce Clause challenge to the application of an unapportioned use tax on its vehicles purchased out-of-state but used in Massachusetts. The company used its trucks to deliver freight in multiple states, but the court upheld taxation of the vehicles’ full value, in part, because a statutory “catch-all” exemption disallowed any application of the use tax that violated the U.S. Supreme Court’s decision in Complete Auto. The court reasoned that the “catch-all” exemption prevented hypothetical scenarios from invaliding a use tax assessment under the internal consistency test because transactions that result in actual double taxation are exempt from Massachusetts use tax. The court also concluded that the unapportioned use tax was externally consistent because it was not out of proportion to the company’s use and storage of its vehicles in Massachusetts, and the company was not subject to imposition of multiple sales or use taxes in other jurisdictions. Finally, the court determined that the vehicle use tax did not impermissibly burden interstate commerce simply because Massachusetts chooses to tax an activity that most states exempt—the in-state use or storage of vehicles engaged in interstate commerce. Regency Transp., Inc. v. Comm’r of Revenue, 473 Mass. 459, 42 N.E.2d 1133 (Ma. 2016).

By Nicole Boutros and Jeff Friedman

The Director of the Arizona Department of Revenue affirmed an Administrative Law Judge determination that a taxpayer must pay the Transaction Privilege Tax on sales of access to the taxpayer’s subscription-based online research service. The Director reasoned that these sales were taxable as rentals of tangible personal property—and not non-taxable services—because the taxpayer’s customers had sufficient control and use of the taxpayer’s software and could manipulate the software content for their specific needs. The Director rejected the taxpayer’s assertion that the common understanding of the taxpayer’s trade or business was the provision of database access and content, or that the transaction’s dominant purpose was database browsing and searching. Ariz. Dep’t of Revenue Director’s Decision, No. 201400197-S (Oct. 27, 2015).

By Zack Atkins and Eric Coffill

A Virginia trial court held that royalties paid to related members that are reported to, but not taxed by, other states do not qualify for the exception to the state’s corporate income tax addback statute. In granting summary judgment in favor of the Virginia Department of Taxation, the court said that intangible expenses paid to related members must be added back to a taxpayer’s federal taxable income unless the payments to the related member are “subject to a tax based on or measured by net income or capital.” Construing this exception narrowly against the taxpayer, the court equated the statute’s “subject to” language to actual taxation. Kohl’s Dep’t Stores, Inc. v. Va. Dep’t of Taxation, 91 Va. Cir. 499 (Va. Cir. Ct. Feb. 3, 2016.).

On October 31, 2016, the Virginia Supreme Court granted the taxpayer’s Petition for Appeal.  Briefing for the appeal will likely be completed in 2017. Kohl’s Dep’t Stores, Inc. v. Va. Dep’t of Taxation, 91 Va. Cir. 499 (Va. Cir. Ct. Feb. 3, 2016), Petition for Appeal granted, No. 160681 (Va. Oct. 31, 2016).”

By Ted Friedman and Carley Roberts

The West Virginia Office of Tax Appeals (OTA) ruled that an out-of-state corporation, with no physical location or employees in West Virginia, owed sales and use tax on sales of garage equipment in the state. The OTA determined that the corporation had nexus with West Virginia based on its purposeful utilization of persons in the state who provided leads, sales information, equipment installation, training and follow-up, coupled with the activities of an independent contractor who functioned as its sales representative in the state, because such activities established and maintained a market for the corporation in West Virginia. West Virginia Administrative Decision No. 14-081 CU (W. Va. Office of Tax Appeals Oct. 14, 2015) (released Jan. 27, 2016).

By Mike Penza and Madison Barnett

The New York Supreme Court, Albany County, held that New York’s unapportioned vehicle registration fees violated the Commerce Clause. The court found that the flat fees—imposed on all carriers operating motor vehicles in New York—were indistinguishable from those struck down by the U.S. Supreme Court in American Trucking Ass’ns., Inc. v. Scheiner, 483 U.S. 266 (1987). The court rejected the state’s arguments that the fees (i) were too small ($15 and $4) to be of constitutional significance, and (ii) could not be apportioned without creating an “enormous and costly administrative burden.” Owner Operator Indep. Drivers Ass’n v. New York State Dep’t of Taxation and Fin., No. 005551/2013 (N.Y. Sup. Ct. Albany Cty. Jan. 22, 2016).

By Stephanie Do and Todd Lard

The U.S. District Court for the Eastern District of Kentucky preliminarily enjoined Kentucky from denying tax incentives to a religious-based theme park. The court held that excluding the company from the state’s tax incentives program on the basis of the company’s religious beliefs, message and conduct violated the Establishment and Free Exercise Clauses of the First Amendment when the company met all of the neutral criteria for the program. The court further found that Kentucky’s constitutional provisions cannot be used to transform such First Amendment violations into permissible actions. Ark Encounter, LLC v. Don Parkinson, No. 15-13-GFVT (E.D. Ky. 2016).

By Hanish Patel and Open Weaver Banks

A New York Division of Tax Appeals Administrative Law Judge (ALJ) held that an electricity producer’s purchases, installations and repairs of “step-up transformers” were not subject to sales and use tax because the transformers were “used directly” in the production of electricity. Step-up transformers are used to “step up” the voltage of electricity so it may enter the transmission system, which, in turn, distributes the electricity throughout the state. The ALJ rejected the state’s argument that the step-up transformers were used in the delivery of energy, and not in the production of energy, finding instead that the step-up transformers were necessary in processing the electricity into a “saleable form” with the required voltage level. In the Matter of Entergy Nuclear Operations, Inc., DTA No. 826017 (N.Y. Div. of Tax App. Jan 28, 2016).