By Charles Capouet and Timothy Gustafson

The Mississippi Chancery Court held that the state’s dividend exclusion statute is unconstitutional because it violates the Commerce Clause of the U.S. Constitution. The statute excludes from a taxpayer’s gross income intercompany dividends received from domestic affiliates doing business and filing income tax returns in Mississippi. In so doing, the court found the statute denies taxpayers a tax benefit “based solely upon the choice of the taxpayer and its subsidiaries not to locate any operations in Mississippi or to file a Mississippi income tax return.” The court concluded that the statute facially discriminates against interstate commerce because it favors “domestic corporations over foreign competitors” and discourages “corporations from choosing to locate their operations outside Mississippi.” The Department of Revenue could not save the statute by establishing that it imposes only a compensatory tax designed to “make interstate commerce bear a burden already borne by intrastate commerce;” to the contrary, the court noted the statute results in double taxation to certain companies. Rejecting the Department’s suggested remedy of rescinding the statute and disallowing the tax benefit for all taxpayers on a retroactive basis, to include years for which the statute of limitations for assessment had expired, the court struck the discriminatory limitation and granted the tax benefit to the taxpayer for the years at issue. AT&T Corp. v. Miss. Dep’t of Revenue, No. G-2004-1393 (Miss. Ch. Mar. 20, 2015).

By Stephen Burroughs and Jonathan Feldman

Following up on our coverage of Georgia tax reform, late last night the Georgia Assembly passed a committee substitute to the House’s Transportation Funding Bill, H.B. 170. The bill represents a compromise of the House and Senate proposals, establishing a 26-cents-per-gallon excise tax on gasoline and a 29-cents-per-gallon excise tax on diesel fuel. The bill eliminates the tax credit previously available for once incentivized electric vehicles and actually imposes a $200 annual user fee on these vehicles. The provisions originally inserted into the Senate version creating the Special Joint Committee on Georgia Revenue Structure remain, and the bill now awaits Governor Deal’s signature. The Special Joint Committee is required to introduce tax reform legislation during the 2016 legislative session. Any bills or resolutions recommended by the Special Joint Committee may only receive an up or down vote, without amendment. Sutherland will track Georgia tax reform updates as they arise leading into the 2016 legislative session. H.B. 170, 2015-2016 Gen. Assemb., Reg. Sess. (Ga. 2015).

New York Governor Andrew Cuomo introduced his 2015-2016 budget and accompanying legislation on January 19, 2015. After much negotiation, the Legislature just enacted the Budget Bill. As a result, New York’s tax law has been significantly altered for the second time in two years.

View the full Legal Alert.

Read our March 2015 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 mobile app.

Alice.jpegMeet Alice and Indy, our March Pets of the Month. Both were submitted through our SALT Shaker App by Dee Waldruff, Manager of State and Local Taxes at Paychex, Inc.

Alice (Tears on My Pillow) is a thoroughbred who recently celebrated her twenty-eighth birthday. She has lived on the Waldruff property (affectionately referred to as “Walderosa”) for the last 16 years. This girl has done it all—and has the extensive resume to show for it! In her younger years, she was a racehorse, eventer, show hunter, trail horse, 4H horse and lesson horse. She still enjoys quiet trail rides and jumping smaller fences.

Indy is a retired racing Greyhound from Alabama and has been a wonderful addition to the Waldruff family, which includes Dee, her husband and daughter, three horses, another dog, three cats and a guinea pig. He was adopted through the multi-breed rescue group, SHUG (Sighthound Underground), which rescues, rehabilitates, transports and supports Sighthounds from around the world.

According to Dee, it took nearly a year for Indy to come out of his shell. He did not know how to play or snuggle. But thanks to his persistent Labrador “sister,” he now enjoys playtime and being loved on by his humans.Indy.jpeg

Indy’s schedule is a busy one! He is a registered therapy dog with Therapy Dogs International, and spends one day each week at a local elementary school listening to third graders read to him; he visits college campuses during exam week to help students relieve stress; and he also attends local meet and greets for area Greyhound adoptions.

These two sweeties are thrilled to be featured as the March Pets of the Month! 

By Stephen Burroughs and Jonathan Feldman

Georgia’s Transportation Funding Bill may lead to significant tax reform for the state in 2016. In response to a nearly $1 billion transportation budget shortfall, on March 5 the Georgia House of Representatives passed H.B. 170, which would convert Georgia’s sales tax on motor fuel to a 29.2 cents-per-gallon excise tax. The Georgia Senate then passed a substitute version, setting the excise tax rate at 24 cents per gallon, eliminating the state’s tax credit for fuel-efficient vehicles and allowing Georgia localities to impose a 1% sales tax on motor fuel that costs less than $3.40 per gallon. The legislation is now in a conference committee that is trying to find a compromise between the two bills before the regular session ends this week. But perhaps overlooked in the Senate version of the Transportation Funding Bill is its creation of a “Special Joint Committee on Georgia Revenue Structure” (Committee). The Committee will be tasked with introducing “one or more bills or resolutions relating to tax reform” in the House of Representatives during the 2016 legislative session. If the Committee sounds familiar, that is because it last appeared in 2011 as a harbinger of sweeping tax reform in Georgia. While the Committee fell short of completely overhauling Georgia’s revenue structure, it did render significant changes to Georgia tax law: (1) it exempted energy used by manufacturers as part of the “integrated plant theory”; (2) established click-through and affiliate nexus provisions; (3) replaced the sales tax on motor vehicles with a one-time title and ad valorem tax; and (4) created the Georgia Tax Tribunal. A conference committee must reconcile the House and Senate versions of the Transportation Funding Bill by Thursday to avoid a Special Session. While the compromise bill will attempt to address Georgia’s transportation budget shortfall, it will also be important to monitor whether creation of the Special Joint Committee will be a bridge to nowhere or a road that leads to significant Georgia tax reform in 2016. H.B. 170, 2015-2016 Gen. Assemb., Reg. Sess. (Ga. 2015).

By Jessie Eisenmenger and Timothy Gustafson

The Missouri Supreme Court held that charges paid by a personal training company to a gym for the rental of office space and limited use of the fitness equipment when conducting personal training sessions are not subject to sales tax. The personal training company paid the gym $6,000 per month to rent office space and market and sell personal training services to the gym’s members. The Missouri Department of Revenue assessed sales tax on the monthly charge, asserting it was a fee paid to a place of recreation taxable under Mo. Rev. Stat. § 144.020.1(2). Because there was no sale of tangible personal property, the Court explained the rental fees would be taxable only if they were for the rendering of a taxable service. In its analysis, the court looked to the plain and ordinary meaning of the phrase “rendering a taxable service” and reasoned that the phrase required an affirmative act, rather than mere passivity. By renting office space and otherwise remaining passive regarding the interactions between the personal training company and its members, the court determined the gym did not perform an affirmative act for the personal training company. Accordingly, the court held the monthly rental fees were not subject to sales tax. Tatson, LLC v. Dir. of Revenue, No. SC94260 (Mo. Feb. 24, 2015).

By Stephanie Do and Madison Barnett

The Ohio Board of Tax Appeals determined that two out-of-state online retailers with no physical presence in Ohio were subject to Ohio’s Commercial Activity Tax (CAT). The Board, declining to rule on the taxpayers’ constitutional arguments, found that the online retailers met Ohio’s statutory bright-line presence nexus test based solely on their volume of taxable sales to Ohio customers. The retailers sold tangible personal property to consumers across the United States, including in Ohio, through their Internet websites hosted on servers outside of Ohio. The retailers’ warehouses and distribution centers were also located outside of Ohio. Although the retailers had no physical presence in Ohio, they did have at least $500,000 in taxable sales to Ohio customers. The retailers argued that they were not subject to the CAT because the Commerce Clause of the U.S. Constitution forbids Ohio from imposing the tax on non-residents with no physical presence in Ohio. The Board declined to review the retailers’ constitutional arguments on the basis that, as an administrative body, it did not have jurisdiction over such arguments. The Board held instead that Ohio statutes do not contain an in-state physical presence requirement. With the initial L.L. Bean constitutional challenge having been settled, these cases may present the vehicle through which the constitutionality of Ohio’s bright-line presence nexus test is finally determined by a court. Crutchfield, Inc., et al. v. Testa, Case Nos. 2012-926; 2012-3068; 2013-2021 (Ohio Bd. Tax App. Feb. 26, 2015); Newegg, Inc., et al. v. Testa, Case No. 2012-234 (Ohio Bd. Tax App. Feb. 26, 2015).

By Charles Capouet and Open Weaver Banks

The Alabama Department of Revenue has proposed an amendment to the state’s rental tax regulation. If finalized, the regulation would tax the rental of “digital transmissions,” such as “on-demand” movies, television programs, streaming video, streaming audio and other similar programs, regardless of the method of transmission or the length of time of the rental. The proposed amendment would also reach certain cable television boxes and related accessories. By statute, the rental tax is levied on persons engaged in the business of leasing or renting tangible personal property. The regulatory proposal would treat cable or satellite television providers, online movie and digital music providers, app stores, and other similar providers of digital transmissions as engaging in the business of leasing tangible personal property and would subject them to the rental tax. The proposed regulation would also apply the rental tax to multipurpose cable boxes that function as digital video recorders or perform other functions in addition to accessing basic cable. Under the proposal, cable television boxes that are used solely to access basic cable are not subject to the rental tax. The Department has scheduled a public hearing to discuss the proposed regulation expanding the scope of Alabama’s rental tax for April 8, 2015. Prop. Ala. Admin. Code r. 810-6-5-.09 (2015).