The Multistate Tax Commission’s Arm’s-Length Adjustment Services Advisory Group met via teleconference to continue the design of a program to analyze intercompany transfer pricing. Since they last met on March 4, the Group sent invitations to 48 states to join the program. Of the responding 21 states, 4 states indicated an interest in joining the program: Alabama, Iowa, New Jersey, and North Carolina. The states that declined generally did so because of budgetary constraints and perhaps uncertainty of the ultimate costs of the program. The Group’s goal is to present a final program design to the MTC Executive Committee when they meet in Washington, D.C., on May 7.

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By Charles Capouet and Madison Barnett

The Florida Department of Revenue determined that a Florida data center’s power fees are not subject to gross receipts tax but may be subject to sales tax. The taxpayer operates a colocation data center and purchases electricity to power the data center from a utility. The taxpayer’s customers have the option of paying for the electricity through a fixed monthly recurring “Breakered Power Fee.” The fee is charged regardless of actual usage, although the customer cannot use more than 80% of the allotted power circuit’s breakered capacity limit. If additional power is needed, the customer may pay for additional power circuits. Florida imposes a tax on certain “gross receipts received by a distribution company for its sale of utility services.” The Department determined that the data center power fees are not subject to gross receipts tax because the taxpayer is “not a distribution company, it charges a set rate based on circuits (and not usage), and it does not manipulate or purify” the electricity it buys. The Department instead characterized the power fees as “consideration for the license to use real property ([that are] taxed accordingly for sales and use tax).” Fla. Dep’t of Revenue, Tech. Assist. Adv. No. 15A-003 (Feb. 24, 2015).

By Suzanne Palms and Open Weaver Banks

The Louisiana Court of Appeal held that GameStop, a video game retailer, correctly applied trade-in credits to reduce the sales price of new items in determining local sales tax due. GameStop accepted used games from its customers in exchange for a trade-in amount on a stored value card (an “Edge Card”) for use by the customer at GameStop at a later date. In computing the tax due on purchases paid for using an Edge Card, GameStop charged sales tax on the sales price of the new purchase, less the trade-in amount taken from the Edge Card. 

Relying on a regulation, the Department argued that the trade-in amount on the Edge Card could not offset the taxable sales price unless the trade-in occurred simultaneously with the sale. The court found that the statute, which excludes the market value of any article traded in from the determination of sales price, does not define “trade-in” and does not set forth any time frame within which a trade-in must occur. Construing the term “trade-in” liberally in favor of GameStop, the court held that Edge Card transactions came within the generally prevailing meaning of “trade-in.” Furthermore, the court determined that the Department’s regulation, requiring a simultaneous trade-in and sale, impermissibly expanded the taxing jurisdiction of the statute. GameStop, Inc., v. St. Mary Parish Sales and Use Tax Dep’t, No. 2014 CA 0878 (La. Ct. App. Mar. 19, 2015). 

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.

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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).