We are pleased to announce that the Sutherland SALT Shaker mobile app is now available for download in the Amazon Appstore for Android smartphones.
The Sutherland SALT Shaker app is also available in the iTunes App Store and on Google Play.
Sutherland SALT Shaker Goes Mobile: Download the New App for iPhone and Android
Sutherland SALT is shaking things up again in state and local tax. We are excited to announce the launch of the Sutherland SALT Shaker mobile app, which alerts users to important state and local tax (SALT) developments and enables users to easily find specific, relevant and timely tax insights. The Sutherland SALT Shaker app is available for download in the iTunes App Store and on Google Play. Download it today—and be sure to give your phone a shake to see what happens!
Sutherland SALT Shaker: October 2013 Digest
Click here to read our October 2013 posts on stateandlocaltax.com or read each article by clicking on the title. A printable PDF is also available here.
- Down for the Count, But Not Out: Colorado’s Remote Retailer Reporting Requirements Expected to Be Challenged in State Court
After the U.S. Court of Appeals for the Tenth Circuit denied an en banc rehearing on October 1, 2013, the Direct Marketing Association is expected to bring suit in Colorado District Court to challenge the constitutionality of the Colorado law that requires out-of-state retailers without a physical presence in Colorado to notify their customers of their use tax responsibilities. - Florida Trial Court Rejects Satellite Industry’s Discrimination Claims
A Florida trial court ruled that imposing different tax rates on cable and satellite television services did not violate the Commerce Clause or the Equal Protection Clause of the U.S. Constitution. - Be Careful What You Ask For: Illinois Grants Request for Alternative Apportionment
The Illinois Department of Revenue granted a taxpayer’s request to use an alternative apportionment method, determining that application of the standard single sales factor formula did not fairly represent the market for the taxpayer’s goods, services or other sources of income. - SALT Pet of the Month: Raleigh
Meet Raleigh, also known as Roo, the seven-year-old cuddly companion of Morgan Lendino (Time Warner Cable) and her husband, Tim. - If At First You Don’t Succeed: Illinois House of Representatives Introduces Corporate Tax Liability Disclosure Bill After Senate Failure
The Illinois House of Representatives recently held a contentious hearing on legislation introduced earlier this year that would require publicly traded corporations, and those that are at least 50% owned by a publicly traded company, “doing business” in Illinois to disclose certain tax information in an annual statement filed with the Secretary of State. - Illinois Gets the Works: Wendy’s Captive Insurance Company Scores Another Win
Although states continue to challenge the validity of captive insurance companies, Wendy’s has notched several taxpayer victories. In a win involving Scioto Insurance Company, Wendy’s captive insurance company, the Illinois Appellate Court held that Scioto constituted a bona fide insurance company that was properly excluded from Wendy’s combined report. - No COP for You! Indiana Rules Out-of-State Information Service Provider Cannot Use COP Sourcing Method
The Indiana Department of Revenue determined in a Letter of Finding that an out-of-state information service provider must apportion its receipts from sales to Indiana customers to Indiana in a market-sourcing-like manner, even though the majority of its costs were incurred outside Indiana. - Short Shrift for the Short-Lived Tech Tax: Massachusetts’ Computer Design Services Tax Repealed in Less Than Two Months
Less than two months after Massachusetts enacted a tax on computer design and software services, the legislation was repealed with the passage of House Bill 3662. - Take Control! Massachusetts Clarifies Common Ownership Requirement for Combined Reporting
The Massachusetts Department of Revenue issued a Letter Ruling stating that, for purposes of determining common control with regard to a combined report, the Department looks to actual voting control as opposed to voting power, which is the test for federal consolidated reporting. - What SAP in Minnesota? No Sales Tax on Software Consulting and Implementation Services, Says Minnesota Tax Court
The Minnesota Tax Court held that computer software consulting and implementation services were not subject to sales tax in Minnesota. - Tennessee Clear on Cloud Services: Cloud Services Not Taxable Where Servers Are Out of State
The Tennessee Department of Revenue determined in a Letter Ruling that a taxpayer’s sale of remote storage services and virtual computing services are not subject to Tennessee sales or use tax where the data centers and servers used to provide such services are located outside the state. - It’s a WAN! IBM’s WAN Service Not a Telecommunications Service in Tennessee
The Tennessee Court of Appeals held a wide area network (WAN) service provided by IBM was not taxable because the true object of the service was not a “telecommunications service.” - Back to the Basics: Tennessee Court of Appeals Rejects Claim that Internet Access Is Taxable as “Basic” Telecommunication Service
The Tennessee Court of Appeals held that a taxpayer’s wholesale service of converting end-user information into Internet protocol was an “enhanced” service for which the true object or primary purpose was to provide the non-taxable service of “Internet access” and not the taxable service of “telecommunications.”
SALT Pet of the Month: Raleigh
Meet Raleigh, also known as Roo, the seven-year-old cuddly companion of Morgan Lendino (Time Warner Cable) and her husband, Tim. Raleigh has been by Morgan’s side since college and was an excellent study partner throughout law school. Although he would surely prefer that we not highlight them, Raleigh has many cat-like qualities. In the morning, Morgan has to force him outside, and once back inside, Raleigh is content to sleep all day until Morgan or Tim returns home from work. It is also a requirement that Raleigh have a window perch so he can observe the outside world. 
Despite his feline tendencies, Raleigh is completely unaware that he is a small dog and enjoys playing with the “big kids” in the neighborhood. His other favorite pastimes include playing with any toy that squeaks, especially farm animals (he is from the Midwest, after all), and watching animal shows, movies and University of Kansas basketball games.He proudly sports his Jayhawks collar during basketball season and has been known to stand up on his hind legs and bark when he sees his favorite shows. With an acute sense of hearing, Raleigh can hear a jar of peanut butter opening from miles away and will be at your feet begging for a treat when he hears his favorite sound.
Short Shrift for the Short-Lived Tech Tax: Massachusetts’ Computer Design Services Tax Repealed in Less Than Two Months
By Sahang-Hee Hahn and Timothy Gustafson
Less than two months after Massachusetts enacted a tax on computer design and software services (Tech Tax), the legislation was repealed with the passage of House Bill (HB) 3662 (for Sutherland’s previous coverage of this development, click here). The Tech Tax expanded Massachusetts’s sales and use tax base to include “computer system design services,” which the law defined as “the planning, consulting, or designing of computer systems that integrate computer hardware, software, or communication technologies and are provided by a vendor or a third party.” The Tech Tax also amended the statutory definition of taxable “[s]ervices” to include “the modification, integration, enhancement, installation or configuration of standardized software;” it also excluded “data access, data processing or information management services” from this definition. Mass. St. 2013 c. 46; Mass. G.L. c. 63 § 38(f), c. 64H § 1. HB 3662 undoes both of these legislative amendments. Under HB 3662, a taxpayer who collected and remitted the Tech Tax to the Department of Revenue may claim a refund for the full amount paid to the Department by filing an application for abatement by December 31, 2013. A taxpayer must refund all relevant amounts to its customers within 30 days of receiving an abatement. A taxpayer who previously collected but did not remit such funds to the Department must make “reasonable efforts” to refund such amounts to its customers. Finally, a taxpayer who neither previously collected nor paid the Tech Tax on or after July 31, 2013 is not subject to any fines, penalties or fees for having failed to do so. Mass. St. 2013 c. 95 (approved Sept. 27, 2013).
What SAP in Minnesota? No Sales Tax on Software Consulting and Implementation Services, Says Minnesota Tax Court
By Maria Todorova and Prentiss Willson
The Minnesota Tax Court held that computer software consulting and implementation services were not subject to sales tax in Minnesota. The taxpayer, SAP Retail, Inc., licensed enterprise resource planning software. It also provided consultation and implementation services to configure the software to a customer’s particular business activities. The court recognized that consulting and implementation services were not specifically enumerated as taxable services under Minnesota law. It determined that the taxpayer’s services did not constitute taxable fabrication services because the consumers of the services did not furnish materials used to create the software. Further, the Tax Court found that the services were not part of the taxable software license fee because (1) they were provided pursuant to a separate agreement and, even if sold as a package, were separately itemized, and (2) the services were not necessary to complete the sale of a software license that could be purchased without the services and vice versa. SAP Retail, Inc. v. Comm’r of Revenue, No. 8345-R (Minn. Tax Ct. Sept. 19, 2013).
Be Careful What You Ask For: Illinois Grants Request for Alternative Apportionment
By Todd Betor and Andrew Appleby
The Illinois Department of Revenue granted a taxpayer’s request to use an alternative apportionment method, determining that application of the standard single sales factor formula did not fairly represent the market for the taxpayer’s goods, services or other sources of income. The taxpayer’s only sale during the year in issue was the sale of a building located in Illinois. Under a mistaken application of Illinois’s standard single sales factor apportionment formula, the taxpayer believed 100% of its income from the sale of the building would be apportioned to Illinois. Based on this mistaken application, the taxpayer argued that application of the standard formula produced a “grossly” distortive result and proposed two alternative apportionment methods based on its historical Illinois income apportionment. The Department determined that the single sale of the building located in Illinois must be treated as an incidental or occasional sale and thus be excluded from the taxpayer’s sales factor. Because the taxpayer’s only income for the year in issue resulted from the sale of the building located in Illinois, exclusion of the proceeds from the sales factor would have resulted in 0% of the taxpayer’s income being apportioned to Illinois. The Department determined that application of the standard apportionment formula—which led to 0% apportionment and not 100% apportionment as originally represented by the taxpayer—led to a distortive result. The Department granted the taxpayer’s alternative apportionment request and allowed the taxpayer to use an apportionment formula that looked to its historic apportionment average from the prior nine taxable years. Illinois Private Letter Ruling No. IT-13-0003-PLR (Sept. 18, 2013).
Tennessee Clear on Cloud Services: Cloud Services Not Taxable Where Servers Are Out of State
By Jessica Kerner and Timothy Gustafson
The Tennessee Department of Revenue determined in a Letter Ruling that a taxpayer’s sale of remote storage services and virtual computing services are not subject to Tennessee sales or use tax where the data centers and servers used to provide such services are located outside the state. The Department determined neither service was subject to Tennessee sales and use tax because there was no sale, transfer or electronic delivery of tangible personal property or computer software in Tennessee in connection with the furnishing of these services. The Department noted that the taxpayer prohibited customers from downloading any part of its remote storage interface or its virtual computing software. Further, the Department concluded that the services are not specifically enumerated taxable services in the state and ruled that both services were excluded from the state’s definition of telecommunications services based upon the primary purpose of each service. The Department determined that the primary purpose of the remote storage service was the remote storage of digital data, applications and information, and the primary purpose of the virtual computing service was to access processed data or information stored on the taxpayer’s servers located outside the state. Accordingly, the Department categorized both services as data processing and information services, which are specifically excluded from the definition of telecommunications services. Tennessee Letter Ruling 13-12 (Sept. 12, 2013).
It’s a WAN! IBM’s WAN Service Not a Telecommunications Service in Tennessee
By Mary Alexander and Andrew Appleby
The Tennessee Court of Appeals held a wide area network (WAN) service provided by IBM was not taxable because the true object of the service was not a “telecommunications service.” IBM’s WAN service was a technological infrastructure that enabled remote access to information by linking geographically separated computers. The users of the WAN service could retrieve information related to the customer’s business but were not able to use the WAN service to communicate with other users. The WAN service did not include any messaging capabilities (e.g., email or voice). The Commissioner of Revenue argued that the WAN service was taxable as a communications service because “IBM did not create the content that it transmitted to its customers.” Quoting Qualcomm Inc. v. Chumley, 2007 WL 2827513 (Tenn. Ct. App. Sept. 26, 2007), the court stated that a distinction based upon the creator of the content did not trump inquiry into the true object of a potentially taxable service. The true object test that the court applied was “whether communication between users of the service was the primary purpose of the service.” Because the true object of IBM’s service was to allow users to access information stored on geographically separated computers, and the service did not allow users to communicate with one another, the court determined that IBM’s WAN service was not taxable as a telecommunications service. IBM Corp. v. Farr, No. M2012-0714-COA-R3-CV (Tenn. Ct. App. Sept. 24, 2013).
Legal Alert: Illinois Click-Through Nexus Law Preempted by the Internet Tax Freedom Act
In a 6-1 decision, the Illinois Supreme Court affirmed an Illinois Circuit Court holding that Illinois Public Act 96-1544 (The Click-Through Nexus Act), requiring out-of-state retailers to collect and remit use tax, violates the Internet Tax Freedom Act. Performance Marketing Ass’n v. Hamer, Docket No. 114496 (Oct. 18, 2013).
View the full Legal Alert.