A New York appellate court denied a motor fuel distributor’s (Distributor) motor fuel excise tax refund request on motor fuel brought into the state and delivered to a fuel refiner, marketer, and transporter (Marketer) “pursuant to an exchange agreement … whereby either company was permitted to remove fuel product from the terminal of its counterpart in exchange for similar treatment at a different time and location by the other.” The court found that the Distributor failed to prove that the Marketer had instead paid taxes on the fuel and that the Distributor was thus entitled to a refund. 

The New York Department of Taxation and Finance (Department) audited the Distributor and assessed motor fuel excise tax on approximately 13.8 gallons of motor fuel that it brought into New York between May 2011 and February 2012 and later provided to the Marketer via the exchange transaction. The Distributor later paid the taxes under protest and sought a refund, arguing that the Marketer had instead paid the applicable taxes.

New York imposes the motor fuel excise tax on “the initial importer of motor fuel” into the state. The distributor-seller importing motor fuel into the state must give the purchaser a certification that it had paid, or assumed the responsibility to pay, the tax and passed that amount through to the purchaser in the purchase price. The purchaser would then claim a “tax paid” credit for the taxes on its returns to avoid double taxation.

To prove the Marketer had instead paid the motor fuel excise tax, the Distributor relied on the affidavit of the custodian of the Marketer’s returns during the months at issue. He stated that he had created a workbook that proved the Marketer had paid the taxes because it did not claim the tax paid credits on the motor fuel. The Department’s auditor gave live testimony that the Distributor had failed to demonstrate that the same fuel had been taxed twice, noting what he claimed to be “significant inconsistencies” between the Distributor’s and Marketer’s returns. Based on the evidence, the court held that “given the conflict between the evidence offered through [the parties’ affidavit and testimony], there was an ample basis for the Tribunal to conclude that petitioner failed to establish a clearcut entitlement to a refund.”

In re Global Cos. LLC v. New York State Tax Appeals Trib., 227 A.D.3d 1197 (N.Y. App. Div. 2024).

The Washington Court of Appeals held that the sales of pre-paid telephone airtime purchased from third-party cellular networks by a business (Taxpayer) and resold to individual customers and retailers were subject to the City of Renton’s municipal utility tax.

The utility tax was imposed on the privilege of conducting a “telephone business” within city limits, which was defined as “providing by any person of access to the local telephone network.” Renton Municipal Code 5-11-3(O) (2019). Under the city municipal utility tax, charges to “another telecommunications company” were not taxable. RCW 35A.82.060(1). A “telecommunications company” was an entity “owning, operating, or managing any facilities used to provide telecommunications for hire, sale or resale.” RCW 80.04.010(28). The Taxpayer was not a telecommunications company because it had no physical network facilities of its own.

The Taxpayer made a few arguments as to why its sales were not taxable. First, it argued that the municipal utility tax applied only to “telecommunications companies” because the statutory exception required charges to be imposed upon “another telecommunications company.” The Taxpayer argued that this exception “presume[s] the first taxed entity was also a telecommunications company.” The court rejected this argument because “if the legislature intended for the statute to apply exclusively to ‘telecommunications companies,’ it would have used only that term.” Further, the court held that the legislature’s use of the broader term “telephone business” “evince[d] an intent to grant taxing authority broader in scope than” telecommunications companies.

The court also disagreed with the Taxpayer’s argument that – even if its direct consumer sales were taxable – its wholesale business sales to retailers were exempt from tax as resales. The resale exemption provided that cities “shall not impose the fee or tax on … charges for network telephone service that is purchased for the purpose of resale.” RCW 83A.82.060(1). Reviewing the statutory terms, the court explained that for the exemption to apply, “it is the ‘access’ to a network that must be ‘purchased’ for ‘resale.’” The court explained that no resale occurred in these transactions because the Taxpayer—not the retailers—retained control over the end user’s access to a telephone network. The retailers were thus not selling access to the cellular networks to their customers.

TracFone, Inc. v. City of Renton, 547 P.3d 902 (Wash. Ct. App. 2024).

The California Supreme Court ruled that a corporation’s transfer of its ownership of two Los Angeles supermarkets to a trust that already owned 92.8% of the corporation’s stock was a “change in ownership,” permitting the revaluation of the supermarkets’ real property. Article XIII A of the California Constitution, added by Proposition 13, strictly limits increases in the assessed value of real property unless the property undergoes a “change in ownership.” However, there is no “change in ownership” when the transaction involving a legal entity that “results solely in a change in the method of holding title to the real property and in which proportional ownership interests of the transferors and transferees, whether represented by stock, partnership interest, or otherwise, in each and every piece of real property transferred, remain the same after the transfer.” The Court gave an example of the change in ownership exclusion: two individuals that own two equal shares of real property and then transfer those shares to a corporation in which they each own each shares. In this case, the taxpayers argued there was no change in no ownership because the trust, to whom the real property was transferred, already held all the corporation’s voting stock. But, the transfer resulted in nonvoting stockholders losing any interest in real property.The Court rejected the taxpayer’s argument, holding that a change to nonvoting stock ownership means the proportional ownership interests do not qualify for the exception to a change in ownership. Thus, the Court ruled that a change in ownership had occurred, and a revaluation was permissible.

Prang v. Los Angeles Cnty. Assessment Appeals Bd., 15 Cal. 5th 1152 (2024).  

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: Earlier this month, the US Supreme Court invited the Solicitor General to file a brief in which state tax case involving the denial of a resident’s request for additional credits for taxes paid to another state?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Meet June’s SALT Pet of the Month, Chester! Taking after three of his owners with a ‘C’ name, Chester (the Christmas present!) makes his home with Eversheds Sutherland Counsel, Charles Capouet.

The adorable nine-month-old Mini Bernedoodle keeps his family entertained and on their toes. When he’s not running around in the yard, Chester enjoys wrestling and playing fetch. During breaks from his shenanigans, he can be found refueling with his favorite snack, peanut butter.

Charles and his family are lucky to have a chum like Chester, even when he snacks on socks. Welcome to the SALT Pet of the Month club, Chester! 

On June 7, 2024, the Arizona Supreme Court held that reimbursements received by a hotel when participating in a hotel rewards program were subject to the Transaction Privilege Tax (TPT). The reimbursements were paid to the taxpayer when it provided a guest with a complementary hotel stay under the program. The rewards program required the taxpayer to pay a percentage of room revenues to fund the program. Guests accrued points by staying at participating hotels, spending money with affiliates, purchasing points, or receiving points as a gift.  Because the rewards points came from transactions upon tax had already been paid, the taxpayer argued that the reimbursements were akin to “post-tax” reserves or returns of capital and filed a refund claim for TPT paid between 2012 and 2016.

In finding the reimbursements were taxable gross income under the TPT, the Court relied primarily on the fact that the reimbursements were consideration for the sale of lodging. The Court also found that the taxpayer did not have control over the points credited to guest accounts and that there was no way to determine whether the reimbursements were sourced from the funds contributed by taxpayer. As such, the Court held that the reimbursements were not akin to “post-tax” reserves or returns of capital, and that the reimbursements were subject to the TPT.

Dove Mountain Hotelco, LLC v. Dep’t of Revenue, Ariz., No. CV-23-0176-PR (June 7, 2024).

Eversheds Sutherland Counsel Jeremy Gove and Chelsea Marmor are excited to cover sales tax topics at the Institute for Professionals in Taxation’s 2024 Annual Conference. The conference offers panels that cover a range of topics, including credits and incentives, property tax, sales and use tax, and state income tax. Chelsea’s panel will highlight the taxability of digital goods and digital products in 2024, and Jeremy’s panel will discuss how to manage audits.

Find more information here.

The NYU School of Professional Studies is hosting its annual Introduction to State and Local Taxation Conference, which explores the essentials of sales and use tax and multistate income tax, on July 22-23. Held in Times Square, this SALT school is taught by leading practitioners and is ideal for those who are new to SALT or those who want to brush up on the most important SALT topics.

The conference topics include:

  • Sales and use taxation:
    • The scope of tangible personal property and other key definitions
    • Taxation of information, data processing and other computer-related services
    • Marketplace sales tax collection
    • Exemptions and administration
    • Local sales and use taxes
    • Common audit issues
  • State corporate income taxation:
    • Determining the corporate income tax base
    • Conformity to the federal income tax base
    • The unitary business principle
    • Allocation and apportionment
    • The single sales factor
    • Filing methods, including combined reporting
  • Gross receipts taxes
  • State tax administration
  • And more

We hope to see you there! For more information, or to register, click here.

This week, the New York Court of Appeals agreed to hear Dynamic Logic’s appeal regarding the taxability of its services that measure the effectiveness of advertising campaigns. The state Tax Appeals Tribunal previously held that the services were taxable information services in part because of the primary function test. 

In this Law360 article, SALT Partner Liz Cha noted that the New York State Department of Taxation and Finance has been aggressive in its assessments of what services should be classified as taxable information services and that the case could provide some clarity on the primary function test.

“It’s been a while since the New York Court of Appeals has weighed in on applying the primary function test to the taxation of information services and additional guidance would be helpful in this area,” she said.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: A new law in Connecticut expands a tax credit program for employers that make what type of payments?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!