On March 30, 2021, the Kansas legislature passed S.B. 50, which would require sales and use tax and transient guest tax collection by marketplace facilitators selling or facilitating the sale of property or services subject to these taxes, as well as set a remote seller tax collection threshold. Marketplace facilitators are required to collect and remit these taxes if, during the current or immediately preceding calendar year: (1) the marketplace facilitator made taxable sales in Kansas exceeding $100,000; or (2) made or facilitated taxable sales, on its own behalf or on behalf of marketplace sellers, for delivery into Kansas in an amount exceeding $100,000. Marketplace facilitators would not be required to collect and remit any of the taxes from sales occurring prior to July 1, 2021. Effective April 1, 2022, marketplace facilitators would also be required to collect and remit applicable prepaid wireless 911 fees. Additionally, S.B. 50 would define a retailer doing business in the state to include remote sellers with greater than $100,000 of cumulative gross receipts from sales to Kansas customers in the current or immediately preceding calendar year. Remote sellers would not be required to collect and remit tax for sales occurring prior to July 1, 2021. S.B. 50 is now pending enrollment and transmittal to the governor for approval.

During the 2021 legislative session, the Georgia General Assembly passed key legislation, including conformity to the federal tax law, the elimination of deference to subregulatory interpretations of the Department of Revenue, the ability for pass-through entities to elect to pay state income tax at the entity level, temporary ad valorem relief for manufacturers, and significant changes to existing income tax credits and sales tax exemptions.

Wednesday, March 31, 2021 was “Sine Die” or the 40th and final legislative day of the 2021 legislative session. Unless indicated as already signed by the Governor, bills passed by both chambers of the General Assembly are transmitted to the Governor, who can sign or veto the legislation within 40 days after the end of the legislative session. If the Governor fails to take any action, the legislation will also become law upon the expiration of the 40-day period.

Read the full Legal Alert here.

In this episode of the SALT Shaker Podcast, host Chris Lee reviews an Arkansas determination that rent-to-own leases are subject to the short term rental tax, a Texas holding that a taxpayer’s refund claims fulfill the notice requirements, a California denial of a taxpayer’s refund claim for failing to exhaust the administrative remedies and a North Carolina determination that a taxpayer’s sales of software as a service are not subject to sales tax.

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On March 17, 2021, Arkansas introduced S.B. 558, which would impose Arkansas sales tax on advertising revenue from social-media platforms that have annual gross revenue from social-media advertising services in Arkansas of at least $500,000. The bill amends the sales tax statute to include a new subchapter imposing a 7% sales tax on a social-media provider’s gross revenue from social-media advertising services in Arkansas plus one dollar for the average number of Arkansas account holders during a calendar year. Social-media advertising services includes advertising services that are placed or provided on a social-media platform, including without limitation banner advertising, promoted content, interstitial advertising, and other comparable services. “Social-media provider” includes a business entity that maintains or operates a public social-medial platform, and that has at least 500,000 Arkansas account holders.

The New York Supreme Court, Appellate Division, ruled that a tax exemption that applied to New York special non-profit local development corporations only did not violate the equal protection clause or commerce clause of the US Constitution. New York imposes a mortgage recording tax on each mortgage of real property situated in New York and also provides an exemption from taxing the income and operations of not-for-profit local development corporations incorporated in New York. The taxpayer was a non-for-profit corporation incorporated in New Jersey and sought a declaratory judgment that the exemption only available to New York corporations was unconstitutional. The Supreme Court determined that the taxpayer failed to demonstrate that there was no “rational basis” for the New York Legislature’s determination to limit the availability of the mortgage recording tax exemption only to entities incorporated under New York’s not-for-profit corporation statute concerning local development corporations; that the taxpayer, as a general New Jersey not-for-profit corporation, failed to demonstrate that its exclusion from the tax exemption was based solely on its incorporation in New Jersey and not on its nonconforming business structure; or that there was any discriminatory treatment between it and a New York not-for-profit that did not otherwise meet the requirements of the special non-profit local development corporation rules. Accordingly, the Court reversed the decision of the lower court finding the failure to afford this tax exemption to a New Jersey not-for-profit violated the Equal Protection and Commerce Clause.

Trenton Business Assistance Corporation v. O’Connell, N.Y. App. Div., No. 2018-01203 (2021)

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: Which state is considering a bill that would create a temporary “digital nomad” exemption for individual income taxes?

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.

Answers will be posted on Saturdays in our SALT Weekly Digest. Be sure to check back then!

On March 24, 2021, the Nevada Senate introduced Senate Bill No. 346, which would impose an excise tax on the retail sale of specified digital products to an end user in Nevada. “Specified digital products” is defined as electronically transferred digital audio works, digital audio-visual works, digital books, digital codes, and other digital products. “Other digital products” is defined as greeting cards, digital images, video or electronic games or news and prewritten computer software. The bill would also impose an excise tax at the rate of 5 percent of the gross receipts derived from providing direct-to-home satellite television service to customers in Nevada. The bill was referred to the Committee on Revenue and Economic Development. If passed, the tax expansion would take effect January 1, 2022.

The California Court of Appeal held that a county’s failure to comply with statutory notice requirements did not render an assessment a “legal nullity” that would excuse the taxpayer from the requirement to exhaust administrative remedies.

For property tax purposes, California requires a “Notice of Proposed Escape Assessment” (which levies a retroactive assessment to recapture any under-taxation in prior taxable years) be issued ten days before the assessments are enrolled. The assessor, however, mailed the taxpayer such Notices only five days before the assessments were enrolled. The taxpayer timely paid the property taxes assessed by the Notices, and filed a refund action in court arguing that because the Notices were issued less than ten days before enrollment the assessments were void and subject to refund.

The court held that the taxpayer’s claim was not reviewable because it did not exhaust its administrative remedies. For escape assessments, taxpayers are required to file an administrative request for reassessment and refund before filing a refund action in court unless the assessment is a “nullity as a matter of law.” The court concluded that the assessment may be treated as a nullity only when the real property at issue was not tax exempt, nonexistent, or outside the county’s jurisdiction—circumstances that did not exist in the taxpayer’s case.

LA Live Props. LLC v. Cty. of L.A., No. B298278 (Cal. Ct. App. Feb. 26, 2021).

On January 14, 2021, California’s Supreme Court concluded in Vasquez v. Jan-Pro Franchising Int’l, Inc. (2021) 10 Cal.5th 944, 273 Cal.Rptr.3d 741, 478 P.3d 1207 that its Dynamex decision and its use of the so-called ABC test, later codified after the passage of Assembly Bill 5, applies retroactively.  The Vasquez holding subjects taxpayers, potentially even those currently protected by enumerated carve-outs, to years of state employment tax liability (and so much more!) before Dynamex was codified by AB 5.  See Cal. Labor Code §§ 3351, 2750.3 and Cal. Unemp. Ins. Code §§ 606.5, 621.

For context, AB 5 passed the California Legislature and was signed into law by Governor Gavin Newsom in September 2019.  The legislation codified Dynamex, which applied the “ABC” test for certain worker classification purposes.  The ABC test requires that a person providing labor or services for remuneration be considered an employee rather than an independent contractor unless the hiring entity demonstrates that the person is: (A) free from the control and direction of the hiring entity in connection with the performance of the work; (B) the person performs work that is outside the usual course of the hiring entity’s business; and (C) the person is customarily engaged in an independently established trade, occupation, or business. AB 5 generally expanded the application of the ABC test described in Dynamex to the Unemployment Insurance Code (CUIC), the wage orders of the Industrial Welfare Commission, and the Labor Code, subject to numerous exemptions.

If a hiring entity cannot satisfy each prong of the ABC test, California law classifies the worker as an employee and the following provisions of the CUIC apply to that employment relationship – wage withholding, unemployment insurance contributions, state disability insurance withholding, and employment training tax.  And, of course, there are numerous non-tax issues that flow from an employment determination under the ABC test, such as minimum wage payment, overtime pay, meal and rest breaks, reimbursement of necessary business expenses, and payment of workers compensation benefits.

While AB 5 generally applies the three-part ABC test for determining a worker’s classification, the law provides over fifty specific carve-outs and establishes different standards and tests for certain professions, occupations, and industries.  One of particular note is the carve-outs provided by the passage of Proposition 22, on California’s November 2020 ballot, for app-based rideshare and delivery drivers.