On January 5, Eversheds Sutherland SALT Partners Todd Lard and Maria Todorova will present a webinar about top SALT audit issues and trends for the coming year with Associate Mike Kerman as part of Eversheds Sutherland’s 2021 tax outlook webcast series. (Presentation materials can be found here.)

Members of the Tax Practice will also address topics concerning employee benefits, digital taxes and more during the seven-part series, held from January 5 to 15 from 3:00 to 4:00 p.m. EST.

For more information about the series or to register, click here.

On December 4, 2020, the Washington Department of Revenue Appeals Division determined that an out-of-state company’s participation in an annual three-day trade show in Washington state was sufficient to create substantial nexus with the state and subject the company to both business and occupation tax (B&O tax) and retail sales tax. The taxpayer, an out-of-state video game developer, did not maintain a permanent physical presence in Washington and did not have any employees or representatives located in the state. During the audit period, the taxpayer’s employees attended an annual three-day trade show in which the taxpayer displayed its products by hosting demonstrations, gave away free products to attendees of the trade show, and organized discussion panels attended by potential buyers.

According to the Department, the taxpayer’s online sales to Washington residents were subject to B&O tax and sales tax based on the taxpayer’s participation in the trade shows. The taxpayer argued that attending this annual trade show and engaging in these activities, without some additional activity, did not create substantial nexus because the taxpayer did not engage in retail business activity at the trade shows. However, the administrative law judge (ALJ) reviewing the taxpayer’s petition disagreed, citing a prior ruling involving trade show attendance where substantial nexus was found based on the taxpayer engaging in activities in Washington to increase familiarity with their products. The ALJ noted that substantial nexus can exist where a company’s physical presence in Washington is only “demonstrably more than a slightest presence.”

Det. No. 15-0036, 39 WTD 191 (2020).

Legislation (S.302) was prefiled in the New York State Senate for the 2021-2022 legislative session that would expand the sales tax base to digital advertising services. The bill was prefiled by Democratic State Senator Kevin Thomas.

The bill defines “digital advertising services” as “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services which markets or promotes a particular good, service, or political candidate or message.”

Senator Thomas introduced identical legislation (S.8166) during the 2019-2020 legislative session, which did not make it out of committee. New York also considered other approaches to taxing digital advertising services last year, including a stand-alone gross receipts tax (S. 8056).

In addition to New York, other states previously considered – and will consider – legislation that would impose taxes on digital advertising services, although under different approaches. For example, Nebraska and the District of Columbia attempted to expand their sales tax bases to “digital advertisements” and “advertising services,” respectively, during their 2020 legislative sessions. And, like New York, legislators in other states will consider taxing digital advertising services in the 2021 legislative sessions. Most notably, the Maryland General Assembly will consider a veto override of H.B. 732, and Washington will consider expanding its sales tax base to digital advertising services through newly introduced legislation (see Bill Draft H-0028).

If passed, the tax revenue from S.302 would be paid into a special fund for providing zero interest refinancing of eligible undergraduate education loans by the higher education services corporation. The act would sunset after 5 years.

The New York Legislature will convene its 2021-2022 legislative session on January 6th. The Eversheds Sutherland SALT Team will continue to follow S.302 during the upcoming legislative session.

On December 29, 2020, California’s Franchise Tax Board (FTB) staff announced a twenty-day comment period for four changes to the proposed draft language of its 25137 Regulation (Alternative Apportionment). After the twenty-day comment period expires, FTB staff intends to present the newly revised proposed draft Regulation language to the three member Franchise Tax Board to request permission to proceed with the formal Administrative Procedures Act (APA) regulatory process.  This regulation project has been ongoing since 2017 and FTB has held a total of four interested parties meetings on the proposed amendments.

After the Interested Parties Meeting held on August 11, 2020, the FTB proposed the following amendments:

  • The first revision takes previously deleted language “Consideration of said petitions by the Board shall be in open session at a regularly-scheduled meeting” and retains it in section 25137(d).
  • The second revision adds language to section 25137(d)(2)(D) to specify that a taxpayer will receive notification of the petition and the briefing schedule either sixty (60) calendar days from the date of the petition, or sixty (60) calendar days from the date of FTB staff’s determination if a determination was not previously made, whichever occurs later.
  • The third revision modifies the time allowed for opening and reply presentations specified in section 25137(d)(3)(A) from thirty (30) minutes for opening presentations and fifteen (15) minutes for taxpayer’s reply presentation to twenty (20) minutes for opening presentations and ten (10) minutes for taxpayer’s reply.
  • The fourth revision replaces “of” with “at” in section 25137(d)(3)(C) to state: “The Franchise Tax Board, itself, shall render its decision on the taxpayer’s petition during an open session at a regularly-scheduled meeting.”

FTB will accept written comments until 5 p.m. on January 18, 2021, by mail and email.

For a more detailed look at the 25137 regulation project, please see our previous post: The Long Road to Clarity: FTB Holds Latest Meeting in Multiyear Project to Clarify Alternative Apportionment Petition Process.

On December 18, SB 50 was filed in the Florida Senate which would require sales tax collection from a person whose remote sales to Florida exceed $100,000 per year. It states that a person whose “taxable remote sales in the previous calendar year” exceed $100,000 has a “substantial number of remote sales” and is therefore a “dealer.” The bill also requires a “marketplace provider” to collect sales tax. It defines “marketplace provider” to include a person who facilitates retail sales by listing or advertising for sale in a marketplace and directly or indirectly collects payment from the customer. The bill provides an exclusion from this rule for travel agency services, delivery network companies, and payment processor businesses. The Florida House of Representatives previously introduced a similar bill, HB 15.

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’s Department of Revenue (DOR) issued a letter ruling in October with a rare no-nexus finding for a foreign investment fund?

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

The prize for the first response to today’s question is a $20 UBER Eats gift card.

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

The Ohio Board of Tax Appeals found that banking software was subject to sales tax in Cincinnati Federal Savings & Loan v. McClain, Case No. 2018-2247 (December 22, 2020). The banks purchased software for their online banking system. After initially paying tax on the purchases, the banks filed refund claims, claiming that the software was exempt as either: (i) customized personal and professional services; or (ii) accounting services. The Commissioner and the Board disagreed. The Board found that although the software package was mixed and matched to meet the banks’ needs, it was not “customized” for the banks. Further, the software was not exempt accounting services because the vendor only provided banking software; it did not provide advice on tax or similar matters. While the software provided detailed information to the banks, the Board concluded that those services did not rise to the level of accounting services.

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 New Jersey appellate court case from September featured a taxpayer loss that may be an unexpected boon to other corporate taxpayers?

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

The prize for the first response to today’s question is a $20 UBER Eats gift card.

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

On December 1, 2020, the Colorado Department of Revenue adopted amendments to its tangible personal property rule – Rule 39-26-102(15) – that will impose sales tax on sales of streaming digital goods. The Department considers these amendments to be a “clarification” of their tangible personal property definition. Now, per the amended regulation, “[t]he method of delivery does not impact the taxability of a sale of tangible personal property” and includes tangible personal property delivered by compact disc, electronic download, or Internet streaming.  In particular, where a purchaser pays a monthly subscription fee “to select and stream movies and television shows from a library of available titles[,]” sales tax will be due on that monthly fee. However, non-taxable computer software will continue to not be subject to sales tax. If a purchase includes both tangible personal property and services, sales tax will be due on the purchase price if the true object of the purchase is the tangible personal property.

On December 18, 2020, the Colorado Office of the Attorney General reviewed the rule and found “no apparent constitutional or legal deficiency in their form or substance.” Now that the Attorney General has reviewed the rule, it will be published in the January 10, 2021 Colorado Register and take effect 20 days later, on January 30, 2021.

The New York State Department of Taxation and Finance issued an advisory opinion explaining that a taxpayer’s charges for digital marketing services are not subject to sales tax. The taxpayer provides digital marketing services to its customers which allow the customers the ability to track the effectiveness of their marketing strategies. The services provided by the taxpayer included consulting and professional services, digital search marketing support, auction management services, campaign management support services, and email marketing services. The taxpayer’s services often included a license for third-party marketing software. The charges for the license of this software were separately stated on taxpayer’s invoices to its customers. The Department determined that the taxpayer was making sales of an advertising service, which is not subject to New York sales tax. With respect to the software licenses, the Department held that the taxpayer’s resale of the software is a sale of pre-written computer software subject to sales tax. Where the charges for the software are separately stated, on the invoice and the charge is reasonable in relation to the overall charge, only the separately stated charge is subject to sales tax.

Advisory Op. TSB-A-20(27)S, N.Y.S. Dep’t of Tax. & Fin. (June 30, 2020) (Published Dec. 7, 2020).