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!

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 Senate recently passed a bill establishing a hospital tax to further fund the state’s Medicaid program?

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!

California legislators released bill language addressing Governor Gavin Newsom’s “May Revise” to the state budget that includes the Governor’s so-called “apportionment fix.” If enacted, Assembly Bill 167 and Senate Bill 167 will suspend net operating losses for tax years beginning on or after January 1, 2024 and before January 1, 2027. Similarly, the legislation applies a $5,000,000 limit on most business tax credits for those same years. 

As expected, both bills contain language that retroactively changes California’s apportionment provisions by excluding factors from the apportionment formula if the related income is not taxed.

Read the full Legal Alert here.

The state tax landscape evolved at a significant pace during 2023, and there is no sign of a falloff in 2024. During the 2024 Federation of Tax Administrators’ Annual Meeting, SALT Partner Jeff Friedman will help review and provide his perspective on significant state tax policy developments. Find more information and register here.

In addition, SALT attorneys Eric Tresh and Laurin McDonald will present a state tax controversy update during the TEI Region 8 Conference on June 13, focusing on key developments and trends. Find more information and register here.

State efforts to obtain customer identifying information as part of digital goods audits have put a spotlight on data privacy concerns. State tax authorities often request customer names, addresses, telephone numbers, and even Social Security numbers and tax IDs, claiming this sensitive information is vital to determine how to source digital transactions.

In this article published by Bloomberg Tax, Eversheds Sutherland attorneys Eric Tresh and Chelsea Marmor discuss how digital sales tax reporting rules are raising data privacy concerns and analyze conflicts from the intersection of data privacy and tax.

Read the full article here.

In the newest episode of the SALT Shaker Podcast, Eversheds Sutherland Counsel Jeremy Gove takes a close look at San Francisco’s tax system with the help of Eversheds Sutherland Counsel John Ormonde and Bart Baer, Chief Tax Counsel for The California Taxpayers Association.

Jeremy, John and Bart review San Francisco from a tax perspective, specifically discussing its various gross receipts taxes, including the homelessness gross receipts tax, and overpaid executive gross receipts tax.

They discuss how these taxes affect the business tax climate in San Francisco, and the latest news affecting the city’s business tax system, including the reduction of in-office workers.

They also cover the current reform efforts in the city and impacts of these taxes at the local level.

Their discussion concludes with a breakfast themed overrated/underrated question – where does oatmeal fall on the spectrum of breakfast food?

Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

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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: What state legislature is currently considering a budget proposal that would cap corporate income tax credits and limit the use of net operating loss carryforwards for tax years 2024, 2025, and 2026?

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!

The North Carolina Supreme Court affirmed a lower court ruling that a taxpayer was a manufacturer for purposes of the State’s Mill Machinery Exemption, and was therefore entitled to a sales and use tax exemption on its purchase of materials used to produce hot mixed asphalt (HMA).

North Carolina exempts manufacturing companies subject to a lower mill machinery privilege tax from higher sales and use taxes. During the years at issue, the taxpayer used between approximately 79% and 85% of the HMA it produced for various construction projects where it served as a contractor or subcontractor and sold the remaining HMA to customers. The Department of Revenue asserted that the taxpayer was a contractor, and not a manufacturer subject to the privilege tax, because it was “primarily engaged” in construction and commercial site work, and the majority of the HMA it produced was used in those projects, rather than sold to customers. The lower court found that there was no requirement under the governing statute that the taxpayer use the tangible personal property purchased to produce HMA for the “primary or principal purpose” of selling it to third parties to qualify for the exemption. Moreover, the lower court found that the taxpayer had produced “extremely large quantities” of HMA by utilizing a processes that the North Carolina Supreme Court described as manufacturing (i.e., “the producing of a new article or use or ornament by the application of skill and labor to the raw materials of which it is composed”). On appeal, the Supreme Court adopted the lower court’s reasoning and affirmed the ruling in a two-paragraph opinion.

N.C. Dep’t of Revenue v. FSC II LLC, No. 150A23, 2024 N.C. LEXIS 340 (May 23, 2024).

The Alabama Tax Tribunal held that a parent company could not use its losses to offset the income of a bank that it owned through an intermediate holding company for the purposes of the state’s Financial Institution Excise Tax (FIET). The applicable law allowed financial institution members of a commonly owned controlled group to file a consolidated return if each entity is a financial institution required to file an excise tax return in the state. The intermediate holding company did not do business in the state and was therefore not a “financial institution” eligible to file a consolidated return with the bank. Further, the intermediate holding company did not qualify under the alternative definition of a “financial institution” because it only owned the bank and was therefore not the parent of a “controlled group of corporations eligible to elect file a consolidated excise tax return.” The statute with the alternative definition of “financial institution” was subsequently amended to allow indirect ownership of a bank, but the amendment was not retroactive and therefore did not apply to the years at issue.

Ally Fin. v. State of Ala. Dep’t of Revenue, No. 20-659-LP, (Ala. Tax Trib. May 13, 2024).