Shaking things up in state and local tax
Shaking things up in state and local tax
On February 9, Eversheds Sutherland Partner Liz Cha will present during the 2024 National Multistate Tax Symposium, held February 7-9 in Lake Buena Vista, FL. In its 20th year, the symposium will explore significant tax technical issues facing multistate tax professionals.
Liz’s panel will cover multistate income and franchise tax sourcing. She will help examine real-world sourcing scenarios within SALT income tax/franchise tax market sourcing rules and developments.
Over the past decade, data center incentives and exemptions increased in prevalence as states endeavored to attract more businesses in the growing and lucrative tech industry.
In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Scott Wright, Laurin McDonald and Alla Raykin lay out general considerations and risks with these incentives as well as provide a detailed chart of each state’s incentive provisions.
Read the full article here.
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: The governor’s budget of which state included a proposal to extend the net operating loss carryforward period from 5 years to 20 years?
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 posted on Saturday in our SALT Shaker Weekly Digest. 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 Supreme Judicial Court held that a prescription drug company’s income should be apportioned on a “market member basis” to the location where the prescription drugs were received?
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 posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!
We are eager to share our summary of SALT highlights from the past year, which was recently published in Tax Notes State.
2023 was an eventful year, and our Most Interesting State Tax (MIST) developments contain a mix of cases covering income tax, sales tax, and procedural issues.
With numerous states grappling with similar issues that grabbed our attention in 2023, what MIST developments can we expect in 2024 and beyond? The anticipation is killing us.
Read the full article here.
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: In California, a superior court invalidated certain guidance issued by the Franchise Tax Board because it constituted a regulation within the meaning of the state’s Administrative Procedure Act, but was not enacted in compliance with that act. Which federal law was the guidance related to?
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 posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!
The Texas Court of Appeals for the Third District upheld the Comptroller of Public Accounts’ Franchise Tax apportionment rule as facially valid, including the provisions apportioning receipts to Texas where the seller ships or delivers property in Texas—regardless of whether the buyer is ultimately located in the state.
The taxpayer, a company that transports and stores crude oil, argued that the apportionment regulation was facially invalid because it was contrary to the underlying statute. For purposes of the Franchise Tax, Texas statute provides that sales of tangible personal property are attributable to Texas “if the property is delivered or shipped to a buyer in [Texas,] regardless of the FOB point or another condition of the sale.” The taxpayer contended that the statute sourced sales to the buyer’s location. The taxpayer asserted that the apportionment regulation, 34 Texas Administrative Code Section 3.591, instead applied the tax on “transactions where the seller ships or delivers the property to the buyer in Texas, regardless of whether the buyer is located in state or out of state” (i.e., a “place of transfer” approach).
On review, the court concluded that the statute was unambiguous. The statute’s only “reasonable construction” was that “sales of tangible personal property are apportioned based on where that property is delivered or shipped” and, thus, “not where the buyer is ultimately located when they plan to use, sell, or otherwise dispose of the property.” While the apportionment statute was derived from model UDITPA language and the Multistate Tax Compact, the court opted not to follow other states’ interpretations because, as states took differing approaches, there was no “‘uniform’ implementation of the Multistate Tax Compact apportionment provision.”
NuStar Energy, L.P. v. Hegar, No. 03-21-00669-CV (Tex. Ct. App. Dec. 21, 2023).
On November 6, 2023, the Ohio Board of Tax Appeals determined that Aramark Corporation (“Aramark”) was not entitled to a refund of commercial activity tax (“CAT”) paid on management fees earned by the company in performance of certain cost-plus agreements. Aramark Corporation v. Harris, Case No. 2019-2975 (Ohio Bd. Tax App. Nov. 6, 2023).
Aramark is a food services, hospitality, facility services, and uniform services company. It provides a broad range of managed services to businesses and educational, healthcare, and government institutions. Some of Aramark’s services were provided pursuant to a “management fee” agreement where customers purchased food, supplies, and other items. Even though Aramark purchases these items, its customers reimburse Aramark for the expenses. Aramark sought to exclude the gross receipts associated with these purchased items.
Under Ohio’s CAT, there is an exclusion from “gross receipts” for “[p]roperty, money, and other amounts received or acquired by an agent on behalf of another in excess of the agent’s commission, fee, or other remuneration.” Ohio Rev. Code § 5751.01(F). The code defines an agent as “a person authorized by another person to act on its behalf to undertake a transaction for the other.” Id. § 5751.01(P). “An agent may include ‘[a] person retaining only a commission from a transaction with the other proceeds from the transaction being remitted to another person.’” Ohio Rev. Code § 5751.01(P)(2).
The Ohio Board of Tax Appeals denied Aramark’s claim that it was acting as an agent on behalf of its clients. The Board explained that, pursuant to Ohio Supreme Court precedent regarding agency, Aramark “must be ‘endowed with authority,’ and such authority must be linked to the activities that generate the gross receipts.” Aramark at 6. The Board observed that the contractual language in one of the management fee agreements, expressly providing that Aramark was an independent contractor and acted as such in its day-to-day operations, was inconsistent with this precedent. Id. at 8.
Governor Glenn Youngkin has issued his proposed Virginia 2024 – 2026 Budget Bill. The Budget Bill would make three notable changes to Virginia’s tax structure, all of which would take effect on January 1, 2025: (1) increase the sales and use tax rate; (2) expand the sales and use tax base to digital products; and (3) reduce the personal income tax rates. Virginia currently does not impose sales tax on downloaded or electronically accessed digital products and software.[1]
Sales and Use Tax Rate Increase. The Budget Bill would increase the state sales and use tax rates from 4.3% to 5.2%. This rate increase, plus the additional 1% sales and use tax imposed by local governments, would result a new total sales and use tax rate of 6.2%.
Sales and Use Tax Base Expansion. The Budget Bill would expand the sales and use tax base by:
Eversheds Sutherland Observation: While details need to be worked out, the Budget Bill attempts to avoid taxation of digital business inputs in two ways. First, by characterizing “digital personal property” as “tangible personal property,” much of the existing Virginia sales and use tax law would apply to those transactions including, among other things, the resale exemption.[2] Second, the Budget Bill excludes business-to-business transactions involving “taxable services,” thereby avoiding tax pyramiding for Virginia businesses, including the commonwealth’s large data center market.
Personal Income Tax Rate Reduction. The Budget Bill would also reduce the personal income tax rate by approximately 12% for all earning brackets for taxable years beginning on and after January 1, 2025. For example, the highest marginal rate would be reduced under the plan from 5.75% to 5.1%.
The Eversheds Sutherland SALT team will continue to monitor the pending Virginia budget and update on any resulting tax changes.
[1] See Va. Code Ann. § 58.1-648(C), which excludes “digital products delivered electronically, such as software, downloaded music, ring tones, and reading materials” from the communications sales tax. This provision would be repealed as part of the Budget Bill proposals.
[2] See, e.g., Va. Code Ann. § 58.1-602 (excluding from “retail sale” any “sale to any person for any purpose other than for resale in the form of tangible personal property or services [subject to sales and use tax]”; see also § 58.1-623 and V.A.C. 23 § 10-210-280 (relating to resale exemption certificates).
Good tax legislation. Bad tax legislation. Massive budget shortfall. A November general election around the corner. Curious agency guidance. And looming corporate tax appeal decisions. 2024 is shaping up to be a wild year for California tax.
Join Eversheds Sutherland attorneys Tim Gustafson and Eric Coffill on Thursday, January 25 for a discussion of what we’ve seen thus far on the California tax front and where the year may take us.
Register now!
