The Court of Appeals of Virginia, upholding the trial court’s decision, held that the successor to The C. F. Sauer Company could elect the manufacturer’s apportionment method for the first time on its amended tax return. By doing so, the court (preliminarily*) paved the way for qualifying taxpayers to take a wait and see approach to deciding on whether to elect Virginia’s alternative apportionment method for manufacturers is right for them. Virginia’s standard apportionment method prescribes a three-factor formula comprised of a taxpayer’s property factor, payroll factor, and double-weighted sales factor, whereas the manufacturer’s apportionment method for tax years beginning on or after July 1, 2014 is comprised of a single-sales factor. Considering that the manufacturer’s apportionment method is irrevocable for three taxable years, the flexibility in making such an election could be crucial for taxpayers that are uncertain of the impact that the alternative method could have when filing their original tax returns. To reach its conclusion, the court rejected the Department’s argument that certain provisions (e.g., the recapture provision) and phrases (e.g. any interest accrued would be “from the original due date for filing”) in the statute directly conflicted with the trial court’s ruling (and the taxpayer’s position) and showed the legislature’s intent to limit the election to the original tax return. Rather, the court found that there is no conflict and that, unlike other Virginia tax elections, the plain language of the statute “simply does not prevent a taxpayer company from electing to use the manufacturer’s apportionment method in a timely amended return.” Further support for the court’s reading was found in the “legislature’s liberal acceptance of amended returns generally elsewhere in the tax code.” *Virginia does not permit an appeal to the Supreme Court of Virginia as a matter of right in tax cases that do not involve the State Corporation Commission.
SALT trivia – May 31, 2023
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 recently enacted significant tax legislation that decouples from the TCJA changes to IRC § 174, imposes sales tax on certain digital goods, and revises eligibility for the pass-through entity tax election?
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!
SALT Partner to present at Villanova University Graduate Tax Program’s First Annual State and Local Tax (SALT) Forum
On Thursday, June 1, Eversheds Sutherland Partner Jeff Friedman will present at the Villanova University Charles Widger School of Law’s First Annual State and Local Tax (SALT) Forum, which will bring together SALT thought leaders from around the country to discuss relevant policy, practice, procedural and technical issues. Hosted by the Villanova University Graduate Tax Program, the conference will cover the struggles of applying traditional tax laws to today’s digital economy. Jeff’s panel will discuss digital economy controversies.
View and learn more about past and upcoming events and presentations.
Have we heard the last word on Quad Graphics?
This week on the SALT Shaker Podcast, Eversheds Sutherland Associate Jeremy Gove is pleased to welcome Professor Richard Pomp, a state and local tax professor at both the University of Connecticut School of Law and NYU School of Law, to discuss the pending U.S. Supreme Court cert petition in Quad Graphics, Inc. v. North Carolina Department of Revenue.
Professor Pomp recently filed an amicus brief with COST supporting Quad Graphics in its request to have the US Supreme Court review its North Carolina Supreme Court decision, which upheld the North Carolina Department of Revenue’s sales tax assessment rather than a use tax assessment. The decision was upheld despite Quad Graphics lacking sufficient nexus to be subject to the North Carolina sales tax.
Jeremy and Professor Pomp discuss the Quad Graphics case and the cert petition in greater detail, and how it relates to two long-standing U.S. Supreme Court cases: McLeod v. J.E. Dilworth Co. and General Trading Co. v. State Tax Commission.
To end the show, Jeremy proposes a pertinent question now that business travel is on the rise – have backpacks replaced briefcases?
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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SALT trivia – May 24, 2023
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: Recently, a New York Administrative Law Judge ruled that New York’s corporation franchise tax on receipts from broadband services and other internet access services is preempted by what federal statute?
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!
California’s ongoing piecemeal approach to market sourcing
In this installment of A Pinch of SALT for Tax Notes State, Eversheds Sutherland Partner Tim Gustafson reviews California’s market-based sourcing regulation, various interpretations of and proposed amendments to the regulation offered over the past six years, and how the interpretations and amendments might affect taxpayers.
Read the full article here.
SALT trivia – May 17, 2023
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 Supreme Court of Missouri recently held that replacement equipment used to provide telecommunications services was exempt from which state tax?
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!
Washington Court of Appeals holds pharmacy benefit provider meets B&O Tax insurance business exemption
On February 27, 2023, the Washington Court of Appeals held that a provider of pharmacy services and pharmacy benefits services (PBM) to its affiliate’s enrollees met the insurance business exemption to the Business and Occupation Tax because its activities were at least functionally related to insurance business. The taxpayer fulfilled the PBM services required by an affiliate’s Washington State Health Care Authority contract, including managing the availability and payment of the enrollees’ pharmacy benefits on behalf of the affiliate. Washington provides a B&O Tax exemption to “any person in respect to insurance business upon which a tax based on gross premiums is paid to the state.” The Department contended that the taxpayer would be exempt only if it provided services that were “functionally related” to its affiliate’s insurance business. The amounts it received from the affiliate for its services would then be exempt to the extent that the affiliate paid the Washington premiums tax. The court held that “where activities are required to be performed under the insurance contract in exchange for premium payments and a tax is paid on those premium payments the activities are at least functionally related to ‘insurance business’” under the insurance benefit exemption. Because the activities performed by the taxpayer were required under its affiliate’s HCA contract – and if performed by the affiliate would be insurance business activities – the taxpayer’s activities were functionally related to the insurance business and satisfied the exemption.
Envolve Pharm. Sols., Inc. v. Washington Dep’t of Revenue, 524 P.3d 1066 (Wash. Ct. App. 2023).
SALT team members present at TEI, WSTA events this week
Eversheds Sutherland Partner Ted Friedman will participate in a SALT panel during the Wall Street Tax Association’s Spring Tax Conference in New York, NY on May 17. He will help cover a variety of SALT topics, including legislative developments, recent judicial decisions of interest, and Multistate Tax Commission projects to watch.
In addition, Eversheds Sutherland Partners Todd Betor and Charlie Kearns will help present a training for the TEI Nashville Chapter on May 17, covering a SALT legislative update, as well as pass-through entity workarounds.
Also on May 17, members of the SALT team will present at the TEI Orange County Chapter SALT event.
Speakers and topics include:
- Michele Borens, Jeff Friedman – SALT Controversy Update
- Jeff Friedman, Cyavash Ahmadi – Use Tax Considerations for Purchase of Software and Digital Products/Services
- Michele Borens, John Ormonde – Local Tax Complications
- Michele Borens, Jeff Friedman, Cyavash Ahmadi, John Ormonde – SALT Legislative Roundup
Finally, Eversheds Sutherland attorneys Maria Todorova and Laurin McDonald will present an ethics session for the TEI St. Louis Chapter on May 18.
View and learn more about past and upcoming events and presentations.
Louisiana Board of Tax Appeals holds Internet Tax Freedom Act prohibits New Orleans tax on online storage service
On January 12, 2023, the Louisiana Board of Tax Appeals held that sales of remote personal electronic storage capacity services were not subject to the New Orleans French Quarter Economic Development District sales and use tax. A federal statute, the Internet Tax Freedom Act, prohibits states and political subdivisions from imposing taxes on Internet access. Effective November 1, 2007, Congress expanded the ITFA’s definition of Internet access to include, among other items, “personal electronic storage capacity” that is provided independently or not packaged with Internet access. The taxpayer offers a service that allowed users, via an Internet connection, to upload their personal digital content to the taxpayer’s remote servers and access their personal digital content from any of their Internet-connected devices. The taxpayer provides the storage service at no cost, but also offers customers the option to pay a subscription fee for additional storage capacity. The Board held that under the plain meaning of the ITFA, the storage service provided subscribers with “personal electronic storage capacity.” Therefore, the storage service is Internet access and not taxable. The Board further noted that services are generally not taxable, unless specifically enumerated. The storage service was thus also not taxable because it was not specifically enumerated.
Apple Inc. v. Samuel, Dkt. No. L01283 (La. Bd. Tax App. Jan. 12, 2023).