On December 29, 2022, the District of Columbia Court of Appeals held that transfer and recordation taxes were due on the portion of consideration from a sale of land and related improvements related to reversionary interests in land improvements. The taxpayers argued that the acquisition consisted of two distinct steps: (1) taxable land sales, via special warranty deeds; and (2) non-taxable terminations of ground leases, via lease termination memoranda.  The District generally does not tax either the formation or termination of ground leases of less than thirty years. The taxpayers allocated a portion of the purchase price to the land based on the assessed value for real property taxes and paid transfer and recordation taxes on that amount. The taxpayers asserted that the remainder of the purchase price was allocated to the non-taxable terminations of ground leases. Following an audit, the District contended that the acquisition was a single taxable transaction in which the land and buildings transferred to the purchaser and the pre-existing ground leases terminated.

Ultimately, the Court of Appeals held that the taxpayers had not accounted for – and owed tax on – reversionary interests in the land improvements transferred between parties.  Because the consideration attributed by the taxpayers to the ground lease terminations also included a portion attributable to the taxable reversionary interests in land improvements, the Court of Appeals remanded the case to the Superior Court to resolve the factual issue.

District of Columbia v. Design Ctr. Owner (D.C.) LLC, 286 A.3d 1010 (D.C. 2022).

On February 6, 2023, the Texas Comptroller of Public Accounts released a memorandum summarizing the internal-use software regulations related to the state’s franchise tax research and development credit and the sales tax R&D exemption. The comptroller significantly revised these regulations in 2021 and then reversed the revisions in 2022, causing confusion among members of the state’s tech industry.

In this installment of A Pinch of SALT for Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman, Mary Monahan and Dennis Jansen examine the recent memorandum and discuss what’s next for the Texas R&D credit.

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: Recently, a bill was introduced in the New York state legislature that would impose a delivery surcharge on any item purchased online and delivered within New York City. How much is the delivery surcharge for?

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!

On March 10, 2023, the Supreme Judicial Court of Massachusetts held that capital gains resulting from the sale of an urban redevelopment project were not subject to Massachusetts personal income tax. As an incentive for private entities to invest in constructing, operating, and maintaining urban redevelopment projects, Massachusetts exempts these entities “from the payment of any tax, excise or assessment to or from the commonwealth … on account of a project.” The court concluded that the exemption extends to capital gains from the sale of such urban redevelopment projects because the gains are “on account of” the project. The court relied on an analysis of the statute’s plain language, finding that “on account of” the project meant “because of” the project. The court concluded that capital gains – the increased value of the properties – are causally related to the project and thus exempt. The court’s conclusion was buttressed by the statute as a whole and its legislative history, which demonstrated that the tax exemption was established to stimulate the investment of private capital. The court observed that “[a]chieving a capital gain from the sale of [the] project is often a significant driver for real estate investors[.]”

Reagan v. Commissioner of Revenue, 203 N.E.3d 1150 (Mass. 2023).

On Wednesday, May 10, members of the Eversheds Sutherland SALT team, including Partners Todd Betor, Michele Borens, Jeff Friedman, Ted Friedman, Tim Gustafson and Maria Todorova, will present on a variety of state and local tax topics at the TEI Denver state and local tax seminar.

Speakers and topics include:

  • Jeff Friedman, Maria Todorova – State and Local Tax Update
  • Todd Betor, Ted Friedman – State Tax Issues in M&A
  • Michele Borens, Tim Gustafson – Use Tax Considerations for Purchases of Software and Digital Products/Services
  • Jeff Friedman, Todd Betor, Michele Borens, Ted Friedman, Maria Todorova – Why State and Local Tax is Awesome!

Meet mama Dory! This precious tabby cat and her league of kittens are under the careful watch of Maria Biava, Senior Managing Associate General Counsel at Verizon.

For the last several years, Maria has been on a mission to rescue feral cats from a Philadelphia neighborhood once known for housing local breweries. Named after a specific beer hop, Dory (short for Dorado) came to be in Maria’s care after Maria found her in the parking lot of a series of townhomes.

A vet appointment revealed Dory was pregnant, so Maria brought her home to give her shelter and help find homes for her kittens!

Dory and her cuddly kiddos are available for adoption in the Philadelphia area. If you’re interested in providing a forever home, email SALTonline@eversheds-sutherland.com.

We’re so glad to feature Dory and her kittens as the May SALT Pets of the Month!

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 court of appeals recently held that meter-reading services are non-taxable data processing services exempt from retail sales 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!

This week, Eversheds Sutherland Partners Liz Cha, Maria Todorova and Eric Tresh will participate in panel sessions during TeleStrategies’ 2023 Communications Taxation Conference in New Orleans, LA. The conference addresses the challenging and complex domain of telecommunications taxation, regulatory compliance and fees.

On May 4, Liz and Eric will provide an update on key litigation and controversies involving the taxation of telecommunications services, including the application of telecommunications taxes to hardware and software, court interpretations of the limitations of the Internet Tax Freedom Act and the unbundling of taxable and nontaxable products and services. 

Also on May 4, Eric will participate in a panel that looks at how to create and implement bundled pricing for tax and regulatory purposes. Eric will help review issues associated with market pricing and elasticity of demand, minimizing taxes, and risk management.

Finally, on May 5, Maria will help discuss the complexities of gross receipts taxes, as well as new taxes and fees applicable to the communications industry. In addition, she will highlight issues and controversies related to these taxes.

View and learn more about past and upcoming events and presentations.

On April 18, 2023, the Supreme Court of Missouri affirmed the Administrative Hearing Commission’s (AHC) decision that replacement equipment used to provide telecommunications services was exempt from use tax under the State’s manufacturing exemption in effect in 2011 and 2012.

Like most States, Missouri exempts from sales and use tax equipment used in manufacturing or producing a product or taxable service ultimately intended to be sold at retail. Under Missouri law, telecommunications services are taxable services when sold at retail. In 2018, the legislature amended the sales and use tax statute to make clear that equipment used in the production of telecommunications services qualified for the manufacturing exemption.  The amendment expressly provided that it was not intended to change the law and was only a clarification of existing law. 

This case involved purchases of telecommunications equipment by Charter Communications Entertainment I, LLC (CCE I) in 2011 and 2012 (prior to the statutory amendment). The court found that the equipment qualified for the exemption as equipment used in “manufacturing” and that CCE I had sufficiently shown that its replacement equipment was “used directly” in manufacturing telecommunications services. In rendering its decision, the court found that the provision of telecommunications services constituted manufacturing because it transforms an input (the caller’s voice) into an output with a separate and distinct value from the original. It also agreed with the AHC that CCE I was not also required to establish that its replacement equipment is “substantially used” in manufacturing—relevant because CCE I used its equipment not only to provide telecommunications service but also cable and Internet service as well.

Accordingly, the court affirmed the AHC’s decision, awarding CCE I with a $1.5 million refund on use taxes paid on replacement equipment purchased in 2011 and 2012.

Charter Commc’ns Ent. I, LLC v. Dir. of Revenue, Mo., No. SC99517 (April 18, 2023).