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).

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.

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).

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!