On February 7, Eversheds Sutherland Partner Todd Betor will present during Tax Executive Institute’s 2023 Mergers and Acquisitions Seminar in Nashville, TN, which covers the critical tax and operational issues relevant to M&A transactions. Todd’s panel will discuss unique state tax issues.

For more information and to register, click here.

In addition, Eversheds Sutherland Partners Michele Borens and Jonathan Feldman will present during the 2023 National Multistate Tax Symposium, held in Orlando, FL. Jonathan will present Cultivating a Thriving Multistate Tax Environment: Fostering Today for Tomorrow on February 9, and Michele will present Sales and Use Tax Hot Topics in Our Digital World: What’s New and Next on February 10.

For more information and to register, click here.

On January 19, 2023, the Michigan Court of Appeals held that a taxpayer, transitioning from the Michigan Business Tax (MBT) to the Corporate Income Tax (CIT), cannot claim prior MBT business losses on its first CIT return. For tax years 2008 through 2011, the taxpayer filed MBT tax returns and claimed employment tax credits. In 2012, Michigan replaced the MBT with the CIT, but allowed businesses to continue filing MBT returns until they had exhausted their credits. However, any such taxpayer must pay the MBT as the greater of the typical MBT amount or as if it had instead filed a CIT return. The taxpayer took this approach until it exhausted its credits in 2018. In tax year 2019, the taxpayer filed its first CIT return and claimed an MBT business loss carryforward as a deduction. The Department of Treasury denied the deduction. 

The court first held that the taxpayer had not paid CIT from 2012 to 2018, even though it paid the “greater” CIT-based amount on the MBT return. The court concluded that the CIT-based amount is “[a]n amount equal” to the CIT liability, not a CIT liability itself. The court then concluded that the CIT does not allow a deduction for MBT business losses. The CIT defines “business loss” specifically with respect to the “corporate income tax base.” In contrast, the MBT “contemplates and uses a business income tax base which contains some different additions and deductions than those in the corresponding CIT statute.” Because the taxpayer did not previously file CIT returns and pay the CIT, it had no CIT base. It therefore had no CIT losses capable of being carried forward to tax year 2019. 

Int’l Auto. Components Grp. N. Am., Inc. v. Dep’t of Treas., No. 360602 (Mich. Ct. App. Jan. 19, 2023) (unpublished).

The US Court of Appeals for the Sixth Circuit reversed a lower court decision that had denied an Illinois’ coal producer’s motion for a preliminary injunction. The coal producer sought to stop the enforcement of a Kentucky law that directed the agency that regulates Kentucky utilities – the Kentucky Public Utility Commission (PUC) – to evaluate the reasonableness of coal prices only after subtracting severance taxes paid on the coal. 

The PUC is tasked with ensuring that energy rates remain “reasonable” for Kentucky consumers, and conducts reviews of each Kentucky utility. One of the factors examined during the PUC’s review is the price the utility paid for raw materials, including coal. As such, Kentucky utilities are encouraged to buy the most competitive coal. Kentucky also imposes a severance tax on coal extracted within its borders and, when compared to coal-producing states with no severance tax, Kentucky coal is relatively expensive. 

In 2021, recognizing that this combination of measures resulted in Kentucky utilities being less likely to buy Kentucky coal, the Kentucky legislature enacted a law that required the PUC to “evaluate the reasonableness” of coal costs after subtracting coal severance taxes imposed by any jurisdiction. The Illinois coal producer challenged the law on the grounds that it violated the Commerce Clause. The Sixth Circuit agreed with the coal producer, and determined that the law impermissibly discriminates against interstate commerce because it requires the PUC to treat coal on which severance taxes have been paid (to Kentucky or other states that impose them) better than it treats coal on which severance taxes have not been paid – and that coal from severance tax states is artificially discounted by the amount of the tax, while other coal is not discounted at all. 

Ultimately, the Court remanded the case to determine whether the coal producer met the remaining requirements for a preliminary injunction.

Foresight Coal Sales LLC v. Kent Chandler et al., case number 21-6069.

The Texas Comptroller of Public Accounts (the Comptroller) published proposed amendments to Texas’ franchise tax apportionment rule in the January 20 issue of the Texas Register, discarding the now-repudiated “receipt-producing, end-product act” test. The Comptroller proposed these amendments in response to the Texas Supreme Court’s unanimous decision in Sirius XM Radio, Inc. v. Hegar. Eversheds Sutherland’s SALT Team represented Sirius XM in this litigation.

Read the full Legal Alert here.

On February 1, 2023, New York Governor Kathy Hochul released her Fiscal Year 2024 Executive Budget and accompanying legislation (the Budget Bill). The Budget Bill includes several tax rate adjustments and technical fixes to the Tax Law, among other provisions.

Read the full Legal Alert 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: Which recently introduced bill would impose a tax on revenue from digital advertising services, specifically on persons with revenue from digital advertising services in excess of $25 million per year?

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!

In this article originally published by CalCPA in the January/February issue of California CPA, Eversheds Sutherland Senior Counsel Eric Coffill provides helpful tips for having a Power of Attorney (POA) submission to California’s Franchise Tax Board accepted the first time and for anticipating problems in using the POA.

Read the full article here.

New York and Massachusetts are the latest states to introduce tax legislation targeting digital advertising and data collection. Like the similar bills introduced earlier in Connecticut, New York, and Indiana, proposals similar to these latest New York and Massachusetts bills have been rejected by the respective legislatures in prior sessions.

New York revisits the commercial data collection tax

New York legislators continue to introduce bills targeting the digital economy and data collection. On January 18, New York State Senator Liz Krueger (D), Chair of the Senate Finance Committee, introduced S2012, which imposes a monthly excise tax on for-profit entities collecting and selling data from more than one million New Yorkers per month. The tax would apply regardless of how the data is collected, whether by electronic or other means.

The tax rate in S2012 would apply on a graduated scale based on the number of New York consumers whose data the taxpayer collects in a month. The tax starts at 5 cents per individual per month on the number of New York consumers over one million, which would cost businesses at a minimum $50,000.05 per month. The tax rate then gradually increases both in rate plus an additional flat rate amount. The highest rate is 50 cents per month on the number of New York consumers over ten million, plus a flat rate of $2,250,000. This legislation was previously introduced by Sen. Krueger during both the 2021 and 2022 legislative sessions in New York.

Massachusetts throws digital taxes against the wall to see what sticks

Massachusetts legislators have introduced a flurry of bills that would tax digital advertising, commercial data collection, or the sale of personal information. On January 18 and 20, state legislators in Massachusetts introduced six draft bills that would adopt a digital advertising services tax. Additional bills were introduced that would tax commercial data collection or the sale of personal information. Those bills are:

  • HD 1507 was filed on January 18 and is pending committee referral. The bill draft would establish a special commission to conduct a comprehensive study relative to generating revenue from digital advertising that is displayed inside of Massachusetts by companies that generate over $100 million a year in global revenue.
  • HD 1683 was also filed on January 18; this bill draft would assess and levy in each calendar year an excise on the sale of digital advertising services provided within the commonwealth. Revenue from digital advertising services would be required to be remitted monthly. The excise would be assessed at a rate equal to 6.25 percent of the annual gross revenue from digital advertising services provided within the commonwealth. The first $1 million in revenue would be exempt.
  • HD 3052 was filed on January 20; the bill would impose a 5 percent tax on persons with revenue from digital advertising services in excess of $25 million per year. The tax would apply to digital advertising services accessed via a digital interface within the state.
  • HD 3144 would impose a tiered digital advertising tax with rates of 5, 10, and 15 percent based on annual gross revenues from digital advertising provided in the state, based on IP address of the user’s device on which the advertising is accessed. The tax is imposed on persons with more than $100,000 of digital advertising services in Massachusetts. The draft was filed on January 20.
  • HD 3230 would impose a 6.25 percent excise tax on digital advertising services provided in Massachusetts. The service will be deemed to be in the state if the advertising is received on the user’s device with an IP address in the state. The draft was filed on January 20.
  • SD 1439 was filed on January 19 and is pending committee referral. The bill would impose a tiered digital advertising tax with rates of 5, 10, and 15 percent based on annual gross revenues from digital advertising provided in the state, based on IP address of the user’s device on which the advertising is accessed. The tax is imposed on persons with more than $100,000 of digital advertising services in Massachusetts.
  • SD 1711 would tax on the collection of data by commercial data collectors. Similar to the New York Senator Krueger’s bill, SD 1711 would impose a tax on commercial data collectors that collect, maintain, use, processes, sells, or shares consumer data in support of its business activities. The bill also adopts a tired rate structure where the first $1 million of receipts is exempt, but rates thereafter range from $.05 cents per month of the number of Massachusetts consumers if data is collected from more than 1 million less than 2 million Massachusetts consumers, up to $750,000 per month plus $.30 cents per month on the number of Massachusetts consumers if data is collected from more than 6 million Massachusetts consumers.
  • SD 1768 would require persons who sell personal information or exchange personal information for consideration in the state to register with the Department of Revenue, and provide certain detailed information concerning the data and the collection of such data. The bill does not specifically impose a tax, but requires the Department to recommend ways to tax businesses selling personal information to the legislature, “to ensure appropriate compensation to the people of the Commonwealth.”

Meet our January Pet of the Month, Belle! She belongs to Jonnell Quarrie, Director of Tax at MOD Pizza.

Belle recently turned two in December, and is a delightful mix of Lhasa Apso and Cocker Spaniel. She joined Jonnell’s family on St. Patrick’s Day in 2021, and looks like Lady from the Disney classic Lady and the Tramp. Jonnell and her family almost renamed her. However, they decided there was enough change with her shifting households that they didn’t want to add a name change on top!

When it comes to food, Belle likes to have whatever everyone else is having! She prefers the large dog food of Jonnell’s daughter’s German Shepard, Henny, even though it barely fits in her mouth! If the cats are getting canned food, she wants some of that – and if her humans are eating, she is always willing to do the pre-wash before they put the dishes in the dishwasher!

For a puppy, Belle is pretty mellow, and loves to sleeps a lot. However, what she lacks in size she makes up for in volume! She is also fearless – she will run up to tackle Henny (who is 115 pounds!) to play with him. She also loves to have a great view. Since she was a puppy, she’s had her dog bed on top of Jonnell’s desk so that she can look out the window and see what’s happening in the neighborhood.

Welcome to the SALT Pet of the Month family, Belle!

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 two states recently proposed digital advertising/data tax bills (again)?

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!