D.C. Attorney General Karl Racine announced on October 27th that his office filed suit against a delivery service company, claiming that the company’s workers are employees, not independent contractors.[1] The AG argues that the Company’s delivery drivers “bear all the hallmarks of employee status.”[2] This lawsuit follows another tax-related complaint filed by the AG earlier this year.

D.C. Universal Paid Leave Act: Payroll Tax

Generally, businesses that pay unemployment insurance taxes also must pay the District’s Universal Paid Leave Act (“UPLA”) payroll tax as of July 1, 2019.  The AG alleges that the Company was a “covered employer” required to – but that did not – pay taxes related to its drivers.[3]

Determining employer tax liability under the UPLA is similar to determining employer liability for unemployment insurance tax purposes. Under the UPLA, the default rule is that if a covered employer pays District unemployment insurance tax on an employee for a quarter, then the employee is presumed to be a covered employee. Employers may rebut this presumption by showing that: (1) the employee worked at least 50 percent of their work time in a single jurisdiction outside of the District, and (2) the work performed outside of the District was not incidental in nature, temporary or transitory in nature, or consisting of isolated transactions.

In addition to underpaid UPLA taxes, the AG also seeks penalties and interest as allowed under the UPLA.[4] Penalties and interest under the UPLA are calculated in the same manner as under the District’s unemployment insurance tax law – interest accrues at 11.5% per month on unpaid tax and penalties accrue at 10% of the amount due.[5]

Other Allegations and Claims for Relief

On top of alleging violations of the UPLA, the AG also alleges violations of the District’s: Minimum Wage Revision Act, D.C. Code § 32-1001, et seq.;[6] Sick and Safe Leave Act, D.C. Code § 32-531.01, et seq.;[7] Wage Payment and Collection Law, D.C. Code § 32-1301, et seq.;[8] and Workers’ Compensation Act, D.C. Code § 32-1501, et seq.[9]

The AG seeks a declaratory judgment that the Company’s alleged worker misclassification violates the above-referenced District law and the workers at issue should have been classified as employees under those provisions, as well as an injunction that the Company should be prohibited from allegedly continuing to misclassify its workers. The AG alleges various damages, including unpaid wages due to the alleged “employees,” and statutory penalties associated with the alleged violations of District law.

Stay tuned to Eversheds Sutherland’s SALT Shaker Blog for continuing information on this case, D.C. payroll tax matters and the AG’s continued pursuit of tax cases.

[1] District of Columbia v. Shipt, Inc., Case No. 2022-4909 (D.C. Super. Ct. filed Oct. 24, 2022) (“Complaint”).

[2] Complaint at ¶ 5.

[3] See Count V, ¶¶ 95-96 (citing D.C. Code §§ 32-541.01(22), -(3)–(4)).

[4] Complaint at Prayer for Relief, ¶ f.

[5] D.C. Code §§ 32-541.03(f), 51-104(c).

[6] Complaint Counts I and II, ¶¶ 70-81.

[7] Complaint Count III, ¶¶ 82-85.

[8] Complaint Count IV, ¶¶ 86-93.

[9] Complaint Count VI, ¶¶ 99-104.

This week, Eversheds Sutherland Partners Jeff Friedman, Charlie Kearns and Dan Schlueter will present on a variety of tax topics during the 2022 Broadband Tax Institute Annual Conference in Palm Beach, FL.

Topics will include:

  • October 31 − Litigation Trends in State Taxation – Jeff Friedman
  • October 31 − State Tax Policy − Charlie Kearns
  • November 1 − Property Tax – Current Developments/Litigation − Dan Schlueter

In addition, Eversheds Sutherland Partners Nikki Dobay and Tim Gustafson will present during the 2022 Annual Meeting of the California Tax Bar and California Tax Policy Conference, held in San Diego, CA from November 2–4, 2022.

Nikki will help present Legislative Updates, covering a review of this year’s legislation and other pertinent issues related to legislation. In addition, Tim will present What’s New in Local Taxes?, discussing California’s local tax developments and its impacts on local jurisdictions, taxpayers and local tax law.

View and learn more about past and upcoming events and presentations for the SALT team.

Meet Rose of Pinot Noir, a.k.a. Rosie! Rosie makes her home in the Pacific Northwest with Partner Nikki Dobay and her husband, Per. Rosie leapt into their lives and hearts in April, and gets her name as an homage to her older sister Grapes, who passed away earlier this year. Rosie was born two days after Grapes’ passing, so Nikki and Per are fairly certain she is Grapes’ reincarnation!

As an eight-month-old Rat Terrier, she’s wiggled her way into their hearts with her terrier attitude and little ear nibbles. Rosie loves to munch on any and all treats, but she is particularly fond of scones. Rosie’s fondness was acquired at a young age when Nikki and Per took her to a local coffee shop each day to socialize her. Now, she gets very upset after her morning run if the scone delivery has not been made!

When she isn’t munching on scones, Rosie loves to run on the trails in Forest Park in Portland. She also loves to play with other dogs – the bigger, the better! She’s developing a fondness for wine tasting, like Grapes before her. She gets a lot of attention at local wineries, and with a name like Rose of Pinot Noir, plus a cute face, how can they resist?

Waking up with Rosie is really something – after having her breakfast and a trip to the yard, she bounds back up to bed where she proceeds to become Lady Piranha – a high energy pup who wakes her owners up with kisses and nibbles!

Nikki and Per are thrilled to have the sweet and loving addition to their family. They miss Grapes every day, but are looking forward to many years with Rosie and the possibility of her having a sister in the future.

Welcome, sweet Rosie!

 

In this episode of the SALT Shaker Podcast policy series, Eversheds Sutherland attorneys Nikki Dobay and Cat Baron tackle part II of their discussion about the need for a multistate Power of Attorney (POA) form and the progress being made in the quest to create one. In case you missed it, you can catch up on part I of their discussion here.

For part II of the series, Nikki and Cat welcome Nicole Power, Research and Relationships Manager at Stripe Tax, as well as Scott Peterson, Vice President of U.S. Tax Policy and Government Relations at Avalara for a discussion of the significance of the project.  Nicole and Scott explain why streamlining the POA process is so critical. They also discuss what would be helpful from a states’ perspective in order to embrace the proposed changes and next steps.

Nikki wraps up the episode with their choice of a timely non-tax question – what are you going to dress up as for Halloween, or what’s your favorite Halloween wine?

The Eversheds Sutherland State and Local Tax team has been engaged in state tax policy work for years, tracking tax legislation, helping clients gauge the impact of various proposals, drafting talking points and rewriting legislation. Partner Nikki Dobay, who has an extensive background in tax policy, hosts this series, which is focused on state and local tax policy issues.

Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

Listen now: 

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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: Eversheds Sutherland attorneys Nikki Dobay and Cat Baron have been working on a project to create a new, multistate form. Which form is it?

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. Answers will be posted on Saturdays in our SALT Shaker Weekly Digest. Be sure to check back then!

On October 6, 2022, the Supreme Court of Mississippi held that digital images are not subject to sales tax as tangible personal property or specified digital products. The taxpayer was a digital wedding photographer that sold wedding photography services to customers and then transferred the digital images to the customers via DVDs or flash drives. Following an audit and sales tax assessment, the Supreme Court of Mississippi held that the sales of wedding photography packages – including digital images – were not subject to sales tax. First, the court held that digital images were not “tangible personal property” by nature of being transferred by DVD or flash drive, as opposed to an electronic means of transfer. Rather, this approach “literally places form over substance” and is “an arbitrary distinction.” Instead, the court observed that the tangible drive or disk is “incidental to the nontaxable photography service being provided.”  Second, the digital images were not taxable as “specified digital products” because the term does not include “still digital images.” Finally, photography services are not enumerated as taxable.

Mississippi Dep’t of Revenue v. EKB, Inc., Dkt. No. 2021-SA-00441-SCT (Miss. Oct. 6, 2022).

The Iowa Department of Revenue proposed amendments to its sales and use tax regulations regarding digital-based services implementing 2018 legislation imposing sales tax on a variety of new, digital-based services. The Department essentially adopted its prior non-binding guidance regarding which services are taxable, including storage of tangible or electronic files, information services, video game services and tournaments, software as a service, storage of electronic files, webinars, and services relating to installing, maintaining, servicing, repairing, operating, upgrading, or enhancing certain digital products or software sold as tangible personal property. The public comment period is open through October 25, 2022.

Next week, Eversheds Sutherland is pleased to sponsor the Tax Executives Institute (TEI) 77th Annual Conference in Scottsdale, AZ from October 23-26, 2022. Registration and event information can be found here.

Members of the Eversheds Sutherland SALT team will present on the following topics:

  • October 24 − Around the States – Everything You Need to Know About the Top State and Local Tax Issues – Maria Todorova 
  • October 25 − NOLS: The Most Valuable State Tax Assets You Only Think You Have – Charlie Kearns
  • October 26 − A Tax Family Feud: An Interactive Discussion of Tax Department Challenges and Opportunities − Jeff Friedman 

In addition, Eversheds Sutherland is supporting the Council on State Taxation (COST) 53rd Annual Meeting from October 24-27, 2022 in Orlando, FL. Registration and event information can be found here.

Eversheds Sutherland SALT Partners are presenting on several topics, including:

  • October 26 − Locally Administered Sales and Accommodation Taxes: Compliance Burdens and Constitutional Concerns – Nikki Dobay
  • October 26 – The Next Chapter in Transfer Pricing – Michele Borens
  • October 27 – The Limits of Administrative Deference – Jonathan Feldman

View and learn more about past and upcoming events and presentations for the SALT team.

 

The Maryland Court of Special Appeals affirmed the tax court’s decision that a Macy’s captive insurance company is exempt from Maryland corporate income taxes on interest payments received from a Macy’s affiliate. Maryland imposes a premium receipts tax on unauthorized insurance companies, which includes the taxpayer captive insurer in this case. The taxpayer captive insurer paid no premium receipts tax to Maryland for the years at issue. However, the Maryland law says: “the premium receipts tax under this section is instead of all other State taxes.” The Court of Specials Appeals found this language to be unambiguous—a company subject to the premium receipts tax is exempt from all other taxes, without other conditions. The court noted that while exempting taxpayers who do not pay any premium receipts tax from other taxes may not have been the legislative intent, the court said it was bound by the plain language of the statute.

Comptroller of the Treasury v. Leadville Ins. Co., No. 563, 2022 Md. App. LEXIS 64 (unpublished Ct. of Special App. Aug. 29, 2022).