The District of Columbia Office of Administrative Hearings held that the two financial institution subsidiaries of Petitioner, a credit and charge card issuer company, should have included in their payroll factor denominator only the payroll attributable to the financial institution entities. In other words, when calculating their payroll factor, Petitioner’s financial institution subsidiaries should have excluded any payroll generated by Petitioner’s non-financial institutions, in spite of filing as part of a combined group that included both types of entities. Petitioner filed corporation franchise tax returns in the District of Columbia on a combined basis with its 22 members (two of which were financial institutions). While the general D.C. apportionment formula is single sales factor, the apportionment formula for financial institutions also includes a payroll factor.

Petitioner and the Office of Tax and Revenue disagreed on the payroll factor denominator’s calculation. Petitioner contended that the payroll factor denominator for the two financial institution should include all of the entities in the combined group, relying on regulations in place before the apportionment formula was changed.  The OTR assessed the taxpayer, limiting the denominator to only the financial institutions’ payroll (i.e., only the entities with a payroll factor). The OTR relied on administrative guidance it had previously issued when D.C. switched from a four-factor apportionment formula—which included a payroll factor—to the single sales factor formula. Ultimately, the Office of Administrative Hearings held for the OTR, deferring to agency interpretation and concluding that Petitioner did not show that the tax was disproportionate to the amount of business it transacted in the District.

Order on Summary Adjudication, In the Matter of American Express Companies and Subsidiaries, D.C. Admin. Hearings Office, Case Nos. 2020-OTR-00029; 2020-OTR-00030 (April 19, 2022), motion for reconsideration den’d, (Jun. 15, 2022).

On August 10, 2022, the New York State Department of Economic Development issued emergency regulations to implement the state’s Digital Gaming Media Production Tax Credit Program. The legislature enacted the program to encourage, attract, and grow the digital game development industry in New York State. The purpose of the tax incentive, which was included in New York’s 2022 budget as an economic development incentive, is to offset some of the production costs associated with developing video games in New York State, including wages for technology and design job and leasing costs.

The credit is currently capped at $25 million, and will run from January 1, 2023 to December 31, 2027. Each year $5 million will become available to applicants. Specifically, certain digital gaming media production entities are allowed a 25% tax credit on qualified expenses for taxable years beginning on or after January 1, 2023 and before January 1, 2028. Taxpayers may be entitled to an additional 10% credit for costs incurred and paid outside of the metropolitan commuter transportation district (e.g., outside of New York City, Rockland, Nassau, Suffolk, Orange, Putnam, Westchester, and Dutchess Counties). Single taxpayers are limited to $1.5 million in tax credits per year.

The emergency regulations address the application process, which is split into initial and final application phases. In particular, taxpayers should be aware that they must submit an initial application prior to paying or incurring relevant costs, but no sooner than 90 days before the start date of their qualified digital gaming media production.

The notice published in the New York State Register serves as both a notice of emergency adoption and a notice of proposed rule making. The emergency rule is set to expire on October 22, 2022. The Department will accept public comments until 60 days after the notice’s publication. We will publish further updates as they are made, and members of our team are available to help answer any questions you might have about this credit.

NY Reg, Aug. 10, 2022, at 9-10.

In this episode of the SALT Shaker Podcast policy series, Eversheds Sutherland Associate Jeremy Gove takes a turn in the policy hot seat, and interviews Partner Nikki Dobay about her recent article in Tax Notes State, which analyzes two recently enacted measures – Idaho H.B. 677 and New Hampshire H.B. 1097.

Nikki and Jeremy explore the background of each new law, discuss the text of each, and review the impact each of these laws may have.

Jeremy’s turn at the surprise nontax question this week is inspired by his recent visit to the International Tennis Hall of Fame. If you had to choose, what’s the best Hall of Fame?

The Eversheds Sutherland SALT 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. This series, which is focused on SALT policy issues, is hosted by Partner Nikki Dobay, who has an extensive background in tax policy.

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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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 City is proposing to amend their tax code to exempt delivery fees from sales and use 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. Answers will be posted on Saturdays in our SALT Shaker Weekly Digest. Be sure to check back then!

On this episode of the SALT Shaker Podcast, Eversheds Sutherland Associates Jeremy Gove and Chelsea Marmor discuss all things New York personal income tax. They touch on two recent decisions that came out in New York – one from the Tax Appeals Tribunal and one from the Appellate Division (as Chelsea is quick to correct Jeremy). They also discuss the most notorious aspect of New York personal income tax — the convenience of the employer test.

They end the episode with an early morning overrated/underrated question: to begin the day or to not begin the day with a workout?

Read the decisions they reference here:

Matter of Thomas A. & Jean Boniface (N.Y. Tax Appeals Tribunal)

Matter of Nelson Obus v. N.Y. State Tax Appeals Tribunal (App. Div., 3d Dep’t)

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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A New York Division of Tax Appeals administrative law judge held that a fleet management company that leases fleets of vehicles to businesses in New York could not receive sales tax credits for refunds of tax paid to vehicle lessees at the end of their leases after a rental adjustment that reduced the total rent paid under the lease.

Each of the company’s lease agreements contained a “terminal rental adjustment clause” provision.  Under this provision, the aggregate rental amount due under the lease agreement— initially calculated, for purposes of determining the monthly rental amount, based on the projected residual book value of the leased vehicle at the termination of the lease agreement—adjusts up or down at the expiration of the lease based on the actual residual book value.  In cases where the actual residual book value is greater than estimated, resulting in a reduction of the aggregate rental amount and thus a refund of rent to the lessee, the company also refunded the sales tax paid by lessee and subsequently claimed sales tax credits on the refunded tax amounts.

The administrative law judge held that “the New York sales tax is a transaction tax and liability for the tax occurs at the time of the taxable transaction.”  Citing New York Tax Law section 1111(i)(B), the judge observed that for leases with characteristics similar to the ones at issue, the lessee is obligated to pay all sales tax on the first 32 months of the lease at the inception of the lease.  The administrative law judge noted that: (1) the company “properly collected and paid tax on the first 32 months of the leases at the beginning of the leases,” and (2) New York Tax Law section 1111(i)(B) does not contain any provision allowing for a refund of sales tax paid.  Thus, the administrative law judge held that the company was not entitled to receive sales tax credits in connection with the refunds of sales tax paid to its lessees.

In the Matter of the Petition of Gelco Corporation, DTA No. 829011 (N.Y. Div. of Tax App. July 21, 2022).

On July 1, 2022, a statewide 27 cent per sale delivery fee took effect in Colorado. The fee applies to retailers or marketplace facilitators that collect sales or use tax on the sale of tangible personal property that is sold and delivered (including delivery performed by a third party) to a purchaser in Colorado. The delivery fee was expressly excluded from the state definition of purchase price, however, the Denver City/County is a home rule jurisdiction, so the state statutory change did not automatically apply to the municipality’s definition of purchase price. The Denver City Council has proposed an amendment to the Denver tax code exempting the delivery fee and other certain government fees from sales or use tax.

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: What state did Eversheds Sutherland recently spotlight in the second edition of the 2022 SALT Scoreboard?

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!

Following New York City’s recent victory in a case regarding the apportionment of income earned by an out-of-state corporation from its sale of a non-unitary investment, the New York State Department of Taxation and Finance (NYS Department) memorialized the litigation position in an August 4, 2022 revision to the “final draft” regulations that it had published only three months ago.

Read the full Legal Alert here.

The Multistate Tax Commission (MTC) held its 55th Annual Meeting in Anchorage, Alaska from August 1st through the 4th. During the four-day event, the Audit, Litigation and Nexus Committees met on Monday, the Uniformity Committee met all day Tuesday, the Commission held its annual business meeting and seminar on Wednesday, and the event wrapped up on Thursday with a very short meeting of the Executive Committee.

Some of the reoccurring themes discussed during the meeting included taxation of cryptocurrency, the recently updated MTC statement on P.L. 86-272, the factor presence nexus standard, and taxation of digital goods and products.

Read the full Legal Alert here.