The Texas Comptroller recently released a private letter ruling (provided to the taxpayer on April 29, 2022) concluding that the taxpayer’s payment card management services are nontaxable in Texas. In the ruling, the taxpayer provides a payment card management program that allows services, such as food delivery services, the ability to apply customized spending limits and other controls on debit and prepaid cards used in their businesses. The taxpayer does not issue cards, but works with issuing banks and payment networks to authorize, process, and settle its customers’ transactions. The Comptroller concluded that the taxpayer’s service is a nontaxable electronic payment processing service rather than a taxable data processing service.

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 recently withdrew its proposed regulation seeking to expand the state’s sales tax to apply to cloud computing?

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!

The Supreme Court of Montana affirmed a lower court’s determination that a taxpayer was liable for accommodations sales tax on its resort service fees, but did not owe accommodations sales tax for forfeited guest deposits or lodging facilities use tax on its resort service fees. The taxpayer, Boyne USA, Inc. owns and operates Big Sky Resort in Montana. Boyne charges a resort services fee for amenities such as a children’s club, ski patrol dog demonstrations, tennis court access, summer boat rentals, ski lift rides, shuttle transportation, and movies. The taxpayer also requires payment of a non-refundable deposit 30 days before arrival. The Department audited Boyne for tax years 2011 through 2016, finding that the taxpayer owed sales and use tax for the resort service fees, as well as sales and use tax for forfeited deposit charges. The audit produced an assessment of $685,505.68 in additional tax, interest, and penalties.

Sales Tax on Resort Services Fees

Under Montana’s sales tax on accommodations, charges for services necessary to complete a sale that are separately stated are not subject to sales tax. Mont. Code Ann. §§ 15-68-101(14)(a)(iii), -(b). The taxpayer argued that, because certain resort services fees were necessary to complete the lodging transaction, they were exempt from tax. In response, the lower court concluded that the fee was taxable because it encompassed the entirety of the services sold by the taxpayer; the fee was not merely “necessary to complete the sale.” The Montana Supreme Court agreed, explaining that the resort services fee was – together with the room – the transaction itself. Thus, separately listing the fee and the lodging charges did not exempt the resort service fees from tax.

No Sales Tax on Forfeited Guest Deposits

The Montana Supreme Court also considered whether the forfeited guest deposits were subject to the sales tax on accommodations. The Department submitted evidence showing that, when calculating the deposit amount, Boyne considered applicable state taxes to calculate the total estimated cost upon which it imposed a 20% deposit charge. Because there was no activity engaged in by another person for a consideration – i.e., a “sale” of a “service” – the court concluded that a sale did not occur until a guest arrived at the facility and received the resort’s services. Mont. Code Ann. § 15-68-101(13), -(17) (defining “sale” and “service”). No sale occurred when a guest merely paid the deposit charge, even if subsequently forfeited.

No Lodging Facilities Use Tax on Resort Service Fees

Finally, Montana’s lodging facilities use tax is imposed upon “charges pertaining to accommodations for sleeping and resting at [a] resort.” See Mont. Code Ann. §§ 15-65-101, et seq. Rejecting the Department’s argument that resort services fee was a mandatory fee and an integral part of the accommodations charge, the Montana Supreme Court agreed with Boyne and concluded that the statutory definition of an “accommodation charge” exempts fees for meals, transportation, entertainment or other similar charges attributable to non-lodging purposes. Thus, the so-called bed tax would not apply to the resort services fee because, as the court explained, “while lodging is a ‘use of the resort,’ not all ‘uses of the resort’ are lodging.”

Boyne USA Inc. v. Dep’t of Revenue; DA 20-0319; 2021 MT 155; Cause No. DV-29-2019-48.

The California Court of Appeal ruled that nonresident shareholders were subject to California tax on their pro rata shares of intangible income from an S corporation’s sale of shares in a subsidiary. This sale of intangibles (goodwill of a business) was sourced as business income apportioned at the S corporation level, not as intangible income to a nonresident under the personal income tax law. In its first holding, the court ruled for the Franchise Tax Board, affirming the trial court’s decision that the shareholders’ intangible business income from the multistate unitary S corporation is sourced under Code of Regulations, Title 18, Section 17951-4.  This regulation requires business income to be apportioned at the S corporation level using UDITPA. The gain realized by the S corporation passes to the shareholders in the same form as received by the S corporation – here, as business income, some of which is apportioned to California.

In its second holding, the court found that the goodwill at issue had acquired a business situs in California. The shareholders asserted that the income should be treated as intangible income sourced to the state of the nonresident shareholders’ domiciles under the personal income tax law, Revenue and Taxation Code 17952.  The court rejected this argument in its first holding, finding that instead Regulation 17951-4 governs here. But, in its second holding, the court explained that even if Section 17952 applied, the income would still be taxable by California because the goodwill had acquired a “business situs” in the state. According to the court, the goodwill acquired a business situs because the S corporation apportioned a percentage of its business income to California using UDITPA and this meant that the management and disposition of the intangible property was an integral part of the S corporation’s regular trade or business operations. Once the business situs rule is applied, income from intangibles of a multistate enterprise is apportioned, rather than allocated 100% to the state.

The 2009 Metropoulos Family Trust et al. v. Franchise Tax Bd., No. D078790, 2022 Cal. App. LEXIS 464 (Ct. App. May 27, 2022)

In this episode of the SALT Shaker Podcast policy series, Eversheds Sutherland Partner and host Nikki Dobay speaks with Brad Scott, Director of Finance of Halstead Bead. Brad has become an advocate for sales tax simplification post Wayfair.

Listen as Brad and Nikki discuss the compliance challenges businesses face following Wayfair, as well as Brad’s ongoing advocacy efforts to obtain greater simplification.  They also discuss Halstead Bead’s recent Federal court battle in Louisiana, and the work of the FAIR Coalition, which is working to reform the Tax Injunction Act.  In light of the upcoming Wayfair hearing, Brad also offers his thoughts for policy makers.

They conclude with Nikki’s surprise nontax question for the week — you’re on a road trip, what do you eat?

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. This series, which is focused on state and local tax 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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Maryland H.B. 791 clarifies that the definition of “digital product” for sales and use tax purposes does not include certain digital inputs or enterprise software. Specifically, H.B. 791 excludes from taxable digital products the following: (i) products having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities where the purchaser has a copyright or similar interest in the product and the product is used solely for commercial purposes, including advertising or other marketing activities; and (ii) computer software or SaaS purchased or licensed solely for commercial purposes in an enterprise computer system, including operating programs or application software for the exclusive use of the enterprise software system, that is housed or maintained by the purchaser or on a cloud server, whether hosted by the purchaser, the software vendor, or a third party. The legislation takes effect July 1, 2022.

Oklahoma enacted S.B. 1339 which amends the definition of “marketplace facilitator” to include a person that facilitates not only retail sales of tangible personal property but all retail sales. S.B. 1339 also provides that the marketplace facilitator’s tax collection obligation applies to any other taxes administered by the Oklahoma Tax Commission which are levied by a local jurisdiction on the retail sale of a product. These changes are effective January 1, 2023.

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 tax court recently ruled that a separately stated surcharge covering credit card processing fees was subject to 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. Answers will be posted on Saturdays in our SALT Shaker Weekly Digest. Be sure to check back then!

This week, Eversheds Sutherland attorneys Eric Tresh and Liz Cha will present during the 2022 TEI Region 8 Annual Conference in Hilton Head Island, SC. Eric and Liz will present a State Tax Controversy session.

For more information and to register, click here.

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

Hello, miss Molly! Our June Pet of the Month is an adorable rescue pup named Molly, who made a trek from Denver, Colorado to Arlington, Virginia to make a home with Jeremy Abrams, Director of Controversy and Policy at Nike.

This four-year-old cutie was believed to be half Swiss Mountain Dog and half Doberman. But, a doggy DNA test revealed she had neither breed. She has Rottweiler, Chow Chow, German Shepherd, Siberian Husky and Pit Bull in her genetic makeup. Either way, she’s still “Swiss Mix Molly” to her family!

Molly loves to stay active, hiking in the mountains with her humans and swimming in the ocean. She likes staying on the run so much that she once got loose and was gone for five hours. A police station in Washington, DC notified Jeremy that they had found her, and it took him over an hour to get to her. She’s one fast pup, and her journeys must have been a heck of an adventure for her!

In addition to munching on Greenies dental treats and steak, she loves to greet any house guest with a shoe or toy and will make you chase her around before finally dropping it and welcoming you with kisses.

We’re happy to welcome Molly to the SALT Pet of the Month club!