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 passed a measure simplifying local sales and use tax reporting?
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 Maryland Court of Appeals held that a for-profit company’s purchases for non-profit hospitals were subject to Maryland’s sales and use tax because there was no agency relationship between the company and the hospitals, and even if an agency relationship existed, that alone would not entitle the for-profit company to an exemption.
Johns Hopkins Health System (JHHS), a group of non-profit tax-exempt hospitals, contracted with Broadway Services (Broadway), a for-profit business, for Broadway to provide housekeeping services to the hospitals, including purchasing and providing cleaning supplies for use by the hospitals’ janitorial staffs. Broadway paid sales and use tax on the purchases then requested a refund of the taxes it paid to cleaning supply vendors, asserting that it was reselling the supplies and therefore its purchases were exempt from sales and use tax. The Comptroller of Maryland denied Broadway’s request for refund.
Broadway appealed the Comptroller’s denial to the Maryland Tax Court which held that Broadway was not a reseller, but nevertheless was entitled to a refund because it acted as the non-profit hospitals’ agent. The Court of Appeals reversed the Tax Court’s decision, holding that Broadway was not JHHS’s agent because there was no evidence that Broadway had the power to alter JHHS’s legal relations or had a duty to act primarily for the benefit of the hospitals and because JHHS did not exercise sufficient control over Broadway. Importantly, the Court emphasized that an agency relationship alone is insufficient for an agent to claim the principal’s tax-exempt status. Rather, the agent still must fit within an exemption set forth in Maryland’s Tax Code and the parties must comply with applicable procedures for claiming a tax exemption.
The Comptroller has informed us that the due date for the first quarterly estimated digital advertising tax payment is extended to Monday, April 18th. The deadline for taxpayers to make this first payment would otherwise have been April 15, 2022. We are not aware of the Maryland Comptroller’s office otherwise publicizing this extension. Taxpayers making the first quarterly estimated tax payment should also be sure to file a completed copy of the Form 600D, Declaration of Estimated Digital Advertising Gross Revenues Tax.
In this episode of the SALT Shaker Podcast, host and Eversheds Sutherland Associate Jeremy Gove is joined by Partner Jeff Friedman for a review of five things he’s learned about litigating state tax cases throughout his career. What can old cases teach us about new ones?
Highlights of Jeff’s takeaways include:
They conclude with Jeremy’s classic question – overrated/underrated? This week, it’s a look into lawn maintenance, a very overrated household task!
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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On April 12, 2022, the Appellate Division, First Department dismissed a taxpayer’s appeal from the New York City Tax Appeals Tribunal, and held that the Tribunal’s decision to uphold a tax assessment on an out-of-state entity’s gain from the sale of a partnership interest was “rational.”[1]
The taxpayer was an investment vehicle that formed a master fund to invest in alternative investment management companies. Importantly, the taxpayer did not have property or payroll in the City, and it did not otherwise conduct business in the City. In 2008, the taxpayer’s master fund purchased an interest in an entity – Claren Road Asset Management, LLC – that conducted all of it business activities in New York City. In 2010, the taxpayer’s master fund sold Claren generating a capital gain of $54 million. New York City assessed tax on the entire gain on the sale of Claren.
Litigation ensued and the parties stipulated that the taxpayer and Claren did not engage in a unitary business. In 2018, a New York City administrative law judge upheld the tax, applying investee apportionment (i.e., the gain was apportionable using Claren’s 100% apportionment factor). In 2021, the New York City Tax Appeals Tribunal affirmed the ALJ decision, concluding that the capital gain was indeed subject to New York City’s General Corporation Tax.
Applying a rational basis test to the Tribunal’s decision, the Appellate Division, First Department explained, “[t]he Tribunal rationally determined that petitioner failed to demonstrate that the City impermissibly sought to impose the GCT upon income attributable to activities carried on outside its borders.” Relying on a 1991 Court of Appeals decision, Matter of Allied-Signal Inc. v Commissioner of Fin., 79 N.Y.2d 73 (1991), the Appellate Division observed that “[t]he nexus between the City and petitioner’s capital gain is Claren’s activities in the City, which generated petitioner’s investment income (on which petitioner paid taxes to the City).”
Although the taxpayer argued that the capital gain was earned outside of the City because its activities related to Claren were performed (entirely) in London, it was still “rational for the Tribunal to conclude that the capital gain was attributable to the value of Claren on the date it was sold.” (emphasis added). The decision ends with a quote from the Supreme Court’s 1940 opinion in Wisconsin v. J.C. Penney Co., 311 U.S 435 (1940): “The fact that a tax is contingent upon events brought to pass without a state does not destroy the nexus between such a tax and transactions within a state for which the tax is an exaction.”
The decision does not otherwise provide an analysis of the myriad constitutional issues potentially arising from cross-border sales of partnership interests.
[1] In the Matter of Goldman Sachs Petershill Fund Offshore Holdings (Delaware) Corp. v. New York City Tax Appeals Tribunal, 2022 N.Y Slip Op 02361 (N.Y. App. Div. 2022).
Following a taxpayer’s appeal of a local Virginia county (County) Business, Professional and Occupational License (BPOL) tax assessment, the Virginia Tax Commissioner held that the taxpayer’s remote employees’ payroll was properly excluded from the numerator of the payroll apportionment calculation. The taxpayer was headquartered out of state and maintained offices worldwide, including an office in the County. The taxpayer and County agreed to apportion its gross receipts by payroll. The taxpayer had included in the numerator only the payroll of those employees working at its County location and those remote workers in Virginia who reported to the County location. The County, however, determined that the numerator should include the payroll of all employees working in Virginia.
For BPOL situsing purposes, taxpayers generally must include in the tax base “only those gross receipts attributed to the exercise of a privilege subject to licensure at a definite place of business” within the taxing jurisdiction. Va. Code § 58.1-3703.1(A)3.a. For receipts from the performance of services, if the services are not performed at any definite place of business, they are attributed to the definite place of business from which they are directed or controlled. Va. Code § 58.1-3703.1(A)3.a.(4). But when it is impossible or impractical to determine where the service is performed or from where the service is directed or controlled, such receipts are taxed based on payroll apportionment between a taxpayer’s definite places of business. Va. Code § 58.1-3703.1(A)3.b. For purposes of the payroll apportionment calculation, “[g]ross receipts shall not be apportioned to a definite place of business unless some activities under the applicable general rule occurred at, or were controlled from, such definite place of business.” Va. Code § 58.1-3703.1(A)3.b.
The Tax Commissioner held that this statutory language does not require the payroll of remote employees to be sitused to the definite place of business to which they report. Rather, the remote employee’s home may itself constitute a definite place of business. The Tax Commissioner further observed that requiring payroll of remote employees to be apportioned on a direction and control basis “would reintroduce the types of factual complexities that payroll apportionment was designed to avoid.” Thus, the Tax Commissioner rejected the County’s determination and took the taxpayer’s argument one step further, holding that numerator of the payroll apportionment calculation “should not include any employees who worked remotely outside of the County, regardless of what office they reported to.”
Va. Public Document Ruling No. 21-131, Va. Dep’t of Taxation (issued Sept. 28, 2021).
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: The New York State Tax Appeal Tribunal recently held that a limited liability company was entitled to a refund of sales tax paid on the purchase of an interest in a painting by which famous artist?
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 April 4, 2022, the Colorado House of Representatives unanimously approved S.B. 32, a measure simplifying local sales and use tax reporting by prohibiting Colorado’s approximately 70 home-rule cities from requiring remote sellers to obtain local business licenses as long as the retailer has a state standard retail license. Beginning on July 1, 2022, local taxing jurisdictions may no longer charge remote retailers or retailers with only incidental physical presence in the local taxing jurisdiction for a general business license. Starting in July 2023, local taxing jurisdictions may not require such remote sellers to separately apply for a retail license, and if a local license is required, the local jurisdiction shall automatically issue it. The bill also requires the Colorado Department of Revenue to provide information about remote sellers to local taxing jurisdictions. The measure now heads to the Governor for his signature.
The Utah Supreme Court ruled for taxpayers John and Brooke Buck, finding they were not domiciled in Utah during tax year 2012. The Court held that the State Tax Commission had incorrectly applied Utah’s statutory domicile presumption that attaches when a taxpayer claims a residential exemption for property tax purposes. As addressed in more detail in our previous coverage here, the taxpayers presented significant evidence to rebut the presumption, including showing that they had relocated to Florida in 2011 and that neither the husband nor the wife spent more than 22 days in Utah during 2012.
A Utah statute provides a rebuttable presumption that an individual is domiciled in the state if the taxpayer claims the residential exemption for property tax purposes for the individual or individual’s spouse’s primary residence. The State Tax Commission had narrowly interpreted the types of evidence taxpayers could present to rebut the presumption, limiting the evidence to the taxpayer’s actions or inactions related to the residential property tax exemption itself. The Supreme Court ruled that the Commission erred in that interpretation, because it was contrary to the statute and effectively precluded taxpayers from being able to overcome the presumption. The Court explained that because the presumption is rebuttable taxpayers should have a meaningful opportunity to rebut the presumption by producing evidence of the totality of circumstances relevant to their domicile, including for example, the state in which they held drivers’ licenses, the state in which they worked, and the state in which their children attended school. As the taxpayers provided significant evidence that their domicile was Florida, the Court ruled they were Utah nonresidents in 2012.
After a long wait, the Maryland Comptroller of the Treasury recently released Maryland Form 600D, Declaration of Estimated Digital Advertising Gross Revenues Tax. The Maryland Digital Advertising Tax went into effect on January 1, 2022. Taxpayers subject to the tax are required under Maryland law to make estimated payments. The first one is due April 15, 2022. The recently released Form 600D is provided to calculate and make estimated payments. The form must be filed by every taxpayer that reasonably expects its Maryland gross revenues attributable to digital advertising services to exceed $1,000,000 for the calendar year. However, there is no tax rate for a taxpayer that generates less than $100,000,000 of global revenues from any activity.
For more information regarding digital advertising tax compliance, please contact any member of the Eversheds Sutherland SALT team.
