In this episode of the SALT Shaker Podcast policy series, host and Eversheds Sutherland Partner Nikki Dobay welcomes Ryan Maness, Director and Counsel of Tax Policy at MultiState, for a discussion of notable, current state tax policy.

Before diving into what’s happened in the policy space for Q1 of this year, Ryan shares more about his background and what led him to MultiState.

Ryan also shares what’s been on his radar so far this year, including how this being an election year affects state tax policy decisions by legislators. In addition, Ryan and Nikki discuss how states have been considering changes to personal income tax, and how inflation headlines are impacting bills being introduced.

Ryan also speaks to which states he’s most interested in following this year, due to their trend of changing tax codes, and how crypto and blockchain topics are affecting both states and their lawmakers.

Nikki’s surprise non-tax question this week involves marriage ceremonies – If you were getting married this weekend, where would you do it?

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. 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.

 

 

 

 

 

 

 

 

 

 

 

 

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During the 2022 legislative session, the Georgia General Assembly passed significant tax legislation, including authorizing affiliated groups to file consolidated corporate income tax returns without prior approval from the Department of Revenue, extending and amending qualification for the high-technology and data center sales tax exemptions, extending and increasing several income tax credits, and changing procedures for appealing some tax cases to superior court.

Read the full Legal Alert here.

The Massachusetts Appellate Tax Board ruled that a company that develops and sells software-as-a-Service (SaaS) is allowed a property tax exemption for the machinery it uses in its development process. The Appellate Tax Board previously ruled that the company was a manufacturing corporation, and thus was entitled to use single sales factor apportionment provided to manufacturing companies for corporate income tax purposes, rather than the standard three-factor formula used by service providers.  Because the Appellate Tax Board classified the company as a manufacturing corporation for corporate income tax purposes, the Board concluded that the company was also entitled to the attendant property tax exemption for the machinery used in conducting its manufacturing business.

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: A recent Technical Advice Memorandum from the New Jersey Division of Taxation updated the tax treatment of transactions involving which items?

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 March 28, 2022, Mississippi’s governor signed S.B. 2831, creating the Taxation of Remote and Internet-based Computer Software Products and Services Study Committee, which is tasked with examining the taxation of remote and internet-based computer software products and services in Mississippi. By October 1, 2022, the Committee must report to the legislature its findings and recommendations regarding which products and services should be taxable, and how they should be taxed. The five member committee is comprised of a representative or designee from each of the Mississippi Department of Revenue, the Mississippi Association of Realtors, the Business and Industry Political Education Committee, the Mississippi Manufacturer’s Association, and the Mississippi Bankers Association.

The Minnesota Tax Court ruled that the federal Anti-Head Tax Act (AHTA) preempts using Alaska Airlines’ gross receipts when calculating the Minnesota Franchise Tax Minimum Fee. The AHTA prohibits states from taxing gross receipts from air commerce or transportation. Minnesota’s Minimum Fee, imposed on taxpayers exercising a corporate franchise in the state, is calculated based on the taxpayer’s total Minnesota property, payrolls and “sales or receipts.” The court agreed with Alaska that the inclusion of its gross receipts from air commerce and transportation, which were included in “sales or receipts” when computing the Minimum Tax, is preempted by the AHTA. But, the court rejected Alaska’s other argument that including wages of certain non-resident employees in Minnesota “payroll” is preempted by the AHTA. Finally, the court declined to strike down the entire Minimum Tax statute, finding that the preempted portions mandating use of receipts or sales are severable from the remainder of the statute.

Alaska Airlines, Inc. v. Comm’r of Revenue, Dkt. No. 9433-R (Minn. Tax Ct., Mar. 16, 2022).

On March 23, 2022, the Mississippi Supreme Court issued an order granting review of a trial court determination that sales of digital photographs are not subject to sales tax. The trial court struck down an assessment against a wedding photographer, concluding that taxable “tangible personal property” did not include digital photographs and photography is not an enumerated taxable service. Subsequent to that decision, the Department of Revenue issued broader regulations that include digital photos as taxable “specified digital products”, which is in line with the Department’s other recent proposed regulations deeming “cloud computing” services to be taxable. The Mississippi Supreme Court elected to review the case on direct appeal, rather than sending it to the Court of Appeals.

On April 5, for the CalTax Foundation’s April webinar, Eversheds Sutherland Partner Tim Gustafson will help discuss the OTA’s procedures for designating precedential opinions, closely examine some precedential opinions of interest, and analyze how authoritative these opinions will be for future OTA decisions. For more information and to register, click here.

In addition, on April 6, members of the SALT team will present a state and local tax seminar on a variety of state and local tax topics for the Denver chapter of TEI. Speakers and topics include:

  • The SALT Litigation Landscape: Trends & Developments – Jeff Friedman and Liz Cha
  • 2022 SALT Legislative Outlook – Nikki Dobay and Charlie Kearns
  • The State of New York: A New York Update for Non-New York Based Businesses – Ted Friedman and Michael Hilkin
  • All Things Digital: State Taxation of Digital Goods and Services – Michele Borens and Charlie Kearns
  • Local Taxes: Developments in Increasingly-Aggressive Local Taxation – Nikki Dobay and Tim Gustafson

Finally, Eversheds Sutherland Partner Charlie Kearns will present a webinar during COST’s 2022 Sales Tax/Audit Virtual Sessions webinar on April 7, covering various aspects of the Permanent Internet Tax Freedom Act. For more information and to register, click here.

 

The Southern District of New York denied a plaintiff-relator’s motion to remand a dispute over the defendant’s transfer pricing arrangement brought under the New York’s False Claims Act to New York state court. The plaintiff initiated the suit on behalf of the State of New York in state court alleging that the company did knowingly fail to comply with federal transfer pricing rules with regard to transactions with foreign affiliates, and seeking to recover unpaid New York state and city corporate franchise taxes.  The defendant, a Swiss limited liability company with a U.S. subsidiary headquartered in New York previously removed the action to federal court.

The relator alleges that the defendant kept two sets of books—one for business purposes and one for tax purposes—and the set of books the defendant’s accounting firm used in preparing the defendant’s New York tax returns was incomplete and did not properly reflect the defendant’s income. As part of its allegation, the plaintiff asserted that the defendant’s U.S. entity improperly used deductions that belonged to its foreign affiliates, thus depriving New York of taxable income. A defendant is liable to New York State under the New York False Claims Act if he/she “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the state or a local government.” Unlike the federal False Claims Act, New York’s False Claims Act allows for relators to initiate qui tam actions regarding alleged New York tax law violations. The New York State Attorney General declined to prosecute or intervene in the plaintiff’s qui tam action.

In denying the plaintiff’s motion to remand to state court, the court concluded that the matter should remain in federal court because the controversy in issue centers on the scope of a corporation’s duty under the federal transfer pricing laws in dispute. The court found that each of the four factors used to determine whether a federal court can exercise jurisdiction over a state-law claim had been met: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress. In an additional order, the court invited Treasury, the Department of Justice, the New York State Department of Tax and Finance, and the New York attorney general to submit amicus briefs addressing the questions raised in the matter.

N.Y. ex rel. Am. Advisory Servs., LLC v. Egon Zehnder Int’l Inc., No. 21-CV-6884 (LJL) (S.D.N.Y., Mar. 22, 2022).

The New York State Tax Appeals Tribunal held that a limited liability company was entitled to a refund of sales tax paid on the purchase of a one-half interest in a Pablo Picasso painting because the taxpayer leased its share of the painting on the same day the painting was purchased. On April 20, 2015, an LLC and an individual (lessee) each purchased a one-half interest in the painting and paid sales tax on the total sales price. On the same day, the petitioner registered as a sales tax vendor with Department of Taxation and Finance. The lessee and the LLC also entered into a written one-year lease agreement that set forth that annual rental payment plus applicable sales tax on April 20, 2015. One year later, the LLC filed a refund claim for the sales tax paid on its one-half interest in the painting. The Department denied the refund claim, and the Division of Tax Appeals upheld the refund denial.

However, the Tribunal reversed the Division of Tax Appeals’ determination, holding that the petitioner established that it purchased the painting “for one and only one purpose: resale.” The Tribunal explained that liability for sales tax occurs at the time of the transaction and that the LLC established that at the time of purchase it intended to lease its one-half interest in the painting. The Tribunal was unpersuaded that the LLC could at some point divert the painting to its own collection was evidence of the petitioner’s intent at the time of purchase.

In the Matter of the Petition of Objet LLC, DTA No. 828673 (N.Y. Tax App. Trib. Feb. 28, 2022).