The Texas Court of Appeals ruled that a law firm’s purchases of loan packages for lending institution clients was the taxable purchase of data processing services. The law firm purchased loan packages consisting of promissory notes, deeds of trust, tax disclosures and other pertinent legal documents from vendors. The law firm argued that the “essence of the transaction” was the conveyance of the loan package, which included services of paralegals and mortgage experts and not data processing. The court disagreed, finding that the contracts provided that the firm’s vendors collect and manipulate data, while the firm is responsible for the legal content in the packages. Thus, the “essence of the transaction” was the purchase of taxable data processing services.

Missouri Senate Joint Resolution 33 provides that voters will decide whether to amend the state constitution to tax digital products. Missouri’s constitution prohibits expanding the sales and use tax to any services that were not taxable as of January 1, 2015. Joint Resolution 33 proposes to allow taxation of “subscriptions, licenses for digital products, and online purchases of tangible personal property.” The Joint Resolution still needs approval from the full House.

In this episode of the SALT Shaker Podcast, host and Eversheds Sutherland Associate Jeremy Gove is joined by Associate Annie Rothschild to discuss some noteworthy developments in the proposed amendments to California’s market-sourcing regulations. They highlight changes to the regulations that Annie discusses at length in a recent Tax Notes State article.

They conclude their discussion with Jeremy’s favorite question – overrated/underrated? Cold means citrus season, so this time they discuss the sumo citrus orange.

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: What famous Valentine’s Day gift is subject to sales tax in 29 states but exempt from sales tax in 16 states and Washington DC?

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!

 

 

In Virginia Department of Taxation v. R.J. Reynolds Tobacco Co., the Virginia Supreme Court ruled that the taxpayer was entitled to a corporate income tax refund because leaf tobacco stored in the taxpayer’s Virginia warehouse was not “used” by the taxpayer for purposes of inclusion in its Virginia property factor.

The taxpayer stored leaf tobacco in its Virginia facilities in order to allow the tobacco to reach its target drying age and then shipped the tobacco to the taxpayer’s production and manufacturing team in North Carolina for processing and manufacturing into cigarettes.  While stored in Virginia, the tobacco aged naturally without any action taken or directed by the taxpayer.  The Virginia Department of Taxation argued that the taxpayer’s storage of the tobacco in the Virginia facilities constituted “use” for Virginia property factor purposes because the tobacco was aging during the time it was stored there, and aging was important to the subsequent use of the tobacco.  The taxpayer argued that it merely exercised ownership over the tobacco by storing it in Virginia and did not take any positive action with regard to the tobacco so as to constitute use.

Finding that there was no ambiguity in the Virginia Code’s employment of the term “used,” the Court thus limited its analysis to the plain meaning of the word, which it defined as putting “into action or service” or “employ[ing] for the accomplishment of a purpose.”  Applying this definition, the Court held that the taxpayer did not use the tobacco while stored in Virginia because the taxpayer did not “introduce any treatment to the leaf tobacco” or “perform any affirmative act or activity to prompt or aid the aging process.”  Accordingly, the Court concluded that the taxpayer should not include the tobacco in calculating its property factor.

Virginia Dept. of Taxation v. R.J. Reynolds Tobacco Co., Va., No. 201263, 2/10/22.

Although she lacks a lot of stripes, she’s as fierce as she is cuddly! Meet Tiger, a four-year-old, American shorthair cat belonging to Danyelle Dukes, one of our SALT associates in the Atlanta office.

Tiger leapt into Danyelle’s heart her senior year of undergraduate school, when her best friend rescued her as a newborn. Unfortunately, her friend couldn’t keep her, so Danyelle offered to adopt her. And it’s been history ever since!

Besides her love for tuna, Tiger likes to sit in at the windowsill and stare at the neighborhood with a distinct look of judgment. She also enjoys sitting with Danyelle while she reads, which is pretty often!

Join us in welcoming Tiger to the SALT Pet of the Month family!

 

In this episode of the SALT Shaker Podcast focused on policy issues, host and Eversheds Sutherland Partner Nikki Dobay hosts a full house for a West Coast legislative update. Nikki welcomes back Rob Gutierrez, President and CEO of the California Taxpayers Association (CalTax), and Jeff Newgard, Principal and Owner of Peak Policy and also joining the conversation is Tommy Gantz, Director of Governmental Affairs on Tax & Fiscal Policy and Manufacturing from the Association of Washington Business (AWB).

Together, they review specific revenue and legislative updates in California, Oregon and Washington, including issues and developments of note that are unfolding in real-time during the current legislative sessions. Each guest also gives insight into which tax policy issues are keeping them up at night and what taxpayers should be aware of.

Nikki’s surprise non-tax question focuses on the Super Bowl – what are your annual traditions?

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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In Technical Advice Memorandum (TAM) 2022-01, the California Franchise Tax Board (FTB) considered whether remote workers and various online activities eliminate P.L. 86-272 protection.  In large part reflecting the Multistate Tax Commission (MTC) guidance issued last year, the TAM concludes that a variety of activities may disqualify a taxpayer from the protections provided under P.L. 86-272.  Examples of purportedly disqualifying activities a business may conduct on its website include:

  • providing post-sale assistance to California customers via electronic chat or email;
  • soliciting and receiving branded credit card applications;
  • soliciting job applications for non-sales positions; and
  • placing cookies on visitors’ computers or other electronic devices.

The TAM also provides that “an employee who telecommutes on a regular basis from within California” will eliminate protection unless the employee’s in-state activities are entirely ancillary to solicitation of sales of tangible personal property.  Taxpayers operating a website, or having remote workers located in California, should carefully consider how the TAM applies to their facts if they currently rely on P.L. 86-272 (or have sales currently subject to California’s throwback rule for income tax apportionment purposes).

Note that a TAM, which is advice the FTB legal team gives when they receive a question from FTB staff, is not binding on FTB but gives a good indication of where FTB’s stands on an issue.

On February 22, the Washington State Legislature Senate Committee on Ways & Means held a public hearing on SB 5967, which was recently amended. If enacted, the proposed amendment would create a new B&O tax surcharge on a new class of “specified financial institutions” and amend the current B&O tax surcharge (enacted in 2019) on such taxpayers.

Specifically, the amended bill would create the Climate Resiliency and Mitigation Surcharge that would be imposed at 0.5% on a “specified financial institutions that are bankers of fossil fuels,” which is a specified financial institution (as defined under current law) that is listed in “the Washington fossil fuel financing report as receiving league table credit financing one or more fossil fuel companies in excess of” $1 billion. The new surcharge would be effective starting in 2023.

The amended bill would also change the current B&O tax surcharge on specified financial institutions starting in 2023.  It would create a three tier system for taxpayer’s subject to the Climate Resiliency and Mitigation Surcharge, which looks at the taxpayer’s adjusted fossil fuel financing as a percentage of the taxpayer’s total financing. In an effort to make this proposal revenue neutral the rates for current surcharge would be decreased from 1.2% to 0.7%, 0.65% and 0.6% depending on the tier for those taxpayers.

The Committee did not take action on the bill following the public hearing. Eversheds Sutherland will continue to monitor this bill’s progression and provide further updates if it advances further.

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’s new law restores the net operating loss deduction and removes limitations on tax credits starting for tax year 2022?

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!