The Illinois Department of Revenue recently released General Information Letter ST-21-0025-GIL, providing that an e-commerce retailer’s provision of tangible personal property to its subscribers for sampling prior to deciding whether to buy was not a taxable transaction, while an eventual purchase of the property was taxable. The taxpayer, based outside of Illinois, operates an e-commerce website that offers a month-to-month subscription program, which, in exchange for the subscription fee, allows subscribers to try the taxpayer’s merchandise before deciding whether to purchase it. The Department determined that the subscription receipts were not subject to sales tax because there was no transfer of the ownership of the property. The Department also determined that the subscription receipts were not subject to the Illinois “rental purchase agreement occupation and use tax” which imposes tax on the rental of merchandise under an initial rental-purchase agreement of less than four months, because a subscription model with a separate option to purchase, such as the taxpayer’s, was different than “rent-to-own dealers” contemplated by the rental purchase agreement occupation tax. Lastly, the Department determined that the taxpayer was not making a taxable use of the sample merchandise in the state as the demonstration exemption would apply.

This week, members of the Eversheds Sutherland SALT team will continue presentations for several key industry organizations and associations:

  • Tax Executives Institute (TEI) – Iowa chapter
    • On September 21, Jonathan Feldman, Michael Hilkin and Alla Raykin will present a SALT litigation update and digital tax update.
  • Council on State Taxation (COST) Property tax workshop
    • Between September 22-24, presentation speakers and topics include:
      • Scott Wright – Nationwide property tax developments that impact business
      • Scott Wright – Eastern states update
      • Tim Gustafson – Western states update
      • Nikki Dobay – “Ask the Experts” panel
  • Oregon State Bar
    • On September 22, Nikki Dobay will help present a multistate tax update.

 

The California Legislature adjourned on September 10 and ended the 2021 legislative session without passing any major tax increase bills during the session. Several proposals were under consideration during the early part of the session, but were not revived before adjournment.

In his article for Financial Advisor Magazine, Senior Counsel Eric Coffill describes important tax measures.

A New York Administrative Law Judge recently determined that a taxpayer was liable for income tax as a statutory resident of New York State and New York City for the entire 2014 tax year, as he maintained a permanent place of abode in New York City and was physically present in New York State and City on more than 183 days in 2014. This determination is an important reminder that establishing domicile during a tax year does not preclude the New York State Department of Taxation and Finance from treating a taxpayer as a statutory resident for the entire year.

New York uses two separate tests to determine residency for personal income tax purposes: domicile and statutory residence. In 2014, the taxpayer had a temporary job in New York and rented an apartment in New York City. In December of 2014, however, the taxpayer purchased an apartment in New York City and, at the end of 2014, the taxpayer’s temporary position became permanent. It was uncontested that the taxpayer became a New York domiciliary when he purchased the apartment. But the taxpayer argued that “because he was domiciled in New York upon the purchase of the . . . apartment, he cannot also be a statutory resident because he cannot be a statutory resident in the same tax year that he is domiciled in New York.” The ALJ, however, found that New York’s tax statutes allow a taxpayer to be treated as a statutory resident during the portion of the year when the taxpayer was not domiciled in New York.

Matter of Pilaro and Gorrie, DTA No. 829204 (Aug. 26, 2021).

On September 3, 2021, the United States District Court for the District of Nevada held that streaming video providers were not subject to Nevada localities’ franchise fees. The city of Reno filed a class action lawsuit against two streaming video providers, claiming that they were required to register as video service providers (i.e., obtain a certificate of authority) and pay local franchise fees. A “video service provider” is “any person that provides or offers to provide video service over a video service network to subscribers[.]”  Nev. Rev. Stat. § 711.151(1) (emphasis added).  The term “video service” excludes “[a]ny video content provided solely as part of, and through, a service which enables users to access content, information, electronic mail or other services that are offered via the public Internet.” Nev. Rev. Stat. § 711.141(3)(a).  The court held that the streaming video providers were not “video service providers” because they satisfied this exclusion from “video service.” The court rejected the city’s arguments that the taxpayers did not qualify for the exclusion because: (1) the providers’ video streaming offering must be only a part, rather than the entirety, of the service; and (2) the “public” Internet is no longer public if a fee is charged for its usage.

The court also concluded that local governments do not have a private right of action under the Nevada video service laws to contest that the streaming video providers must obtain certificates of authority to provide video service in Nevada and owe franchise fees to the localities. Rather, the Nevada Attorney General must bring any such claim.

City of Reno, Nevada v. Netflix, Inc. et al., Case No. 3:20-cv-00499-MMD-WGC (D. Nev. Sept. 3, 2021).

On this episode of the SALT Shaker Podcast, host and Eversheds Sutherland Associate Jeremy Gove is joined by Partners Nikki Dobay and Breen Schiller to discuss the history and changing landscape of local taxation, and what that means for multistate taxpayers as well as small businesses.

During their conversation, they discuss the expansion of local taxes as municipalities look to plug budget shortfalls by expanding their tax base by utilizing various strategies previously unseen at the local level, including economic nexus. They also explore the differences between municipalities generally and home-rule jurisdictions.

In part two of their discussion, they will address how local taxes are administered and how taxpayers can deal with local tax disputes.

Questions or comments? Email SALTonline@eversheds-sutherland.com.

 

 

 

 

 

 

 

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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 state recently published an advisory opinion, holding that the electronic transfer of photographs is not taxable because a digital photograph is not considered tangible personal property?

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 September 10, 2021, the California Department of Tax and Fee Administration (the CDTFA) proposed amendments to the CDTFA’s regulations governing drop shipments, in an effort to clarify that marketplace sales are not drop shipments. In October 2019, the California Marketplace Facilitator Act became effective, making marketplace facilitators the seller and retailer for sales facilitated through their marketplace and responsible for collecting and remitting the sales tax. Historically, drop shipments were those sales made by a retailer not engaged in business in California, but who sells tangible personal property to California purchasers through the purchases of the property from a supplier (the drop shipper) who ships the property directly to the California purchaser. The drop shipper engaged in business in California is then reclassified as the “true retailer” and responsible for collecting and remitting tax on the sale. The proposed regulation provides that when a marketplace seller contracts to purchase property from a supplier, and have the supplier (acting similar to a drop shipper) deliver the property directly to the California purchaser, the supplier is not a drop shipper responsible for tax collection and is not considered the “true retailer.” Instead the tax collection remains the responsibility of the marketplace facilitator. The period to provide written comments to the Department regarding this proposed revision ends on October 25, 2021.

On September 15, Eversheds Sutherland Partner Nikki Dobay will participate on a panel during the Association of Washington Business (AWB) 2021 policy summit that will be discussing the Washington’s capital gains tax and the impact it could have on the state. Find out more here.

In addition, Eversheds Sutherland Partner Todd Lard will participate in an industry panel during the 2021 Northeastern States Tax Officials Association (NESTOA) annual conference, responding to states’ questions of interest. You can register and view more information here.

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

On September 9, California AB 1402 was enrolled and presented to Governor Newsom for his signature. The legislation requires marketplace facilitators to register, collect, and remit specified fees administered under the Fee Collection Procedures Law that are imposed upon the retail sale of tangible personal property in the state. Specifically, the legislation requires marketplace facilitators to collect and remit:

  • Lead-Acid Battery Recycling Fees,
  • Lumber Product Assessments,
  • Covered Electronic Waste Recycling Fees, and
  • Tire Fees.

In its final form, the legislation carves-out from the list of fees a marketplace facilitator is required to collect any fee on prepaid mobile telephone services imposed under the Prepaid Mobile Telephony Service Collection Act (Part 21.1).

The legislation treats a marketplace facilitator as the retailer, dealer, or seller for purposes of collecting and remitting any of the specified fees.  The Governor has until September 21 to act on the legislation or it will become law without his signature. The most recent committee analysis on the legislation is available here.