On September 1, Eversheds Sutherland Partner Breen Schiller will participate in an industry panel during the 2021 Midwestern States Association of Tax Administrators (MSATA) annual conference, responding to states’ questions of interest. For more information or to register, click here.

In addition, Eversheds Sutherland Partners Breen Schiller and Eric Tresh will participate in the American Petroleum Institute’s State, Local and Franchise Tax (SLIFT) virtual event on September 2.

The Eversheds Sutherland SALT team has continued to be active in presenting on dynamic, hot topics in state and local tax around the country. We have an ongoing involvement with various tax, state tax and industry-specific organizations and interest groups.

View and learn more about past and upcoming events and presentations.

On August 31, 2021, the Maryland Comptroller filed proposed regulations on the controversial digital advertising gross revenues tax (the DAT) with the Joint Committee on Administrative, Executive, and Legislative Review. Of primary interest to potential DAT taxpayers, and described in this Legal Alert, the regulations adopt a device-based apportionment fraction. The comment period for the proposed regulations runs through November 8, 2021; a public hearing will be scheduled at a later date.

Read the full Legal Alert here.

On August 25, 2021, the New York State Department of Taxation and Finance released guidance (Technical Memorandum, TSB-M-21(1)C, (1)I) addressing the recently enacted optional pass-through entity tax (PTET) that partnerships and New York S corporations may elect to pay for tax years beginning on or after January 1, 2021.

Read the full Legal Alert here.

In an article for Bloomberg Tax, Eversheds Sutherland attorneys Dan Schlueter and Fahad Mithavayani highlight how Hawaii and Texas are the latest states to join the trend to restrict the discoverability of attorney communications with expert witnesses and what it means for state tax litigation.

On August 17, 2021, the Ohio Department of Taxation finalized amendments to its rule governing the determination of resident status for personal income tax purposes. See our prior coverage of the draft (now finalized) rule here. The amendments are intended to modernize the factors to be considered – and to be disregarded – in determining an Ohio taxpayer’s residency status.

Ohio Admin. Code 5703-7-16 (available here).

In this episode of the SALT Shaker Podcast policy series, host and Eversheds Sutherland Partner Nikki Dobay welcomes Dale Craymer, President of the Texas Taxpayers and Research Association (TTARA), as well as Eversheds Sutherland Associate Dennis Jansen for a discussion about all things Texas.

Dale provides an overview of TTARA’s work, as well as how Texas’s legislative session was impacted by COVID-19 and the winter storm. Dale, Nikki and Dennis then discuss accomplishments in the most recent legislative session, including important changes to tax protest procedures, marketplace facilitator legislation, and whether any tax policy will be discussed during the special session. All of these topics are covered before turning to the surprise non-tax question – everyone’s favorite movie!

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.

 

 

 

 

 

Listen now: 

Subscribe for more:

   

Apple recently appealed an Ohio Commercial Activity Tax (CAT) assessment, alleging that the Department of Taxation improperly treated receipts from sales made through its app store as Apple’s receipts for purposes of determining its tax base under the CAT.  Ohio law allows agents to exclude gross receipts (other than commission) from the agent’s CAT base. Apple argues that under this law, Apple acted as an agent in collecting receipts on behalf of the app’s publisher. Thus, Apple’s gross receipts for CAT purposes are only the commission, not the full app price paid that Apple collects on the publisher’s behalf. Apple also asserted that the Department improperly included receipts in its CAT base for sales made to Ohio retail distribution centers or warehouses, which are excluded from the CAT when the item is shipped from the distribution center to a destination outside Ohio.

Effective August 6, 2021, Illinois amended its unclaimed property law to include cryptocurrency. SB 338, Public Act 102-0288, was approved by the Governor and became law the same day. Under the unclaimed property law, “virtual currency” is presumed unclaimed after 5 years of no indication of interest by the apparent property owner. The new law amends the definition of “virtual currency” to specifically include “cryptocurrency” or “a form of digitally stored value, which does not have legal tender status recognized by the United States.” Once virtual currency is abandoned, the holder must liquidate the virtual currency and turn it over to the administrator. However, the virtual currency owner has no recourse to recover any gain in value against the holder who liquidated the virtual currency.

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 member of the Multistate Tax Commission recently joined Eversheds Sutherland Partner Nikki Dobay for an episode of the SALT Shaker Podcast policy series?

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 Texas Comptroller of Public Accounts held its annual meeting on August 17 and provided taxpayers with updates regarding legislation, audit procedures, staffing, and other related topics. The meeting, which was held virtually, struck a positive tone regarding Texas’ fiscal outlook and taxpayer-friendly procedural changes.

Audit updates: hope in sight for staffing shortages and the R&D backlog

Audit Director Emma Fuentes provided an update regarding the state of the Comptroller’s audit division. Fuentes said that although the Comptroller’s auditors are partially working remotely due to the pandemic, in-person field visits and appointments have resumed. Audits are being generated at pre-pandemic rates for all industries and the Comptroller is no longer offering automatic extensions of time to respond to redetermination notices.

Texas’ controversial research and development credit audits are no longer on hold, but the audit division is working through a backlog of roughly 1,200 assignments related to approximately 450 taxpayers. The Comptroller’s audits of research and development credits have drawn criticism from the taxpayer community because Texas claims to have a higher burden of proof for these credits than R&D credits offered by other states and the federal government. The Texas Comptroller also does not automatically accept IRS sampling methods or audit findings regarding research and development credit documentation, creating unpleasant surprises and increased costs to substantiate credit amounts.

Fuentes said that the Comptroller recently hired new auditors to assist with the massive R&D credit backlog, but estimates that it is roughly 120 auditors short of being fully staffed.

New tax protest options and a push toward settling tax disputes

This year the Comptroller dedicated an entire annual update session to new legislation changing Texas’ tax protest procedures. H.B. 2080 eliminated the state’s “pay-to-play” rule for taxpayers to file tax protest lawsuits in district court. Now, a taxpayer can file in district court without first paying a disputed tax assessment. This law change came amid uncertainty regarding whether the state’s prior pay-to-play rules violated the Texas constitution’s open courts guarantees.

Another bill, S.B. 903, allows a taxpayer claiming a tax refund to file with the Comptroller a notice of intent to bypass a tax refund hearing. The notice of intent must:

  • be filed within 60 days after the comptroller denied the claim;
  • be in writing;
  • assert the material facts and each specific legal basis on which a refund was claimed; and
  • specify the amount of the refund claimed.

Additionally, the Comptroller can force a taxpayer to participate in a conference to clarify the issues contained in the taxpayer’s claim.

Associate Deputy Comptroller Karey Barton said administrative hearings remain an attractive option for taxpayers who do not want the expense and hazards of litigation associated with a district court lawsuit.  The total number of active hearings at the Comptroller’s office has dropped during the pandemic, but Barton attributes this to an internal process that identifies taxpayers’ redetermination petitions for settlement prior to hearings.

Sarah Pai, Senior Counsel for Tax Compliance, said that the Comptroller’s office is supportive of these taxpayer-friendly law changes because it frees up the Comptroller to dedicate more resources to taxability questions versus time-intensive procedural issues.

Legislative and rulemaking updates: booze, ATVs, and sourcing disputes

Comptroller staff detailed a variety of new rules implementing recently-passed tax legislation.

  • Marketplace providers: The Comptroller amended several rules to implement S.B. 477, which requires marketplace providers to collect taxes and fees (in addition to Texas sales and use tax) that may apply to marketplace sales (such as wireless 911 fees and lead-acid battery fees). The bill also allows marketplace providers to accept resale certificates for sales of event tickets and clarifies that marketplace providers are not eligible to claim the occasional sale exemption.
  • Data processing: Amendments to Rule 3.330 implement changes in S.B. 153 that “clarify” an existing Comptroller policy regarding the exemption of payment processors from Texas’ sales tax for data processing services. Notably, the bill states that exempt services involving “settling of an electronic payment transaction” do not include charges by a marketplace provider.
  • Insurance services: H.B. 1445 and amended Rule 3.355 provide that medical and dental billing services performed prior to an insurance claim submission are not taxable “insurance services.” The Comptroller stated that it will enforce the rule immediately, rather than the Jan. 1, 2022 effective date. This legislation was enacted in response to the Comptroller’s shifting position on the taxability of medical-related insurance services.
  • Pets: Acknowledging the number of pandemic-related pet adoptions, amendments to Rule 3.316 expands the types of organizations that are eligible to make tax-exempt adoptions of animals.
  • Booze: Texas residents were most excited about H.B. 1024, which made pandemic-related alcohol-to-go rules permanent. The law also fixed some quirks with pandemic rules, such as mixed-beverage taxes only applying to permit holders for on premise consumption, rather than off-premise consumption. H.B. 1755 similarly allows customers to take home unopened bottles of wine – prior to the amendment to-go alcohol was limited to opened bottles.
  • Energy bills: Generally, taxpayers without a sales and use tax permit were required to procure a right-of-assignment form from a vendor to obtain a sales tax refund. S.B. 833 created an exception for oil and gas producers that report severance tax but are otherwise non-permitted taxpayers. Because producers purchase a significant quantity of goods and services from a variety of vendors and assignment forms must be executed by a corporate officer for each vendor, the refund assignment requirement resulted in a cumbersome and inefficient process for all parties involved. Additionally several bills (H.B. 1520, S.B. 1580, and H.B. 4492) provide exemptions to help Texas energy producers impacted by the state’s historic winter storm.
  • Resale and exemption certificates: S.B. 296 and amended Rule 3.282 allows taxpayers to take an extra 30 days to provide resale and exemption certificates during audits. The Comptroller noted that a best practice is to obtain these certificates at the time of sale.
  • ATVs: The Texas Comptroller noted that a number of Texans are scooting into nearby states to purchase ATVs. S.B. 586 is a clean-up bill that expands use tax reporting requirements from ATV manufacturers to ATV distributers that have begun voluntarily registering in Texas and remitting use tax on behalf of their Texas customers.

Finally, Associate Deputy Comptroller Karey Barton noted that several Texas cities have filed lawsuits challenging Comptroller Rule 3.334, which changes the sourcing of sales tax imposed on online purchases to the destination  (i.e., buyer’s location) instead of the origin (i.e., seller’s place of business). Barton indicated the Comptroller intends to defend the rule.

Fiscal outlook: Texas sees green

In July 2020, the Texas Comptroller’s Certification Revenue Estimate projected a $4.58 billion deficit for the 2020-21 biennium. The Comptroller now projects a $7.85 billion surplus, which also has yet to appropriate $16 billion from the American Rescue Plan. Additionally, the state’s “rainy day” fund balance is projected to be approximately $12 billion by the end of the next biennium, showing that the Lone Star State is not hurting for cash.