Shaking things up in state and local tax
Shaking things up in state and local tax
By Saabir Kapoor and Timothy Gustafson
Texas has clarified the Comptroller’s authority to disregard certain retail business locations in determining the situs of a sale for local sales tax purposes. Current law requires retailers to collect and remit local sales tax based on the ship-from location on all delivery sales of taxable items that are…
Retailers and banks continue to get whipsawed on sales tax bad debt deductions where a retailer provides a private label credit card program in conjunction with a third party bank. The Kentucky Board of Tax Appeals ruled that a retailer was not entitled to a bad debt deduction because it was not the party that…
The Texas Supreme Court upheld the imposition of the franchise tax (often referred to as the Texas Margins Tax) under both the Texas and United States Constitutions. In Re Nestle USA, Inc., No. 12-0518 (Tex. 2012) (opinion delivered Oct. 19, 2012).
Nestle argued that the imposition of the franchise tax was unconstitutional, both facially and as applied. In Texas, the franchise tax rate is 1%, except for those taxpayers “primarily engaged in a wholesale or retail trade,” for whom the rate is 0.5%. Nestle was engaged only in wholesale and retailing activities in Texas, but because it was engaged in manufacturing outside of Texas, it was subject to the 1% franchise tax rate rather than the lower wholesale/retail rate. Specifically, Nestle argued that the differential rate based on the wholesale/retail classification was unconstitutional under the Equal and Uniform Clause of the Texas Constitution and the Equal Protection, Due Process, and Commerce Clauses of the United States Constitution because the tax lacked a reasonable relationship with actual business in Texas and because of the fact that the tax is higher for those with a manufacturing business outside of Texas.Continue Reading That’s the Way the Cookie Crumbles: Nestle Loses Its Battle on the Constitutionality of the Texas Franchise Tax
On cross motions for summary judgment, the Minnesota Tax Court held the activities of an out-of-state watch and jewelry distributor (Taxpayer) went beyond mere solicitation of orders for tangible goods in the state of Minnesota and established sufficient nexus to impose Minnesota’s corporate franchise tax. Skagen Designs Ltd. v. Comm’r of Revenue, Minn. Tax. Ct., No. 8168-R (Apr. 23, 2012). The Taxpayer employed two types of employees in Minnesota, sales representatives and merchandisers (Merchandisers). The application of Public Law 86-272 to the Merchandisers’ activities, including completing weekly reports, maintaining product floor maps, holding product training sessions and inspecting display cases, were at issue before the court.Continue Reading Time to Pay Up: Public Law 86-272 Does Not Protect Watch Distributor’s Merchandising Activities
The New Mexico Court of Appeals held that for purposes of imposing the state’s gross receipts tax, Barnes & Noble Booksellers, Inc.’s (Booksellers) in-state activities may be imputed to an out-of-state retailer (Taxpayer) based on the use of common Barnes & Noble trademarks. New Mexico Tax. & Revenue Dep’t v. Barnesandnoble.com LLC, No. 31, 231 (N.M. Ct. App. Apr. 18, 2012). Notably, Booksellers undertook no physical activities on behalf of the Taxpayer that would independently satisfy the physical presence standard established in Quill. However, according to the court, the goodwill generated by Booksellers’ use of the same Barnes & Noble trademarks helped the Taxpayer establish and maintain a market in the state, thereby creating substantial nexus that is the “functional equivalent” of physical presence under Quill.Continue Reading “Functional Equivalent” Nexus: When Goodwill Goes Bad in New Mexico
With all the drama and suspense of a Hollywood movie, California Governor Jerry Brown signed AB X1 28 on June 29—more than two weeks after the bill originally passed the California legislature. AB X1 28 has been controversial because it significantly expands California’s sales and use tax collection requirements by substantially incorporating all of the provisions of former AB 153 (click-through nexus), AB 155 (affiliate nexus), and SB 234 (constitutional nexus). Together, these changes combine California’s recent efforts to force remote sellers to collect California sales tax. To further complicate matters, AB X1 28 provides that these changes become effective immediately.
AB X1 28 amends California’s definition of “retailer engaged in business” for sales and use tax collection purposes, as set forth in Cal. Rev. & Tax Code § 6203, to include three new groups of “retailers” as follows.Continue Reading Nexus Explosion: California Governor Signs Bill Expanding California Sales Tax Collection Requirements
The Arizona Superior Court denied Home Depot a bad debt deduction related to customer credit card transactions. Home Depot USA Inc. v. Arizona Department of Revenue, TX 2006-000028 (Dec. 10, 2010). The court reviewed three conditions that must be met under Arizona law in order for a bad debt to be deducted:
In determining whether Home Depot could claim the deduction associated with its private label credit card transactions, the court relied on a decision of the Arizona Appeals Court and interpreted the first and second conditions as limited only to those persons who made the sale and originally reported the tax. Id. (DaimlerChrysler Services North America, LLC v. Arizona Dep’t. of Revenue, 210 Ariz. 297, 302 (Ariz. App. 2005)). While Home Depot made the sales and reported the tax, it did not incur the bad debt directly. The finance company paid Home Depot the amount of each transaction, less a negotiated percentage that included the overall cost of bad debt for all transactions.Continue Reading Retailers, Finance Companies and Sales Tax Refunds on Bad Debt – Heads I Win, Tails You Lose
