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The California Court of Appeal held that receipts from Nortel’s license of computer programs used to operate a telephone company’s switch hardware were not subject to sales tax. Nortel Networks, Inc. v. State Board of Equalization, Case No. B213415 (2d App. Dist. Jan. 18, 2011). The court also partially invalidated Regulation 1507 on the grounds that the State Board of Equalization (SBE) had exceeded its authority when it enacted the regulation.

The Court of Appeal’s decision provides guidance regarding the scope of exempt Technology Transfer Agreements (TTA), which are defined as “any agreement under which a person who holds a patent or copyright interest assigns or licenses to another person the right to make and sell a product or to use a process that is subject to the patent or copyright.” Cal. Rev. & Tax. Code § 6011(c)(10)(D); 6012(c)(10)(D).Continue Reading California Court of Appeal Switcheroo: Software Constitutes Technology Transfer Agreement

The Securities and Exchange Commission (SEC) has demonstrated an increased scrutiny of tax accounting by issuing two fines in the last seven months. Most recently, the SEC fined a taxpayer $200,000 for failure to have the proper controls in place to ensure accurate accounting related to compliance with states’ sales and use tax laws. As previously reported in the September 2010 issue of the SALT Shaker, the SEC fined a taxpayer for alleged improper accounting related to tax reserve manipulation.Continue Reading SEC Fines Company for Failure to Collect and Remit State Sales Tax

With the last day for introduction of California legislation ending on February 18, a number of significant bills that could potentially affect California businesses snuck into the fray.

The new tax bills include legislation that provides for “clawbacks” and sunsets of tax incentive legislation, disclosure of some recipients of tax incentives, and the ability of local governments to impose personal and corporate income taxes.Continue Reading Last Call – New Tax Bills in Play As Last Day to Introduce California Legislation Passes

Proposing to significantly overhaul Georgia’s tax code, including an interesting attempt to eliminate sales tax exemptions for “Holy Bibles” and Girl Scout Cookies, H.B. 385 was introduced on February 24. The 127-page bill is intended to be revenue neutral and largely mirrors the recommendations of the Special Council on Tax Reform and Fairness for Georgians (the Council) (see Sutherland Legal Alert, January 10, 2011 for detailed coverage of the Council’s report). H.B. 385 would eliminate most sales tax exemptions and subject certain services to tax, reduce or eliminate most income tax credits and personal deductions, phase in lower personal and corporate income tax rates, and implement a communications services tax. The bill, introduced by the Special Joint Committee on Georgia Revenue Structure (the Committee), is expected to be amended while still in Committee, but will then require an up or down vote when introduced to both houses of the Legislature.Continue Reading Get Out Your Dustpan: Georgia Bill Proposes Sweeping Tax Reform

The New York State Department of Taxation and Finance issued an advisory opinion regarding whether three different financial advice services are subject to New York sales and use tax. Section 1105(c)(1) of the New York Tax Law imposes sales tax on receipts from the “furnishing of information” by printed matter, including the collection, compilation, or analysis of information of any kind or nature and furnishing reports on the same. However, the statute excludes from the scope of “furnishing of information”: 

  1. Information that is personal or individual in nature; and 
  2. Information that is not or may not be substantially incorporated into reports furnished to others.

New York courts have further qualified the first criterion by requiring that an information service be “uniquely” personal or individual in nature.Continue Reading New York Issues (Another) Advisory Opinion on Taxability of Financial Advice Services

At both the federal and state levels, the GOP won a number of game-changing races that will impact state and local tax policy in 2011 and beyond.  Of the 37 gubernatorial races held in 2010, Republicans won 23.  All six Republican incumbents won; Republicans defeated Democratic incumbents in two of the seven other incumbent races. …

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: 

  1. The transaction upon which the bad debt deduction is being taken was reported as taxable;
  2. The debt arose from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money; and 
  3. All or a portion of the debt is worthless. Id.

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

The South Dakota Supreme Court appears to have added the South Dakota sales tax to the list of fees associated with automated teller machine (ATM) usage. TRM ATM Corporation v. South Dakota Dep’t. of Rev., 2010 SD 90 (December 8, 2010). In TRM, an Oregon company that owned, operated, sold, leased, and serviced ATM machines was assessed South Dakota sales tax on transaction processing and surcharge fees received from sponsor banks and core-data companies (parties that serve as intermediaries in the ATM transaction by contracting with card-holders’ depository banks to make ATM services available to cardholders). 

While TRM conceded the taxability of its transaction processing and surcharge fees under South Dakota’s sales and use tax laws, TRM claimed it was not liable for payment of the South Dakota sales tax. TRM made two arguments.Continue Reading The Latest ATM Fee, a Sales Tax?

The South Carolina Tax Realignment Commission (TRAC) has released its Final Report, which includes proposed draft legislation to achieve its recommendations. As expected, the recommendations include the expansion of the sales tax base to include “data processing, software delivered over the Internet, and digital products.” In addition, the recommendations include language to expand sales tax…

The Direct Marketing Association (DMA) filed a motion for preliminary injunction in the U.S. District Court for the District of Colorado on August 13 in an effort to stop Colorado from enforcing the recently enacted—and highly controversial—sales tax notice and reporting obligations on remote retailers. Arguing that “affected DMA members will suffer irreparable harm to their businesses” without an injunction, the motion seeks to relieve remote retailers of the burdens of Colorado H.B. 1193 until the substantive issues in the lawsuit are resolved. The parties have attempted to narrow and expedite discovery on the Commerce Clause claims and to consolidate the preliminary injunction proceedings with a trial on the merits on those claims. It appears that the parties agree that resolution of these issues prior to enforcement of the end-of-year reporting requirements is beneficial to both the state and taxpayers.Continue Reading DMA Lawsuit: Twists and Turns Continue