The Texas Comptroller ruled that the purchase of a battery system did not qualify for the manufacturing exemption from Texas sales and use taxes because it was used to store electricity, not manufacture it. The taxpayer operated a wind farm and began a project to participate in the Electric Reliability Council of Texas’ Fast-Responding Regulation Service (FRRS). Each participant in the FRRS was required to make energy available on demand. To do this, the taxpayer needed a battery system, which could store and maintain the electricity so it would be available and ready for distribution.

The taxpayer argued that its purchase of the battery system qualified for the manufacturing exemption – which is available for items directly used or consumed during manufacturing of tangible personal property (such as electricity) if the use or consumption is necessary for the manufacturing operation and makes or causes a chemical or physical change to the property being manufactured. The taxpayer argued that the exemption applied because the energy underwent a chemical change when the battery converted the direct current energy from the wind farm from electrical energy to chemical energy and, upon discharge, converted the chemical energy to direct current electrical energy. However, the Comptroller disagreed and ruled that the chemical change was done for storing manufactured electricity, not to manufacture electricity, and the manufacturing exemption specifically excludes property used to maintain or store tangible personal property.


Texas Private Letter Ruling No. 20180110142309 (Aug. 14, 2018).

The Texas Comptroller ruled that a taxpayer, which provided education and networking services for the property management industry, was not providing “information services,” but rather a non-taxable service. Taxable information services involve “furnishing general or specialized news or other current information” or “electronic data retrieval or research.” Tex. Tax Code § 151.0101(a)(10), 151.0038; Texas Rule 3.342(a)(6). Here, the taxpayer’s online courses were interactive, involved an instructor and contained tools for student assessments. Because the taxpayer provided student instruction and assessment tools, the Comptroller concluded that the education and networking services were not information services or any other taxable service. Tex. Comptroller of Pub. Accts., Comptroller’s Letter No. 2017010109, Accession No. 201809007R (Sept. 11, 2018).

The Missouri Court of Appeals affirmed a lower court’s finding that Tracfone Wireless was a “home service provider” under the Mobile Telecommunications Sourcing Act and owed the City of Springfield unpaid gross receipts license taxes. Tracfone argued that since it was not authorized to provide commercial mobile radio services in Missouri, it had no licensed service area. Accordingly, Tracfone argued that the City of Springfield cannot encompass a licensed service area upon which Tracfone was taxable. However, at oral argument, Tracfone admitted to being subject to the tax, but not on the basis used by the lower court. The Court of Appeals held that it is primarily concerned with the correctness of the result, not the route taken to reach it. In determining the amount of tax due, the Court of Appeals disagreed with the city’s contention that it should be based on activation zip code and upheld the lower court’s calculation based on customers’ credit card billing addresses within Springfield.


Full cite: Tracfone Wireless Inc. v. City of Springfield, Nos. SD34937 and SD34948 consolidated (Mo. Ct. App. filed July 17, 2018).

The Oregon Tax Court held that the state was not constitutionally prohibited from imposing its statewide 911 tax on an out-of-state VOIP service provider with no physical presence in the state. The court held that the 911 tax was not a sales or use tax because it was not measured by sales price (rather it was a fixed fee) or imposed on the purchase or sale of telecommunication services (rather on those who have access to the 911 system through such services). Accordingly, the 911 tax was not a tax controlled by the Quill physical presence standard for Commerce Clause purposes. Instead, the court found that the taxpayer’s regular sales of telecommunication devices and services directly to Oregon residents constituted sufficient purposeful availment (Due Process) and substantial nexus with the state (Commerce Clause) to satisfy both constitutional standards. In finding that the tax did not create an undue burden on interstate commerce, the court found that the taxpayer did not show that the tax created a “welter of complicated obligations” similar to the sales and use taxes in Bellas Hess and QuillOoma Inc. v. Dep’t of Revenue, No. TC-MD 160375G (Or. Tax Ct. Apr. 13, 2018).

By Mike Le and Tim Gustafson 

On December 8, 2017, the Alabama Supreme Court issued an order without opinion in Thomas v. Elbow River Marketing Ltd. Partnership, affirming a lower court’s decision that a Canada-based seller of hydrocarbon products did not engage in or carry on a business in the City of Birmingham and thus was not subject to the city’s business license tax. The taxpayer had no physical operations, place of business, employees, agents or representatives in the city. Further, the taxpayer did not solicit sales or otherwise conduct sales or advertising activities in the city. Its only contact with the city consisted of sales of hydrocarbon products to two Alabama-based customers. The products were delivered into the city by third-party rail or trucking carriers, and the taxpayer retained title to some of the products while in the possession of the carriers. The lower court concluded, and the Alabama Supreme Court agreed, that under Alabama law, a product seller cannot be subjected to the city’s business license tax if it does nothing more than deliver its goods into the city by common carrier. Thomas v. Elbow River Marketing Ltd. Partnership, No. 1160678 (Ala. Dec. 8, 2017).

By Maria Todorova and Suzanne Palms

The Washington Court of Appeals recently held that Seattle could not impose a utility tax on revenue derived from international roaming charges (charges for mobile telephone communications that originate in a foreign country). City of Seattle v. T-Mobile West Corp., No. 75423-8-1 (Wash. Ct. App. May 22, 2017). Washington law grants cities the authority to tax revenue derived from “intrastate toll telephone services” (services that incur a fee and that originate and terminate within the same state). See RCW 35.21.714(1). The Court of Appeals found that because roaming charges involve communications originating in a foreign country, they are not derived from intrastate telephone services, and are therefore exempt from the City’s utility tax. The appellate court further held that the City’s reliance on the federal Mobile Telecommunications Sourcing Act (MTSA) conflated the sourcing of roaming revenue—which is governed under the MTSA—with the taxability of that revenue in the first place—which is governed under state law.

By Charles Capouet and Tim Gustafson

On June 15, 2017, the Maine Supreme Judicial Court held that property tax recovery charges and carrier cost recovery charges imposed by a telecommunications service provider of long distance telephone service on its customers were not subject to service provider tax for the tax years 2008 – 2010. The charges were calculated with reference to revenue from interstate and international telecommunications services and were not collected from customers with only intrastate services. 

As a preliminary matter, the court held that the charges were included within the “sale price” of telecommunications services. Prior to July 18, 2008, Maine excluded the sale price of interstate and international telecommunications services from taxation. Because the charges were only included in the sale price of interstate and international telecommunications services, the charges were also excluded from taxation. Beginning July 18, 2008, Maine instead exempted from service provider tax the “sales of” interstate and international telecommunications services. The court held that the term “sale” is “broader than and inclusive of the price.” Thus, any charge that is part of the sale price of interstate or international services is also part of the sales of those services. As a result, the charges were part of the sales of exempt interstate and international telecommunications services and exempt from service provider tax under the amended statute as well. State Tax Assessor v. MCI Commc’ns Servs., Inc., Dkt. No. Ken-16-358 (Me. June 15, 2017).

By Alla Raykin and Jonathan Feldman

In an Advisory Opinion, the New York Department of Taxation and Finance concluded that fees paid to a social club by non-members for certain activities (tennis lessons, children’s camp, basketball court use, etc.) are not subject to tax, although membership fees that provide access to the same activities are subject to tax. Membership fees are taxable under New York Tax Law § 1105(f) because members purchase ownership of the club, not directly for activities. However, the Opinion determined that the fees paid by non-members directly for specific activities would be taxable only if the nature of the activity or service was taxable. The Opinion then separately analyzed the activities in question and determined whether they themselves were taxable. TSB-A-17(5)S (NY Dep’t of Taxation & Finance Mar. 3, 2017).

By Open Weaver Banks and Liz Cha

The Arizona Department of Revenue (Department) issued a taxpayer information ruling stating that a taxpayer’s gross income from transactions provided through the use of computer software is not subject to tax under the personal property rental classification for Arizona Transaction Privilege Tax purposes. 

The taxpayer’s software provides its customers with subscription billing and reoccurring payment provider services through a web-based portal. The taxpayer charges its client a percentage of successful billing transactions made during a particular time period. If a client violates the payment agreement with the taxpayer, the taxpayer will discontinue provision of its payment processing services and disable access to its software and web-based portal.

Under Arizona case law, software is treated as tangible personal property. The Arizona Transaction Privilege Tax generally subjects tangible personal property to tax when a taxpayer grants its customer the right to the tangible personal property for a perpetual duration (i.e., a sale) or for a fixed period of time at a fixed amount (i.e, a rental). The Department determined that the taxpayer’s activities would not be considered retail sales because the taxpayer’s billing practices were based on (1) a periodic fee and (2) the taxpayer could discontinue service if the customer failed to pay. With regard to whether the taxpayer’s services constituted a rental, the Department relied on Arizona precedent that taxpayer’s customers must gain sufficient control and use of software to constitute the rental of tangible personal property. In this case, the taxpayer’s customers lacked sufficient control of the software because both the taxpayer and customer used the software and the taxpayer updated information on the portal either manually or automatically so that the clients could view the status of payments processed and other analytical information. Accordingly, the Department determined that gross income from taxpayer’s software services was not a taxable activity under the Arizona Transaction Privilege Tax.

Arizona Taxpayer Information Ruling LR 16-011, Arizona Department of Revenue (September 23, 2016).

By Samantha Trencs and Eric Tresh

The New York State Department of Taxation and Finance issued an advisory opinion concluding that a detailed report of customer behavior that includes both client-specific and industry-related information is a service subject to sales and use tax. Tax Law § 1105(c)(1) imposes sales and use tax on information services; however, the tax is not imposed on information that is personal or individual in nature which cannot be substantially incorporated in reports furnished to other persons. The Department determined that the personal or individual information exclusion did not apply in this case because a portion of the information in the client reports came from public sources that could be utilized in other reports for similarly situated clients and thus was not personal or individual in nature. The Department further determined that the non-personal information included in the client reports was not de minimis. Without the use of the non-personal information about a client’s particular industry, a comparison of the client’s performance relative to its competitors would not be possible. TSB-A-16(33)S. The advisory opinion is consistent with the Department’s expansive interpretation of sales tax on information services.