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The New York State Department of Taxation and Finance (Department) issued a pair of advisory opinions regarding the sales taxability of consulting services and software. New York’s Tax Law generally imposes sales and use tax on receipts for furnishing information services. N.Y. Tax Law § 1105(c)(1). However, in both advisory opinions, the primary transactions were not subject to New York sales tax because they were within the exception for personalized information services and information services provided orally. See 20 NYCRR § 527.3(b)(2) & (3).Continue Reading Software in Conjunction with Information Services: What’s Your Function?

In two reletter rulings, the Texas Comptroller’s office evaluated the sales and use taxability of certain unique web-based services. In Tex. Policy Letter Ruling 201207531L (July 31, 2012), the Comptroller’s office ruled that Internet marketplace listing fees were not subject to Texas sales and use tax; however, the provision of webstore development services were taxable data processing services.Continue Reading The Lone Star State Swings the Lasso Around E-Commerce Services

On March 22, 2012, Utah Governor Gary Herbert signed House Bill 384 (2012) into law, expanding the types of companies that are required to collect and remit Utah sales and use tax. HB 384 requires sellers that hold “substantial ownership interests” in certain “related sellers” to collect and remit Utah sales and use tax. Today, the Utah State Tax Commission released guidance on how to determine whether a business entity’s activities trigger the state’s new affiliate nexus law. The new nexus regulations go into effect on July 1, 2012.

The new affiliate nexus law, Utah Code Ann. § 59-12-107(2)(b), treats a seller as if it is selling tangible personal property, a service, or a product transferred electronically for use in Utah and will be required to collect and remit sales and use taxes if:Continue Reading Utah Quietly Expands Affiliate Nexus Statute

Iowa and Kansas recently issued rulings regarding the taxability of cloud-based software applications and online training services. While the conclusions reached by both states—that the services are not taxable—are generally the same, the reasoning relied upon by each department of revenue illustrates the ongoing uncertainty of applying state sales and use tax laws to cloud computing services.

The Iowa Department of Revenue (IDOR) looked to the state’s statutory authority and acknowledged that the taxability of “cloud computing has not been expressly addressed by the Iowa Code.” Nonetheless, the IDOR determined that the sale of hosted software is not taxable because the Iowa Code provides that a “taxable ‘sale’ of tangible personal property does not occur if the substance of the transaction is delivered to the purchaser digitally, electronically, or by utilizing cable, radio waves, microwaves, satellites, or fiber optics.” I.C. § 423.3(67). Likewise, the IDOR considered web-based training to be nontaxable because “software training” is not an enumerated service under the Iowa Code.Continue Reading Iowa and Kansas: Remote Access to Software is Not Taxable . . . Or Is It?

Businesses that sell video games and related content online and by remote access have been pondering an essential sales and use taxability question: What is the proper characterization of the goods and services being sold? Although downloaded video games have long been thought to be a form of prewritten computer software, businesses that sell related subscription services, virtual goods, and virtual currencies have enjoyed much less tax certainty.

Two states have weighed in on this issue in recent months. Kansas and Missouri issued letter rulings addressing the tax issues that arise in the gaming environment. Although the states’ guidance is not entirely consistent, gaming companies may welcome any move toward improved tax clarity in the virtual gaming business.Continue Reading Virtual Chaos: Two States Log In to the Online Gaming Arena

The District of Columbia passed—subject to congressional oversight—tax legislation that ultimately may affect sales and use tax nexus standards throughout the United States. The District of Columbia’s Main Street Tax Fairness Act, which is part of its fiscal 2012 budget, authorizes the District to enforce sales tax on non-physically present sellers under certain circumstances.

The U.S. Supreme Court reversed a U.S. Court of Appeals in holding that a railroad may bring suit to challenge the validity of a discriminatory Alabama sales tax exemption. CSX Transp., Inc. v. Ala. Dep’t of Revenue, No. 09-520, 2011 WL 588790 (U.S. Feb. 22, 2011). Alabama imposes its sales and use tax on the use of diesel fuel for off-road use, including fuel used by railroads, but provides exemptions for fuel used by railroads’ direct competitors, commercial truckers and interstate water carriers. CSX sued to challenge the discriminatory scheme under the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act).Continue Reading Discrimination Train Has Left the Station: U.S. Supreme Court Remands Alabama Railroad Case