The Virginia Tax Commissioner determined that a taxpayer’s gross receipts from refueling services performed under government contracts at U.S. military installations in a foreign country were properly sourced to its place of performance abroad, concluding that the totality of the circumstances established that the taxpayer had a “definite place of business” at those foreign locations for purposes of the county-imposed Business, Professional, and Occupational License Tax (BPOL).

Although the Tax Commissioner referenced a 2021 ruling in which the Department had previously stated that “activities must be performed by employees, not independent contractors, in order to establish a definite place of business for the employer,” the Tax Commissioner suggested that worker classification may not be determinative where a taxpayer does not rely solely on the activities of its workers as establishing a definite place of business.  Ultimately, the Tax Commissioner determined that the taxpayer’s workers were properly classified as employees, rendering the issue moot.

The Tax Commissioner further emphasized the need for reasonableness in resolving complex BPOL matters, advocating for business operations to be analyzed on a fundamental level and for “reasonable conclusions” to be drawn. What the Tax Commissioner found would be unreasonable—and arguably unconstitutional under principles of fair apportionment – would be the Virginia county’s taxation of 100 percent of the taxpayer’s gross receipts based solely on its Virginia headquarters, where the taxpayer was compensated only for services actually performed in the foreign country.

Virginia Public Document Ruling No. 25 -112

Meet Kali, the sweet and silly Frenchie bringing joy to the home of Partner Michele Borens! Kali is a five‑year‑old French Bulldog. While she may be small in stature, she’s already made a big impression in the Borens household. She joined Michele’s family just five months ago after being surrendered to a rescue organization. She arrived with her name already chosen – and it fit her perfectly, so it stayed.

Since settling in, Kali has proven to be a cuddly, affectionate companion who lights up for treats, toys, car rides, and, of course, snuggle time.

She’s especially proud of her “babies” – her toys – which she loves to parade around the house like prized treasures. She has also become fast friends with her Frenchie sister Frankie, the two of them romping and playing as if they’ve been together forever. Their other Frenchie sister, Ollie, is still evaluating whether Kali can stay… but signs point to yes.

We’re so happy to feature Kali as our February SALT Pet of the Month. Welcome to the family, Kali!

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Under Kansas’ proposed H.B. 2631, how much of a home’s appraised value would be exempt from school property tax starting in 2027?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

In this episode of the SALT Shaker Podcast, Partners Jeremy Gove and Chelsea Marmor break down a recent New York Appellate Division decision addressing a longstanding question in New York: Is providing a license to software always the sale of software?

Jeremy and Chelsea unpack the Appellate Division’s answer to that question in Beeline, who offered its customers a license to taxable prewritten software and nontaxable professional services. Applying New York’s primary function test, and relying on the extensive record developed below, the court concluded that the transaction’s objective was the taxable sale of software rather than nontaxable professional services.

This week’s overrated/underrated question takes on a fun one: birthdays. Are they overrated or underrated?

For questions or comments, email SALTonline@eversheds-sutherland.com. Subscribe to receive regular updates hosted on the SALT Shaker blog.

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On January 26, 2026, SB 277 was introduced on behalf of Alaska’s Governor. This bill would, among other things, enact a temporary statewide sales and use tax on personal property and services. Currently, Alaska is one of five states (along with Delaware, Montana, New Hampshire, and Oregon) that do not impose a broad-based state sales tax (note that some Alaska localities currently impose a sales tax). If enacted, SB 277 will impose a sales tax and also change other Alaska tax provisions, including adopting the following changes to its corporate income tax: implementing market-based sourcing, expanding the scope of income apportionable to Alaska, and phasing out the corporate income tax by 2031.

State-level sales tax

The state-level regime proposed by SB 277 generally resembles most other states’ sales and use tax structures – with one very notable exception mentioned below. For example, SB 277 adopts a Wayfair economic nexus threshold: a remote seller would be required to register, collect, and remit the state sales tax if it has Alaska gross revenues from goods and services of more than $100,000 during the current or immediately preceding calendar year. Accordingly, a remote seller would calculate its proposed nexus threshold by including not only taxable retail sales sourced to Alaska, but also tax-exempt sales including resales and other non-taxable transactions. A marketplace facilitator that meets the $100,000 economic nexus threshold must also register, collect, and remit tax on taxable sales made through the marketplace.[1] However, a seller that makes sales “exclusively” through a registered marketplace facilitator is not required to register, collect, or remit the tax.

SB 277 imposes a highly unusual tax rate structure. Unlike all other states that impose a single, general tax rate, Alaska sales and use tax rates vary depending on the time of the year[2]:

  • 4% from April 1 through September 30, and
  • 2% from October 1 through March 31.

The tax rate would change to 0% on January 1, 2034. The higher tax rate is intended to hit the influx of Alaska summertime tourists. 

As noted, SB 277’s sales and use tax would be imposed on personal property and services.  “Personal property” is broadly defined to mean property that is perceptible to the senses and explicitly includes, among other things, electricity, Internet services, electronic or digital goods, and prewritten computer software. The term “Internet services” is not defined but as noted below, the sale of Internet access is exempt (presumably to comply with the Internet Tax Freedom Act). The term (and the tax) excludes real property and intangible property. And “services” generally means an activity engaged in for another person for consideration. While the “services” definition includes examples of taxable services (e.g., professional services, cable subscriptions, and telephone or other communications services), the definition is not limited to those examples. Of note, “services” includes “the use of a computer, computer time, a computer system, a computer program, a computer network, or any part of a computer system or network,” which would likely include SaaS, PaaS, and other remote access software models.

The bill provides for several common sales exemptions, such as sales for resales, Internet access, isolated or occasional sales, and food – but with notable deviations. For example, the resale exemption applies to the resale of personal property – but not resale services. Likewise, SB 277 limits “isolated or occasional sales” to “fundraising activities conducted by a nonprofit organization that do not exceed 60 consecutive days in duration.” Finally, the exemption for food only applies to purchases made with subsidized federal government resources like WIC or SNAP. Thus, all other food purchases (whether groceries or prepared food from a restaurant) would be subject to the tax.

Under the bill, the Alaska Department of Revenue is authorized, but not required, to enter into the Streamlined Sales and Use Tax Agreement, or a substantially similar agreement. Ironically, however, Alaska would have to make several changes to its sales and use tax law, as currently drafted in SB 277, to comply with the Agreement. For example, the proposed rate structure and “personal property” definition, among other things, would not substantially comply with the terms of the Agreement.

SB 277 also makes changes to Alaska local sales and use tax. The bill specifically makes a local sales and use tax subject to “exemptions, definitions, sourcing rules, and regulations” under the state sales and use tax. This means that, for example, localities could no longer determine which sales are exempt from their local sales and use tax. SB 277 also requires that all local sales and use taxes “shall be administered and collected by the state[.]”

Lastly, SB 277 only goes into effect if HB 274 (amending the legislative audit powers), HB 275 (relating to changes to the permanent fund dividend calculation), and HJR 30 (proposing constitutional amendments to the Alaska Permanent Fund) or such similar bill/resolution is enacted into law this year. The sales tax would go into effect 12 months after enactment, assuming all of the other requirements are satisfied.

Corporate income tax changes

On January 22, 2026, the Alaska Legislature failed to override the Governor’s veto of SB 113 from late last year. SB 113 would have adopted market-based sourcing and created an apportionment method for “highly digitized businesses” based on a single-sales factor. The Governor vetoed SB 113 because he was unwilling to approve any tax measure that was not part of a comprehensive, long-term plan intended to balance revenue and expenses.

SB 277 also adopts market-based sourcing but does not create a special apportionment method for “highly digitized businesses.” The bill also expands the scope of income apportionable to Alaska by including income arising from tangible and intangible property if the employment or development of the property is or was related to the operation of the taxpayer’s trade or business.

Currently, Alaska has a graduated corporate income tax rate that tops out at 9.4% for taxable income over $222,000.[3] SB 277 would permanently reduce the corporate income tax rate to 0% beginning January 1, 2031 (i.e., there would be no phasedown of the rate).

The Eversheds Sutherland SALT Team will monitor the progress of SB 277 throughout the legislative process.

[1] SB 277 defines “marketplace facilitator” as “a person that contracts with sellers to facilitate the sale of the seller’s product through a physical or electronic marketplace operated by the person and collects the payment from the purchaser.”

[2] Some states do have varying tax rates for other classifications. For example, Hawaii’s version of the sales tax (the general excise tax), has a general rate of 4% but also has a reduced rate of 0.5% for certain services (e.g., wholesaling and manufacturing). Haw. Rev. Stat. § 237-13. In 2025, Maryland enacted a legislation to expand the definition of services to include certain data services, information technology services, and other similar services but only imposed a tax rate of 3% or half the general sales and use tax rate. Md. Code, Tax-Gen. § 11-104(l)(1). While Connecticut only imposes a 1% rate on computer and data processing services. Conn. Gen. Stat. § 12-408(1)(D).

[3] Alaska Stat. § 43.20.011(e).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Alabama House lawmakers recently passed a bill that would create a tax credit program for the donation of what food byproduct?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Wisconsin Court of Appeals upheld a sales tax assessment against StubHub for the sale of tickets made through StubHub’s online marketplace. Between 2008 and 2013, more than $150 million tickets sales occurred between ticketholders and ticket buyers on StubHub’s platform for events that took place in Wisconsin. StubHub earned revenue from listing fees and commissions when a ticket sold through the platform. The Wisconsin appellate court determined that StubHub was a “seller” subject to sales tax because StubHub “effected the actual transfer” of the tickets sold on its website in exchange for payment. The court also rejected StubHub’s argument that a 2019 amendment to Wisconsin’s sale tax statute to specifically subject “marketplace provider” and “marketplace seller” to the tax meant StubHub was not subject to tax under the prior law because the court found the amendment merely clarified the law to end ongoing controversy and noncompliance.

Additionally, Court of Appeals upheld the imposition of a 25% negligence penalty on StubHub for failure to file and pay the sales tax. Specifically, the court looked to a Wisconsin Tax Bulletin from 2011 that provided guidance on how the sales and use tax applied to admissions, including an example on online “ticket brokers.” The court concluded that StubHub’s decision to ignore the guidance amounted to willful neglect.

StubHub, Inc. v. Wisc. Dep’t of Rev., Appeal No. 2024AP455; Cir. Ct. No. 2023CV665 (Wis. Ct. App. Jan 13, 2026).

The Wisconsin Tax Appeals Commission held that a taxpayer could not look through an intermediary and source receipts to the location of software use by end-users.

The taxpayer created database management system software to be used by the software developers. Epic Systems Corporation (Epic), a Wisconsin-based software developer, created and licensed software used in the healthcare community. The taxpayer’s agreement with Epic granted Epic the right to use taxpayer’s database software in developing Epic’s own software. The taxpayer’s database software was used in conjunction with Epic’s healthcare software.

The parties agreed that amounts Epic paid to the taxpayer for Epic’s use of the internal development licenses should be sourced to Wisconsin, but the dispute related to amounts paid to the taxpayer that were generated as part of Epic’s sale of Epic’s own healthcare software to end-users. End-users purchasing Epic’s healthcare software were required as part of their purchase to acquire the separate right to use taxpayer’s database software in order for Epic’s software to function. The department framed this transaction as Epic selling a sublicense of the taxpayer’s database software to its end-users, and therefore, the department argued, the state sourcing provision focusing on the end-users of software did not apply as it only relates to licensors and licensees, instead of sub-licensors and sub-licensees. The taxpayer countered that, because Epic did not have the authority to independently issue license keys, end-users had a direct relationship with the taxpayer, and therefore receipts from these transactions should be sourced to the location where the software was used by end-users. The Commission determined that since there was no valid contract between the taxpayer and end-users, the end-users of Epic’s software were not licensees of the taxpayer, and therefore sourcing receipts to their location of use was inappropriate. Instead, the Commission determined that because Epic was billed at a Wisconsin address, this income was appropriately sourced to Wisconsin under the second and third factors of the provisions for sourcing royalties and intangible property (i.e., billing address and commercial domicile, respectively).

Intersystems, Docket No. 20W174 (Wis. Tax Appeals Comm’n Nov. 20, 2025).

As we welcome the new year, we are also excited to give a warm welcome to our January SALT Pets of the Month, Joey and Layla! This charming duo resides with SALT Counsel Diane Beleckas and her family.

Joey, a six‑year‑old Schnoodle, joined the family in 2020 as a surprise for Diane’s kids after months of them lobbying for a furry friend. Layla, a four‑year‑old Shih‑Poo, arrived on Easter weekend 2022 after a spontaneous decision during holiday errands. The idea was sparked when one of Diane’s kids joked about “picking up a bunny,” which quickly turned into bringing home Layla instead.

Thanks to Layla’s allergies, the dogs are on a strict diet, but chicken breast is their special‑occasion favorite. Joey is so motivated by it that the family learned to yell “chicken!” instead of his name when coaxing him inside.

In the summer, Joey and Layla love lounging by the pool and exploring nearby hiking trails. Joey is the resident barker, while Layla famously stayed silent for months, until one of Diane’s kids practiced his saxophone, prompting her first-ever bark.

We are so happy to feature these siblings. Welcome to the SALT Pet of the Month family, Joey and Layla!

The Washington Court of Appeals held that, for purposes of the Business and Occupation (B&O) Tax, a law firm’s gross income from insurance litigation services were properly sourced to the state where litigation occurred. A law firm with offices in Washington and Oregon that provides insurance defense litigation sought a refund of B&O Tax on the basis that its insurance litigation and defense service receipts were apportionable to the insurance company customers’ legal departments’ billing addresses, rather than the state where the litigation occurred. The taxpayer appealed the Washington Department of Revenue’s denial of its refund request.

To compute the B&O Tax, taxpayers must apportion their gross income such that the tax applies to only gross income apportioned to Washington. In 2010, the Washington legislature changed the method of apportioning gross income from services from where the services were performed to where the customers received the services’ benefit. The court held that the gross income related to Washington litigation was properly soured to “where the case is litigated” (i.e., Washington) because the benefit of the litigation is “immediately realized upon disposition of the case,” not “once the legal department of the insurance company is made aware of the results.”

Betts Patterson & Mines, PS v. Washington Department of Revenue, No. 86756-3-I (Wash. Ct. App. Nov. 3, 2025) (unpublished).

On January 20, 2026, New York Governor Kathy Hochul released her FY 2027 Executive Budget proposal. Unlike prior years’ proposals seeking sweeping tax reforms, the FY 2027 proposal contains more narrowly targeted changes to New York’s Tax Law. A focus of the proposal is the decoupling from certain Internal Revenue Code provisions enacted by H.R. 1 (OB3), as well as maintaining policies from prior years.

The Governor’s proposal decouples from OB3’s provisions allowing immediate expensing for qualified production property, as provided in IRC §§ 168(a) and (n), and domestic research and experimental (R&E) expenditures under IRC § 174A.  When calculating entire net income for tax years beginning on or after January 1, 2025, the Executive Budget proposes to maintain New York’s current treatment of depreciation for qualified production property and allows deductions for both qualifying foreign and domestic R&E expenditures over the same 5-year term.  In contrast, New York does not conform to IRC § 168(k), which federally provides for accelerated depreciation of certain qualified property in the year it was placed in service, and, instead, provides for depreciation deductions consistent with the iteration of IRC § 167 in effect as if the property were purchased on September 10, 2001.  Per the revenue estimations featured in the Executive Budget Briefing Book, the Governor’s proposal to decouple from OB3 is estimated to save the state $1.68 billion during FY 2027.

The New York State legislature controls New York City’s corporate franchise tax law, so the Executive Budget likewise proposes to decouple New York City’s corporation franchise tax’s entire net income computation from OB3.  Under the Executive Budget, New York City would (i) allow both foreign and domestic R&E expenditures to be deducted over a 5-year period, (ii) maintain the City’s current treatment of qualified production property, business interest expenses, and depreciable business assets, and (iii) decouple from OB3’s deduction limit increase for qualifying equipment and software purchases.

Governor Hochul’s FY 2027 Executive Budget also extended the current Article 9-A Franchise Tax rates for three more years, declining New York City Mayor Mamdani’s invitation to raise the state’s corporate franchise tax rates.  The FY 2022 budget established a temporary tax rate for corporations with business income bases over $5 million and reinstated the capital base tax rate in the same year.  These rates were also extended in the FY 2024 budget.  In addition to maintaining the current corporation franchise tax rates, the Executive Budget also did not change the state’s personal income tax rates.

Other notable components of the proposal include:

  • Eliminating state income taxes on tipped wages, consistent with OB3 and the federal level elimination of income tax on tipped wages.  Here, employees will not be subject to income tax on tips up to $25,000 per taxable year for single filers earning $150,0000, and joint filers earning up to $300,000;
  • Establishing a sales tax exemption on the retail sale of electricity by commercial EV charging stations; and
  • Preserving the deductibility of charitable contributions to certain tax-exempt entities at risk of losing their IRC § 501(c)(3) tax-exempt status.

Governor Hochul’s Executive Budget is only the first step in the New York budget process. The legislature will now analyze the Governor’s budget, hold public hearings, and seek out further information from state agencies.  After such review, both houses of the legislature must reach an agreement on spending and revenue recommendations that may result in an amendment of the Governor’s proposed appropriations bill and other related legislation.

It is possible that some significant tax proposals could arise during this process. New York’s fiscal year begins April 1, 2026, thus, the timeline for the legislature to review and approve the Executive Budget is limited. The Eversheds Sutherland SALT team will continue to monitor the Executive Budget and keep you apprised of any relevant updates as it progresses through the legislature.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: The Maine Taxation Committee recently held a hearing for a bill that would impose what type of income tax reporting requirement for certain corporations?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

We’re pleased to share our recap of 2025’s state and local tax highlights, as featured in Tax Notes State.

This year’s Most Interesting State Tax (MIST) developments showcase the expanding scope of state income taxation, new constitutional tests, and the broadening reach of digital goods taxation.

Curious about what’s ahead for SALT in 2026? We’re watching closely.

Read the full article here.

In this episode of the SALT Shaker Podcast, Partner Jeff Friedman takes over as host and sits down with newly promoted Partners Jeremy Gove and Chelsea Marmor to celebrate their career milestones and reflect on the journeys that brought them here.

Jeff guides Chelsea and Jeremy through a conversation about their distinct professional paths, the value of in‑person collaboration, and the satisfaction that comes from navigating complex client matters. They also look ahead, offering their perspectives on the developments they expect will reshape the practice of state and local tax in the years to come.

The episode closes with the classic overrated/underrated segment – this time tackling award shows. Are they overrated or underrated?

For questions or comments, email SALTonline@eversheds-sutherland.com. Subscribe to receive regular updates hosted on the SALT Shaker blog.

Listen now:

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The New York Tax Appeals Tribunal affirmed its prior decision, upholding an Administrative Law Judge’s issuance of a subpoena requiring three Department employees to appear, and for the Department to produce documents for in-camera review, which included third-party tax information. The Tribunal rejected the Department’s request for re-argument because the Department presented no new issues, only re-asserting that the Tribunal misapplied its legal authority in compelling the testimony of the Department employees and ordering the production of privileged documents. While the documents and testimony include third-party tax information, the Tribunal found that Administrative Law Judges have historically allowed in-camera review of materials and documents when determining if the Department’s claim of privilege is warranted.

In re 123 LINDEN, LLC, Nos. 830249, 830866, (N.Y. Tax App. Trib., Oct. 30, 2025).

The Washington Court of Appeals held that a Washington-based consulting firm was not entitled to a refund of Washington Business and Occupation (B&O) Tax because the taxpayer failed to show that the benefit of services provided to its client were received outside of Washington.

The taxpayer provided technology information services to a number of software companies, such as “translating client websites into foreign languages, creating and updating customer-facing websites, providing support for product launches in foreign markets, merchandising support, and website management.” During the tax years at issue, over 85% of the taxpayer’s gross income was attributable to services performed for one client. The taxpayer and its client entered into a contract outlining their business relationship; however, certain assignments were specified in statements of work. For taxable years beginning January 2011 through March 2015, the taxpayer remitted nearly $455,000 in B&O Tax. The taxpayer sought a nearly $404,000 refund, arguing that for the taxable years at issue, the Department failed to apportion its gross income properly. The taxpayer based its refund claim on the “reasonable proportional method” of attributing receipts under Washington Admin. Code 458-20-19402, which treats Washington’s single sales factor apportionment statute, Wash. Rev. Code Ann. § 82.04.462. On this basis, the taxpayer apportioned its revenue based on internet usage data.

The Audit Division for the Washington Department of Revenue requested and obtained further information on the statements of work, concluding that the taxpayer’s services rendered to its client related to “localization services” provided to a specific team located in Washington. The auditors determined that the taxpayer’s client received the benefit of such localization services in Washington, and, as a result, the services rendered were subject to tax in Washington. The taxpayer sought review at the Washington Board of Tax Appeals, which deemed most of the localization services taxable in Washington. The taxpayer sought review at the Washington Court of Appeals.

On Appeal, the taxpayer argued that its client did not receive the benefit of the services provided in Washington, but, instead, received such benefit in every country where the client’s products were marketed, and, therefore, its numerator for Washington purposes should have been zero. The taxpayer further asserted that the Department incorrectly calculated its sales factor denominator, arguing that it had no throw out income. Note, for state corporate tax purposes, certain states may opt to “throw-out” or remove income from the sales factor denominator when such income is not subject to tax in another state, which, in effect, operates to increase a taxpayer’s apportionment percentage as a whole.

Ultimately, the Washington Court of Appeals affirmed the Board of Tax Appeal’s decision, holding that 1)  the taxpayer failed to show where its client received the benefit of its services, and, in the alternative, if the client received the benefit of the taxpayer’s services in more than one state, the taxpayer also failed to show where the client primarily received the benefit of the taxpayer’s services; and 2) the taxpayer failed to demonstrate that service receipts included in its denominator were subject to tax in another state.  

Valente Solutions, LLC v. Washington Department of Revenue, No. 87280-0-I (Wash. Ct. App. Dec. 22, 2025).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: In which state did the Court of Appeals recently rule that an online ticket seller was required to collect sales and use tax even before the state enacted its marketplace laws, because the marketplace laws were merely a “clarification rather than substantive change”?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Alabama Tax Tribunal (Tribunal) determined that a wastewater treatment facility was entitled to a sales and use tax exemption for equipment purchased for use in its wastewater treatment business because the equipment was used primarily for exempt pollution control purposes.

The taxpayer, a privately owned entity that provided wastewater collection and treatment services, had previously received exemption certificates from the Alabama Department of Revenue (the Department) to purchase pollution control equipment and materials tax free (e.g., pumps, pipes, valves, fittings, etc.). been allowed to purchase equipment tax free.

In 2023, the taxpayer applied for another exemption certificate, but the Department only partially granted the request, limiting the exemption to certain specified pieces of equipment, while denying the exemption for certain materials that transported wastewater from homes and other properties to sewer lines. The taxpayer appealed the denial, and during the appeal, the Department provided a similar partial grant for the taxpayer’s 2024 exemption certificate request. 

The taxpayer argued that under both the statute and the regulation the materials were exempt devices used to control water pollution, whereas the Department asserted that the materials in question were not purchased for pollution control purposes, but were purchased to fulfill contracts with its customers as a part of the taxpayer’s profit-motivated business. The Tribunal concluded that because 1) wastewater is a form of water pollution and 2) the taxpayer’s wastewater treatment plants were built for the sole purpose of treating wastewater, the taxpayer was entitled to the full exemption certificate.  The Tribunal also noted that the regulation acknowledges that an incidental or secondary purpose does not deprive the taxpayer of the exemption.

Baldwin Cnty. Sewer Serv. LLC v. State of Alabama Dep’t of Revenue, No. S. 23-654-JP (Ala. Tax Trib. Oct. 21, 2025).

In this episode of the SALT Shaker Podcast, SALT Partners Jeremy Gove and Chelsea Marmor kick off 2026 with a lightning round of their favorite SALT issues from 2025.

They cover market-based sourcing, tax base expansions, remote worker litigation, and the classification of streaming services as tangible property. The conversation also touches on federal intervention in AI regulation, the ongoing relevance of federal limits on state taxing power, and emerging local tax trends.

This week’s overrated/underrated segment asks: Are New Year’s resolutions overrated or underrated?

For questions or comments, email SALTonline@eversheds-sutherland.com. Subscribe to receive regular updates hosted on the SALT Shaker blog.

Listen now:

Subscribe for more:

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: The New Jersey Senate recently passed a bill that would exempt what type of income from the personal income tax?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Indiana Tax Court held that the Indiana Board of Tax Review misapplied the law by applying a “per-se” burden-of-proof standard, which deemed the taxpayer to have satisfied its burden of proof merely by offering an appraisal that was prepared by an expert in accordance with generally accepted appraisal principles. The taxpayer, the owner and operator of a retail department store in Indiana, appealed property assessments for 2019-2021 to the Indiana Board of Tax Review. The Board found significant flaws in both parties’ expert appraisals, but ruled that the taxpayer’s appraisal was “the most persuasive valuation evidence” presented by the parties; finding that the Assessor’s appraisal was “less credible,” and the flaws in the taxpayer’s analysis were “somewhat less egregious.” On appeal to the tax court, the Assessor argued that the Board erred in its conclusion that the taxpayer’s appraisal satisfied the burden of proof simply by being prepared by an expert – arguing that an expert appraisal is not “per se evidence” that an assessment is incorrect. The tax court agreed with the Assessor, stating that for an appraisal to satisfy the taxpayer’s burden of proving that the assessment is incorrect, the appraisal’s “analysis and conclusions of value must stand on their own.”

Madison Cnty. Assessor v. Kohl’s Ind., LP, Ind. T.C., No. 24T-TA-00009, 11/17/25.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state’s governor recently vetoed legislation that would have allowed professional employer organizations to include certain expense reimbursements in their apportionment factor? 

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On Friday, December 19, the City Council passed a budget which includes a new Social Media Amusement Tax (SMAT) and increases several existing taxes. If enacted, the SMAT would be a first of its kind tax (in the US) imposed exclusively on social media companies. The SMAT revenue is earmarked to fund Chicago’s mental and behavioral health operations and investments.

Read the full Legal Alert here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: In the November 2025 elections, voters in which state approved a constitutional amendment that prohibits the legislature from imposing a state tax on the property of a deceased individual’s estate because of the death of the individual?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Initially enacted as a temporary measure, Congress made ITFA permanent in 2016 to reflect the enduring federal commitment to preserve a tax-neutral digital infrastructure and protect an evolving digital economy. Indeed, today’s “internet access” is no longer defined by static homepages and email alone, but by cloud computing, digital advertising ecosystems, streaming platforms, and bundled online services. As states seek new revenue sources, they are increasingly reinterpreting – and at times, ignoring – ITFA’s protections to capture taxes on these modern digital offerings.

In this installment of “A Pinch of SALT,” published by Tax Notes State, Eversheds Sutherland attorneys Charlie Kearns, Maria Todorova and Olivia Dibb analyze the evolving legal landscape of ITFA, including how states are testing federal protections in pursuit of digital revenue and how courts are responding to the challenges of a rapidly transforming digital economy.

Read the full article here.

In this episode of the SALT Shaker Podcast, SALT Counsel Jeremy Gove and Chelsea Marmor break down key New York tax and administrative developments shaping 2025.

Their discussion includes:

  • The proposed agenda of the incoming New York City mayor
  • Significant personnel and administrative changes in New York City
  • Recent court rulings on the retroactivity of the corporate income tax regulations
  • Emerging tax revenue streams from legalized casinos and congestion pricing

They wrap up with two thought-provoking questions in the overrated/underrated segment – don’t miss it!

For questions or comments, email SALTonline@eversheds-sutherland.com. Subscribe to receive regular updates hosted on the SALT Shaker blog.

Listen now:

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The Missouri Court of Appeals, Eastern District, held that Jefferson City could not proceed with its collection action against Sprint, T-Mobile, US Cellular, AT&T, and Verizon affiliates for delinquent business license taxes. The court held the city lacked standing because, under Missouri law, suits against telecom companies must be brought by a “person” or “corporation,” and a municipality did not qualify as either. Furthermore, the court held the city did not follow the proper statutory procedure required under Missouri law to notify the companies of the alleged tax underpayments before initiating a lawsuit. Missouri law requires an assessment of back taxes due and a formal notification to the delinquent taxpayer. Although the city claimed it conducted a tax assessment, nothing in the city’s petition indicated the city notified the companies of such assessment. Accordingly, the court held that the city was procedurally barred from pursuing its collection suit.

City of Jefferson v. Sprint Commc’ns, Inc., No. ED113433 (Mo. Ct. App. E.D. Dec. 2, 2025).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: A tax appeals tribunal of what city recently held that a taxpayer could take an unincorporated business tax deduction for interest expenses that were deductible at the federal level?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The third quarter of 2025 saw notable activity in New York tax law, including new appointments, regulatory changes, and key decisions.

In this installment of NY Tax Talk, a quarterly column in Law360 focused on recent developments in New York tax law, Eversheds Sutherland attorneys Liz Cha and Periklis Fokaidis highlight the filling of ALJ vacancies at the New York City Tax Appeals Tribunal, the release of proposed corporate tax regulations, ongoing litigation over apportionment rules, and a recent decision on sales tax for bundled software and services.

Read the full article here.

In Guild Mortgage Company v. Washington Department of Revenue, the Washington Board of Tax Appeals considered whether certain fees associated with mortgage sales – guaranty fees, loan-level price adjustments (LLPAs), and lender credits – should be included in the taxpayer’s gross income for purposes of the state’s business and occupation (B&O) tax. 

The taxpayer originated residential mortgage loans and sold most to government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, which securitize the loans into mortgage-backed securities. To participate in the GSE programs, the taxpayer paid guaranty fees and LLPAs. The taxpayer also sometimes provides lender-paid credits to cover borrower closing costs in exchange for a higher interest rate. Following an audit for 2013–2017, the Department assessed B&O tax on all three of these amounts.

The Board held Guaranty fees and LLPAs are not adjustments to the selling price but are expenses incurred to sell loans to GSEs and thus cannot be deducted under Washington’s B&O tax statute. However, the Board agreed with the taxpayer that lender-paid credits were not taxable because they were a capital investment in the loan.

Guild Mortgage Company v. Washington Department of Revenue, Washington Board of Tax Appeals (Docket No. 20-122, Aug. 29, 2025).

The taxpayers, originally residing in New York, were issued a tax assessment for unpaid income tax but they claimed they moved out of the state and settled in Florida in late 2018 (as part of their retirement plan) while still maintaining living quarters in New York. The taxpayer argued that they had changed their domicile to Florida and as support they presented evidence showing that, among other things, they registered as Florida voters, signed a document declaring themselves domiciled in Florida, obtained Florida drivers’ licenses, registered their vehicles in Florida, joined a country club in Florida, and became involved in their Florida condo board. The taxpayers also spent most of the days during the winter months in Florida. However, the taxpayers still maintained connections with New York including having two country club memberships, spending a significant amount of days in New York during the summer months, and one of the taxpayers still owned and collected a salary from a business located in New York. In 2018, the taxpayers spent 132 days in Florida, 195 days in New York (notably in excess of the 183-day statutory residency test), and 38 days in other locations. While in 2019, the taxpayers spent 155 days in Florida, 170 days in New York, and 40 days in other locations.

The Tax Appeals Tribunal upheld the assessment, agreeing with the Division of Taxation that the taxpayers had not completed their change of domicile during the tax periods at issue. The Tribunal noted that “formal declarations of domicile, such as voter registration or motor vehicle registration, have lost their importance in recent years as courts have recognized their self-serving nature[.]” The Tribunal found that the taxpayers continued to have “substantial ties” to their New York businesses and spent a significant amount of time, including holidays, at their “substantial property” in New York which they previously used as their main home in prior years. The Tribunal concluded that, based on this evidence, the taxpayers had “failed to established by clear and convincing evidence” that they had changed their domicile to Florida during the tax periods at issue.

Matter of the Petition of John J. Hoff and Kathleen Ocorr-Hoff, DTA No. 850209 (Oct. 9, 2025).

This week, members of our SALT team are pleased to join the NYU School of Professional Studies’ 44th Institute on State and Local Taxation, held December 8-9 in New York City. The Institute will provide insightful updates, practical advice, and in-depth analysis of the latest developments and current issues in state and local taxation. The full agenda can be found here.

Sessions featuring members of our team include:

  • Constitutional Limitations on State Taxation – Jeff Friedman
  • The Top Ten (Non-Constitutional) Cases – Maria Todorova
  • TaxTok – A Jurisdictional Tour – Jeremy Gove

Eversheds Sutherland is a proud sponsor of the Institute on State and Local Taxation. We hope to see you there!

Our December SALT Pets of the Month are one stylish flock! This feathered family, belonging to Partner Todd Betor, was inspired by a touch of royalty. After binge-watching With Love, Meghan, Todd’s wife, Michelle, decided it was time to make her backyard chicken coop dream a reality.

The first step? Designing a home fit for the flock. With help from a local company, the Betors created a custom-built coop featuring a Dutch door, an automatic sleeping-area door, and even a rainwater collection system for the flock’s water bar. It’s as elegant as it is functional.

For the Betor family, these chickens are a source of calm and connection. Todd and Michelle’s kids love greeting their feathered friends each morning, and with three of the hens now laying eggs, farm-fresh breakfasts have become commonplace in their house.

Meet the Nantucket-inspired flock:

  • Nantucket Nancy
  • Whaling Willow
  • Harbor Henrietta
  • Sconset Sally
  • Cliffside Clara
  • Grey Lady

From their chic coop to their charming names, Todd and Michelle’s chickens remind us that joy often comes with feathers!

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: The legislature of which midwestern state recently proposed a sales and use tax exemption for nuclear fusion technology projects?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

This week, SALT Partners Michele Borens, Jeff Friedman and Ted Friedman look forward to joining the speaker lineup of COST’s Pacific Northwest Regional State Tax Seminar in Redmond, WA.

Their panels will cover tax cases, issues and policy matters to watch, as well as an update on the taxation of digital goods and services.

Learn more and register here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state’s governor is weighing a special session to accelerate cuts to personal income tax rates?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

This is the third edition of the Eversheds Sutherland SALT Scoreboard for 2025. Since 2016, we have tallied the results of significant taxpayer wins and losses and analyzed those results.

This edition includes developments in state and local False Claims Acts, corporate income tax apportionment, and manufacturing exemptions. We also spotlight a couple of recent decisions on digital taxation.

Dive into the Eversheds Sutherland SALT Scoreboard for the third quarter of 2025 now!

In this installment of Across State Lines in Tax Notes State, Eversheds Sutherland Senior Counsel Eric Coffill interviews Shane Hofeling, now chief counsel of the California Franchise Tax Board’s Technical Resources Bureau.

In their conversation, Shane shares insights on his vision for the Legal Division, the evolving role of artificial intelligence at the FTB, collaboration between Legal and Audit, the impact of federal changes on state tax administration, and ongoing efforts to improve transparency, customer service and operational efficiency within California’s Franchise Tax Board.

Read the full article here.

In this episode of the SALT Shaker Podcast, SALT Counsel Jeremy Gove and Chelsea Marmor dive into the nuanced world of state and local tax penalties.

They explore why penalty abatement standards, such as “reasonable cause” and “ordinary care,” remain ambiguous despite the frequent appearance of penalties in tax assessments. With limited statutory and case law guidance, these standards often leave taxpayers navigating uncertainty.

Their discussion highlights:

  • New York’s penalty framework and how it compares to other states
  • Practical defenses for abating penalties, including their self-coined “reliance plus” standard
  • The importance of contemporaneous documentation in supporting taxpayer positions

Ultimately, Jeremy and Chelsea underscore the highly technical and interpretive nature of penalty imposition and abatement. For a deeper dive into this topic, read their article in Tax Notes State.

This week’s overrated/underrated segment takes a seasonal turn: Is turkey really the star of Thanksgiving?

For questions or comments, email SALTonline@eversheds-sutherland.com. Subscribe to receive regular updates hosted on the SALT Shaker blog.

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The Washington Board of Tax Appeals upheld the Department’s determination that certain fees and credits related to mortgage sales to government-sponsored enterprises are included in the lender’s gross income for B&O tax purposes. Specifically, the Board concluded that guaranty fees and loan-level price adjustment fees are part of the lender’s cost of doing business and cannot be deducted because they are required payments to participate in a mortgage-backed securities program.

On the other hand, the Board reversed the Department’s determination on lender credits (amounts paid toward borrower closing costs in exchange for higher interest rates. These credits were deemed part of the lender’s capital investment in the loan and therefore excluded from gross income.

The matter was remanded for recalculation of tax due based on these findings.

Guild Mortgage Co. v. Wash. Dep’t of Revenue, Docket No. 20-122 (Wash. Bd. of Tax Appeals Aug. 29, 2025).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which Virginia city will begin levying a $0.05 disposable bag tax beginning January 1, 2026?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On October 24, 2025, the Tennessee Department of Revenue ruled that subscription fees for a mobile heart-health app were subject to sales and use tax. The taxpayer charged an annual flat per-user subscription fee to clients who make subscription offerings available as part of medical benefits to their employees and employees’ dependents. For the subscription fee, the taxpayer granted its clients (and the users) software licenses for access to the app, which tracked their blood pressure and activity.

Since 2015, remotely accessed computer software is subject to sales tax in Tennessee. However, sales tax does not apply to “information or data processing services,” nor subscriptions to data processing and information services, where the true object of the transaction is the processed data or information. Here, the Department ruled that the true object of the transaction was the sale of software rather than data processing services. The Department reasoned that tracking biometric data like blood pressure and other activity performed by the software in the app is not “data processing” because it was not converting raw data into a readable form that is processed by a computer.  Thus, the Department found that the subscription fees were taxable.

Tenn. Dep’t of Rev. Ltr. Rul. 25-08 (Oct. 24, 2025).

SALT Partner Jeff Friedman is pleased to speak at the 2025 NCSL Fiscal Institute Symposium, which brings together legislative fiscal leaders from across the country for an interactive program. During the program, Jeff will join the Tax Appeals panel.

In addition, SALT Partner Todd Betor is looking forward to speaking at the TEI New York Chapter’s 62nd Annual Symposium. During the full-day program, Todd will examine how the One Big Beautiful Bill Act is influencing the application of key federal, state and local corporate tax provisions, including:

  • Section 174 & new Section 174A – Research & Experimental (R&E) costs
  • Section 163(j) – Business interest expense limitation
  • Section 168(k) – Bonus depreciation

Find out more about this year’s event and register here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Last week, Seattle voters overwhelmingly approved changes to which city-imposed tax?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

In this episode of the SALT Shaker Podcast, host and SALT Counsel Jeremy Gove sits down with Partner Tim Gustafson to explore the historical evolution and current challenges surrounding California’s sales factor.

The conversation traces California’s apportionment journey from its original equally weighted three-factor formula to today’s dominant single sales factor approach. Jeremy and Tim unpack key developments, including:

  • California Supreme Court decisions shaping the definition of “gross receipts”
  • A voter-approved initiative accelerating the shift to a single sales factor
  • Regulatory amendments relating to market-based sourcing

The episode concludes with a discussion of a recent legislative change redefining “gross sales” as “net sales” – a retroactive adjustment now facing legal challenges for its conflict with prior judicial interpretations.

Plus, don’t miss the overrated/underrated segment, where Jeremy and Tim share their hot takes on card games.

For a deeper dive into this topic, check out Tim’s article, published in Tax Notes State, which he co-wrote with Associate Constance Chien.

For questions or comments, email SALTonline@eversheds-sutherland.com. Subscribe to receive regular updates hosted on the SALT Shaker blog.

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On November 13, SALT Partner Tim Gustafson looks forward to speaking at the 2025 California All-Tax Conference, presented by the California Lawyers Association. Tim’s session will provide the latest updates from the California Office of Tax Appeals, featuring a comprehensive year-in-review of key developments and opinions, insights into recent updates from the past year and a live Q&A with OTA staff.

Learn more and register here.

Meet Luna and Yordy, two lovable rescue pups who have brought plenty of personality (and a little bit of chaos!) to the home of Joe Moore, Vice President, Corporate Tax at Costco.

Luna, a two-year-old white Labrador, is a big, goofy sweetheart who likes to avoid tiny humans at all costs. Her family has learned to steer clear of parks and morning bus stops, but when it comes to hanging out with other dogs, she’s all in!

Yordy, a three-year-old shepherd mix, is the chiller member of the duo. That is, until a bunny or squirrel dares to cross his path – that’s when the chase begins!

Both pups have had their fair share of adventures, including a couple of great escapes. These days, they sport trackers on their collars, just in case curiosity gets the better of them again.

Training is ongoing (and often entertaining). Luna is still working through her feelings of being left alone in the house, and her humans have discovered that leaving a grocery bag on the counter is a surefire way to ease her anxiety without causing too much damage. She will grab the bag off the counter and shred it for comfort. 

Despite their quirks, Luna and Yordy are adorable and always ready for a cuddle at the end of the day.

Welcome to the SALT Pet of the Month family, Luna and Yordy!

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state recently sued California alleging that the occasional sale rule applicable for purposes of apportioning corporate income is unconstitutional?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

California adopted UDITPA in 1966, with its equally weighted three-factor formula for apportioning multistate income – property, payroll, and sales. Over time, however, the sales factor has emerged as the primary mechanism for determining tax liability in California.

Today, California’s sales factor is the same as it was nearly 60 years ago. Although the fraction itself may not have changed, its interpretation and application have evolved at the hands of the Legislature, the California Franchise Tax Board, and California courts. And that evolution continues apace.

In this installment of “A Pinch of SALT,” published by Tax Notes State, Eversheds Sutherland attorneys Tim Gustafson and Constance Chien provide a brief timeline of key California sales factor developments over the past 25 years and examine issues that will drive change for the next 25 years and beyond.

Read the full article here.

This week, SALT Partners Michele Borens and Charlie Kearns are pleased to present at the ETA Payments Compliance Conference, held November 5–6 in Pentagon City, VA. On Thursday, their session will focus on considerations for payments companies in light of changes to state sales tax laws.

For more information and to register, click here.

In addition, SALT Partners Jonathan Feldman and Scott Wright will share a SALT update at the 2025 Georgia Tax Forum, hosted by The Georgia Society of CPAs. Their presentation will highlight recent developments in state and local tax policy, litigation trends, and planning opportunities for Georgia-based businesses.

You can find more information here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: The mayor of which midwestern city included a new social media tax as part of the 2026 proposed budget?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

In this episode of the SALT Shaker Podcast, SALT Counsel Jeremy Gove and Chelsea Marmor dive into the evolving intersection of artificial intelligence (AI) and SALT.

As AI technology continues to advance, Jeremy and Chelsea draw a parallel for tax purposes to the early days of the internet – when Congress passed the ITFA to avoid taxes stifling innovation. They explore whether the existing framework for taxing software and digital products is sufficient to address AI, or if new legislation will be needed to keep pace.

Jeremy and Chelsea highlight recent developments in Indiana and Illinois, where revenue rulings classified remote generative AI chatbot services as non-taxable under the states’ existing definitions of SaaS and electronically delivered software.

The episode wraps with a brief discussion on the potential for federal intervention in regulating and taxing AI, leaving listeners with key questions about how SALT professionals should prepare for what’s next.

And, as always, the hosts close out with their overrated/underrated segment – this time tackling the world of science fiction.

For questions or comments, email SALTonline@eversheds-sutherland.com. Subscribe to receive regular updates hosted on the SALT Shaker blog.

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A Florida circuit court held for the Department of Revenue in a dispute over Florida’s apportionment formula applicable to companies providing transportation services in the state. Florida apportions income of transportation companies by multiplying the taxpayer’s income by a fraction, the numerator of which is “revenue miles in [Florida]” and the denominator of which is “revenue miles everywhere.” Florida defines the phrase “revenue miles in [Florida]” to include all miles traversed within Florida’s geographic borders and an area of ocean contiguous to Florida’s coastline.

An airline asserted that the Florida apportionment statute was unconstitutional because it violated the “internal consistency” test of the Dormant Commerce Clause. The airline argued that the statute was not internally consistent because it used air miles flown both over Florida’s landmass and over the ocean contiguous to Florida’s coastline to calculate the share of the airline’s income attributable to Florida. The court disagreed with the airline, holding that Florida’s statute was internally consistent because “if a hypothetical state were to directly import Florida’s geographical description minus Florida’s landmass, its statute would still not be ‘identical’ to Florida’s structure, because Florida’s apportionment structure is related to its own land mass by contiguity.”

JetBlue Airways Corp. v. Dep’t of Revenue, No. 2024CA1177 (Fla. Cir. Ct. Sept. 1, 2025).

The Eversheds Sutherland SALT team is coast-to-coast this week, joining three major conferences to share insights on the latest developments in SALT.

Western States Association of Tax Administrators (WSATA) Annual Conference

SALT Partner Jeff Friedman returns to the WSATA Annual Conference in Albuquerque, NM to share his perspective on recent developments shaping the SALT landscape.

Explore the full conference agenda and register here.

Tax Executives Institute (TEI) 80th Annual Conference

Partner Michele Borens will speak at TEI’s 80th Annual Conference, taking place this week in San Francisco, CA. Michele will address some of the most pressing challenges in state and local taxation, offering practical strategies for navigating complex state sourcing rules.

This year’s TEI conference promises a robust agenda and networking opportunities. Find out more information and register here.

32nd Annual Paul J. Hartman SALT Forum

Finally, SALT Partners Jonathan Feldman and Jeff Friedman will speak the 32nd Annual Paul J. Hartman SALT Forum in Nashville, TN, diving into two timely topics:

  • Precedent and deference: How agency guidance, judicial deference, and statutory interpretation can shape the outcome of a state tax dispute – and what one state’s approach might mean for others.
  • Hot constitutional topics in SALT: A deep dive into how states are testing the limits of the US Constitution in their taxing authority, with focus on the Due Process Clause, Commerce Clause, Equal Protection Clause, and more.

Whether you’re attending in person or following along online, we’re excited to connect and share insights from these events.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state introduced a bill that would impose an excise tax on energy used to power cryptocurrency mining operations?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On October 16, the New York City Department of Finance (DOF) published a Notice of Public Hearing and Opportunity to Comment on Proposed Rules. The proposed rule is the first of a set of rules following the 2015 tax reform relating to the Business Corporation Tax (BCT).

The DOF’s statement accompanying the proposed rule states that Chapter 11A will provide regulated parties with detailed direction regarding the computation of the BCT. The DOF’s statement says it intends to maintain conformity with the NYS Corporate Tax regulations where corresponding statutory conformity exists, “while weighing the interests of the City to provide a distinct approach in areas where the parity was not historically maintained under the previous iterations of corporate taxes or where the BCT and NYS Corporate Tax statutes diverge.” Chapter 11A will be broken into nine Subchapters that “roughly correspond” to the organization of 20 NYCRR Chapter 1, Subchapter A. The first Section of the City’s proposed rule adds Subchapter 1 of the proposed BCT regulations which will pertain to the imposition of the tax and would generally parallel 20 NYCRR Chapter 1, Subchapter A, Part 1.

  • Part 1-1 of the proposed rule would provide definitions of relevant terms.
  • Part 1-2 would set forth the required minimum activities in the City for corporations to be subject to tax under the BCT. The proposed nexus rules would generally follow those of the GCT, with the addition of economic nexus provisions. This Part of the proposed rule would include “examples of activity that does not give rise to nexus, corporations that are exempt from the BCT, and detailed guidance for corporations seeking protection under Public Law 86-272.”

Specifically, § 11A-11(a-1) states that “the applicability of Public Law 86-272 to taxes imposed by New York City is determined by the nature of a foreign corporation’s activities in the entire State.” Accordingly, if in addition to protected sales solicitation activities in New York City, a foreign corporation carries on other activities in New York State that would take it outside the scope of Public Law 86-272 protection for state tax purposes, the foreign corporation will not be exempt from taxation.

For a foreign corporation to be exempt under Public Law 86-272, the activities of its employees or representatives in New York State, or activities engaged in via the Internet by such foreign corporation, must be limited to the solicitation of orders for the sale of tangible personal property, including ancillary activities, other than maintaining an office, that serve no independent business function apart from their connection to the solicitation of orders. A foreign corporation that chooses to engage in activities via the Internet for reasons other than solicitation, including interacting with customers or potential customers through such corporation’s website or computer application, will not be protected. However, a foreign corporation will not be subject to tax solely by presenting static text or images on its website.

The City’s proposed rules generally tracks the New York State Public Law 86-272 rules and provides that the following activities would go beyond solicitation:

  • Making repairs to or installing such foreign corporation’s products;
  • Making credit investigations;
  • Collecting delinquent accounts;
  • Taking inventory of such foreign corporation’s products for customers or prospective customers;
  • Replacing such foreign corporation’s stale or damaged products; and
  • Giving technical advice on the use of such foreign corporation’s products after the products have been delivered to the customer.

Both New York State’s regulations and the City’s proposed rules on Public Law 86-272 generally follow the Multistate Tax Commission’s guidance on internet activities as published in August 2021.

The effective date of the proposed rule and future proposed rules adding subsequent subchapters to Chapter 11A will be published after all subchapters of Chapter 11A have completed the rulemaking process.

The DOF will hold a public hearing on the proposed rule on November 20, 2025 at 11:00 AM. The deadline to submit written comments is November 20, 2025. Information related to attending the hearing and submitting comments may be found here: Business Corporation Tax Implementation Rules – NYC Rules.

The Eversheds Sutherland SALT Team will monitor the rulemaking process and publication of proposed rules over the coming months.

The Oregon Supreme Court held that an administrative rule involving property tax valuation methods that was duly promulgated by the Department of Revenue pursuant to statute is controlling authority insofar as the rule does not conflict with constitutional or statutory law. Oregon Administrative Rule 150-308-0690 incorporates the Western States Association of Tax Administrators (WSATA) Handbook as the official guide for valuing utility property and other centrally assessed property in Oregon. A utility company challenged the valuation methods used by the Department under the WSATA Handbook to determine the real market value of its property for tax year 2020-21, arguing that the legal effect of the handbook was limited to internal Department proceedings. The Tax Court agreed and found that the rule was not entitled to deference and therefore not binding.

The Oregon Supreme Court reversed the Tax Court’s decision. The Court concluded that because the Department had statutory authority to promulgate the rule and did so in accordance with proper rulemaking procedures, the rule was a controlling source of law “unless, if applied in fact, it would compel a result contrary to the constitution or statute.” Because the Tax Court did not apply the rule in the first instance, the Supreme Court remanded the case to the Tax Court to perform the required analysis. 

PacifiCorp v. Department of Revenue, 374 Or 189 (2025).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state recently updated its conformity with the Internal Revenue Code for the first time in 10 years?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

This week, SALT Counsel Alla Raykin is pleased to join the speaker lineup during the Institute for Professionals in Taxation (IPT) 2025 Real Property Tax School. During her session, she’ll discuss ethics as it relates to property tax professionals and IPT’s Code of Ethics.

For more information and to register, click here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state recently enacted legislation that postpones a scheduled increase to the state’s excise tax on cannabis products?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

In this installment of “A Pinch of SALT,” published by Tax Notes State, Eversheds Sutherland attorneys Charlie Kearns, Cyavash Ahmadi and Constance Chien examine different state approaches to exempting digital inputs, including uniformity efforts in the Streamlined Sales and Use Tax Agreement and under review by the Multistate Tax Commission. They also highlight states that have adopted inadequate exemptions applicable (or inapplicable) to digital inputs.

Read the full article here.

In this episode of the SALT Shaker Podcast, Eversheds Sutherland Counsel Jeremy Gove and Chelsea Marmor unpack the complexities of Public Law 86-272, a federal statute enacted in 1959 to shield businesses from state income tax when their sole activity within a state is soliciting orders for tangible personal property. 

The conversation explores the law’s origins, historical context, its continued relevance in state tax litigation, and the MTC’s evolving guidance regarding internet-based activities.

Chelsea and Jeremy conclude the discussion by reviewing recent legal battles over the law in California, New York, and New Jersey, and exploring what these cases mean for the future of PL 86-272.

Tune in to find out how Jeremy returns to his favorite nontax tradition of overrated/underrated!

Questions or comments? Email us at SALTonline@eversheds-sutherland.com. Subscribe for regular updates from stateandlocaltax.com.

Listen now:

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Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state is considering legislation that would apply graduated rates to its deed excise tax on real estate transfers to raise revenue for affordable housing initiatives?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Members of the Eversheds Sutherland SALT team are excited to participate in two state and local tax conferences this week: the Broadband Tax Institute (BTI) Annual Conference in Avon, CO, and the 2025 Institute For Professionals in Taxation (IPT) Sales Tax Symposium in Indian Wells, CA.

BTI Annual Conference

SALT Partners Todd Betor, Jeff Friedman, Charlie Kearns, Dan Schleuter, and Maria Todorova are pleased to speak at this year’s BTI Annual Conference. Sessions and speakers include:

  • Jeff Friedman – State Tax Litigation
  • Charlie Kearns – State Tax Policy
  • Dan Schleuter – Property Tax – Current Developments/Litigation
  • Todd Betor – Tax Planning Insurance 2.0 – A Deeper Dive
  • Maria Todorova – Federal & State Regulatory Fees & Transaction Tax Trends

2025 IPT Sales Tax Symposium

Members of our SALT team are also thrilled to present at the 2025 IPT Sales Tax Symposium. Counsel Jeremy Gove will highlight key considerations when preparing for litigation, including how to anticipate a judge’s approach to a tax case. Counsel Cyavash Ahmadi will help explore proactive strategies for combating the growing challenge of tax base creep, with a focus on both legal and collaborative approaches.

Find out more about this year’s symposium here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state introduced a bill authorizing its Department of Taxation and Finance to share taxpayer addresses with the state comptroller’s office to help return unclaimed funds?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Tags: Trivia

Meet our September SALT Pet of the Month, Misha! As far as her parents know, her name is Russian for teddy bear, and she is just as fluffy and cuddly as her name suggests. Misha is owned by the family of Shannon Brandt, who works at the Texas Comptroller’s office. Who wouldn’t want to come home to this sweet face after a long day of rulemaking or memo drafting?

Misha is a 5-month-old Airedale Terrier. Her current favorite treat is a tie between a peanut butter-filled Kong or licking the head of her feline best friend, Pepper. Misha recently graduated from puppy school and passed with flying colors. She’s still working on a few commands, like when her silly family tells her to stop chasing the cat, but she’s doing great with sitting for treats and walking nicely on her leash.

Misha is either a bouncing ball of energy or napping on the floor of Shannon’s office.

Welcome to the SALT Pet of the Month family, Misha!

On Wednesday, September 24, SALT attorneys Michele Borens, Jeff Friedman, Maria Todorova, Jeremy Gove and Chelsea Marmor will share their insights during the TEI Seattle Chapter‘s State and Local Tax Update.

Sessions and speakers include:

  • Jeff Friedman – WA DOR Update
  • Michele Borens and Maria Todorova – Litigation and Legislative Update
  • Jeff Friedman – It’s Time to Play…. Family Feud State Tax Edition: Managing your State Tax Controversy
  • Jeremy Gove and Chelsea Marmor – Challenging Assessments and Filing Protests

Find out more and register here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state recently amended its sales tax rule to clarify how retailers must separately state sales tax when no receipt is provided?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

SALT Partners Jeff Friedman, Tim Gustafson and Maria Todorova look forward to joining the speaker lineup of the Council On State Taxation (COST) 56th Annual Meeting, held this week in Memphis, TN. Their panels will cover a range of critical SALT topics, including:

  • The most significant SALT issues businesses are facing in 2025 and 2026, including a focus on pending pivotal court decisions, audit issues and regulatory changes
  • Federal preemption and how it can limit state and local taxation
  • Sales and use tax challenges arising from tariffs

Learn more about this year’s conference and register here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: The Department of Revenue for which southern state recently issued guidance on the application of the sales and use tax to digital products and related services?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

With summer behind us and uniforms back in rotation, the school year is officially underway.

As fall settles in, we’ve captured some great moments of our SALT family kicking off the academic season.

The Eversheds Sutherland SALT team wishes you a successful and inspiring year ahead!

1, 2: Paralegal specialist Jaime Lane’s daughter Cassidy (8th grade) and son Cooper (10th grade)
3: Partner Charlie Kearns’ daughter Ella (3rd grade)
4: Partner Jonathan Feldman’s daughter Anna (10th grade) and son Micah (7th grade)
5: Counsel Charles Capouet’s daughters Charlotte (4th grade) and Chloe (Kindergarten)
6-8: Legal practice assistant Melissa Bragg’s daughters Madelyn (6th grade) and Emma (12th grade). Can’t forget the family’s furbaby, Lola, too!

SALT Partner Jeff Friedman is pleased to join the speaker lineup at this year’s Midwestern States Association of Tax Administrators (MSATA) Annual Meeting, taking place this week in Oklahoma City, OK. Jeff will present on the latest noteworthy and impactful developments in SALT.

Learn more about this year’s conference and register here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state’s Department of Revenue recently finalized guidance on a 90% sales tax exemption for large computer purchases?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On July 23, 2025, the Indiana Department of State Revenue issued Revenue Ruling # 2025-02-RST holding that generative artificial intelligence (AI) services accessed through web browsers or application programming interfaces are considered services and not subject to sales/use tax. The ruling involved a company headquartered outside of Indiana that provides advanced AI services to customers through a generative AI chatbot trained to respond to plain language prompts in a human-like manner, assisting with writing, analysis, coding and problem-solving.

In reaching its conclusion, the Department characterized the taxpayer’s offering as service and not a digital product, as defined. Indiana sales and use tax is imposed on products transferred electronically only if the products meet the definition of specified digital products, which are electronically transferred digital audio works, digital audiovisual works, or digital books. The Department also reaffirmed that Software as a Service (SaaS) is not taxable in Indiana, and charges for accessing prewritten computer software electronically via the internet where no permanent ownership interest, control or possession in the software is acquired are not subject to sales tax.  Because the AI service is not a digital product, it is accessed electronically with no permanent ownership aspect, and customers have no permanent ownership of the chatbot, the Department concluded that the AI service is not subject to sales tax.

The ruling aligns with Indiana’s general approach of not taxing services unless specifically enumerated, and reinforces the state’s position that SaaS offerings accessed electronically without permanent ownership are not subject to sales tax.

Revenue Ruling # 2025-02-RST, Indiana Department of State Revenue (July 23, 2025).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: The Streamlined Sales Tax Governing Board recently released a report announcing that which state will be back in compliance with the Streamlined Sales and Use Tax Agreement beginning in October?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Pennsylvania Commonwealth Court found that while a three-year statute of limitations generally governs the time for taxpayers to file a refund, a separate, more specific statute of limitations applies when a corporate taxpayer’s request for a refund is precipitated by a change to taxable income made by the IRS. The Court explained that the more specific statute of limitations provision prevails because it is an exception to the general rule. Accordingly, the Court overruled the Pennsylvania Board of Appeals and the Board of Finance and Revenue’s decision that the taxpayer’s refund request was untimely. However, the Court remanded the case to the Board of Finance and Revenue to determine the appropriate definition for “taxable income” that would trigger the Department to adjust its records and confirm to the revised tax.

Mission Funding Beta Co. v. Commonwealth, No. 411 F.R. 2019, slip op. (Pa. Commw. Ct. Aug. 14, 2025).

This week, SALT Partner Jeff Friedman will speak at the 2025 Northeastern States Tax Officials Association (NESTOA) Annual Conference, held in Philadelphia, PA.

Jeff will help present New Developments in the SALT Mine, a session highlighting the latest interesting and significant SALT cases and developments.

To learn more about this year’s NESTOA Annual Conference, visit this link.

There was a great deal of activity in New York in the second quarter of 2025, including several new cases and decisions concerning state and local taxes affecting taxpayers in New York State and New York City.

In this installment of NY Tax Talk, a quarterly column in Law360 focused on recent developments in New York tax law, Eversheds Sutherland attorneys Liz Cha and Daniel Hopper focus on two issues showcasing the interplay between state and local taxes and federal law, as well as a few key tax-related political developments.

Read the full article here.

The Texas Comptroller issued a private letter ruling on June 3, 2025, addressing whether the selling of bitcoin is “either the sale of tangible personal property (TPP) or the sale of a security” for Texas franchise tax purposes. The taxpayer requesting the guidance, a qualified S corporation for federal purposes, acquires bitcoin and resells the bitcoin to its customers in exchange for cash at ATMs. The Comptroller concluded that because bitcoin is a cryptocurrency and digital asset/digital token, bitcoin is intangible property, not tangible personal property.  Because bitcoin is intangible property, the taxpayer cannot use its costs from acquiring the bitcoin in its cost of goods sold deduction when determining its franchise tax liability. The Comptroller also concluded that bitcoin does not qualify under the franchise tax’s definition of “security,” nor is it a “currency” to either the IRS or the Texas Department of Banking.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: A recently introduced bill in New York proposes a 0.2% tax on which type of transactions?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Is this the year for updated conformity? Will FTB and CDTFA finalize long-awaited regulatory amendments? What key tax cases are pending in California courts and what hangs in the balance?

On August 20, join Eversheds Sutherland attorneys Tim Gustafson and Eric Coffill as they try and answer these questions and more in this California tax development webinar.

There’s still time to register here.

On August 15, 2025, the United States Court of Appeals for the Fourth Circuit held that a Maryland statutory provision prohibiting sellers from itemizing the digital advertising tax (DAT) on their invoices violates the First Amendment. As readers are likely aware, the DAT is imposed on gross revenues from digital advertising services in Maryland. After originally enacting the tax over the governor’s veto in 2021, the legislature subsequently passed a provision that prohibited sellers from “directly pass[ing] on the cost of the tax … to a customer who purchases the digital advertising services by means of a separate fee, surcharge, or line-item.” The U.S. Chamber of Commerce and trade associations sued in federal court, arguing that the provision is a content-based restriction on speech that forbids the taxpayers from explaining the tax to their customers. 

The Fourth Circuit agreed, finding that the pass-through impermissibly regulates protected speech. Specifically, the court interpreted the DAT as forbidding three specific ways of speaking to its customers about passing on the cost of the tax—that is, noting a separate cost on the customer’s bill—while allowing taxpayers to explain the increased prices by other means. Additionally, the court found that the pass-through provision’s speech regulation is content-based and therefore subject to at least intermediate judicial scrutiny, which it fails. Accordingly, the Fourth Circuit held the pass-through provision of the DAT is “unconstitutional in all of its applications” and thus facially violates the First Amendment. The Fourth Circuit remanded the case back to the District Court to determine the appropriate remedy. Meanwhile, litigation related to the entire DAT’s constitutionality brought by other taxpayers is still pending in the Maryland Tax Court.

Chamber of Commerce of the United States of America et al. v. Lierman, No. 24-1727 (4th Cir. Aug. 15, 2025).

Closing out a process that began nearly nine years ago, the California Franchise Tax Board (FTB) recently submitted proposed amendments to its market sourcing regulation, California Code of Regulations, title 18, section 25136-2, to the Office of Administrative Law (OAL) for final approval. The version submitted to OAL includes the same simplifying presumptions for sourcing receipts from services, special sourcing rules for receipts from asset management services, and special assignment rule for professional services provided to more than 250 customers that had appeared in recent drafts. The latest version also includes clarifying language regarding how a taxpayer may substantiate where the benefit of a service is received. Additionally, the effective date of the amendments has been revised, with the amendments applicable to taxable years beginning on or after January 1, 2026. Under California’s Administrative Procedure Act, OAL has 30 working days to approve or disapprove the rulemaking action.

See our prior coverage here and here for additional information on the proposed amendments and background on the entire process. 

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which New England state is considering legislation to regulate hemp-derived beverages in a manner similar to alcohol?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

This is the second edition of the Eversheds Sutherland SALT Scoreboard for 2025. Since 2016, we have tallied the results of significant taxpayer wins and losses and analyzed those results.

This edition includes developments in investment tax credit limitations, the exhaustion of administrative remedies, and cloud service taxation. We also spotlight a couple of recent decisions from the Empire State.

Dive into the Eversheds Sutherland SALT Scoreboard for the second quarter of 2025 now!

This week, the Eversheds Sutherland SALT team is pleased to again support COST’s SALT Technology Workshop in Burlingame, CA. The two-day workshop will cover key state and local tax issues that technology companies face. such as state taxation of digital business inputs, FITFA, sourcing, apportionment, streaming, marketplace facilitators, digital service taxes and much more. SALT speakers and topics will include:

  • Jeff Friedman – Significant Litigation, Legislative Proposals and Trends
  • Michele Borens – Bundled Transactions and Multiple Points of Use (MPU)

You can find more information and register here.

On July 3, 2025, the Colorado Court of Appeals held that sales of streaming video service subscriptions are subject to sales tax because they are sales of tangible personal property. Colorado imposes sales tax on retail sales and purchases of “tangible personal property,” which is defined as “corporeal personal property.” In 2021, the Department of Revenue promulgated an administrative rule that “provide[d] clarification” on the term’s definition and added examples indicating sales tax is due on the purchases of downloaded and streamed movies, as well as monthly streaming video service subscriptions. The legislature subsequently amended the sales tax statute to “clarify” that digital goods (e.g., video, music, or electronic books) are taxable as tangible personal property, regardless of the “method of delivery.” A streaming video service provider paid sales tax across these periods and requested refunds. It argued that: (1) the rule conflicted with the underlying sales tax statute; and (2) both the rule and statute violated the Colorado Taxpayer’s Bill of Rights, which prohibits the implementation of new taxes or tax policy changes without voter approval.

The appellate court agreed with the Department of Revenue that for an item to be corporeal, it “can be perceived by any of the senses – not exclusively the sense of touch.” (Emphasis added.) Additionally, the court found that the term “incorporeal property” addresses “abstract rights that have no real existence perceptible to the senses, even if the possession of such rights can be represented in a physical form,” such as book accounts, stocks, bonds, mortgages, notes, and other evidences of debt. As a streaming video subscription provides images and sounds that physically exist and are perceived by the user, the court found it to be corporeal tangible personal property and thus subject to sales tax.

Netflix, Inc. v. Department of Revenue of the State of Colorado, No. 24CA1019 (Colo. Ct. App. Jul. 3, 2025).

There is a lot of uncertainty around state tax penalties. The standards are murky because the authority to impose penalties often turns on whether a taxpayer exercised “ordinary business care” or had “reasonable cause” for its tax positions. And while many states use similar standards, courts interpret them differently.

Taxpayers are in a tough spot because they lack the necessary information as they operate across jurisdictions with inconsistent penalty regimes. In this installment of “A Pinch of SALT,” published by Tax Notes State, Eversheds Sutherland attorneys Jeremy Gove, Chelsea Marmor and Megan Long examine the legal standard for penalty imposition, how courts have interpreted these rules, and where this leaves taxpayers in this challenging landscape.

Read the full article here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which Rust Belt state recently introduced legislation that would exempt steel made in the state from the sales tax and create a tax credit for businesses that invest in steelmaking facilities in the state?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: The Tax Appeals Tribunal of which state recently held that a tax on internet access sold to internet service providers was preempted by the Internet Tax Freedom Act?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On June 18, 2025, in a 5-2 decision, the Ohio Supreme Court held that reimbursements received by Aramark under “management-fee” contracts were not excluded from “gross receipts” as amounts received or acquired by an agent in excess of a commission, fee, or other remuneration. 

Aramark is a food services, hospitality, facility services, and uniform services company. It provides a broad range of managed services to businesses and educational, healthcare, and government institutions. Some of Aramark’s services were provided pursuant to a “management fee” agreement where customers purchased food, supplies, and other items. Even though Aramark purchases these items, its customers reimburse Aramark for the expenses.  Aramark sought to exclude the gross receipts associated with these purchased items.

Under Ohio’s CAT, there is an exclusion from “gross receipts” for “[p]roperty, money, and other amounts received or acquired by an agent on behalf of another in excess of the agent’s commission, fee, or other remuneration.”  Ohio Rev. Code § 5751.01(F)(2)(1). The code defines an agent as “a person retaining only a commission from a transaction with the other proceeds from the transaction being remitted to another person.’” Ohio Rev. Code § 5751.01(P)(2).

The majority explained that Aramark did not meet the definition of an “agent” because Aramark failed to show that it did not hold or keep the reimbursements that it received from its management-fee clients. Instead, the Court observed, nothing in the record showed that Aramark passed on to its third-party vendors the reimbursements it received from its management-fee clients. The Court also determined that Aramark did not receive the reimbursements on behalf of third parties. Rather, Aramark acquired the reimbursements for itself.

The majority also rejected Aramark’s argument that, based on Willoughby Hills Dev. & Distribution, Inc. v Testa, 2018-Ohio-4488, Aramark was an “agent.” The Court in Willoughby Hills interpreted the term “agent” for CAT purposes, relying on another decision, Cincinnati Golf Mgt., Inc. v. Testa, 2012-Ohio-2846.  Cincinnatti Golf Mgt.was a use tax case where the Ohio Supreme Court held that, an agent could claim a principal’s tax exemption, even though the agent may not itself be exempt, if the agent had actual authority to act on the principal’s behalf.  The Ohio Supreme Court in Willoughby Hills relied on that reasoning, determining that for purposes of the CAT, a person is “authorized” to act on behalf of another when that person has actual authority to do so.  The Aramark Court found that the reliance on Cincinnatti Golf Mgt. in Willoughby Hills was misplaced.  Instead, the Court observed, because the CAT defines “agent” (whereas the use tax does not), any interpretation of that term should be restricted to the statutory language.  Accordingly, the Court noted that, for CAT purposes application of the agency exclusion should be focused on the meaning of the statutory language.

The Court further rejected Aramark’s claim that administrative guidance supported its position. The administrative guidance Aramark relied on established that a “conduit” for payments could exclude the money it receives as a conduit. Here, however, the Court determined that Aramark was not acting as a conduit. Aramark was found to incur expenses on behalf of its management-fee clients and then receive a reimbursement from them.

Finally, the Court rejected Aramark’s argument that the reimbursements did not contribute to the production of gross income. The Court determined that Aramark received the reimbursements in exchange for performing services for others and, therefore, the reimbursements contributed to the production of gross income.

This case illustrates the need to carefully evaluate whether taxpayers fall under one of the enumerated exclusions under the Ohio CAT.  Although as a matter of economic logic, receipts may fall under one of those exclusions, taxpayers should examine whether those economics are also aligned with the relevant statutory language.

Aramark Corp. v. Harris, Slip Op. No. 2025-OHIO-2114.

The New Jersey Superior Court, Appellate Division upheld the application of New Jersey’s 2020 amendment to its royalty addback regulation retroactively to tax years prior to the regulation’s amendment. In 2020, New Jersey amended its regulation (N.J. Admin. Code § 18:7-5.18) to delete geographical limitations in the addback exception for royalty payments made to a related member because – as the Tax Court ruled – the pre-amendment language violated external consistency and the dormant commerce clause. The taxpayer argued that because the pre-amendment regulation was unconstitutional, it should not apply to allow the denial of its refund claims for pre-2020 tax years. The court rejected the taxpayer’s argument, finding that the 2020 amendment regulation cured the constitutional problems, and the cured regulation could be applied to the pre-amendment tax years. The court noted that the New Jersey Supreme Court has recognized an exception to the general rule against retroactive laws when a retroactive change to a regulation is “ameliorative or curative.” Accordingly, the court upheld the retroactive application of the cured regulation to pre-amendment tax years and upheld the denial of taxpayer’s refund claims based on that regulation.

Lorillard Tobacco Co. v. Dir., Div. of Tax’n, No. A-0595-23, 2025 WL 1226968 (N.J. Super. Ct. App. Div. Apr. 29, 2025).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: What type of income is now eligible for a personal income tax deduction in Missouri?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state recently modified the apportionment formula for banks and financial institutions from a three-factor formula to a single sales factor formula for tax years beginning on or after January 1, 2025?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Yesterday, the Comptroller of Maryland issued Technical Bulletin No. 59, laying out its position on the Digital Advertising Gross Revenues (ominously abbreviated as “DAGR”) tax base. As the DAGR took effect in January 2022, this guidance is not exactly timely. 

Much of Bulletin No. 59 is devoted to the Comptroller’s view of taxability. A Maryland statute defines taxable “digital advertising services” as:

“[A]dvertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.”
Md. Code Ann., Tax-Gen. § 7.5-101(e)(1).

According to the Comptroller, to be taxable, advertisements must be in a “digital” (i.e., binary digits) format but not necessarily delivered over the Internet. The Comptroller also simultaneously limits the DAGR’s scope, adding two additional criteria for taxable digital advertising receipts: they must be both: (1) programmatic; and (2) conveyed visually. The Comptroller defines the “programmatic” attribute of digital advertising as follows:

“The programmatic attribute of digital advertising refers to the capacity to automate advertising services. Digital advertising is automated, in that it is performed by employing technology that uses computer- or software-driven workflow or machine learning algorithms to deliver advertisements to audiences based on advertiser-defined parameters.”

Thus, non-programmatic advertising services – even if otherwise digital – are not taxable. And, digital advertisements that are “conveyed in a purely audio format” are also not taxable.

As noted above, the timing of Bulletin No. 59 is interesting as the Maryland Tax Court will hear challenges to the DAGR later this month. 

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state recently enacted legislation adding streaming services to its list of services subject to the sales tax?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Meet Barclay, our July SALT Pet of the Month! This beloved 10-year-old Goldendoodle has been a devoted companion to Marilyn Wethekam, Of Counsel at the Council On State Taxation (COST), since he was just 8 weeks old.

His name is a clever nod to the US Supreme Court case Barclays Bank v. Franchise Tax Board, a fitting tribute in a SALT household!

Barclay is a true foodie, especially fond of anything his humans are enjoying. Cheese is a particular favorite! Mornings are reserved for long walks, his favorite daily activity. Besides that, he loves lounging on the couch or curling up in a welcoming lap and watching the Chicago Bears.

With his warm personality, Barclay is a welcome addition to our SALT Pet of the Month family!

Beginning in 2026, Georgia will have a new judicial branch tax court, replacing the existing Georgia Tax Tribunal, which currently operates within the executive branch.

In this installment of “A Pinch of SALT” published in Tax Notes State, Eversheds Sutherland attorneys Jonathan Feldman, Scott Wright, and Alla Raykin outline the benefits the new Georgia Tax Court offers taxpayers, as well as the laws that will govern the new court.

Most significantly, the new Georgia Tax Court is designed to preserve the benefits of the former tax tribunal while introducing a more streamlined appeals process. The new Georgia Tax Court process guarantees taxpayers a direct appeal to a Georgia appellate court, bypassing the Fulton County Superior Court and the subsequent discretionary appeal process.

Read the full article here.

SALT Partner Jeff Friedman is looking forward to speaking during the 2025 Southeastern Association of Tax Administrators (SEATA) Annual Meeting, held in Charleston, WV. His panel will cover significant, unusual and interesting SALT cases and developments.

Find out more and register here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: By what percentage did Louisiana lawmakers vote to increase the state tax rate on online sports betting?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which recently-signed bill in Iowa expanded property tax and sales and use tax breaks for data centers to include leased facilities?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

SALT Partner Charlie Kearns is pleased to speak during the Institute for Professionals in Taxation 49th Annual Conference, held June 22-25, 2025 in Fort Lauderdale, FL. His session will explore the types of internal agency guidance used in sales and use tax enforcement, how they influence audit outcomes, and the legal and procedural challenges they present. Charlie and his co-panelists will offer practical insights on identifying when such guidance is being used, understanding its impact, and developing strategies to effectively respond or challenge its application in audits and appeals.

For more information and to register, click here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which individuals or entities does Nebraska permit to claim a tax credit against their income tax liability for 5% of the compensation paid to employees in the state?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The New York Division of Tax Appeals determined that the taxpayer’s sale of a document management services was a taxable sale of software. While the taxpayer argued that its service was a nontaxable, cloud-based platform-as-a-service, the ALJ disagreed. Instead, the ALJ concluded that the taxpayer’s software was the “core element” of the platform, and customers could do nothing with the platform without their use of the taxpayer’s software. Therefore, the ALJ determined that because software was the central element of the product, the customer was purchasing taxable prewritten computer software rather than a nontaxable service. 

NetVoyage Corp. aka NetDocuments.com, DTA No. 850246 (N.Y. Div. of Tax App. Apr. 24, 2025).

The Tax Appeals Tribunal upheld an ALJ’s determination that a taxpayer’s wages earned from working remotely in Connecticut were sourced to New York and subject to tax. For decades, New York has adopted the convenience of the employer test (Rule), which deems a nonresident who teleworks outside the state to be working at its employer’s New York location (and, hence, such wages would be New York-sourced), unless the nonresident teleworks out of necessity for the employer and not just for the employee’s convenience.

During the COVID-19 pandemic, the taxpayer, Professor Zelinsky, was required to telework from his home in Connecticut because New York issued an executive order requiring non-essential workers to telework and because his employer prohibited access to his New York office. The Tribunal held that even though Professor Zelinsky did not work in New York, he had sufficient minimal contacts with the state to satisfy due process. The Tribunal reasoned that the professor availed himself of the state’s economic market through his New York-based employer, even though he spent less than 10% of his total working days in the state. The Tribunal also held that the Rule did not violate the dormant Commerce Clause because if the Rule was applied in every state, double taxation would be avoided, and the Rule only taxes wages from activities performed in the state.

Matter of Zelinsky, DTA Nos. 830517 & 830681 (N.Y.S. Tax App. Trib. May 15, 2025).

This is Professor Zelinsky’s second attempt to take down the Rule. See Zelinsky v. Tax Appeals Tribunal, 1 N.Y.3d 85 (N.Y. 2003), cert. denied, 541 U.S. 1009 (2004).

For decades, the NYU School of Professional Studies has offered a host of Tax Conferences that explore foundational and advanced tax topics.

The Eversheds Sutherland SALT team is proud to chair this year’s Introduction to State and Local Taxation and Intermediate State and Local Taxation conferences, featuring updated content, speakers and timely insights.

Introduction to State and Local Taxation
This conference is designed for professionals new to SALT or seeking a refresher. Some of the topics include:

  • US Constitutional and federal constraints on state taxation
  • Overview of sales and use taxation
  • Overview of state corporate income taxation
  • State tax research tools, tips and tricks
  • State corporate income tax filing methods
  • Financial statement issues associated with state taxation

For a full list of topics, click here.

Intermediate State and Local Taxation
Tailored for experienced practitioners, this conference includes:

  • Ethics and state taxation
  • A roundtable tax discussion with senior government officials
  • Sales and use tax of software and digital products
  • Corporate income tax apportionment issues, including alternative apportionment
  • State taxation of foreign income
  • State taxation of partnerships and partners
  • Lobbying state and local tax issues

For a full list of topics, click here.

We hope to see you there! For more information or to register, click here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state’s House of Representatives recently passed a bill that would allow small businesses to claim a personal income tax credit for providing employees with individual coverage health reimbursement?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Members of our SALT team are on the move again this week with two exciting appearances:

2025 FTA Annual Meeting

On June 10, SALT Partner Jeff Friedman is pleased to present The Good, The Bad and The Strange 2025 during the 2025 FTA Annual Meeting in Chicago. He will help review some of the most notable, unusual and amusing legal cases in tax from the past year.

TEI Region 8 Annual Conference

On June 12, Partner Liz Cha and Counsel Chelsea Marmor will present State Tax Controversy – Update on Key Developments during TEI Region 8’s Annual Conference, held June 11-15 in Hilton Head, SC. Their session will cover some of the most important case developments from 2024 and 2025, addressing corporate income tax sourcing, apportionment, local taxes, and more. Liz and Chelsea will also provide insight regarding issues to watch and developing trends from jurisdictions across the country.

Don’t miss these opportunities to hear from our team!

We’re excited to introduce you to our June SALT Pets of the Month, Scout and Riley! These two lovable pups belong to Anna Schoenbaechler, Senior Tax Analyst at Cox.

Scout is a charming 6-year-old mixed breed with plenty of personality. Weighing 70 pounds, Scout was adopted as an 8-week-old pup from the Atlanta Humane Society in 2019. While his name is officially Scout, these days he answers to his nicknames “Scoot,” “Scooter,” or “Scooty.” Scout is a popcorn connoisseur, and when he’s not snacking, you’ll find him zooming around with his canine crew, living his best off-leash life. But don’t be fooled, Scout has a flair for the dramatic. If the other dogs won’t play, Scout isn’t shy about expressing his dismay. Despite his theatrical side, Scout is all heart. He’s friendly, good-natured, and always ready to wag his tail at both two-legged and four-legged friends.

Scout’s sister, Riley, is a 4-year-old potcake dog from the US Virgin Islands. Weighing in at 50 pounds, Riley was rescued as a stray and found her furever home through Furkids Atlanta in 2020. Riley is a true snack queen, with a soft spot for cheese and pumpkin. While she’s not exactly a fetch phenomenon, Riley more than makes up for it with an impressive prey drive. When she’s not on squirrel patrol, you’ll find her snuggled up for a cozy cuddle or riding shotgun on a car ride adventure.

Anna’s dynamic duo, Scout and Riley, bring plenty of personality and love to her home. Welcome to the SALT Pet of the Month family!

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Washington, DC Mayor Muriel Bowser recently unveiled her Fiscal Year 2026 budget proposal. It includes a delay to a scheduled increase for which tax?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The New York Appellate Division, Third Department recently held that a group of taxpayer-plaintiffs were not required to exhaust administrative remedies before commencing an action to declare their services were exempt from sales tax, even though they had not challenged their audit determinations before the New York State Tax Appeals Tribunal. 

Ordinarily, taxpayers in New York must protest audit findings before the New York State Tax Appeals Tribunal before filing an action in a judicial forum challenging such findings. However, New York law provides for an exception to this general rule and permits a taxpayer to skip proceedings before the Tax Appeals Tribunal if the tax at issue is “wholly inapplicable” to the taxpayer and there are no factual issues raised concerning the subject matter of the tax dispute. 

New York imposes sales tax on the sale of “protective and detective services.” And in 2020, the Department of Taxation and Finance issued an advisory opinion (to a nonparty) holding that site safety services provided by licensed site safety managers that performed inspections of construction and demolition projects in New York City, as required by the New York City Building Code, were subject to sales tax as “protective and detective services.” 

The plaintiffs in Site Safety were a group of licensed site safety managers providing these services in the City seeking a declaratory judgment that their services were beyond the scope of “protective and detective services.” The plaintiffs commenced their action in New York Supreme Court (a trial level court). At the time the action was commenced, some plaintiffs had already been audited and received a determination that their services were taxable; some were undergoing audit when the action was commenced; and some had not yet been audited. Supreme Court dismissed the plaintiffs’ complaint, ruling that plaintiffs failed to exhaust their administrative remedies.

The Appellate Division, Third Department affirmed as to the plaintiffs who had not been audited or whose audits were not yet completed (as to the latter group, for different reasons than expressed by Supreme Court). However, with respect to the group of plaintiffs who had received a determination from the Department of Taxation and Finance that their services were subject to sales tax, the Appellate Division reversed, holding that the “wholly inapplicable” exception applied. 

The plaintiffs that received determinations from the Department argued that the sales tax provision imposing tax on “protective and detective services” was “wholly inapplicable” to them and, therefore, the Department lacked jurisdiction to tax.  The Department argued that there were factual questions that had to be resolved because the plaintiffs failed to details regarding the services they provided and therefore “wholly inapplicable” exception did not apply. 

The Appellate Division rejected the Department’s argument explaining that the plaintiffs merely sought a declaration that site safety services as specifically defined in the City Building Code are exempt from sales tax, and that plaintiffs conceded other services that fall outside the building code would not be subject to the declaration—thus, there were no factual issues that barred the judgment.  The case was remanded to Supreme Court to permit the Department to serve an answer.  

Site Safety LLC v. New York State Department of Taxation and Finance, 237 A.D.3d 1395 (Apr. 2025). 

The Eversheds Sutherland SALT team is excited to chair the NYU School of Professional Studies’ Introduction to State and Local Taxation and Intermediate State and Local Taxation programs this year. We hope you and your colleagues join us in July for this valuable opportunity to deepen your SALT knowledge!

Introduction to State and Local Taxation
This foundational program offers a broad-based overview of state and local taxation across the US. Designed for professionals new to SALT or those seeking a refresher, the conference equips attendees with essential knowledge and practical tools to navigate the complexities of multistate tax compliance and planning. It’s an ideal starting point for building a strong understanding of the SALT landscape.

Intermediate State and Local Taxation
Tailored for practitioners with a working knowledge of SALT, this program dives into more complex and nuanced issues that tax professionals regularly encounter. Attendees will explore sophisticated transaction-based tax topics, recent legislative and regulatory developments, and practical strategies for addressing multistate tax challenges. 

We hope to see you there! For more information or to register, click here.

This week, members of the SALT team will present at three major state and local tax events across the country.

TEI Region 2’s 16th Annual Tax Forum

SALT Partner Charlie Kearns will present on key state and local tax developments during TEI Region 2’s 16th Annual Tax Forum, held June 2–3 in Atlantic City. Charlie’s sessions include:

  • What to expect in the current administration
  • Emerging SALT issues

TEI Region 9’s 2025 Conference

SALT Partners Michele Borens and Jeff Friedman will present The When and Where of State Income Taxes during TEI Region 9’s 2025 Conference, held June 3-4 in Vancouver, WA.

Villanova SALT Forum

Finally, Jeff is pleased to join Villanova University Charles Widger School of Law’s Third Annual State and Local Tax (SALT) Forum on June 5. Hosted by the Graduate Tax Program, this year’s forum will answer critical questions about what is apportionable. Jeff will present The One-Legged Stool: Problems with States’ Apportionment Formulas.

Register and find more information here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state’s legislature recently passed a bill that would transition to the market-based sourcing of sales under its three-factor apportionment formula?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Massachusetts Appellate Tax Board (ATB) found that an out-of-state footwear company qualified as a “manufacturing corporation” for purposes of the state corporate excise (income) tax despite outsourcing the manufacturing of its shoes to third parties. The consequence of the “manufacturing corporation” classification was that the taxpayer had to use a single-sales factor apportionment formula rather than a three-factor apportionment formula, comprised of payroll, property, and sales. See G.L. c. 63, § 38(l)(2).

The ABT concluded that the taxpayer was a “manufacturing corporation” because it engaged in manufacturing “in substantial part.”  See G.L. c. 63, § 38(l)(1). Specifically, the taxpayer designed, developed, and oversaw the production of its footwear. The company created detailed design specifications and prototypes, which were then manufactured by third-party factories. Employees of the taxpayer were also involved in various stages of the production process, including quality assurance and fit testing.

For tax years beginning on and after January 1, 2025, all corporations with income from business activity both within and without Massachusetts are required to use a single-factor formula based on sales. See St. 2023, c. 50, § 31. Taxpayers with significant payroll and property in Massachusetts, which outsource but are involved in the manufacturing of their products, should consider whether they too qualified as “manufacturing corporation,” required to use the single sales factor formula, for prior years.

Skechers USA, Inc. v. Commissioner of Revenue, No. C344671, 2025 WL 1460059 (May 5, 2025).

On May 20, 2025, the last day for bill signing, Washington Governor Ferguson signed two key tax bills that expand the sales tax to include additional services and increase the rates of the (awful) business and occupation (B&O) tax. Some of these increases are targeted at certain industries and will incite litigation. A projected budget deficit of approximately $15 billion over the next four years led to these tax increases.  

Read the full Legal Alert here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state recently determined that a taxpayer outsourcing production to a “third-party manufacturer” was “engaged in manufacturing,” thereby subject to single-sales factor apportionment under the state’s corporate income tax rules?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Our SALT team is excited to participate in several key events this week, covering everything from state income tax adjustments to sales tax concepts.

Here’s where you can find members of our team.

COST’s 2025 Intermediate/Advanced State Income Tax School

While most states start their taxable income computation with some reference to federal taxable income, every state requires adjustments. SALT Counsel Jeremy Gove and Laurin McDonald will explore the advanced nuances of state adjustments during COST’s 2025 Intermediate/Advanced State Income Tax School in Dallas, TX.

COST’s 2025 Intermediate/Advanced Sales & Use Tax School

SALT Partner Jonathan Feldman will present “Manufacturing and Construction Sales Tax Concepts” at COST’s 2025 Intermediate/Advanced Sales & Use Tax School. His session will guide attendees through the differences in how states define “manufacturing” and what is considered taxable under a “construction contract.”

TEI Region 10’s 2025 Tax Conference

SALT Partners Michele Borens, Jeff Friedman, and Tim Gustafson will present the latest developments in apportionment and federal/state conformity issues during TEI Region 10’s 2025 Tax Conference, held in Dana Point, CA.

TEI CTO Webcast

Finally, SALT Partner Jeff Friedman will participate in a TEI CTO webcast tailored for executive leaders navigating the SALT landscape.

For decades, the sales factor has been a primary focus of state and local tax articles and a hot topic of discussion at conferences across the country, and the attention is well deserved. There has been no shortage of impactful legislative changes, interesting administrative rulings, and significant (and at times frustrating) judicial decisions regarding the sales factor. Most coverage, however, is devoted to the sales factor numerator.

But the sales factor denominator should not be overlooked. In this installment of “A Pinch of SALT” published in Tax Notes State, Eversheds Sutherland attorneys Ted Friedman, John Ormonde and Daniel Hopper suggest that there is a renewed focus on the denominator, in part driven by changes made under the Tax Cuts and Jobs Act of 2017.

Read the full article here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state recently passed a bill that raised the transient accommodations tax (i.e., hotel tax) from 10.25% to 11%?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Yesterday, the U.S. House of Representatives’ Energy and Commerce Committee released its draft reconciliation bill. This bill, which will go through markup today, includes the “Artificial Intelligence and Information Technology Modernization Initiative.” The Committee proposes a 10-year moratorium on states and political subdivisions “enforc[ing] any law or regulation regulating artificial intelligence models, artificial intelligence systems, or automated decision systems.”

While the term “regulating” is not defined, an exception within the provision implies the proposal will limit state and local taxation of AI unless the tax is “imposed in the same manner on models and systems, other than [AI], that provide comparable functions to [AI].” This prohibition is similar to the Internet Tax Freedom Act’s ban on “discriminatory taxes” (which is defined differently).

We will continue to monitor the proposed bill.

Meet Theodora, our May SALT Pet of the Month! With her royal presence, it was only fitting that her owner, SALT Associate Constance Chien, named her after Empress Theodora. Constance welcomed Theodora into her home three years ago when a neighbor was looking to rehome her, and it turned out to be the perfect match.

Theodora has a particular fondness for fishy treats, especially enjoying a bit of tuna before Constance makes a sandwich. She is an avid explorer, having ventured through Maine with Constance during the summer, and now she continues her adventures along the long hallway of their apartment building. Theodora is also extremely vocal, always having something to say whenever she encounters new things.

Her cuddly demeanor and regal disposition even managed to win over Constance’s mom, who was previously afraid of cats and is now considering getting one in the future. We are thrilled to have Theodora as part of the SALT Pet of the Month family!

This is the first edition of the Eversheds Sutherland SALT Scoreboard for 2025. Since 2016, we have tallied the results of significant taxpayer wins and losses and analyzed those results.

This edition includes discussions of the taxability of private line services and content delivery networks, as well as a spotlight on combined reporting decisions.

Dive into the Eversheds Sutherland SALT Scoreboard for the first quarter of 2025 now!

This week, the Eversheds Sutherland SALT team is gearing up for a series of exciting speaking engagements.

TEI Nashville Chapter’s Spring Tax Seminar

On Monday, May 12, 2025, SALT Partners Ted Friedman and Charlie Kearns will cover SALT cases to watch and policy considerations in Nashville, TN for the TEI Nashville Chapter’s Spring Tax Seminar.

TeleStrategies’ Communications Taxation Conference

In addition, our SALT team is pleased to again support this year’s Communications Taxation Conference, held May 13 – 15, 2025 in Nashville, TN. SALT attorneys Liz Cha, Maria Todorova, Eric Tresh and Chelsea Marmor will present on the following topics:

  • Liz Cha and Eric Tresh – State Tax Litigation Update
  • Maria Todorova and Chelsea Marmor – Old and New Frontiers: Gross Receipts Taxes, New Taxes/Fees and Legislative Trends

TEI Denver State and Local Tax Day

On May 14, SALT Partners Todd Betor, Michele Borens, Jeff Friedman, Ted Friedman and Tim Gustafson will present on a variety of state and local tax topics at the TEI Denver’s State and Local Tax Day. Sessions and speakers include:

  • Jeff Friedman and Michele Borens – Litigation and Legislative Roundup
  • Ted Friedman and Tim Gustafson – To Pay or Not to Pay, That is the Question?
  • Todd Betor and Ted Friedman – Are you Gross? Net?
  • Todd Betor, Michele Borens, Tim Gustafson, and Jeff Friedman – C-SALT: What Every Executive Should Know About State and Local Tax

NCSL SALT Task Force Spring 2025 Meeting

Finally, on May 16, SALT Partner Charlie Kearns will present during the NCSL’s SALT Task Force Spring 2025 Meeting. Among other topics, Charlie’s panel will provide an overview of taxes in the communications industry and their current state of play.

Stay tuned for more updates and insights from the Eversheds Sutherland SALT team!

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state recently approved a 25% residential property tax cut?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Supreme Court of Mississippi recently held that separate freight fees are not included in Mississippi use tax base. The taxpayer, Tennessee Gas Pipeline Company, paid use tax on certain tangible personal property that it used in Mississippi. It later paid freight charges to a third-party company to ship these goods to Mississippi and did not include the freight charges in its tax base for calculation of the use tax. Upon audit, the Mississippi Department of Revenue assessed use tax on the freight charges. The Supreme Court of Mississippi agreed with the taxpayer that the company’s purchase of the tangible goods from the seller constituted one closed transaction, while its later purchase of third-party shipping services to move those goods from one location to another constituted a second closed transaction. The Court therefore found that the freight charges were not subject to use tax. The Court noted, however, that had the seller participated in both the sale of the goods and the shipping of the goods, the freight charges would likely be part of the use tax calculation.

Mississippi Department of Revenue v. Tennessee Gas Pipeline Company, LLC, Docket No. 2023-SA-01079-SCT.

On April 17, 2025, the Michigan Tax Tribunal held that a business with only one brick and mortar location was entitled to apportion its income on its city income tax return because it engaged in business activities outside of the city. In this case, a business with only one brick-and-mortar location (located in Lapeer, Michigan) that made all of its sales to customers outside of the city apportioned its income under the permitted three-factor formula. However, pursuant to a 2018 regulation, the City of Lapeer argued that the business was not entitled to apportion its income, resulting in a 100% business allocation percentage to the city. 

Under Michigan law, a business may apportion its net profit out of the city “[w]hen the entire net profit of a business subject to the tax is not derived from business activities exclusively within the city.” In 2018, the Lapeer City Commission approved a regulation interpreting this law: 

“The fact that a person fills orders by shipment to an out-of-city destination, when such person has no regularly maintained and established out-of-city location and engages in no out-of-city business activity, does not entitle such person to apportion part of his net profit as being earned as a result of work done, services rendered or other business activity conducted out of the City.”

Reviewing the regulation, the Tribunal concluded that merely not having a business location outside of the city did not prohibit the business from apportioning its income. Rather, it must also engage in no out-of-city business activity. The Tribunal reviewed the business’ activities and found that it engaged in business activities outside of Lapeer because of the strategic planning activities of out-of-city employees. The Tribunal also rejected the City’s argument that the business was not earning net profit as a result of these strategic planning activities. Because the business engaged in business activities outside of the City, the Tribunal concluded that the business was entitled to apportion its income. 

Vidon Plastics Inc. v. City of Lapeer, MTT Dkt. No. 23-002017 (Mich. Tax Trib. Apr. 17, 2025).

This week, Eversheds Sutherland SALT Partners Michele Borens and Jeff Friedman will present at week two of the TEI Houston Chapter’s 2025 Tax School, discussing significant state tax litigation.

In addition, Partners Maria Todorova and Eric Tresh will serve as speakers at the State Tax Roundtable for Utilities & Power’s (STARTUP) 2025 Spring Conference. Their session will cover emerging issues in administrative deference.

Stay tuned for more updates and insights from our SALT team as they continue to lead discussions and share their knowledge at key industry events.

The last four months were active in New York tax law. In addition to numerous legislative proposals, decisions were issued in multiple court cases.

In this installment of NY Tax Talk, a quarterly column in Law360 focused on recent developments in New York tax law, Eversheds Sutherland attorneys Liz Cha and Chelsea Marmor discuss select decisions involving the application of sales tax, preferential tax rates, sourcing and the retroactive application of the New York Department of Taxation and Finance corporate franchise tax regulations.

Read the full article here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Several communities in which state have adopted a 1% local sales tax on groceries?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

A California appeals court held that taxpayers challenging city fees as unconstitutional without seeking a refund need not exhaust their administrative remedies. The taxpayers alleged that the City of Azusa’s sewer and trash franchise fees violated Proposition 218, Article XIII D of the California Constitution because the fees exceeded the cost of providing those services and the overage was transferred to the City’s general fund. The district court dismissed the taxpayers’ claim for failure to exhaust their administrative remedies, which required the taxpayers to pay the fees under protest and file a refund claim.

The appeals court reversed, holding that the taxpayers’ challenge to the fees sought relief outside of the statutory claims procedure for refunds because the taxpayers only sought mandate and declaratory relief. The taxpayers sought a writ of mandate directing the City to cease further imposition and collection of excessive solid waste service fees and to return all franchise fees transferred to its general fund during the past three years. They also sought a declaration that the City’s solid waste service fees violated and continue to violate Proposition 218. Accordingly, the taxpayer’s action did not involve any issue subject to determination through the administrative refund remedy.

Carachure v. City of Azusa, No. 22STCP03478 (Cal. App. 2025).

Members of our SALT team are excited to present at COST’s 2025 Spring Conference and Audit Sessions, held in New Orleans, LA from April 28 to May 1. Sessions will cover a wide range of topics, including digital products, transfer pricing, sales tax calculation solutions, and the application of AI and machine learning in state tax, among others.

Sessions and speakers from our team include:

  • Emerging Issues in Administrative Deference – Jonathan Feldman
    This session will explore how much consideration taxpayers should give to various types of administrative guidance from state taxing authorities and how courts’ views of administrative guidance have been shifting in favor of taxpayers in recent years.
  • Transfer Pricing and Intercompany Transactions – Documentation, Documentation, Documentation – Eric Tresh
    This session will explore the essential practices for documenting intercompany transactions from the outset, ensuring records are thorough and accurate to withstand audit scrutiny. It will also cover effective strategies for working with auditors to ensure that documentation is understood and any proposed adjustments align with the facts and applicable laws.
  • Best Practices in Maintaining Your Sales Tax Calculation Solutions – Charlie Kearns
    This session will focus on the importance of regularly reviewing and updating your sales tax calculation solution. 
  • Constitutional Issues – Jeff Friedman
    This session will delve into the constitutional challenges asserted by taxpayers. It will also discuss federal laws that preempt state taxes under the Supremacy Clause.

For more information and to register, visit the COST website. We look forward to seeing you there!

Meet Astro, a charming Basenji who belongs to Amanda Nelson, Senior Manager of Indirect Tax at Salesforce. Astro is three years old and got his name from the lovable and loyal character on the Jetsons. Astro’s unique breed is known for being “barkless” and for its curly, donut-shaped tail, making Astro a quiet and pawsitively handsome companion.

Astro loves to spend his days sunbathing like a cat, soaking up the warmth and enjoying the peacefulness. When he’s not lounging indoors, he and Amanda embark on various hikes and adventures around Seattle.

Another one of Astro’s favorite activities is stealing various items around the house, adding a touch of mischief to his otherwise pawfect demeanor. Whether it’s chasing squirrels or running behind a mountain bike, Astro’s playful nature keeps Amanda on her toes.

Welcome to the SALT Pet of the Month family, Astro!

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state enacted bills that would reduce the personal income tax rate and issue rebates of up to $500 to taxpayers?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

An Illinois appellate court held that a PepsiCo, Inc. subsidiary—Frito-Lay North America, Inc. (FLNA)—was not an 80/20 company excluded from PepsiCo’s unitary group. Illinois excludes 80/20 companies for the unitary group, where such companies have over 80% of their payroll and property from outside the United States. After a restructuring, PepsiCo created a single-member LLC as a division of FLNA to serve as a global employment company for expatriate employees. By including the expatriate employees in FLNA’s payroll factor, FLNA had over 80% foreign payroll. However, the court held that expatriate employees do not qualify as common law employees of the disregarded entity. Therefore, the court held that without those expatriate employees, FLNA’s foreign payroll did not exceed the 80% threshold to be an 80/20 company excluded from the unitary group.

PepsiCo, Inc. v. Ill. Dep’t, Nos. 16 TT 82, 17 TT 16, 2025 IL App (1st) 230913-U (Ill. Ct. App. Mar. 19, 2025).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Mississippi enacted a bill that would tax what type of beverage at a rate of 15.5%, more than double the state sales tax?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

During the 2025 legislative session, the Georgia General Assembly passed several notable tax related bills including further decreasing the income tax rate and extending the time period for taxpayers to protest and appeal the Department of Revenue’s assessments. Additionally, the legislature passed clean-up legislation to clarify procedural elements of the new Georgia Tax Court which will begin operations in 2026. Within 40 days (May 14, 2025), the Governor may sign or veto legislation that the legislature passed. If the Governor does not act, the bills become law.

The Georgia legislative session is two years. While the 2025 legislative session ended on April 4, 2025, bills that were introduced this session may still pass in the second year of the legislative session. A few of the tax bills to watch in 2026 are also described in our alert.

Read the full Legal Alert here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: In what northeastern state was a bill recently introduced that would repeal the state’s film tax incentives?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

In the latest episode of the SALT Shaker Podcast, Eversheds Sutherland Counsel Jeremy Gove and Chelsea Marmor explore a new, concise podcast format that provides updates on recent noteworthy cases.

Jeremy and Chelsea examine a New Hampshire court’s decision in Hologic, Inc. v. Stepp, covering the facts, the court’s holding, the analysis, and the case’s practical implications.

They wrap up the episode with a new segment, asking “either/or” – do you prefer the vernal equinox or autumn equinox?

You can read our summary of Hologic, Inc. v. Stepp here.

For questions or comments, email SALTonline@eversheds-sutherland.com. Subscribe to receive regular updates hosted on the SALT Shaker blog.

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The Supreme Court of Texas ruled that a corporation that owns and operates correctional facilities was not exempt from sales and use taxes as an unincorporated instrumentality of the United States or Texas. The corporation runs private prisons and enters into contracts with federal and state government agencies to house inmates. The Comptroller assessed the corporation for unpaid sales and use tax on supplies necessary to operate the facilities.  The corporation contended that it was a tax-exempt unincorporated instrumentality of the United States and Texas – a type of “governmental entit[y]” – because it performed quintessential government functions.

On appeal, the court concluded that the corporation failed to establish by a preponderance of the evidence that it was an unincorporated instrumentality of the federal and state governments. First, the corporation did not establish that it was an entity identified by the regulation as exempt. It could not prove that: (1) it is a military entity; (2) its contracts explicitly and unequivocally state that it was an agent of the governments; (3) it is wholly owned by the federal or state government, and (4) its contracts specifically named the corporation as an agent of the United States or Texas. Second, the court determined that the corporation also did not satisfy four of the six required characteristics to qualify as an otherwise exempt government instrumentality. 

GEO Group, Inc. et al. v. Hegar, No. 23-0149 (Tex. Mar. 14, 2025).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: The House of which midwestern state recently passed a bill that would changed the progressive tax structure with a flat tax structure?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Nevada Supreme Court found that the Nevada Department of Revenue’s (Department) attempt to ignore its email correspondence with a taxpayer violated “basic notions of justice and fair play.”

A Nevada statute requires that, in order to file a petition for judicial review of a tax deficiency, a taxpayer must first either pay the entire deficiency or enter into a “written agreement” with the Department. Prior to filing its petition, the taxpayer’s counsel communicated with a Department lawyer who responded with an email acknowledging an agreement. Nevertheless, the Department (amazingly) moved to dismiss the petition based on the startling contention that its email correspondence did not constitute a “written agreement.”

The Nevada Supreme Court found that the Department’s argument, that an email did not constitute a “written agreement” was “unpersuasive.” The court determined that the “most natural reading of the email is that the Department had come to an agreement” with the taxpayer. The court stated that a taxpayer should be able to rely on the advice they receive from the Department and that the Department “violated basic notions of justice and fair play.”

Hohl Motorsports, Inc. v. Department of Revenue., No. 87189 (Nev. Feb. 10, 2025).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state recently proposed a bill to provide various tax exemptions for the Women’s National Basketball Association All-Star Game when held in the state?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Merrimack County Superior Court held that the carryback long-term capital losses of one member of a unitary combined group can be used to offset the long-term capital gains of a different member of the group for purposes of computing the group’s Business Profits Tax. The New Hampshire Department of Revenue Administration argued that the group was not allowed to offset because its rule, N.H. Admin. R. Rev. 302.09, required each member of a unitary combined group to compute its gross business profits on an individual basis and did not allow the losses from one member to offset the gains of another member. The court held that the statute that required unitary combined reporting was ambiguous regarding the treatment of capital gains and losses. The legislative history, however, made clear that the purpose of unitary combined reporting was to treat the parent corporation and its subsidiaries as a single taxpayer and to prevent profit shifting across state lines. Thus, unitary combined groups are authorized to net the gains and losses of the group for purposes of computing the group’s gross business profits. The court also held that the rule improperly added and modified the statute, N.H. Rev. Stat. Ann. 77-A:6, IV, which “requires that members of a water’s edge combined to be treated as ‘one business organization.’”

Hologic, Inc. v. Stepp, Dkt. No. 217-2023-CV-282 (N.H. Super. Ct. Feb. 21, 2025).

Maryland is facing a $3 billion budget gap and is considering a host of tax hikes. On March 24, 2025, the Maryland House of Representatives Committee on Appropriations amended the state’s budget bill, House Bill 352 (cross-filed with Senate Bill 321) to include, among other things, a proposal to expand the sales and use tax base “to the licensing of media or software rights and other intellectual property,” certain “data or information technology service[s]” and “software or application software publishing service[s].”

If enacted, Maryland would become the first state to impose a retail sales and use tax on media rights in such a broad manner.[1] In 2021, Maryland expanded its tax to include streaming services. Now, under this proposal, Maryland would expand its tax to include the content licensed by the streaming services. A little bit of silver lining stems from the fact that this tax expansion is only at 3%, which is half of Maryland’s general sales tax rate. These changes – if enacted – take effect July 1, 2025. 

Background

The Maryland General Assembly has considered a number of business tax proposals to raise revenues to close the state’s significant budget gap. Assuming House Bill 352, as amended, is approved by the House, the legislation and its Senate companion will be finalized in conference committee where negotiations may result in subsequent amendments before the final version of the budget bill must be passed no later than Monday, April 7, 2025.

Media Rights and Other Intellectual Property

Examples of taxable media rights subject to sales and use tax in House Bill 352 include:

(i) software protected by copyright; licensing of rights to produce and distribute computer; (ii) licensing of rights to use intellectual property, including intellectual property protected by trademark or copyright; (iii) licensing of sporting event broadcast and other media rights; (iv) licensing of rights to broadcast television programs; (v) licensing of rights to broadcast television programs; licensing of rights to distribute specialty programming content; and (vi) licensing of rights to syndicated media content.

At this point, it is unclear how expansive “other intellectual property” will be interpreted by the Comptroller.

Data Processing, Information Services, and Software Publishing

House Bill 352 would also tax data processing and information technology services, including information services, as described in the 2022 Edition of the North American Industry Classification System (NAICS) sectors 518, 519, or 5415. Similarly, software publishing as described in NAICS sector 5132 would be subject to sales and use tax. This base expansion follows Maryland’s tax on digital products, including SaaS, that took effect on March 14, 2021. 

[1] Some states that impose broad gross receipts taxes, like New Mexico and Hawaii, tax some forms of intellectual property transactions, but not to the extent contemplated by House Bill 352, as amended.

On January 29, 2025, the Commonwealth Court of Pennsylvania held that a telecommunications company’s “non-voice” private line services were subject to the state’s gross receipts tax (GRT). The taxpayer described its services as offering “a dedicated, uninterrupted communications channel” by which their customers could “securely … and continuously transport voice, video and/or data as packets between specific fixed points.” After the Board of Appeals denied the taxpayer’s GRT refund petitions, the taxpayer appealed to the Commonwealth Court of Pennsylvania.

Pennsylvania imposes its GRT on the gross receipts from the “telegraph or telephone messages transmitted” of “every telephone company, telegraph company or provider of mobile telecommunications services.” 72 Pa. Stat. Ann. § 8101(a)(2). The taxpayer contended that its services were not subject to the GRT because they were “not voice services or otherwise telephone related.” Its private line services transported “high volumes of data at a capacity far in excess of low-capacity telephone messaging transmission to sophisticated customers.” 

However, in Verizon, the Pennsylvania Supreme Court previously made “clear that the [GRT] statute encompasses all technologies that have the function of transmitting messages, regardless of whether the mode is ‘voice, data, and/or video.’” (Emphasis added.) Further, the Pennsylvania Supreme Court had interpreted “telephone messages transmitted” to mean any service that makes “telephone communication more satisfactory.” The court also found persuasive that the Pennsylvania legislature has specifically exempted certain services sold by telecommunications companies, but not the non-voice private line services at issue here. The court thus concluded that the private line services were subject to the GRT because they “fulfill the purpose of making the process of transmitting messages more satisfactory.”

Level 3 Communications, LLC v. Commonwealth of Pennsylvania, Nos. 121 & 122 F.R. 2018 (Pa. Commw. Ct. Jan. 29, 2025) (unreported).

The California Franchise Tax Board’s method of taxing banks and financial institutions is consistently complex, and a bit messy. This complexity would worsen under the January budget proposal of California Governor Gavin Newsom to tax banks (and savings and loans) using single-sales-factor apportionment.

In this installment of “A Pinch of SALT” published by Tax Notes State, Eversheds Sutherland attorneys Eric Coffill and Megan Long explore the governor’s proposal and its potential implications. 

Read the full article here.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: Which state’s governor recently proposed eliminating its sales tax on groceries?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

In November 2024, voters approved Proposition M which provided for an overhaul of San Francisco’s gross receipts tax. (See our prior coverage here.) Proposition M changed the allocation and apportionment rules for most industries, generally requiring that three quarters of a taxpayer’s total receipts are allocated to the city on a market basis and one quarter are apportioned to the city using a payroll factor. On February 28, 2025, the Office of the Treasurer & Tax Collector released a draft market-based sourcing regulation (Proposed Regulation No. 2025-01) in the first step to provide official guidance on how to determine when receipts are allocated to the city. It was also announced that a public hearing held will be held on Tuesday, April 8, 2025 at 2:00 PM PST. The effective date for the proposed regulation is for tax years beginning on or after January 1, 2025.

Read the full Legal Alert here.

A content delivery network (CDN) services provider appealed the Department’s assessment of retail sales tax in which the Department determined that the taxpayer’s CDN services were “digital automated services” subject to the retailing B&O tax and retail sales tax. The taxpayer disagreed, noting that its CDN is a “backbone” component of the internet that its customers use to transmit their content to end users, and therefore falls within an exclusion for “the internet and internet access.” The taxpayer argued in the alternative that its CDN services qualify for a separate exclusion for “the mere storage of digital products” including “providing space on a server for web hosting.” Finally, the taxpayer contended that the Department improperly sourced its non-excluded retailing revenues to Washington. 

The Board found that the exclusion for “the internet and internet access” applies only to the “narrow range of services” the state is prohibited from taxing under the Internet Tax Freedom Act and the Supremacy Clause. The Board further found that while the CDN services that qualified as “web hosting” services were excluded from the definition of digital automated services, the amounts the taxpayer charged for services that enabled customers to modify or enhance their digital content were not excluded from the definition of digital automated services and were therefore subject to the retail sales tax. Finally, the Board found that the Department reasonably relied on the taxpayer’s “traffic reports” to source sales of digital automated services based on the location where the digital content is retrieved by end-users.

Limelight Networks, Inc. v. Washington Department of Revenue, No. 20-129 (Wash. Bd. Tax App. Jan. 8, 2025).

The Michigan Supreme Court held that a franchise fee imposed by the City of East Lansing and charged to customers by the Lansing Board of Water and Light (LBWL) violated Michigan’s constitution because the fee constituted a new local tax that was imposed without voter approval.

Under an agreement with the City, LBWL collected franchise fees from consumers. The plaintiff filed a class action against the City arguing that the franchise fee constituted a tax that was imposed in violation of the Headlee Amendment to the Michigan constitution, which requires voter approval for all new local taxes.

In ruling for the plaintiff, the Michigan Supreme Court determined that the franchise fee operated as a tax that was never approved by voters. The court applied the Bolt factors which distinguish between a tax and fee by looking to whether 1) the fee has a regulatory purpose and not a general revenue raising purpose; 2) the fee is proportionate to the cost of the service; and 3) the fee is voluntary.

The court reasoned that the fee was imposed for a general revenue raising purpose, as the amounts collected and remitted each year went into the City’s general fund. Next, the fee was not proportionate to costs incurred by the City for granting LBWL the right to provide electricity because the fee was not collected for purposes of providing electrical services—rather, the funds were used for general purposes. Finally, the fee was not voluntary because if consumers did not pay the fee, they risked the loss of electricity, and in effect, were compelled to pay the fee. Accordingly, the court concluded that the City’s imposition of the franchise fee through LBWL operated as a new local tax without voter approval and as such, violated the Michigan constitution.

Heos v. City of E. Lansing, No. 165763, 2025 WL 377503 (Mich. Feb. 3, 2025).

This week, we’re pleased to support Tax Executives Institute’s (TEI) 75th Midyear Conference, held in Washington, DC.

SALT Partners Michele Borens and Todd Betor will present during the conference, covering the below topics:

  • Audits and Litigation in SALT: Top Emerging Trends
  • SALT Income Tax Sourcing vs. Indirect Tax Sourcing: Key Differences and Implications

For more information, including this year’s complete agenda, click here.

The New York Tax Appeals Tribunal affirmed a Division of Tax Appeals (DTA) ruling, holding that deferred compensation earned by a partnership should be allocated to New York based on the business allocation percentage (BAP) from the year in which the services were performed, rather than the year in which the deferred income was recognized.

Taxpayers were individual nonresident partners of a partnership that recognized management fees in 2017 that it had earned and deferred in prior years pursuant to IRC § 457A. The partnership had operated exclusively in New York during the years in which the fees were earned and deferred, such that the BAP for those years would be 100%, but operated on a multistate basis in 2017, with a resulting lower BAP. Taxpayers sought to apportion the deferred fees recognized in 2017 using the lower BAP for that year. The Tribunal held that the deferred compensation is allocated by utilizing the BAP of the partnership for each of the tax years the services were performed, despite the compensation having been only been recognized in 2017. The Tribunal also upheld penalties, despite the taxpayer’s reliance on written advice from an accounting firm, stating that the taxpayer had failed to show that its reliance was reasonable where the professional advice contradicted guidance provided by the State.

Decision Nos. 830479 and 830481, N.Y. Tax App. Trib. (12/12/24).

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: A trial court in what state recently ruled that a capital loss carryback generated by a water’s-edge group member can be used to offset a gain generated by a different member for purposes of the state’s business profits tax?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

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: In Maryland, a bill was recently introduced that would impose a 2 cent per ounce tax on what kind of beverage?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

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: A lawmaker in which state recently proposed a bill that would provide a tax credit in exchange for donations towards a monument to honor basketball star Caitlin Clark and her college coach, Lisa Bluder?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Meet Senator Claude, our February SALT Pet of the Month! Due to his gentlemanly disposition and active political engagement, he was inaugurated as a Senator upon his adoption. He responds to both “Senator” and “Claude,” though his paw-rent Alla Raykin, counsel in our Atlanta office, calls him Claude.

Claude is 7 years old and was adopted from a rescue that found him in rural North Georgia. He enjoys hiking, swimming and going on runs with Alla, even accompanying her for a few 5Ks last year!

His preferred snacks are cabbage and broccoli; in exchange for these, he will give a high five or perform a dance for whoever gives him a treat. Despite his senatorial duties, Claude believes his job is to protect everyone and loves running errands where he can greet people at the store or coffee shop.

We are ecstatic about having such a cuddly and kind senator representing our SALT family. Welcome, Senator Claude!

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: In a recent budget proposal, the governor of which midwestern state proposed doubling the tax rate on sports betting wagers from 20% to 40%?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

Midway through 2024, and without any notice, the California Franchise Tax Board (FTB) pulled all Technical Advice Memorandums from its website. Overnight, decades of responses by the FTB’s Legal Division to FTB staff requests regarding the interpretation of existing tax law or the application of existing tax law to a specific set of facts literally disappeared.

In this installment of “A Pinch of SALT” published in Tax Notes State, Eversheds Sutherland Partners Tim Gustafson and Jeff Friedman discuss this disappearance and raise questions about the future of the FTB’s informal administrative guidance.

Read the full article here.

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: In which state was a bill introduced on February 3, 2025, to impose a surcharge on publicly traded companies that pay their executives significantly more than their regular workers?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Supreme Court of Ohio held that gross receipts from a taxpayer’s services performed out-of-state had situs with Ohio for purposes of the state’s commercial activity tax (CAT) because the benefit of the services was received in Ohio. The taxpayer provided dialysis services to patients in Ohio. To support the dialysis business, the taxpayer and its parent provided administrative and laboratory services from outside the state. The taxpayer filed a refund claim for the CAT paid on the gross receipts from the administrative and laboratory services. Under R.C. 5751.033(I), services are sitused to Ohio if the purchaser receives the benefit in Ohio. The taxpayer argued that the administrative and laboratory services should be sitused to the location where the services were performed. Under Ohio Admin. Code 5703-29-17(C)(28), healthcare services provided within and without the state may be reasonably allocated. 

In affirming the Board of Tax Appeals, the court held that while the taxpayer’s laboratory and administrative services were healthcare service, the services were ancillary to and supportive of the dialysis services provided entirely in Ohio and therefore must also be sitused to Ohio. 

Total Renal Care, Inc. v. Harris, Slip Op. No. 2024-Ohio-5685 (Ohio Dec. 9, 2024).

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: In which state was a bill recently introduced that would institute a $3 delivery fee for deliveries taking place in the state’s largest city?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

This week, Eversheds Sutherland SALT Counsel Chealsea Marmor is pleased to cover post-merger integration during the 2025 National Multistate Tax Symposium, held February 5-7 in Lake Buena Vista, FL. During her panel on February 6, Chelsea will explore post-restructuring integration, focusing on administrative efficiencies, best practices in SALT compliance, and fostering a harmonious business culture within the corporate tax function.  

The California Franchise Tax Board (FTB) has proposed amendments to its regulations that govern how sales of services and intangibles are sourced for income tax purposes. The changes to this income tax apportionment regulation will apply to nearly every corporation that pays California tax. Comments regarding these proposed changes are due no later than February 5, 2025.

Read the full Legal Alert here.

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: On January 21, 2025, the United States Supreme Court denied reviewing a closely followed state tax decision from which state?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

On January 21, 2025, New York Governor Hochul released her Fiscal Year 2026 Executive Budget and accompanying legislation (the Budget Bill). The Budget Bill includes a middle-class tax cut, a temporary personal income tax high income surcharge extension, and addresses a number of new and existing credits. It does not contain any new taxes or rate increases.

Read the full Legal Alert here.

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: The legislature of which southern state recently introduced a bill that would impose a $0.30 delivery fee on each retail delivery within the state?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Virginia Court of Appeals recently held that the Virginia Department of Taxation cannot make it a requirement for a corporation to include the income and factors of a 17% owned LLC with its own income and factors as a unitary business. The taxpayer obtained the interest in question in exchange for the sale of several travel centers to a buyer LLC during bankruptcy proceedings. The court based their decision on the facts that the taxpayer and the buyer were not centrally managed, the companies shared no business activities, derived no economies of scale, and obtained no cost efficiencies they would not have been able to get on their own from their relationship. This decision demonstrates that entities taxed as partnerships are not always unitary entities, despite the position of a taxing agency.

Commonwealth of Virginia Department of Taxation v. FJ Management Inc., Record No. 0701-23-2, Nov. 12, 2024.

The taxpayer, a wholesale drug distributor, was subject to the Wholesale Drug Distributor Tax which is imposed on the taxpayer’s gross revenues from selling prescription drugs. The taxpayer offered rebate programs which provided a discount on future invoices based on a customer’s purchases from the prior month/quarter. The taxpayer did not previously include the rebate amounts in its reported gross revenues and the Commissioner issued an assessment to add back the rebates. The taxpayer argued that gross revenues are defined as the “total amounts received in money or otherwise” and the taxpayer never received the rebate amounts because it was contractually obligated to return the rebates to customers. While the Commissioner argued that since the taxpayer pays rebates to customers in the month/quarter after the purchase is originally made, the taxpayer does receive the full invoiced amount.

The Minnesota Supreme Court determined that the plain meaning of the definition of gross revenues “is the entire amount that a taxpayer comes into possession of either through money or non-monetary benefits and goods.” Then, the court held that since the taxpayer does not have discretion in paying the rebate amounts to customers once they are earned, the taxpayer could not reasonably come into possession of the rebate amounts and thus the rebates should not be included in the taxpayer’s gross revenues for purposes of determining the amount of tax owed. The court rejected the Commissioner’s arguments that gross revenues should be interpreted as “the full amounts invoiced,” citing examples of returned goods or unpaid invoices that reflect amounts invoiced but not amounts received for purposes of the Wholesale Drug Distributor Tax.

Dakota Drug, Inc. v. Commissioner of Revenue, No. A23-1973 (Minn. Nov. 6, 2024).

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 state is currently considering the adoption of single-sales factor appointment for financial institutions?

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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The New Jersey Tax Court determined that a New Jersey-based couple was not required to include Section 965 amounts in New Jersey income, as deemed repatriated dividends are not subject to the New Jersey Gross Income Tax (GIT), New Jersey’s personal income tax.

The taxpayers owned several interests in controlled foreign corporations (CFCs) and in accordance with Section 965, included nearly $17 million in income on their federal Form 1040, despite not receiving any portion of this amount in cash or property. For New Jersey purposes, however, the taxpayers did not report any portion of the Section 965 income that was included in their federal taxable income. The Division audited the taxpayers, assessing a nearly $2.1 million deficiency.

The taxpayers appealed the deficiency directly to the New Jersey Tax Court, arguing that Section 965 income is not a specified category of taxable income under the GIT Act. The taxpayers further asserted that because Section 965 income is not dividend income, it cannot be considered a “deemed” dividend. In contrast, the Division asserted that Section 965 income is considered a deemed dividend at the federal level, and as such, should be taxable under the GIT Act.

The court ruled in favor of the taxpayers, noting that Federal taxable income is not used as the starting point for computing a taxpayer’s New Jersey GIT. Instead, when the state legislature enacted the GIT, it made a conscious decision not to incorporate the federal income tax model of including income from all sources and chose instead to limit income to specific categories. The GIT includes “dividends” as a specific category of income to be included in income, and defines a “dividend” to include only “distributions” in cash or kind.  N.J.S.A. 54A:5-1(f). Because the amounts required to be recognized under section 965 did not represent actual distributions of cash or property, the court determined that they were not “dividends” and that the taxpayers were therefore not required to include Section 965 income in their New Jersey income. The court also rejected the Division’s alternative argument that the amounts should be treated as “deemed” dividends, pointing out that the definition of “dividend” in section 54A:5-1(f) does not embrace “deemed” payments, in marked contrast to other provisions of the GIT.

Amin v. Director, Div of Tax., Docket No. 007430-2022 (N.J. Tax Ct. December 31, 2024).

Meet Hercules Mulligan, our January SALT Pet of the Month! Named after a character from the Broadway show “Hamilton,” Hercules lives with Dan Hopper, a SALT Associate in New York.

This adorable 4.5-year-old Boxer was adopted from a shelter in a Houston suburb. These days, Hercules is full of energy and loves chasing frisbees and taking nature walks through Central Park in NYC. His favorite treats are salmon skin and cheese. Despite sharing the name with a Greek hero, Hercules can be a bit skittish and skeptical, sometimes reminding his family of a cat. However, his bravery shone through when he recently alerted his family to an approaching black bear during a campfire outing. Kudos to courageous Hercules!

We are thrilled to welcome such a brave and heroic pup to the SALT family. Welcome, Hercules!

On January 8, 2025, a group of New York State Senators introduced S953, which proposes to increase the gross amount of GILTI under IRC § 951A included in the New York State business income base from 5% to 50%. This increase to corporations’ tax base is done by reducing the amount of GILTI excluded as “exempt CFC income” from 95% to 50%. A change to a 50% GILTI inclusion will put New York State on equal footing with New York City with respect to the amount of GILTI subject to tax. Presumably, New York State would continue to provide a sales factor denominator inclusion equal to the amount of GILTI included in business income – the inclusion going from 5% of GILTI to 50% of GILTI. The legislation does not change New York State’s nonconformity to the IRC § 250 deductions for GILTI and FDII. Those deductions are not included in calculating a corporation’s New York State business income bases.

Further, S953 proposes a graduated tax rate imposed on corporations starting in tax years beginning on or after January 1, 2026. This proposal raises the top rate from 7.25% to 14% for taxpayers with a business income base of more than $20 million. The rate is 8% for taxpayers with business income bases higher than $2.5 million and 12% for taxpayers with business income bases higher than $10 million.

As with most New York State tax legislation, the likelihood of either of S953’s proposals being enacted is generally dependent on whether they make it into the New York State budget legislation. The Eversheds Sutherland SALT team is monitoring S953, as well as all other New York State tax legislative proposals, and will continue to provide updates.

In his draft budget plan for Fiscal Year 2025-2026 released on January 10, 2025, California Governor Gavin Newsom proposed to bring financial institutions in line with most other corporate taxpayers when it comes to apportioning multistate income. Banks and “financial corporations” currently use a three-factor apportionment formula consisting of property, payroll and sales to apportion income. For California purposes, a financial corporation is a corporation that “predominantly deals in money or moneyed capital in substantial competition with the business of national banks,” except for a corporation whose principal business activity consists of leasing tangible personal property. (18 Cal. Code Regs. § 23183(a).) The governor’s proposal would replace the three-factor formula with the single sales factor formula that applies to most other multistate corporations. California’s special rules for computing a financial institution’s sales factor likely would remain the same. (See 18 Cal. Code Regs. § 25137-4.2(c).) The proposal is estimated to increase revenue by hundreds of millions of dollars each year.

The Washington Department of Revenue issued proposed guidance limiting the application of the multiple points of use (MPU) sales tax exemption for bundled software maintenance agreements.

The MPU exemption provides a retail sales tax exemption for the purchase of digital goods, prewritten computer software, remotely accessed prewritten computer software, digital automated services, and digital codes (MPU-eligible products) when those products will be concurrently available for use at one or more locations inside and outside of Washington.

The proposed guidance addresses retail sales in which a single nonitemized price is charged for the sale of a software maintenance agreement that provides both retail-taxable products, such as prewritten computer software updates, and non-retail-taxable products, like help desk services. These mixed element software maintenance agreements (MESMAs) are generally subject to retail sales tax, unless the retail-taxable products are a de minimis part of the agreement. The guidance aims to clarify how the MPU exemption applies to these agreements.

Under the proposed guidance, a MESMA that is otherwise subject to retail sales tax is eligible for the MPU if each of the following criteria is met:

  1. The MESMA includes one or more MPU-eligible products (e.g., prewritten computer software), and each MPU-eligible product is concurrently available for use inside and outside of Washington;
  2. The non-retail taxable products provided under the MESMA relate to the MPU-eligible product(s) of the MESMA (e.g., customer help desk support for the prewritten computer software); and
  3. The MESMA does not contain any retail-taxable product other than the MPU-eligible product(s) that are concurrently available for use inside and outside of Washington. 

The first of these criteria is particularly notable: if the MESMA includes an MPU-eligible product that is not made available outside of Washington, the entire MESMA is subject to retail sales tax. Take, for example, a MESMA that entitles a company to routine software updates and telephonic help desk support, with 40 of 100 users located in Washington, and to access to an online software self-help platform that is utilized by 5 IT staff in Washington. Because the self-help platform only has users in-state, the first criterion is not met. The third criterion likewise is not met because the self-help platform is not eligible for the MPU exemption. Thus, under the proposed guidance, the entire MESMA is subject to retail sales tax.

    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: Bills were introduced in the Michigan Senate that would increase the rate on sin taxes that apply to what type of activity?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    Apportionment formulas sometimes produce unfair results. To rectify the unfairness, taxpayers can (and should) use an alternative apportionment formula to apportion corporate income. In their article for TEI’s Tax Executive journal, Eversheds Sutherland attorneys Jeff Friedman and Sebastian Iagrossi focus on a troubling aspect of alternative apportionment— some states require pre-approval of an alternative apportionment formula. Pre-approval is not only bad tax policy, but it may also be illegal. 

    Read the full article here.

    The Arkansas Supreme Court held that a taxpayer’s interest expense is allocable to Arkansas resulting in a refund. This decision is an example of a taxpayer successfully arguing that it can fully deduct – rather than apportion – its interest expense in its state of commercial domicile. 

    Arkansas adopted the Uniform Division of Income for Tax Purposes Act (UDITPA). Pursuant to UDITPA, income and expenses are apportioned if they are, or are related to, business income. If, however, the income or expense constitutes, or relates to, nonbusiness income, the item is allocated to the taxpayer’s state of domicile. 

    The taxpayer, domiciled in Arkansas, was spun off from its parent company. As part of the spinoff transaction, the taxpayer incurred debt that was ultimately paid to its former parent company. On its originally filed Arkansas tax return, the interest expense related to this debt was deducted against its apportionable income. The taxpayer amended its Arkansas return to allocate (rather than apportion) the interest expense which resulted in a refund. The Arkansas Department of Finance and Administration (DFA) rejected the refund claim on the basis that the interest expense is properly classified as an apportionable expense. 

    The Supreme Court agreed with the taxpayer that the expense is properly allocable to Arkansas because the spinoff was an extraordinary, nonrecurring event. The court distinguished the spinoff debt from the taxpayer’s other borrowing. Interestingly, the court also rejected the DFA’s fairness argument – that it would be unfair to allow the taxpayer to allocate the deduction to Arkansas because the taxpayer apportioned the interest deduction on other states’ tax returns. The court concluded that “[i]t is not the role of this court to adjust Arkansas tax returns based on unfairness to Tennessee, Mississippi, or other states.” 

    Hudson v. Murphy Oil USA, Inc., 2024 Ark. 179.

    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: On November 5, 61% of voters in Charleston County, SC rejected a proposal to increase what tax?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    On November 20, 2024, the Pennsylvania Supreme Court concluded that its decision to invalidate a limitation (or “cap”) on net operating loss (NOL) carryforwards should be applied prospectively only.

    The issue of whether to provide retroactive relief to taxpayers injured by the NOL cap arose based on two of its prior decisions:

    • In Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth, 171 A.3d 682 (Pa. 2017), the Court struck down the NOL cap as violating the Uniformity Clause of the Pennsylvania Constitution.
    • In General Motors Corp. v. Commonwealth, 265 A.3d 353 (Pa. 2021), the Court had held that Nextel applied retroactively. That decision is now reversed.

    The Court applied the three-factor Chevron test developed by the United States Supreme Court, see Chevron Oil Co. v. Huson, 404 U.S. 97 (1971). Under the Chevron test, when considering whether to apply a decision retroactively, courts must consider: (1) whether the decision in question established a new principle of law; (2) whether retroactive application of the decision would forward the operation of the decision; and (3) whether the relevant equities favor prospective application. Because the Court found that each of the three factors supported the prospective-only application of Nextel, the Court determined that the General Motors Court erred in applying Nextel retrospectively.

    Alcatel-Lucent USA Inc. v. Commonwealth of Pennsylvania, No. 8 MAP 2023.

    Members of our SALT team are pleased to join the NYU School of Professional Studies’ 43rd Institute on State and Local Taxation, held December 16-17, 2024 in New York City. The Institute will provide insightful updates, practical advice, and in-depth analysis of the latest developments and current issues in state and local taxation. The full agenda can be found here.

    Sessions featuring members of our team include:

    • Transfer Pricing – Should Form Control? – Maria Todorova
      • In this session, panelists will review the nuts and bolts regarding intercompany transactions and state transfer pricing audits and discuss the key issues and updates.
    • Overview and Preview of Federal Constitutional Issues – Jeff Friedman
      • In this session, panelists will provide a spirited preview of the most significant constitutional cases in state taxation over the past year as well as a preview of important cases to watch in the coming year.
    • TaxTok – The Timely New Name for “What’s Happening Everywhere Today” – Jeremy Gove
      • Like its social media kin, TaxTok is a platform for sharing and discovering short topics. In this session, expert “influencers” will provide a rundown of what you need to know about SALT developments affecting taxpayers.

    Eversheds Sutherland is a proud sponsor of the Institute on State and Local Taxation. We hope to see you there!

    On November 18, 2024, the New York Tax Appeals Tribunal (TAT) determined that Sunoco, Inc. (R&M) Combined Affiliates (Sunoco) was not entitled to include receipts from buy/sell agreements in its New York receipts factor because they were derived from inventory exchanges, not bona fide sales for monetary consideration.

    Sunoco refined and marketed oil, and entered into buy/sell transactions to alleviate costs associated with the transportation of oil to a customer’s location. Between 2007 and 2010, Sunoco included the sell side of these transactions in the denominator of its New York receipts factor on the basis that it constituted sales of tangible personal property to third parties for a price and, therefore, bona fide sales for purposes of calculating the company’s business allocation percentage (BAP). The New York Division of Taxation disagreed at audit.

    On appeal, the TAT determined that the buy/sell transactions constituted exchanges of inventory, followed by a sale to an end customer.  The TAT stated that the transactions were not sales for purposes of Sunoco’s BAP calculation, “as they lacked independent economic substance separate from the end customer sale” and that Sunoco “would not have agreed to sell oil in a buy/sell transaction unless oil was to be acquired in return.”  Further, the TAT held that net-out agreements demonstrated the buy/sell transactions were actually inventory exchanges and not bona fide sales for monetary consideration. Accordingly, the TAT denied the refund.

    In re Sunoco, Inc. (R&M) Combined Affiliates, No. 829399 (N.Y. Tax App. Trib., Nov. 18, 2024).

    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: For tax years beginning after December 31, 2025, corporate franchise taxpayers that are part of a combined group in which jurisdiction will transition to the Finnigan method of apportionment?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    On Friday, December 6, 2024, the Texas Comptroller held a public hearing in Austin, TX regarding the proposed changes to the data processing regulation (section 3.330) published in the Texas Register on September 13, 2024. Several parties submitted written comments in response to the proposed regulation, including the Texas Taxpayers and Research Association (TTARA) and the Council On State Taxation (COST). Both TTARA and COST requested the public hearing.

    Eight individuals spoke during the hearing: two from TTARA, one from COST, two marketplace sellers, one representative from Dell Technologies, and two attorneys. The general undertone was that the Comptroller’s proposed rule exceeds to scope of the data processing statute, Texas Tax Code section 151.0035, and the expanding the statute is the legislature’s job, not the Comptroller’s.

    Several of the comments related to the proposed regulation’s preamble, specifically addressing:

    • The Comptroller claiming it has exclusive authority to interpret revenue laws;
    • The proposed regulation disavowing the essence of the transaction test in favor of the ancillary services test, when the essence of the transaction test was created by the Texas Supreme Court and the Comptroller does not have the power to overrule the Supreme Court; and
    • The notion that no one purchases data processing for its own sake, which multiple speakers highlighted as not being true and gave various examples of common data processing services that involve processing data.

    In addition to the comments targeting the preamble, multiple commentators also addressed:

    • The proposed regulation’s state and local sourcing provisions, with the speakers requesting additional clarity; and
    • The increased cost of doing business that the proposed change will impose on marketplace sellers.

    The Comptroller did not take questions and did not offer any comments in response to the testimony that was offered. The Comptroller concluded the hearing by stating that they are considering the written comments and the hearing testimony, and hope to publish the adopted version of the regulation in early 2025. The Comptroller also stated that the upcoming Texas legislative session may have an impact on the timing of the regulation’s implementation. Separately, legislation has been prefiled that would exempt payment processing services provided by marketplace providers.

    Members of our SALT team are looking forward to several presentations this week. Here are the highlights:

    California Tax Foundation’s 2024 Webinar Series

    On Tuesday, December 10, SALT Counsel John Ormonde will examine California local tax election results and identify potential trends in local tax policy. This session is part of the California Tax Foundation’s 2024 webinar series. Register here.

    TEI Ethics Webinar

    Also on December 10, SALT Partners Tim Gustafson and Dan Schlueter will explore ethical dilemmas facing state tax professionals as part of TEI’s second annual webinar series focused on ethics. Register here.

    2024 Georgia Department of Revenue and Tax Bar Liaison Committee Meeting

    On Wednesday, December 11, SALT attorneys Jonathan Feldman and Alla Raykin will discuss the establishment of Georgia’s new judicial branch tax court in an event hosted by the Tax Law Sections of the Atlanta Bar Association and State Bar of Georgia. Register here.

    2024 New Mexico Tax Law Symposium

    Also on December 11, SALT Partner Jeff Friedman will present a SALT litigation update during the 2024 New Mexico Tax Law Symposium. This day-long institute will focus on updates to New Mexico and federal tax law, equity considerations for tax practitioners, and the ethics of tax law practice.

    Please welcome our December SALT Pet of the Month, Rush! This six-year-old Collie resides with Jay Roberts, senior manager of international tax at Janus Henderson Investors, in the foothills of Denver, CO.

    This curious Collie got his name from his active personality, constantly running around as a puppy. He particularly enjoys going on hikes and camping with his family and has a penchant for Milk Bones. His only pet peeve is when the trash can is rolled up the driveway. Notably, this is the only time this Rush barks.

    At home, he has been known to stir up a bit of mischief. Rush is a huge foodie with a particular taste for Mexican food. One day, he found his way to a crockpot full of red chile beef when Jay was running an errand. When Jay returned, he discovered that Rush had eaten roughly three pounds of meat! As you can guess, Rush had quite a tummy ache, and Jay had to quickly come up with another plan for dinner. As for Rush, he would do it all over again, every single day of the week.

    We are pawsitively thrilled for Rush to join the SALT Pet of the Month family!

    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 state recently announced a tax amnesty program offering penalty waivers for eligible taxpayers?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    The New York Division of Tax Appeals (DTA) held that a taxpayer’s employment severance payment received over a year after her relocation out of the state was allocable to New York for personal income tax purposes.

    The taxpayer worked for a school in New York for 11 years before going on sabbatical leave and moving to Hawaii at the end of 2018. The taxpayer was terminated in June 2019 and she signed a separation agreement and release in February 2020 which provided for a severance payment. The severance amount was computed as a percentage of her salary plus health insurance costs.  The taxpayer testified that her severance package was intended to compensate her for the missed opportunity to work at another school for the school year and for a release of any known or unknown claims against the school.

    The DTA held that the severance was New York source income under Tax Law § 631 (b)(1)(F) as income received by a nonresident related to a business, trade, profession or occupation previously carried in New York, including termination agreements. Additionally, the taxpayer’s general release that listed a wide range of claims rather than a specific claim was in the nature of severance pay and not damages received in settlement of litigation.  Lastly, the DTA held that prior conflicting rulings were made before the legislative enactment of the above referenced subsection.

    Matter of Vora, Determination DTA No. 830987 (N.Y. Div. Tax. App. 2024).

    The Ohio Board of Tax Appeals held that automobile dealers were not subject to the Ohio Commercial Activity Tax (CAT) on their sales of motor vehicles because the purchase, receipt, and delivery of the vehicles took place entirely outside of Ohio. The Department of Taxation assessed the dealers, which were located in West Virginia, for the CAT. The Department claimed that gross receipts from its sales of motor vehicles to Ohio purchasers must be sourced to Ohio where the purchaser accepted the vehicle in West Virginia and then drove it to Ohio. The sourcing provision stated that the gross receipts from sales of tangible personal property are sitused to Ohio “if the property is received in this state by the purchaser.”  (Emphasis added.)

    The Board agreed with the taxpayer and held that the motor vehicle sale gross receipts were properly sitused outside of Ohio. The Ohio Supreme Court interprets the term “receive” to “include the taking of ‘delivery.’” Thus, if a person takes “delivery” of tangible personal property outside of Ohio, that person is “receiv[ing]” it outside of Ohio for CAT situsing purposes. The Board found the statutory language to be “plain and unambiguous.” Because the “entire vehicle sales transaction (i.e., purchase, receipt, and delivery)” occurred in West Virginia, the Board concluded that the Ohio customers “received” their vehicles in West Virginia, not Ohio.

    The Board also rejected the Department’s argument that the motor vehicle sales were sourced to Ohio pursuant to an additional sourcing provision: “In the case of delivery of the tangible personal property by motor carrier or by other means of transportation, the place at which such property is ultimately received after all transportation has been completed shall be considered the place where the purchaser receives the property.” Because the taxpayer had already delivered the vehicles to the customers in West Virginia, they “could not have been ‘delivered’ again once Ohio customers returned to Ohio.” In other words, “once [the automobile dealer] relinquished physical possession of the new or used car to the buyer in West Virginia, [the automobile dealer] could not again deliver physical possession of the vehicles for a second time by transportation or otherwise.”

    Straub Nissan LLC v. Harris, Case No. 2022-422 (Ohio Bd. Tax App. Oct. 23, 2024).

    On December 2, several members of our SALT team will present at TEI/IPT Silicon Valley SALT Conference on December 2.

    Speakers and topics include:

    • Michele Borens, Jeff Friedman, Charles Capouet – 2024 Litigation and Legislative Roundup
      • Jeff Friedman, Tim Gustafson – To Pay or Not to Pay, That is the Question!
      • Michele Borens, Liz Cha – Are You Gross? Net?
      • Michele Borens, Liz Cha – The Empire (State) Strikes Back: A New York Update for Non-New York Based Businesses
      • Jeff Friedman, Tim Gustafson and Charles Capouet – Uniformly Not Uniform

    In addition, members of our SALT team are pleased to present a SALT Day program for TEI’s Cincinnati-Columbus Chapter on December 5 in Grove City, OH.

    Speakers and topics include:

    • Jonathan Feldman, Tim Gustafson– Income Tax Update
      • Todd Betor, Alla Raykin– A Dash of SALT on the Deal: State and Local Tax Implications of Mergers & Acquisitions
      • Charlie Kearns, Madison Ball– Navigating remote work challenges: 2024 update and impacts in Ohio
      • Alla Raykin, Tim Gustafson–To Pay or Not to Pay, That is the Question!
      • Charlie Kearns, Madison Ball– Uniformly Not Uniform
      • Todd Betor, Jonathan Feldman– Accounting for SALT

    Find more information and register here.

    Finally, join SALT Partner Jeff Friedman for the TEI New York Chapter’s 61st Annual Tax Symposium. During the full-day program, Jeff’s panel will discuss best practices for managing SALT controversy. Register here.

    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 Midwest state’s lawmakers proposed a bill to grant a tax credit to employers providing paid parental leave to their employees?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    Courts have formulated more than a dozen legal canons of statutory construction specific to tax.

    In the October 2024 installment of “A Pinch of SALT” in Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman, John Ormonde and Kelly Donigan examine the application of statutory construction principles to conflicts involving allocation and apportionment statutes.

    Because an income tax must contain an allocation and apportionment regime to comply with the due process and commerce clauses of the US Constitution, these regimes should be treated as imposition statutes and not exemptions or deductions.

    Read the full article here.

    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: Colorado Governor Jared Polis wants to offer a film tax credit to attract what annual film festival to the state?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    Paws up for our November SALT Pets of the Month, Ozzie and Harriet! This pair of domestic shorthairs live with Eversheds Sutherland Associate Megan Long, who adopted them from a local humane society.

    These kitties are extremely playful and inquisitive. Harriet (with tabby coloring) is particularly fond of playing with the laser pointer and scaling their cat tree. Ozzie (who dons orange fur) loves being held up to take in the breeze by the window. They both enjoy sunbathing, birdwatching, and, of course, Churu treats are the cat’s meow!

    At home, Ozzie also likes to watch television with his family, while Harriet enjoys having a chat with them. This dynamic duo of brother and sister have large personalities, with Ozzie being a cuddly people-pleaser and Harriet being a shy but independent and affectionate kitty.

    We are excited to add these purrfect additions to the SALT Pet of the Month family!

    In the aftermath of the US Supreme Court’s 1984 decision in Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., federal judges became exceedingly deferential to administrative agencies’ interpretations of apparently ambiguously drafted laws. As the impact of Chevron evolved, flaws in its holding became apparent across almost every area of law, including tax.

    After 40 years, the US Supreme Court issued the long-awaited reversal of Chevron in Loper Bright Enterprises v. Raimondo earlier this year. The overturning of Chevron should not surprise state tax practitioners, who have seen the deference accorded to state revenue departments diminishing. And, state legislatures have begun responding to Loper Bright by enacting laws that require de novo review of — not deference to — administrative agencies in a wide range of cases, including tax.

    In their article for Law360, Eversheds Sutherland attorneys Jonathan Feldman and Cyavash Ahmadi provide context and background to the Loper Bright decision and discuss how states played a role in Chevron’s demise.

    Read the full article here.

    Eversheds Sutherland attorneys Jonathan Feldman, Maria Todorova, Chelsea Marmor and Laurin McDonald will help present an update on significant state tax issues for southeastern states during COST’s Southeast Regional State Tax Seminar on November 14.

    Sessions and speakers include:

    • Discussion of State Tax Cases, Issues & Policy Matters to Watch – Maria Todorova, Chelsea Marmor
    • Uniformly not Uniform – Jonathan Feldman, Chelsea Marmor

    Register here.

    This time last week, our SALT team embraced the spooky spirit for Halloween!

    Take a look at some of the cutest and coolest costumes our team conjured up this year.

    We’d love to see your SALT family costumes too! Share them with us at SALTonline@eversheds-sutherland.com.

    1. Legal secretary Melissa Bragg’s daughter, Madelyn, took on the day as Thing 2.
    2. Executive assistant Debbie Manders’ grandson, Jamison, commemorated this Halloween as the Invisible Man.
    3. Counsel John Ormonde’s daughters, Audrey and Betsy, celebrated as a pair of dinosaurs.
    4. Partner Charlie Kearns’ daughter, Ella, dressed as Odette, the swan princess.

    On November 5, voters cast their ballots to determine who would fill a variety of federal, state, and local offices. Several states also considered tax related ballot initiatives. We describe some of the more significant ballot initiatives and their results.

    Sales Tax

    There were a few states with ballot initiatives that would exempt items from the state sales tax. For example, South Dakota’s Measure 28 would prohibit the imposition of the sales tax on “anything sold for human consumption, except alcoholic beverages and prepared food.” However, voters overwhelmingly rejected this measure with approximately 70% voting No.

    In Nevada, Question 5, which was put forward by the Nevada Legislature, will exempt the sale of child and adult diapers from the sales and use tax. Voters approved this measure with approximately 70% voting Yes. The exemption goes into effect on January 1, 2025 and expires on December 31, 2050.

    In California, San Diego County’s Measure G would increase the sales tax by 0.5% and use the additional funding to repair and upgrade infrastructure. As of Wednesday (November 6) afternoon, voters have rejected this proposal with approximately 52% voting No. Similarly, the city of San Diego’s Measure E sought to increase the sales tax by 1%, but it appears voters have also rejected this proposal with approximately 51% voting No.

    Income Tax

    In Washington, Measure 2109 was on the ballot to repeal the controversial capital gains tax. However, voters soundly rejected the repeal with approximately 63% voting No.

    In Illinois, Question 2 requested voter’s opinion on whether the state should raise taxes on higher incomes in order to fund property tax relief. Voters responded favorably with approximately 60% voting Yes. However, it should be noted that Question 2 was an advisory opinion measure which allows government officials to gauge public opinion, but it is not binding.

    In Oregon, Measure 118 would have imposed a controversial 3% minimum tax on corporations with Oregon sales exceeding $25M and would have funded rebates of up to $1,600/year to all Oregon residents. However, the measure was widely opposed by both conservative and progressive groups and voters soundly rejected the measure with almost 79% voting No.

    Finally, in California, San Francisco’s Proposition M will make a variety of changes to the city’s business taxes including changing the rates for the gross receipts tax, the homelessness gross receipts tax, the overpaid executive gross receipts tax, and the administrative office tax. Voters agreed with enacting these changes with almost 70% voting Yes.

    Property Tax

    In North Dakota, Measure 4 would have eliminated most property taxes, making North Dakota the only state without property taxes. However, it also would have required the state to make annual payments to local governments to compensate for the lost property tax revenue. Ultimately, voters decided to keep the property tax, with almost 64% voting No.

    Administrative

    In Georgia, Amendment 2 will create the independent (i.e., judicial branch) Georgia Tax Court. This court will replace the Georgia Tax Tribunal, which is part of the executive branch. Appeals from the Georgia Tax Court will be to the Georgia Court of Appeals.  This amendment passed with 52% voting Yes.

    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 recently-introduced bill in Ohio would allow a state income tax deduction for overtime wages?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    Eversheds Sutherland SALT Counsel John Ormonde is pleased to help cover the latest developments in California tax at the 2024 Annual Meeting of the California Tax Bar and Tax Policy Conference. On November 7, John’s panel will explore the California OTA precedential process, including:

    – Nomination of cases
    – Precedential designation
    – Removal of precedential status

    Additionally, the panel will guide taxpayers and tax practitioners on how to get involved in designating or removing precedential status. For more information and to register, click here.

    The first challenge to New York’s corporate franchise tax regulations is already in high gear: Paychex Inc. v. Department of Taxation and Finance. Although New York’s corporate tax reform took effect January 1, 2015, it took the department almost a decade to adopt the regulations. For many years, the draft regulations received comments and concerns, especially regarding the potential retroactive application.

    In this installment of NY Tax Talk, a quarterly column in Law360 focused on recent developments in New York tax law, Eversheds Sutherland attorneys Liz Cha and Chelsea Marmor provide context to Paychex Inc.’s complaint and review the potential implications of the court’s final decision.

    Read the full article here.

    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 state’s legislature recently introduced a bill that would exempt energy-saving products and services from the sales and use tax?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    This week, Eversheds Sutherland Tax is proud to be a platinum sponsor of Tax Executives Institute’s 2024 Annual Conference, taking place in San Antonio, TX, from October 27-30. SALT Partners Liz Cha and Jeff Friedman will delve into pivotal topics shaping the future of tax, including navigating tax department leadership in a changing world and the evolving landscape of taxing intangible assets like data and digital goods.

    Additionally, SALT attorneys Charlie Kearns and Jeremy Gove will present during the 31st Annual Paul J. Hartman SALT Forum in Nashville, TN. This premier event offers industry professionals, practitioners, and state revenue employees a unique opportunity to explore significant national developments and trends in state and local taxation. Charlie and Jeremy will share their insights on oddball taxes and sales factor apportionment issues.

    At the Electronic Transactions Association’s Payments Compliance Conference, SALT Partners Michele Borens, Charlie Kearns, and Maria Todorova will discuss how payments companies should navigate changes related to state sales tax laws.

    Finally, SALT Partner Jeff Friedman will review significant, unusual and interesting SALT cases and developments during the 2024 Western States Association of Tax Administrators (WSATA) Annual Meeting on October 30 in Palm Springs, CA.

    Meet Cooper and Murphy, our October SALT Pets of the Month! Named after characters in the movie Interstellar, this delightful duo of galactic furballs resides with Sam Roberts, Tax Manager of Domestic Income Tax Planning & Controversy at Starbucks.

    These littermates are 6.5 months old and were recently adopted from an animal shelter in Woodinville, WA. As they continue to grow, Cooper and Murphy eat everything they’re fed but have a particular penchant for yummy Churus treats.

    When they’re not chasing after a laser pointer or taking a catnap, the two kitties find time in their busy schedules to dream of brand deals and social media influencing gigs. We better pounce on getting their signatures now, before they get too fur-mous!

    Welcome to the SALT Pet of the Month family, Cooper and Murphy!

    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 city’s residents will vote on a substantial overhaul to the city’s gross receipts tax on their November ballot?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    In an article published by Savannah Morning News, Eversheds Sutherland SALT Partner Jonathan Feldman discusses a proposed constitutional amendment on the Georgia ballot this November that would create a new judicial branch tax court with the same judicial power as superior courts. Appeals from the new tax court would go directly to the Georgia Court of Appeals, bypassing the need to go through the Fulton County Superior Court, which can be time-consuming and costly.

    According to Jonathan, this change would make the process more efficient for taxpayers and reduce the burden on the Fulton County Superior Court.

    Read the full article here.

    Eversheds Sutherland SALT Partners Todd Betor, Jeff Friedman, Charlie Kearns, Dan Schlueter and Maria Todorova are pleased to present during the 2024 Broadband Tax Institute (BTI) Annual Conference, held this year in Palm Beach, FL from October 21-23. They will provide their input on a variety of topics, including state tax litigation, state tax policy, insurance tax planning, federal and state regulatory fees, and property tax developments.

    Sessions and speakers include:

    • State Tax Litigation – Jeff Friedman
    • State Tax Policy – Charlie Kearns
    • Tax Planning Insurance – Todd Betor
    • Federal & State Regulatory Fees – SUSF, 988, 911 – Maria Todorova
    • Property Tax – Current Developments/Litigation – Dan Schlueter

    Register here.

    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: Recently, a bill was introduced in the Ohio Legislature that would permit taxpayers to pay state and local taxes and other government fees using what type of payment method?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    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: North Carolina Governor, Roy Cooper, recently vetoed a bill that would have increased funding of what type of education-related program?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    On October 9, 2024, the D.C. Tax Revision Commission met to finalize their tax recommendations to the D.C. Council and Mayor. However, the Commission did not reach a consensus and instead opted to perform additional research.

    The D.C. Tax Revision Commission’s last activity was to issue a Revised Chairman’s Mark in July 2024. That document included two controversial proposals: new Business Activity and Data Excise Taxes. The Commission was then scheduled to meet a few days later to finalize its recommendations, but the meeting was instead abruptly cancelled. 

    During the October 9 meeting, the Chairman proposed to meet again in one to two weeks to decide on additional topics of research. After that, the Commission would then engage in a further three months of research before settling on final recommendations. However, he expressed a desire to move forward without the Business Activities Tax proposal.

    Eversheds Sutherland will continue to follow the activities of the D.C. Tax Revision Commission and follow up on the Commission’s proposed additional research. You can read more about our critique of the Commission’s recent tax proposals in the September 2024 installment of “A Pinch of SALT” in Tax Notes State.

    In response to concerns that the District of Columbia needed to explore new or broadened revenue sources, the D.C. Council established D.C.’s Tax Revision Commission to comprehensively review the District’s tax code. The Commission’s mandate is to make tax policy recommendations, and it began meeting in 2022 with the intent of making tax recommendations to the council and mayor. Throughout 2023, the Commission met with tax and fiscal policy experts, as well as community and industry representatives. Based on these meetings, it drafted and released a list of proposals for review, including the creation of a data excise tax and business activity tax. The Commission is scheduled to hold its next meeting on October 9 to finalize its recommendations.

    In the September 2024 installment of “A Pinch of SALT” in Tax Notes State, Eversheds Sutherland attorneys Charles Kearns and Charles Capouet critique the Commission’s recent tax proposals, noting that they are dubious and may be subject to legal challenges.

    Read the full article here.

    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 state’s Tax Court recently released an opinion holding that repatriation income under IRC Section 965 could be included in the apportionment formula?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    On Tuesday, October 1, SALT Partner Jeff Friedman is pleased to present at the 2024 Midwestern States Association of Tax Administrators (MSATA) Annual Meeting, held in St. Louis, MO. Jeff will help cover significant, unusual and interesting SALT cases and developments.

    For more information and to register, click here.

    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: A lawmaker from which east coast state’s legislature recently proposed a bill that provides an income tax deduction for cash tips?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    This week, members of Eversheds Sutherland’s SALT team are pleased to present at the 55th Annual Council On State Taxation (COST) meeting in St. Louis, MO, covering key topics like Loper Bright’s impact on state tax authority and taxpayer deference, the MTC’s Joint Audit Program, and more.

    Sessions and speakers include:

    • The MTC Audit Program – The Benefits and Detriments of the Program – Michele Borens
    • The Impact of Loper Bright on State Tax Authority and Taxpayer Deference – Jeff Friedman
    • Everything That is Old is New Again – The Push for Mandatory Worldwide Combined Reporting – Tim Gustafson
    • Say What? First Amendment Challenges to State and Local Taxes – Alla Raykin

    Register here.

    Meet the marvelous Mr. Momo! Donning a name fit for a (sleepy) god, this two-year-old tabby cat reigns supreme in the home of Olivia Dibb, a SALT staff attorney based in Atlanta.

    Olivia brought Momo (short for Morpheus) home after a serendipitous visit to see a group of foster kittens. Momo’s quick nap in Olivia’s lap sealed the deal, leading to a life of luxury filled with endless naps and an abundance of snacks. This mischievous kitty has a particular fondness for treats that are off-limits, like chocolate, always keeping Olivia on her toes.

    When he’s not on a snack hunt, Momo is on a mission to open every closed door in sight, firmly believing in the mantra “sharing is caring.” His curiosity knows no bounds!

    Welcome to the SALT Pet of the Month family, Momo! 

    The Texas Comptroller of Public Accounts held its annual briefing in Austin on September 17 and provided taxpayers with updates regarding audit staffing shortages, pending litigation, recent guidance and related topics.

    Solutions for a Texas-Sized Audit and Hearings Backlog

    Audit Assistant Director Rosie Julius said that the agency continues to struggle with staffing issues due to increased hiring competition from oil and gas industry, consultancies and the IRS. The Comptroller is roughly 100 auditors short of its target staffing level and hopes to alleviate the problem with changes to its qualification requirements, hiring cycles and office-specific staffing targets. In the past five years, staffing levels at the audit division have fluctuated from a high of 589 to a low of 445, and the Comptroller’s audit volume targets do not change when staffing levels drop. Given the influx of new, inexperienced auditors, taxpayers are encouraged to reach out to audit supervisors if they experience service issues.

    The Audit Division implemented the following procedures this year to help increase the efficiency of audits, such as:

    • Bringing forward assignments that use prior audit findings and error percentages to apply to current audit period. (Not available for assignments that were previously settled).
    • Redistributing audits from the Dallas and Houston offices to other offices with staffing ability (or remote auditors), but assigning local auditors for taxpayers that want field visits.
    • Using contract tax examiners for smaller audits. These 35 contractors have completed 1,055 assignments and refunds in FY 2024. Notably, these contractors have used personal email addresses and computers, which raised privacy concerns for some taxpayers.
    • Allowing auditors to approve or deny the research and development (R&D) credit rather than requiring all R&D credit issues to be handled by HQ staff. (Although HQ still appears to be heavily involved in many R&D cases).

    The Audit Division is supported by the new Tax Resolution Section of the Hearings Division, which Senior Counsel for Tax Resolutions Matt Jones recently transferred to. This section also offers Independent Audit Review Conferences (IARC), which can help resolve audits before they are billed. The approximate turnaround time for a decision after an IARC is 90 days from the date of the conference but has been quicker recently due to the low volume of conferences.

    Hearings and Tax Litigation General Counsel Jim Arbogast said that a number of R&D hearings are pending and his division is working on reducing the high amount of “aging” cases that have been pending over two years. Tax Hearings Attorney Supervisor Dan Neuhoff added that since September 2021, the number of total hearings has crept up to about 1,700 for a staff of 15 hearings attorneys and two supervisors. Tax Litigation Attorney Bree Boyett said that the Comptroller is willing to consider settlement offers from taxpayers interested in having a more expedient resolution to their cases and that approximately two thirds of cases are settled. 

    Texas Tax Policy and Guidance

    Tax Policy Director Jenny Burleson said that her division is issuing fewer private letter ruling (“PLR”) requests in favor of publishing more regulations in a timely manner. If a taxpayer really wants a PLR and is willing to wait, they should reach out to the tax policy division directly.

    Direct Tax Team Lead Julian Daniels (J.D.) highlighted recent franchise tax developments, including the increase of the no tax due (NTD) threshold from annualized total revenue of $1 million to $2.47 million. See Tex. Tax Code § 171.002(d). The tax policy team also released two recent audit memos on benefits for the compensation subtraction (202310005M) and determining the statute of limitation when a taxpayer requests an extension for the report period (202408001M).

    Indirect Tax Team Lead Julio Mendoza-Quiro also covered a myriad of guidance released by the Comptroller since the last annual briefing. Highlights include:

    Rule changes:

    • Proposed Rule 3.330 (Data Processing Services), was published in the Texas Register on September 13, 2024 with significant revisions to the current rule, including the expansion of “data processing” to specified online services and revocation of the “essence of the transaction” test for data processing transactions in favor of an “ancillary” test. This proposed rule was also the subject of a recent op-ed by Comptroller Hegar. Eversheds Sutherland is closely monitoring Proposed Rule 3.330, with separate alerts forthcoming. The public comment period for this rule closes October 13, 2024.
    • Rule 3.334 (Local Sales and Use Taxes), was adopted and effective July 4, 2024 and is subject of a trial set for October 14, 2024. Some municipalities with processing facilities object to the sourcing provisions in the rule which prevent them from assessing local sales taxes on orders.

    Memorandums:

    Private Letter Rulings:

    • 202402021L – Stating that tax applies to lump-sum monthly rental charge covering the rental of equipment, software, leasehold improvements, and training services.
    • 202402023L – Holding that a taxpayer’s website analytics products and services are not information services, but rather taxable as data processing or as the sale or license of software. (See also 202402020L addressing the taxability of website design, marketing and consulting services).
    • 202407022L – Determining that materials incorporated into the construction of railroad tracks or roadbeds (“riprap”) are essential to the operation of locomotives and trains and are exempt from sales and use tax. This includes items such as sub-ballast, riprap, and steel and precast culverts.

    Noteworthy Cases

    Cases highlighted during this year’s annual briefing include:

    • Hibernia Energy LLC v. Hegar – The Supreme Court of Texas declined to review this case in which the state argued that a taxpayer’s gains the sale of oil and gas property, which it did not include on line 11 of schedule K of its federal partnership tax returns were reportable as income. This case is significant because it is the first to address how flow-through status for federal purposes is converted to taxable entity status for Texas franchise tax. 
    • Anadarko Petroleom Corp v. Hegar – A dispute regarding whether a $4 billion payment related to the Deepwater Horizon oil spill is a cost of goods sold for franchise tax purposes.
    • NuStar Energy LP v. Hegar – A case where the Comptroller’s position is that a taxpayer’s bunker fuel sales are sourced to Texas despite the fuel being purchased by out-of-state customers and a federal ban on the use of this fuel within 200 miles of the U.S. coast.
    • RJR Vapor v. Hegar – A dispute about whether a taxpayer’s pouches (VELO) containing nicotine isolate were taxable as a tobacco product.
    • Geo Group Inc. v. Hegar – A case concerning whether a for-profit prison company is an instrumentality of the state such that it is entitled to the government sales and use tax exemption.

    Finally, Comptroller staff noted that future tax cases will be heard by Texas’ new Fifteenth Court of Appeals. The court has exclusive statewide civil intermediate appellate jurisdiction over appeals involving the State and its officers and challenges to the constitutionality of a state statute, such as a tax law. The court also has exclusive jurisdiction over appeals from the Texas Business Courts, involving cases dealing with business disputes valued at more than $10 million.

    A Steady Economic Outlook

    In his opening remarks, Comptroller Glenn Hegar noted that the state continues to have healthy cash reserves and rainy-day funds compared to peer states. Revenue Estimating Division Director Tetyana Melnyk reported that the economic growth for Texas is stable with slightly higher growth rates expected for 2024 and slightly lower than average growth rates expected for 2025. Inflation also helped Texas revenues by contributing approximately 18 billion in additional sales tax collections over the past three years. Texas’ sales tax inflation boost offset the impact of sales tax declines associated with the depletion of excess pandemic-related household savings, which appear to have been completely exhausted around March of 2024. Where any of Texas’ surpluses will make lawmakers amenable to taxpayer-friendly changes in the next legislative session remains to be seen and will be covered in next year’s Texas Comptroller Annual Briefing.

    Coverage of Previous Briefings:

    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: Earlier this year, the American Catalog Mailers Association (ACMA) successfully challenged California’s recent guidance on P.L. 86-272, modeled after the Multistate Tax Commission’s (MTC) revised P.L. 86-272 guidance. AMCA recently filed a motion for summary judgement in which other state to challenge a state regulation that is based on the MTC’s revised P.L. 86-272 guidance?   

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    On Wednesday, September 18, SALT attorneys Michele Borens, Jeff Friedman, Maria Todorova and Jeremy Gove will provide various SALT updates to TEI’s Seattle Chapter.

    Sessions and speakers include:

    • Jeff Friedman – WA DOR update
    • Michele Borens, Jeremy Gove – To Pay or Not to Pay, That is the Question!
    • Jeff Friedman, Maria Todorova – Are You Gross? Net?
    • Michele Borens, Jeff Friedman, Maria Todorova – Uniformly Not Uniform

    At long last, the California Franchise Tax Board (FTB) issued a Notice of Proposed Rulemaking today to amend FTB’s market sourcing regulation: California Code of Regulations, title 18, section 25136-2 (“Reg. 25136-2”). This is the latest step in a long journey that began over seven years ago, when FTB held its first interested parties meeting (IPM) on the subject in January 2017. After five additional informal IPMs, each with its own iteration of draft amendments, the governing three-member Board authorized the agency to begin the formal amendment process in September 2021. Now, three years later, that process begins.

    The proposed amendments largely mirror those found in the draft circulated in advance of FTB’s last informal IPM in June 2021. Among other things, the amendments include simplifying presumptions for sourcing receipts from services related to real property, tangible personal property, and individuals, special sourcing rules for receipts from asset management services, and a special assignment rule for professional services provided to more than 250 customers. See our prior coverage (here and here) for additional information on the proposed amendments and background on the entire process. If adopted, the amendments will apply to taxable years beginning on or after January 1, 2024.

    FTB will accept written comments on the proposed amendments until October 31, 2024. FTB also will hold a public hearing on the draft language if it receives a written request for a hearing at least 15 days prior to the close of the comment period.

    From back-to-school shopping to packing lunchboxes, it’s clear the new school year has already begun! Let’s look forward to another season of growth and early mornings as we move into fall.

    Amidst the excitement of the new school year, we gathered some photos from members of our Eversheds Sutherland SALT family. Join us in celebrating these young scholars and wishing them a successful year! 

    1: Legal secretary Melissa Bragg’s daughters Madelyn (5th grade) and Emma (11th grade)

    2, 4: Associate Cat Baron’s son Beau

    3: Partner Jonathan Feldman’s son Micah (6th grade)

    5: Counsel John Ormonde’s daughters Audrey and Betsy

    6: Paralegal specialist Jaime Lane’s son Cooper (9th grade) and daughter Cassidy (7th grade)

    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 state’s supreme court recently agreed to hear a case involving the denial of a sales and use tax exemption to a private correctional facility because it failed to establish that it was an agency or instrumentality of the state or federal government?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    The Iowa Department of Revenue ruled that while a data center property owner and its tenant can both independently qualify for the sales tax exemption for data center businesses, the property owner and the tenant cannot aggregate their investments to meet the minimum investment requirement. Iowa law provides a sales tax exemption for data center businesses for the price of computers and equipment necessary for maintenance and operation of the data center business and property. Iowa Code § 423.3(95). To qualify for the exemption, the businesses must meet certain requirements, including a minimum investment made at an Iowa location of two hundred million dollars within the first six years of operation in Iowa. The DOR found that the language of the exemption (“an entity whose business among other businesses, is to operate a data center”), indicated that a data center business consists of a singular entity and therefore did not allow for two data centers to both qualify under the same set of facts. The DOR further found that the tenant and property owner could not aggregate their investments to meet the minimum threshold because the statute does not contain words such as “collective,” “aggregate investment,” or similar language. However, the DOR found that a data center property owner and a data center tenant based at the same physical location can both qualify for the exemption as long as they each independently meet the minimum requirements.

    In the Matter of T5 Data Centers LLC 3344 Peachtree Rd NE Atlanta, Georgia 30326, Iowa Declaratory Order No. 439443.

    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 state’s legislature recently concluded a special session by enacting property tax relief that caps local property tax growth and distributes property tax credits to school districts?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    The New York State Division of Tax Appeals determined that income from the vesting of restricted stock units of a nonresident taxpayer were subject to New York State personal income tax based on the taxpayer’s performance of services in New York during the restricted stock units’ vesting period. The Tribunal also determined that dividends on stock paid out of a deferred compensation plan were not New York source income because the stock on which the dividends were paid had vested before the dividends were issued.

    There were two sources of income at issue for the nonresident taxpayer: income from the vesting of restricted stock units and dividends paid out of a deferred compensation plan on restricted stock units that had substantially vested.

    The nonresident individual taxpayer argued that the income from the vesting of the restricted stock units was New York source income only to the extent that the taxpayer worked in New York (i.e., a workday allocation method). However, the administrative law judge concluded that the restricted stock units fell within the ambit of a state tax regulation governing the determination of New York source income from restricted stock, 20 NYCRR 132.24. That regulation provided that income from compensation received from stock appreciation rights or restricted stock is New York source income if at any time during the “allocation period” a nonresident individual performed services in New York State for the corporation granting such options. The allocation period is the time from when the stock was received to the earliest of the date that the stock is substantially vested, the individual’s services terminate, or the date that the stock is sold. 

    With respect to the dividend income, the ALJ determined that, because the stock on which such dividends were issued had vested prior to the issuance of the dividends, the dividends were “clearly not taxable” to the nonresident taxpayer.

    In the Matter of the Petition of Adams, Det’n DTA No. 850026 (N.Y. Div. of Tax App. Aug. 8, 2024).

    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: Earlier this month, which east coast state enacted a law providing, among other things, tax credits for converting vacant office buildings into residential units?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    Have you ever wondered what goes on behind the bench?  

    Join us for the State & Local Tax Controversy Track of TEI’s 2024 Audits & Appeal Seminar.   This year’s seminar includes a panel of distinguished state tax judges moderated by Professor Rick Pomp. The judges will provide their perspective on state tax controversies and reactions to the arguments that they hear.

    State Tax Judges Panel

    • Judge Cheryl Akin, California Office of Tax Appeals
    • Hon. Justin L. McAdam, Judge of the Indiana Tax Court
    • Matt Boch, Chief Commissioner of the Arkansas Tax Appeals Commission

    Register now!

    For more information, please contact: meetings@tei.org

    The Massachusetts Appellate Tax Board (ATB) struck down a $17.9 million assessment and held that State Street Corp. (State Street), a bank holding company under the Bank Holding Company Act of 1956, was entitled to approximately $14 million in Massachusetts research tax credits because Massachusetts state tax provisions did not prohibit bank holding companies from benefiting from research credits.  

    State Street filed combined reports, including within such reports two financial institutions: State Street Bank Trust Company and Charles River Systems, Inc. State Street ultimately claimed nearly $14 million in research tax credits on its combined return. The Massachusetts Department of Revenue (Department) audited State Street and determined that it was not entitled to claim such credits under Massachusetts law, asserting bank holding companies were taxed under a different provision than general business corporations and as such were ineligible for research credits.

    The ATB rejected the Department’s argument, reasoning that the statute did not limit credit eligibility based on the type of business corporation claiming the credit. As such, the ATB determined that the research tax credit provided under G.L. c. 63, § 38M was available to bank holding companies, and therefore, State Street properly claimed the tax credit.

    State Street Corp. v. Comm’r of Revenue, Docket No. C344139 (Mass. App. Tax Bd. Aug. 15, 2024).

    California’s 2024 tax landscape seems darker than ever. A “no tax increase” budget that increases taxes. Precedential decisions without any precedential effect whatsoever. But don’t despair! Glimmers of hope remain as taxpayers push back at the agencies and courts make headway. On August 27, join Eversheds Sutherland attorneys Tim Gustafson and Eric Coffill as they discuss all things California tax in their second California tax developments webinar of the year.

    There’s still time to register here.

    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: The U.S. Department of the Treasury recently announced that this New England state would join the IRS Direct File program for the 2025 filing season.

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    The Massachusetts Appellate Tax Board (ATB) determined that a New Hampshire resident attorney, employed by a Massachusetts-based federal agency, was not entitled to a personal income tax refund for days he did not physically work in Massachusetts during the coronavirus pandemic.

    In April 2020, Massachusetts implemented emergency regulation 830 CMR 62.5A.3, which required nonresident employees who worked remotely from March 10, 2020, to September 13, 2021, to compute their apportionment percentage in one of two ways, whichever resulted in lesser tax: 1) nonresident employees could apportion their income based on the percentage of work performed in Massachusetts in January and February of 2020; or 2) nonresident employees could apportion income based on their 2019 (pre-COVID-19) apportionment percentage, if they worked for the same employer. On his 2020 return, the taxpayer reported 260 days worked in Massachusetts and received a refund of $119. The taxpayer proceeded to file an application for abatement, seeking an additional refund of $3,919 on the basis that he only worked 54 days in Massachusetts during the 2020 tax year. The request was deemed denied, and the taxpayer appealed.

    On appeal, the taxpayer argued that 830 CMR 62.5A.3 violated his rights under the Due Process and Commerce Clauses of the U.S. Constitution due to lack of taxable nexus with Massachusetts. In agreeing with the Commissioner’s determination, the ATB concluded that several states implemented similar rules during the pandemic (e.g., New York), the taxpayer’s employer did not change his duties or adjust his withholding, and the taxpayer did not question Massachusetts’ taxation of his income prior to the pandemic when he worked remotely two days per week. Notably, the ATB cited South Dakota v. Wayfair, stating that physical presence is no longer a touchstone of constitutionality, and as such, where there is sufficient nexus, the Due Process and Commerce clauses do not prevent Massachusetts from imposing an income tax on non-resident remote workers. Further, the ATB contrasted the issue before it to Comptroller Maryland v. Wynne, reasoning that even if another state had sought to tax the taxpayer’s income, he, unlike the taxpayer in Wynne, would have been entitled to a full credit under 830 CMR 62.5A.3.

    Accordingly, the ATB determined that because Massachusetts continued to confer benefits such as police, fire, and road maintenance on the taxpayer’s employer in the state during the pandemic, the taxpayer was rightfully taxable by Massachusetts for the days he worked in New Hampshire.

    Sakowski v. Commissioner of Revenue, Docket No. C347594 (Mass. App Tax Bd. July 8, 2024).

    In one fell swoop, Loper Bright rebalanced the way in which federal courts will apply federal regulations and other administrative guidelines.

    In his Board Brief for Tax Notes State, Eversheds Sutherland SALT Partner Jeff Friedman explains how the U.S. Supreme Court’s decision to reverse Chevron will have short-term and long-term consequences regarding the application of state tax regulations and other administrative guidance.

    Many states never adopted Chevron deference in the first place. And those states that have adopted it, will now reconsider it.

    Read the full article here.

    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: Last week, the California Office of Tax Appeals released a decision saying that the process of making what substance for its customers was a taxable sale of tangible personal property?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    There’s still time to register! On August 13, join Eversheds Sutherland SALT attorneys Charles Capouet and Cat Baron for a review of the long-standing SALT Scoreboard publication and the important state tax cases from the first half of 2024. In addition to recapping case opinions, Charles and Cat will analyze case trends and compare 2024’s results to prior years’ case tallies. Register here.

    On August 14 and 15, the Eversheds Sutherland SALT team is pleased to sponsor COST’s 2024 State and Local Tax Workshop for Technology Companies in Cupertino, CA. The two-day workshop will cover key state and local tax issues that technology companies are facing, such as state taxation of Digital Business Inputs, FITFA, sourcing, apportionment, streaming, marketplace facilitators, digital service taxes and much more. Eversheds Sutherland speakers and topics will include:

    • Jeff Friedman – Top 10 Income and Transactional Tax Cases Impacting the Tech Industry
    • Michele Borens – Escalating Burden of Gross Receipts Taxes and Local Taxes (Including Recent SF Activity) on Taxpayers
    • Charlie Kearns – The Creeping Sales and Use Tax – And Ways to Mitigate the Taxation of Business Inputs as States Expand Their Sales Tax Base to Digital Products and Services

    You can find more information and register here.

    In December 2023, the Financial Accounting Standards Board added significant income tax disclosure requirements to the already cumbersome and complex checklist of state tax financial statement disclosure rules.

    In this installment of A Pinch of SALT published in Tax Notes State, Eversheds Sutherland attorneys Todd Betor and Jeff Friedman discuss the Financial Accounting Standards Board’s changes to the state and local income tax financial statement disclosure rules. Effective for public business entities for annual periods beginning after December 15, 2024, the consequences of these disclosures — and the potential confusion stemming from them — will further burden state tax professionals.

    Read the full article here.

    Eversheds Sutherland is proud to participate in TEI’s 2024 Audits & Appeal Seminar on the State and Local Tax Controversy Track, an essential 1.5 day event for in-house tax professionals.

    The State and Local Tax Controversy Track will focus on state and local tax audit issues and strategies, including best practices to manage the controversy function. Additionally, this year’s programming will include a session comprised of former state department of revenue officials who will share their unfiltered view “from the other side.”  

    Other sessions include:

    • Anticipating State Tax Audits and Controversy: Managing Audit Triggers and Aggressive Positions
    • Challenging Assessments and Filing Protests
    • State Tax Judges Panel – Hear from the Other Side of the Bench
    • Ethical Dilemmas Facing State Tax Professionals
    • Strategic Considerations for Managing your Audit and Litigation Portfolio
    • Tax Technology for State Tax Audits
    • Audit Therapy: An Interactive Discussion of Industry Personnel Sharing Experiences
    • Financial Statement Considerations of State Tax Controversies

    Register now!

    For more information, please contact: meetings@tei.org

    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: The MTC recently amended their Commission Bylaws to effectively cap their membership fee for which state?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    New York continues to closely review the application of state sales tax to services performed using software platforms. 

    Recently, two May decisions by the New York Tax Appeals Tribunal and the New York Division of Tax Appeals affirmed the Division of Taxation’s decision to tax service providers for the sales of prewritten computer software in Matter of Beeline.com Inc. and Matter of FacilitySource LLC, respectively.

    In their quarterly column published by Law360, Eversheds Sutherland SALT attorneys examine recent developments in New York tax law. In this installment, Liz Cha and Madison Ball focus on two decisions from the Tax Appeals Tribunal and the Division of Tax Appeals concerning sales of prewritten computer software.

    Read the full article here.

    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: A bill recently passed the California Senate and was advanced to the Assembly that would provide for an income tax exemption for settlement payments from what type of natural disaster?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    The South Carolina Administrative Law Court upheld a bank tax assessment that was based on adjustments made by the Department of Revenue to a taxpayer’s sales factor and tax base.  The taxpayer, a national bank, offered a range of banking and trust services, and generated income by providing residential mortgages and other loans, and issuing credit cards.

    Regarding the sales factor, the taxpayer asserted that its mortgages and mortgage servicing activities constituted services and should be sourced pursuant to the rule governing receipts from the provision of a service.  The Court, however, determined that mortgages are intangible property, and that the receipts generated by the mortgages, including interest and fees, must be sourced using the rule applicable to intangibles, which looks to the location where the intangible is used.  The Court reasoned that a mortgage is used at the location of the real property, and that the location of the borrower is a “reasonable proxy.”  Thus, the Court held that payments on mortgages and other kinds of loans should be sourced to South Carolina when paid by a borrower located in South Carolina.  In addition, the Court held that the taxpayer’s sales of its South Carolina mortgages to government sponsored entities should be sourced to South Carolina because the “mortgages are tied to real estate in South Carolina.”

    The Court also determined that the taxpayer’s receipts from credit cards, including interest, late fees and annual fees, constituted receipts from intangibles that should be sourced to South Carolina when the amounts are paid by cardholders in South Carolina.  With respect to the taxpayer’s interchange fees, i.e., fees paid by a merchant to facilitate the routing of a credit card transaction, the Court determined that the fees are from the provision of a service and must be sourced under the rule for services.  However, the Court held that, to the extent the taxpayer’s merchants are located in South Carolina, the primary income-producing activity related to the merchant interchange fees occurs in South Carolina, and that the associated receipts must be sourced to South Carolina.

    Finally, regarding the tax base, the Court held that the taxpayer’s sale of stock in a credit card company, which the taxpayer had used in swap agreement transactions, “was connected to its business” and, therefore, that the gains from the sale of the stock were apportionable to South Carolina.

    U.S. Bank National Association v. South Carolina Department of Revenue, No. 20-ALJ-17-0168-CC (S.C. Admin. Law Ct. June 25, 2024).

    In a 2020 article, the Eversheds Sutherland SALT team guided taxpayers on how to handle a Multistate Tax Commission (MTC) audit, providing an overview of the MTC’s Joint Audit Program and highlighting the differences between an MTC audit and a single-state audit. At the time, the article observed that “the MTC has been gaining in prominence and, arguably, effectiveness.” That is even truer four years later.

    In the June 2024 installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Michele Borens and Cat Baron provide an update on the MTC’s Joint Audit Program and its latest developments.

    Read the full article here.

    Meet the newest members of our SALT Pet of the Month family – Scottie and Wallace! They belong to Audrey Pollitt, Editor in Chief of Tax Notes State.

    Audrey’s wife, Alena, adopted Scottie (age 7) from an Alabama rescue before they met. Scottie is short for Damariscotta, a charming town in Maine where Alena spent her childhood summers at her family’s lakeside camp. Prior to adoption, Scottie was “Scramble” – a name to which she still responds if called in a thick Southern accent. Audrey and Alena later adopted Wallace (age 5), which seems to fit him perfectly, even if there’s no meaning behind it.

    Scottie’s a Catahoula leopard dog and Wally’s a sato (Puerto Rican street dog). Audrey mistakenly called Scottie a Charleston Chew for quite some time before things clicked.

    Scottie’s favorite food is chocolate, which has been highly problematic, while Wally’s favorite food is whatever happens to be on the table.

    Beyond getting their paws on clandestine treats, the pair enjoy hiking, going to new dog parks (to ignore other dogs) and playing Scrabble. In addition, Wally punches into work around 6 p.m. every day, posting up at the windowsill to oversee and track all street activity. For all of his precision, they’ve never received a dime for his labor as neighborhood watch! Scottie has taken to tandem paddle boarding but chooses to forgo paddling. She prefers her humans do all the work!

    Audrey and Alena are very grateful to have both of these pups filling out the Pollitt pack – Audrey may be the only member thereof who’s much for SALT, but they make everything else just a little less taxing. Welcome to the SALT pack, Scottie and Wallace!

    The Washington Court of Appeals recently upheld the dismissal of a putative class action brought against four grocery store chains that collected sales tax on sales of 100 percent juice beverages. A taxpayer alleged that the grocers violated Washington’s Retail Sales Tax Act and Consumer Protection Act by wrongfully collecting sales tax on the exempt beverages. The court held that the taxpayer’s allegations were tantamount to a tax refund claim that could only be brought against the state Department of Revenue. Washington’s regulations provide that a taxpayer aggrieved by the amount of tax paid could not maintain “any action or proceeding” to recover paid taxes except against the state, and therefore the taxpayer could not bring an action against the grocers through creative pleading. Where a taxpayer seeks a refund of a tax already paid, the procedural requirements (to seek administrative remedies against the Department) remain the same no matter the reasoning presented in support of the claim.

    Caneer v. Kroger, No. 85009-1-I (Wash. Ct. App. Div. 1, 2024).

    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: Earlier this month, the Massachusetts Senate introduced an economic development bill that primarily provides tax incentives for what green industry?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    The Oregon Supreme Court recently held that an out-of-state tobacco manufacturer’s acceptance of prebook orders precluded it from availing itself of Public Law 86-272 protection against the imposition of the state’s corporate excise tax. In 1959, the U.S. Congress passed P.L. 86-272, which prohibits states from imposing a net income tax when the business’s only activity in the state is the solicitation of orders of tangible personal property. The orders must then be sent outside the state for approval and rejection, and, if approved, filled or delivered from a point outside of the state. 

    The taxpayer argued that it was not subject to the Oregon tax because it had no physical presence in Oregon and only solicited sales of tangible personal property in the state. However, the court held that the acceptance of prebook orders took the company out of the safe harbor of PL 86-272. During the prebook order process, the taxpayer’s in-state sales representatives persuaded Oregon retailers to order the taxpayer’s products from wholesalers. The taxpayer’s representatives then delivered the signed orders to wholesalers who had already agreed, in advance, to “accept and process” orders transmitted by the taxpayer’s employees. Pursuant to incentive agreements, if a wholesaler failed to accept and process the prebook orders, it would lose future incentive agreement payments and be required to repay any payments already received. Because the wholesalers were contractually required to accept and process the prebook orders, the court viewed the actions of the sales representatives as more akin to making direct sales in the state, rather than the protected solicitation of orders that were subject to approval from outside of the state.

    Santa Fe Nat. Tobacco Co. v. Or. Dep’t of Revenue, 372 Or. 509 (2024) (en banc).

    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: Illinois recently enacted an omnibus tax package that includes, among other things, tax incentives for what high tech industry?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    The New York Tax Appeals Tribunal held that a company’s fees related to sales of its labor procurement system were taxable sales of pre-written software.

    Taxpayer, Beeline.com Inc., provides services to assist customers in gathering, organizing, managing and assembling their contingent labor force. As part of its service contracts, taxpayer grants its customers license to use its web-based application that automates many processes associated with labor management. The Department assessed the company under the theory that it was selling licenses to use pre-written software, which is taxed as a sale of tangible personal property.

    In its analysis, the Tribunal first found that the taxpayer’s system constituted pre-written software. The Tribunal made such determination despite claims by petitioner that the platform could be customized for each particular customer’s needs and preferences, finding that in most circumstances there was limited or no customization. Further, the Tribunal found that, because the taxpayer’s customer agreements provided for licenses to use the software, the consideration paid to the taxpayer was for sales of software.

    The Tribunal acknowledged that the primary function test should be applied when determining the taxability of services consisting of both taxable and non-taxable components. But, based on its determination that the transactions in question involved sales of pre-written software, the Tribunal declined to apply the true object test noting that it has “declined to apply a primary function analysis when considering the taxability of mixed bundles of tangible personal property and services.” In drawing this distinction, the Tribunal relied on the fact that retail sales of services are taxable only if enumerated, but sales of tangible personal property are taxable unless exempt.

    Ultimately, the Tribunal found that vendor management software technology was the core element of the taxpayer’s business, and was neither ancillary nor incidental to the taxpayer’s services. And, as a result, the taxpayer was engaged in sales of taxable tangible personal property that is subject to sales tax.

    Matter of Beeline.com Inc. (No. 829516) (05.02.24)

    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: What state’s high court recently held that “pre-book orders” that resulted in the “facilitation of sales” within the state did not qualify as “solicitation of orders” and thus exceeded the protections of P.L. 86-272?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    In the latest episode of the SALT Shaker Podcast, Eversheds Sutherland attorneys Jeff Friedman and Jeremy Gove welcome UConn School of Law Professor Rick Pomp to discuss Jeff and Professor Pomp’s US Supreme Court cert petition in Ellingson Drainage, Inc. v. South Dakota Department of Revenue.

    Jeff, Jeremy and Professor Pomp delve into the case’s background and its various implications, particularly focusing on the application of use tax. They also provide historical context on the relationship between sales and use taxes and explore how Ellingson may violate the external consistency doctrine. Additionally, they discuss the potential consequences of the South Dakota Supreme Court’s decision if left undisturbed by the US Supreme Court.

    Their discussion ends with an overrated/underrated question: Are birthday parties overrated or underrated?

    For questions or comments, email SALTonline@eversheds-sutherland.com. Subscribe to receive regular updates hosted on the SALT Shaker blog.

    Listen now:

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    The Third Circuit Court of Appeals upheld a District Court’s dismissal of a taxpayer’s challenge to New Jersey’s partnership filing fee under the tax comity doctrine. The partnership filing fee was enacted by New Jersey in 2002 to offset the costs of reviewing and auditing partnership tax returns. The fee is a flat fee computed based on the total number of partners in the partnership, $150 per partner up to a $250,000 maximum. The taxpayer sought to enjoin the fee alleging that the fee unfairly burdens companies with significant out-of-state operations in violation of the Commerce Clause.

    New Jersey sought dismissal for two reasons: the Tax Injunction Act (TIA) and the doctrine of tax comity. The parties disputed whether the TIA applied, with New Jersey arguing that the fee was a “tax” for TIA purposes and the taxpayer arguing that the fee was a “fee” for TIA purposes and therefore outside the scope of the TIA. The District Court and the Third Circuit declined to resolve that question, ruling instead that the suit should be dismissed as a matter of comity under the Supreme Court’s decision in Levin v. Comm. Energy, Inc., 560 U.S. 413 (2010), because the fee was embodied in a “revenue affecting statute” involving matters of “state tax administration” and did not involve any fundamental right or classification that attracts heightened judicial scrutiny and because state courts were “better positioned” to craft a remedy in the event the fee were found to be unconstitutional. 

    Energy Transfer LP v. John Ficara et al., No. 22-3347 (3rd Cir. Not Reported 2024).

    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: The Supreme Court recently issued its opinion in Moore v. United States, No. 22-800. By which vote did the Court uphold the constitutionality of the section 965 transition tax?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    Sometimes states intentionally favor domestic commerce, and sometimes they unintentionally discriminate against foreign commerce. In Kraft General Foods Inc. v. Iowa Department of Revenue and Finance, the US Supreme Court made clear that both are illegal. Because most states’ corporate income taxes conform to the Internal Revenue Code (IRC) to some degree, recent federal tax changes set the stage for unintentional (and unconstitutional) discrimination.

    In this installment of “A Pinch of SALT” in Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman, Jeremy Gove and Chelsea Marmor analyze the IRC’s disparate capitalization requirements for domestic and foreign research and experimental (R&E) expenditures for tax years beginning in 2022. While the federal government is free to treat foreign commerce differently from domestic commerce, states and localities do not enjoy that same freedom. Thus, when states conform to the IRC and incorporate the federal tax system’s differing treatment of domestic and foreign R&E expenses, that conformity may violate the foreign commerce clause.

    Read the full article here.

    A New York appellate court denied a motor fuel distributor’s (Distributor) motor fuel excise tax refund request on motor fuel brought into the state and delivered to a fuel refiner, marketer, and transporter (Marketer) “pursuant to an exchange agreement … whereby either company was permitted to remove fuel product from the terminal of its counterpart in exchange for similar treatment at a different time and location by the other.” The court found that the Distributor failed to prove that the Marketer had instead paid taxes on the fuel and that the Distributor was thus entitled to a refund. 

    The New York Department of Taxation and Finance (Department) audited the Distributor and assessed motor fuel excise tax on approximately 13.8 gallons of motor fuel that it brought into New York between May 2011 and February 2012 and later provided to the Marketer via the exchange transaction. The Distributor later paid the taxes under protest and sought a refund, arguing that the Marketer had instead paid the applicable taxes.

    New York imposes the motor fuel excise tax on “the initial importer of motor fuel” into the state. The distributor-seller importing motor fuel into the state must give the purchaser a certification that it had paid, or assumed the responsibility to pay, the tax and passed that amount through to the purchaser in the purchase price. The purchaser would then claim a “tax paid” credit for the taxes on its returns to avoid double taxation.

    To prove the Marketer had instead paid the motor fuel excise tax, the Distributor relied on the affidavit of the custodian of the Marketer’s returns during the months at issue. He stated that he had created a workbook that proved the Marketer had paid the taxes because it did not claim the tax paid credits on the motor fuel. The Department’s auditor gave live testimony that the Distributor had failed to demonstrate that the same fuel had been taxed twice, noting what he claimed to be “significant inconsistencies” between the Distributor’s and Marketer’s returns. Based on the evidence, the court held that “given the conflict between the evidence offered through [the parties’ affidavit and testimony], there was an ample basis for the Tribunal to conclude that petitioner failed to establish a clearcut entitlement to a refund.”

    In re Global Cos. LLC v. New York State Tax Appeals Trib., 227 A.D.3d 1197 (N.Y. App. Div. 2024).

    The Washington Court of Appeals held that the sales of pre-paid telephone airtime purchased from third-party cellular networks by a business (Taxpayer) and resold to individual customers and retailers were subject to the City of Renton’s municipal utility tax.

    The utility tax was imposed on the privilege of conducting a “telephone business” within city limits, which was defined as “providing by any person of access to the local telephone network.” Renton Municipal Code 5-11-3(O) (2019). Under the city municipal utility tax, charges to “another telecommunications company” were not taxable. RCW 35A.82.060(1). A “telecommunications company” was an entity “owning, operating, or managing any facilities used to provide telecommunications for hire, sale or resale.” RCW 80.04.010(28). The Taxpayer was not a telecommunications company because it had no physical network facilities of its own.

    The Taxpayer made a few arguments as to why its sales were not taxable. First, it argued that the municipal utility tax applied only to “telecommunications companies” because the statutory exception required charges to be imposed upon “another telecommunications company.” The Taxpayer argued that this exception “presume[s] the first taxed entity was also a telecommunications company.” The court rejected this argument because “if the legislature intended for the statute to apply exclusively to ‘telecommunications companies,’ it would have used only that term.” Further, the court held that the legislature’s use of the broader term “telephone business” “evince[d] an intent to grant taxing authority broader in scope than” telecommunications companies.

    The court also disagreed with the Taxpayer’s argument that – even if its direct consumer sales were taxable – its wholesale business sales to retailers were exempt from tax as resales. The resale exemption provided that cities “shall not impose the fee or tax on … charges for network telephone service that is purchased for the purpose of resale.” RCW 83A.82.060(1). Reviewing the statutory terms, the court explained that for the exemption to apply, “it is the ‘access’ to a network that must be ‘purchased’ for ‘resale.’” The court explained that no resale occurred in these transactions because the Taxpayer—not the retailers—retained control over the end user’s access to a telephone network. The retailers were thus not selling access to the cellular networks to their customers.

    TracFone, Inc. v. City of Renton, 547 P.3d 902 (Wash. Ct. App. 2024).

    The California Supreme Court ruled that a corporation’s transfer of its ownership of two Los Angeles supermarkets to a trust that already owned 92.8% of the corporation’s stock was a “change in ownership,” permitting the revaluation of the supermarkets’ real property. Article XIII A of the California Constitution, added by Proposition 13, strictly limits increases in the assessed value of real property unless the property undergoes a “change in ownership.” However, there is no “change in ownership” when the transaction involving a legal entity that “results solely in a change in the method of holding title to the real property and in which proportional ownership interests of the transferors and transferees, whether represented by stock, partnership interest, or otherwise, in each and every piece of real property transferred, remain the same after the transfer.” The Court gave an example of the change in ownership exclusion: two individuals that own two equal shares of real property and then transfer those shares to a corporation in which they each own each shares. In this case, the taxpayers argued there was no change in no ownership because the trust, to whom the real property was transferred, already held all the corporation’s voting stock. But, the transfer resulted in nonvoting stockholders losing any interest in real property.The Court rejected the taxpayer’s argument, holding that a change to nonvoting stock ownership means the proportional ownership interests do not qualify for the exception to a change in ownership. Thus, the Court ruled that a change in ownership had occurred, and a revaluation was permissible.

    Prang v. Los Angeles Cnty. Assessment Appeals Bd., 15 Cal. 5th 1152 (2024).  

    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: Earlier this month, the US Supreme Court invited the Solicitor General to file a brief in which state tax case involving the denial of a resident’s request for additional credits for taxes paid to another state?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    Meet June’s SALT Pet of the Month, Chester! Taking after three of his owners with a ‘C’ name, Chester (the Christmas present!) makes his home with Eversheds Sutherland Counsel, Charles Capouet.

    The adorable nine-month-old Mini Bernedoodle keeps his family entertained and on their toes. When he’s not running around in the yard, Chester enjoys wrestling and playing fetch. During breaks from his shenanigans, he can be found refueling with his favorite snack, peanut butter.

    Charles and his family are lucky to have a chum like Chester, even when he snacks on socks. Welcome to the SALT Pet of the Month club, Chester! 

    On June 7, 2024, the Arizona Supreme Court held that reimbursements received by a hotel when participating in a hotel rewards program were subject to the Transaction Privilege Tax (TPT). The reimbursements were paid to the taxpayer when it provided a guest with a complementary hotel stay under the program. The rewards program required the taxpayer to pay a percentage of room revenues to fund the program. Guests accrued points by staying at participating hotels, spending money with affiliates, purchasing points, or receiving points as a gift.  Because the rewards points came from transactions upon tax had already been paid, the taxpayer argued that the reimbursements were akin to “post-tax” reserves or returns of capital and filed a refund claim for TPT paid between 2012 and 2016.

    In finding the reimbursements were taxable gross income under the TPT, the Court relied primarily on the fact that the reimbursements were consideration for the sale of lodging. The Court also found that the taxpayer did not have control over the points credited to guest accounts and that there was no way to determine whether the reimbursements were sourced from the funds contributed by taxpayer. As such, the Court held that the reimbursements were not akin to “post-tax” reserves or returns of capital, and that the reimbursements were subject to the TPT.

    Dove Mountain Hotelco, LLC v. Dep’t of Revenue, Ariz., No. CV-23-0176-PR (June 7, 2024).

    Eversheds Sutherland Counsel Jeremy Gove and Chelsea Marmor are excited to cover sales tax topics at the Institute for Professionals in Taxation’s 2024 Annual Conference. The conference offers panels that cover a range of topics, including credits and incentives, property tax, sales and use tax, and state income tax. Chelsea’s panel will highlight the taxability of digital goods and digital products in 2024, and Jeremy’s panel will discuss how to manage audits.

    Find more information here.

    The NYU School of Professional Studies is hosting its annual Introduction to State and Local Taxation Conference, which explores the essentials of sales and use tax and multistate income tax, on July 22-23. Held in Times Square, this SALT school is taught by leading practitioners and is ideal for those who are new to SALT or those who want to brush up on the most important SALT topics.

    The conference topics include:

    • Sales and use taxation:
      • The scope of tangible personal property and other key definitions
      • Taxation of information, data processing and other computer-related services
      • Marketplace sales tax collection
      • Exemptions and administration
      • Local sales and use taxes
      • Common audit issues
    • State corporate income taxation:
      • Determining the corporate income tax base
      • Conformity to the federal income tax base
      • The unitary business principle
      • Allocation and apportionment
      • The single sales factor
      • Filing methods, including combined reporting
    • Gross receipts taxes
    • State tax administration
    • And more

    We hope to see you there! For more information, or to register, click here.

    This week, the New York Court of Appeals agreed to hear Dynamic Logic’s appeal regarding the taxability of its services that measure the effectiveness of advertising campaigns. The state Tax Appeals Tribunal previously held that the services were taxable information services in part because of the primary function test. 

    In this Law360 article, SALT Partner Liz Cha noted that the New York State Department of Taxation and Finance has been aggressive in its assessments of what services should be classified as taxable information services and that the case could provide some clarity on the primary function test.

    “It’s been a while since the New York Court of Appeals has weighed in on applying the primary function test to the taxation of information services and additional guidance would be helpful in this area,” she said.

    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: A new law in Connecticut expands a tax credit program for employers that make what type of payments?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    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 state’s Senate recently passed a bill establishing a hospital tax to further fund the state’s Medicaid program?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    California legislators released bill language addressing Governor Gavin Newsom’s “May Revise” to the state budget that includes the Governor’s so-called “apportionment fix.” If enacted, Assembly Bill 167 and Senate Bill 167 will suspend net operating losses for tax years beginning on or after January 1, 2024 and before January 1, 2027. Similarly, the legislation applies a $5,000,000 limit on most business tax credits for those same years. 

    As expected, both bills contain language that retroactively changes California’s apportionment provisions by excluding factors from the apportionment formula if the related income is not taxed.

    Read the full Legal Alert here.

    The state tax landscape evolved at a significant pace during 2023, and there is no sign of a falloff in 2024. During the 2024 Federation of Tax Administrators’ Annual Meeting, SALT Partner Jeff Friedman will help review and provide his perspective on significant state tax policy developments. Find more information and register here.

    In addition, SALT attorneys Eric Tresh and Laurin McDonald will present a state tax controversy update during the TEI Region 8 Conference on June 13, focusing on key developments and trends. Find more information and register here.

    State efforts to obtain customer identifying information as part of digital goods audits have put a spotlight on data privacy concerns. State tax authorities often request customer names, addresses, telephone numbers, and even Social Security numbers and tax IDs, claiming this sensitive information is vital to determine how to source digital transactions.

    In this article published by Bloomberg Tax, Eversheds Sutherland attorneys Eric Tresh and Chelsea Marmor discuss how digital sales tax reporting rules are raising data privacy concerns and analyze conflicts from the intersection of data privacy and tax.

    Read the full article here.

    In the newest episode of the SALT Shaker Podcast, Eversheds Sutherland Counsel Jeremy Gove takes a close look at San Francisco’s tax system with the help of Eversheds Sutherland Counsel John Ormonde and Bart Baer, Chief Tax Counsel for The California Taxpayers Association.

    Jeremy, John and Bart review San Francisco from a tax perspective, specifically discussing its various gross receipts taxes, including the homelessness gross receipts tax, and overpaid executive gross receipts tax.

    They discuss how these taxes affect the business tax climate in San Francisco, and the latest news affecting the city’s business tax system, including the reduction of in-office workers.

    They also cover the current reform efforts in the city and impacts of these taxes at the local level.

    Their discussion concludes with a breakfast themed overrated/underrated question – where does oatmeal fall on the spectrum of breakfast food?

    Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

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    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: What state legislature is currently considering a budget proposal that would cap corporate income tax credits and limit the use of net operating loss carryforwards for tax years 2024, 2025, and 2026?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    The North Carolina Supreme Court affirmed a lower court ruling that a taxpayer was a manufacturer for purposes of the State’s Mill Machinery Exemption, and was therefore entitled to a sales and use tax exemption on its purchase of materials used to produce hot mixed asphalt (HMA).

    North Carolina exempts manufacturing companies subject to a lower mill machinery privilege tax from higher sales and use taxes. During the years at issue, the taxpayer used between approximately 79% and 85% of the HMA it produced for various construction projects where it served as a contractor or subcontractor and sold the remaining HMA to customers. The Department of Revenue asserted that the taxpayer was a contractor, and not a manufacturer subject to the privilege tax, because it was “primarily engaged” in construction and commercial site work, and the majority of the HMA it produced was used in those projects, rather than sold to customers. The lower court found that there was no requirement under the governing statute that the taxpayer use the tangible personal property purchased to produce HMA for the “primary or principal purpose” of selling it to third parties to qualify for the exemption. Moreover, the lower court found that the taxpayer had produced “extremely large quantities” of HMA by utilizing a processes that the North Carolina Supreme Court described as manufacturing (i.e., “the producing of a new article or use or ornament by the application of skill and labor to the raw materials of which it is composed”). On appeal, the Supreme Court adopted the lower court’s reasoning and affirmed the ruling in a two-paragraph opinion.

    N.C. Dep’t of Revenue v. FSC II LLC, No. 150A23, 2024 N.C. LEXIS 340 (May 23, 2024).

    The Alabama Tax Tribunal held that a parent company could not use its losses to offset the income of a bank that it owned through an intermediate holding company for the purposes of the state’s Financial Institution Excise Tax (FIET). The applicable law allowed financial institution members of a commonly owned controlled group to file a consolidated return if each entity is a financial institution required to file an excise tax return in the state. The intermediate holding company did not do business in the state and was therefore not a “financial institution” eligible to file a consolidated return with the bank. Further, the intermediate holding company did not qualify under the alternative definition of a “financial institution” because it only owned the bank and was therefore not the parent of a “controlled group of corporations eligible to elect file a consolidated excise tax return.” The statute with the alternative definition of “financial institution” was subsequently amended to allow indirect ownership of a bank, but the amendment was not retroactive and therefore did not apply to the years at issue.

    Ally Fin. v. State of Ala. Dep’t of Revenue, No. 20-659-LP, (Ala. Tax Trib. May 13, 2024).

    SALT Partner Jeff Friedman is pleased to join Villanova University Charles Widger School of Law’s Second Annual State and Local Tax (SALT) Forum on June 6. Hosted by the Graduate Tax Program, the forum will help answer critical questions of what is taxable in the digital economy. Jeff’s panel will help attendees understand “it” — tangible personal property, a service, an intangible or something else?

    Register and find more information here.

    The Louisiana Court of Appeal held that online travel booking companies were not “dealers” required to collect sales taxes. The Louisiana Department of Revenue and various localities sued the booking companies for only collecting tax on the wholesale rate charged by the hotels rather than the retail rate charged to customers, which included a service fee. The court held that the booking companies were not liable for the additional tax because Louisiana Revised Statutes 47:301(14)(a) requires that the taxable furnishing of sleeping rooms be done “by hotels,” and the booking companies are not hotels. Further, the service fee charged by the booking companies was not a charge for an enumerated taxable service in Louisiana.

    Robinson v. Priceline.com, Dkt. No. 2023 CA 0069, (La. Ct. App. 2024).

    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: Previously, a law in South Dakota only permitted the sale of baked goods from an individual’s home to consumers. In its Spring Newsletter, however, the South Dakota Department of Revenue clarified that the sales tax also applies to another type of goods, which was recently permitted to be sold from an individual’s home to consumers. What type of goods is it?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    This week, SALT Counsel Chelsea Marmor will participate in a panel discussion during the Federal Bar Association’s 39th Annual Insurance Tax Seminar, held May 30 – 31. Join Chelsea as she helps cover multistate tax topics of interest, including recent developments impacting the insurance industry resulting from business changes and legislative activity. Topics to be addressed include nexus, filing obligations and sourcing of receipts for both direct and indirect tax purposes.

    For more information, click here.

    Meet May’s SALT Pet of the Month, Loki! This gentle giant, named after the mischievous Marvel character, makes his home with John Barnes, Senior Tax Director at T-Mobile.

    True to his name, the two-year-old Great Dane keeps John and his family on their toes with plenty of playful antics. Loki loves to put his whole face in his water bowl, drink from the hose (pictured below!) and follow his humans around like a loyal shadow.

    When he’s not relishing car rides, walks or a game of hide and seek, Loki can be found indulging in chicken jerky, peanut butter or even nibbling on his own front leg – sucking on it like a personal pacifier!

    Determined to emulate a lap dog, Loki will try to sit in your lap and let you know when he’s had enough attention.

    John and his family are lucky to have this kind fellow. Welcome to the SALT Pet of the Month club, Loki!


    Click here to submit information and photos about your pet to be featured on stateandlocaltax.com!

    The Georgia General Assembly’s 2023-2024 legislative session ended with several significant tax bills. Among them was a constitutional referendum to create a tax court in the judicial branch, a reduction of the individual and corporate income tax rates, and limitations on income tax credit carryforwards.

    In this article published by Law360, Eversheds Sutherland attorneys Jonathan Feldman and Alla Raykin describe the Georgia legislation that is now set to go into law. They also highlight the legislation which would have suspended the data center sales tax exemption until Governor Brian Kemp vetoed it.

    Read the full article here.

    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 state’s governor recently vetoed a bill that would have raised income tax rates on the state’s highest earners and expanded the lower tax brackets?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    This week, SALT team members Jonathan Feldman, Maria Todorova and Laurin McDonald will present during COST’s 2024 Intermediate/Advanced Tax Schools, held in Atlanta. On May 21, Maria and Laurin will present The Corporate Income Tax Base and Advanced Domestic State Adjustments during COST’s State Income Tax School, while Jonathan will present an update on Manufacturing/Construction Sales and Use Tax Issues during COST’s Sales & Use Tax School on May 22.

    In addition, Eversheds Sutherland’s Tax Practice is a sponsor of the TEI Region 10 44th Annual Tax Conference, held May 22-24 in Dana Point, CA. SALT Partners Jeff Friedman and Tim Gustafson will present Apportionment – SALT in the Wound.

    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: Alabama recently enacted legislation that permits certain entities to make what type of election before the entities’ due date for filing the applicable income tax return?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    On May 14, California Governor Gavin Newsom released proposed trailer bill language for the so-called “apportionment fix” introduced in his “May Revise” to the state budget last week (see our prior Legal Alert here). Incredibly, the bill would retroactively codify a provision that would overturn two important apportionment cases that allowed taxpayers to include receipts in the sales factor even if the related income was not included in the tax base. Making matters worse, the proposed legislation excuses the Franchise Tax Board (FTB) from complying with the state’s Administrative Procedure Act in promulgating regulations that implement this new apportionment statute – which is startling. 

    Read the Legal Alert here.

    On May 10, California Governor Gavin Newsom introduced his “May Revise” of the state budget. In addition to net operating loss deduction suspensions and tax credit usage limitations, one particularly concerning corporate tax-related proposal is a so-called “clarification” related to the apportionment factor. 

    Read the full Legal Alert here.

    Eversheds Sutherland’s SALT team is pleased to share that the first installment of their new Law360 column – NY Tax Talk – has published! Each quarter, the team will examine recent developments in New York tax law and provide an in-depth analysis in the column. In this installment, SALT attorneys Liz Cha and Jeremy Gove focus on two recent sales tax disputes in New York’s Appellate Division.

    Read the full article here.

    SALT Partners Todd Betor and Ted Friedman will help present a robust Spring Seminar for TEI Nashville on May 14. Topics include:

    • Todd Betor, Ted Friedman – What’s the Next Big Thing in SALT?
    • Todd Betor – Multi-Jurisdictional Transfer Pricing Considerations

    In addition, Partner Maria Todorova will present a 2024 SALT Update: Legislation & Controversy at TEI Carolinas Chapter event in Charlotte, NC on May 16.

    On May 8, 2024, the California Senate’s Revenue and Taxation Committee held a hearing on S.B. 1327, which would impose a 7.5% tax on data extraction transactions in California. The committee passed the bill by 4 votes to 1. 

    Peter Blocker, Vice President of Policy at CalTax, testified in opposition to the bill. He indicated that it would raise operating costs for small businesses, increase costs for consumers, and be subject to legal challenges, including for violations of the Commerce Clause to the United States Constitution and the Internet Tax Freedom Act. He was the only witness to testify regarding the tax. The two witnesses who testified in support of the bill instead focused on issues related to local news.

    Multiple committee members voted in favor of the bill despite expressing misgivings, including the impact on California’s budget deficit, the outcome of the ongoing litigation regarding Maryland’s digital advertising tax, and whether the tax credits to local newsrooms would be properly implemented.

    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: The California Court of Appeal recently held that the purchase of “discounted” cell phones bundled together with wireless services were subject to payment of which tax on the cell phone’s full price?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    On May 6, 2024, the San Francisco Controller and Treasurer released their proposed final tax reform ordinance language. To become effective, San Francisco voters will have to pass a measure on the November 5, 2024 ballot by a 50% vote. The changes would apply to tax years 2025 forward.

    Read the full Legal Alert here.

    On May 7, SALT Partner Todd Betor will present Mistakes Were Made: Considerations for Addressing Errors in Tax Filings for the 63rd Annual TEI Upstate New York Tax Conference in Buffalo.

    In addition, Eversheds Sutherland is a sponsor of the STARTUP conference in Columbus, OH on May 7-8. Partner Maria Todorova will present Judicial Updates on May 7.

    Finally, Eversheds Sutherland will help present TEI Denver’s state and local tax seminar on May 8. Speakers and topics include:

    • Jeff Friedman, Ted Friedman – State Tax Bronco Rodeo
    • Ted Friedman, Tim Gustafson and Chelsea Marmor – Empire State vs Golden State – What it means for your business
    • Jeff Friedman, Cyavash Ahmadi – What’s in Store: Recent Marketplace Developments
    • Tim Gustafson, Jeremy Gove – Transfer Pricing and Intercompany Transactions
    • Ted Friedman, Chelsea Marmor and Cyavash Ahmadi – Sales Tax Is Cooler
    • Jeff Friedman, Tim Gustafson and Jeremy Gove – No, Income Tax Is Cooler

    On May 1, 2024, California Senator Steve Glazer, Chair of the Senate Revenue and Taxation Committee, unveiled another proposal to tax digital advertising. This time, Senator Glazer proposes to amend California Senate Bill 1327 to impose a 7.25% tax on “data extraction transactions in the state.”[1] This “data extraction transactions tax” (referred to as the “DETT”) would feel like a root canal as it would suffer from the same legal infirmities as Maryland’s controversial Digital Advertising Gross Receipts Tax.

    So, what’s a data extraction?

    “Data extraction transactions” means a transaction where a person:

    1. “sells user information or access to users to advertisers,” and
    2. “engages in a barter by providing services to a user in full or partial exchange for the ability to display advertisements to the user or collect data about the user.”

    We know this is a re-branded digital advertising tax because the DETT proposal provides that digital advertising is per se taxable:

    “Gross receipts shall be deemed to be derived from data extraction transactions if they derive from the sales of advertising services on a digital interface, including, but not limited to advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services that use personal information about the people to whom the ads are being served” (emphasis added).

    Only the big guys pay the tax

    The proposed DETT would apply to persons with at least $2.5 billion of gross receipts from data extractions transactions in California. During his press conference announcing the DETT, Senator Glazer said the high threshold was intended to limit the tax to only the largest companies engaging in data extraction transactions.

    Apportionment and sourcing

    Much like Maryland’s Digital Advertising Gross Receipts Tax, the DETT apportionment formula is the ratio of annual gross receipts from data extraction transactions (otherwise known as digital advertising) in California to annual gross receipts from data extraction transactions in the U.S. Gross receipts from data extraction transactions are sourced to California, i.e., assigned to the numerator of the formula, based on location of the user. For purposes of computing the numerator and denominator of the apportionment formula (but not the $2.5 billion threshold), “annual gross receipts in this state” includes the gross receipts of all members that are part of the same unitary group if multiple members of the group engage in data extraction transactions.

    Exclusions

    Finally, the DETT legislation contains three exclusions, which also add to its questionable legality. The DETT excludes “news media entities,” which are entities “primarily engaged in the business of newsgathering, reporting, or publishing or broadcasting articles or commentary about news, current events, or culture.” Just like Maryland’s Digital Advertising Gross Receipts Tax, this exemption creates First Amendment issues.  The DETT also excludes web hosting services and domain registration services from the definition of “data extraction transaction.”

    Next steps

    It is expected that Senate Bill 1327 will be heard in the Senate Revenue and Taxation Committee on May 8th, which would likely be the first of several hearings on the proposed DETT.

    [1] The introductory caption and short title of the Senate Bill 1327 amendments characterize the DETT as a “Data Extraction Mitigation Fee,” yet the remaining substantive provisions characterize (and treat) the DETT as a “tax.”

    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: The Washington Court of Appeals held that a county document recording surcharge was constitutional because it was not a property tax, but was instead which type of tax?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    AI can’t fix SALT! This week, SALT Partners Michele Borens and Jeff Friedman will present during TEI Region 9’s Annual Conference, held today through May 1. Michele and Jeff’s presentation will provide some relief for SALT professionals worried about being replaced by non-humans. They’ll discuss some of the craziness that accompanies state and local tax, including the inconsistent application of look-through apportionment, random application of forced combination/transfer pricing/business purpose, unpredictable sales and use tax characterizations of “tangible” personal property, and now-you-see-it/now-you-don’t tax exemptions.

    In addition, SALT Partners Todd Betor, Jeff Friedman and Maria Todorova will each present during COST’s Spring Conference and Audit Sessions in Boston, held April 30 to May 3. You can still register to hear the latest on a variety of SALT topics, including states’ efforts to expand their reach on imposing taxes, navigating accounting challenges and combined reporting issues.

    At the Spring CPE Event for the TEI Carolinas Chapter, SALT attorneys Jonathan Feldman and Laurin McDonald will present a SALT update on May 2. Jonathan and Laurin will provide a summary of important state tax cases and legislative developments.

    Finally, our SALT team is excited to again support TeleStrategies’ Communications Taxation Conference, held in Tampa, FL from May 1-3, 2024. Liz Cha and Chelsea Marmor will provide an update on key litigation and controversies involving the taxation of telecommunications services, including the application of telecommunications taxes to hardware and software and more. Laurin McDonald and Alla Raykin will cover the complexities of gross receipts taxes, as well as new taxes and fees applicable to the communications industry.

    Say hello to Agnes and Oscar, our April SALT Pets of the Month! This dynamic duo keeps Associate Madison Ball’s home full of fun!

    Agnes is a 2-year-old Shih Tzu mix with special one-eyed vision. What she lacks in eyesight she makes up for in curiosity and affection! Agnes is happy to do pretty much anything – she just wants to be included. Surprisingly speedy, she always champions the race home against her parents.

    Madison’s pet rabbit, Oscar, has managed to live well past his life expectancy. At least 15 years old, Oscar is a faithful companion, even if he has become a bit of a grouch in his old age. He enjoys his days rummaging under the bed while Agnes is running about the house. Oscar can be quite mischievous and is known to steal a piece of fruit if given the opportunity. Who can blame him? Fresh fruit is awesome!

    Agnes and Oscar are a great pair of furry friends! Welcome to SALT Pet of the Month club.

    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: Minnesota’s Senate Taxes Committee recently introduced legislation that would decrease which state tax rate by more than 1.5 percentage points?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    Most often, state and local tax litigation follows the escalation of an administrative controversy — resulting from the denial of a protest or refund claim, or other tax agency determination. While there are times when litigation is the only remaining option, the decision whether or not to proceed with litigating a tax case is often a strategic one. Of course, prevailing in a dispute following a trial is an obvious potential benefit of litigation, but it is far from the only one.

    In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Ted Friedman and Alla Raykin describe some of the advantages of litigating state and local tax matters, discuss opportunities and remedies available only through litigation, and highlight items to keep top of mind when pursuing litigation.

    Read the full article here.

    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: Alabama’s House Ways and Means Education Committee recently introduced a bill that would increase the simplified sellers use tax (SSUT) by 1.33% on which type of taxpayers?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    In the latest episode of the SALT Shaker Podcast, Eversheds Sutherland Counsel Jeremy Gove welcomes Tyler Henderson, Senior Tax Manager at Amazon, for a discussion about Tyler’s experiences as a SALT practitioner.

    Tyler sheds light on his journey to his current position, including why he chose to enter the tax field, what he enjoys about his role and what drives him to serve in the educational sector, as well.

    Jeremy and Tyler wrap up their conversation with an overrated/underrated question: How do you feel about re-watching TV shows?

    Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

    Listen now:

    Subscribe for more:

    On March 22, 2024, the Appellate Court of Illinois issued a split decision in a case involving local fuel taxes transferred by a fuel distributor to affiliates that operated gas stations in Cook County, Illinois. 

    Under Cook County’s local fuel tax ordinance, distributors must pay a 6 cent per gallon tax on fuel sold to a “retail dealer,” which the ordinance defines as a person engaged in the business of selling gasoline or diesel fuel for use or consumption. Taxpayer was a fuel distributor that transferred gasoline and diesel fuel to affiliated and unaffiliated gas stations in Cook County. Taxpayer collected tax on fuel sold to unaffiliated stations but not on fuel transferred to affiliated stations. There were two types of affiliate stations: (1) stations owned by Taxpayer but operated by an affiliate (Buck’s) and (2) stations owned and operated by another affiliate (Buchanan South).

    The County imposed tax on all of Taxpayer’s transfers to the affiliated stations. A Department ALJ upheld the assessment, but on appeal, the circuit court reversed in part, finding that only transfers to the second type of affiliated stations were taxable sales to a retail dealer. On further appeal, the Appellate Court of Illinois agreed with the circuit court, finding that transfers to the first type of affiliate station were not taxable, because the affiliate operating the stations, Buck’s, was not a retail dealer since Taxpayer was the owner of the stations and Buck’s did not ultimately receive the revenue generated from the gas stations. 

    The Court, however, reached the opposite conclusion with respect to sales to stations owned by Taxpayer’s other affiliate, Buchanan South, since Buchanan South owned the stations.  The Court rejected Taxpayer’s argument that it did not owe tax because the companies had a “single unitary business model” and that the fuel tax was paid on all retail consumer purchases of fuel. The Court reasoned that the businesses were two separate entities and the local ordinance did not create different obligations for companies based solely on the intertwined nature of their business construction. Accordingly, the Court held that Taxpayer was responsible for paying tax on all fuel provided to its affiliate, including fuel that its affiliate could not sell due to evaporation or spillage. 

    Buchanan Energy (N) LLC v. Cty. of Cook, 2024 IL App (1st) 220056 (Mar. 22, 2024).

    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 state’s legislature recently passed a bill to exempt Social Security benefits from the state’s personal income tax?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    The Louisiana Board of Tax Appeals granted summary judgment to the taxpayer, holding that its sale of video-on-demand and pay-per-view are not subject to sales tax. A group of local parishes assessed the taxpayer on the theory that video-on-demand and pay-per-view are tangible personal property because the content was “perceptible to the senses,” and the content was temporarily stored on set-top boxes. The Board of Tax Appeals rejected this argument, concluding that the services fall within the exemption for necessary fees incurred with the service of cable television.

    The Board agreed with the Louisiana Court of Appeals’ decision, Normand v. Cox Communications Louisiana, LLC, which also determined that video-on-demand and pay-per-view were not software, and therefore applied for Louisiana’s sales tax exemption for cable television service fees. 167 So.3d 156 (2014). Despite some factual distinctions in the Cox case, the Board stated that video-on-demand and pay-per-view are not “tangible personal property” merely by being perceptible, since that would mean all cable services—which are also perceptible—are tangible personal property, thereby rendering the cable services exemption moot. Furthermore, the Board stated that while content can be stored on set-top boxes, “the right to view the program can be severed from the perceptible manifestation of the program’s data.” Accordingly, the Board concluded that video-on-demand and pay-per-view were not taxable sales or rentals of tangible personal property.

    DirecTV LLC v. City of Baton Rouge, Docket No. L01329 (La. Bd. of Tax Appeals Mar. 14, 2024).

    The Florida First District Court of Appeal held that Florida’s annual corporate income tax net operating loss (NOL) deduction limit is the same as the federal limit. Verizon Communications Inc. (Verizon) accumulated federal and state NOLs upon its 2006 acquisition of MCI, Inc. ($15 billion federal and $267 million Florida NOLs) and 2011 acquisition of Terremark Worldwide, Inc. ($308 million federal and $238 million Florida NOLs). The Florida Department of Revenue (the Department) proposed to limit Verizon’s NOL usage from the acquired companies to an apportioned amount of the federal limit, noting that it would take Verizon 65 years to use its acquired Federal NOLs, and thus a similar result should apply for Florida purposes.

    The court disagreed with the Department, finding that for Florida purposes the IRC § 382 limitation on utilizing acquired NOLs is the same as the pre-apportioned federal limitation. Florida’s NOL deduction limitation provided in Fla. Stat. § 220.13(1)(b)(1) allows an NOL deduction which is the same as the federal NOL limitation provided in IRC § 172. In addition to the statute, the court noted that the Department’s regulation “confirms the mirror federal and state deduction amounts.” Based on both the plain meaning of the statute and the Department’s own rule, the Court agreed with Verizon and concluded that the Florida NOL deduction limit is the same as the federal limit.

    Florida Dep’t of Revenue v. Verizon Communications Inc., No. 1D2022-2096 (Fla. Dist. Ct. App., Feb. 28, 2024).

    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 state’s legislature recently introduced a bill to tax private higher education endowments at a rate of 2% for each dollar over $1 billion?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    The Georgia General Assembly passed several significant tax bills during the 2024 legislative session. Among them was the creation of a tax court in the judicial branch, a reduction of the individual and corporate income tax rates, limitations on income tax credit carryforwards, and the suspension of the data center sales tax exemption. Bills that were considered but did not ultimately pass include limitations on the film tax credit. Because this is the final year of the two-year legislative session, any legislation not adopted this year will have to be re-introduced in the next legislative session.

    Read the full Legal Alert here.

    On April 1, 2024, the California State Assembly amended a digital advertising tax into A.B. 2829, formerly a property tax bill. As amended, A.B. 2829 would adopt the digital advertising tax effective January 1, 2025. The California proposal is similar to the Maryland Digital Advertising Gross Revenues Tax, which is currently the subject of litigation at the Maryland Tax Court. As the California proposal is similar to Maryland’s, it also likely violates the Internet Tax Freedom Act, Commerce Clause, Due Process Clause, and First Amendment.

    As amended, A.B. 2829’s digital advertising tax would be imposed on the annual gross revenues of a person that are derived from digital advertising services in the state. Unlike Maryland, the tax would be imposed at a rate of 5%, rather than escalating rates based on global annual gross revenues. However, like Maryland, the tax would apply to only persons with at least $100 million in global annual gross revenue, even including revenues unrelated to digital advertising.

    The tax base in A.B. 2829 is the same as Maryland’s: “digital advertising services,” which means “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.” The California proposal also excludes from the tax “advertisement services on digital interfaces owned or operated by or operated on behalf of a broadcast entity or news media entity.” Because there currently is no sourcing regime in A.B. 2829, it is impossible to determine when a digital advertising service would be taxable by California.

    And much like the Maryland digital advertising tax, California would also prohibit taxpayers from “directly pass[ing] on the cost of the tax … to a customer who purchases the digital advertising services by means of a separate fee, surcharge, or line item.” Maryland’s pass-through prohibition is currently in litigation before the U.S. District Court for the District of Maryland. 

    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 state’s Supreme Court Appellate Division recently ruled that a taxpayer’s fiber-optic cables did not qualify for an exclusion from real property tax?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    On Wednesday, March 27, Eversheds Sutherland attorneys Eric Coffill and Chelsea Marmor will provide a coast-to-coast SALT update for the Tax Executives Institute (TEI) Philadelphia Chapter. During the SALT Committee Meeting, Eric and Chelsea will review case and legislative updates from both the East and West Coast. 

    The Illinois Appellate Court affirmed the Illinois Tax Tribunal’s determination that aviation fuel sold to airlines and subsequently stored at O’Hare International Airport is not exempt from the Retailer’s Occupation Tax (ROT) because the fuel was not consumed solely outside of the state.

    The taxpayer, an aviation fuel retailer, argued that its fuel was subject to an exemption for property temporarily stored in the state and subsequently used outside of the state because only 2% of the fuel was consumed in Illinois, with the remaining 98% of the fuel being consumed outside of the state. Relying on the statute’s plain language, the Court disagreed with the taxpayer and found that the entire use or consumption of the property at issue must be outside of Illinois. Accordingly, to qualify for the exemption, the purpose of the temporary storage must be for future transportation outside of Illinois for use or consumption solely and entirely outside of the state. The Court further explained that, pursuant to the Department’s regulation, it would have been proper to certify that a portion of the purchase of fuel qualifies for the exemption if the airlines were to have purchased the fuel, temporarily stored it in Illinois, transported a portion of it out of the state, and then used that portion in planes in another state. Because the taxpayer’s fuel was loaded on planes in Illinois and partly consumed in Illinois, the Court concluded that the fuel at issue did not qualify for the exemption.

    American Aviation Supply, LLC v. Illinois Department of Revenue, 2024 IL App (1st) 230072.

    The Missouri Administrative Hearing Commission held that real-estate investment trust (REIT) dividends from sources within Missouri are deductible from Missouri income.

    The decision involved a REIT that generates income from mortgages secured by real property. The REIT made distributions of profits derived from sources within Missouri to its controlling interest holder. The controlling interest holder included those distributions in its federal taxable income, which was included in its parent’s federal and Missouri consolidated corporate income tax returns. The parent then deducted the REIT distributions on its Missouri consolidated corporate income tax returns as Missouri dividends pursuant to Mo. Rev. Stat. § 143.431.2. The Department disallowed the deduction and issued a notice of deficiency. The parent appealed. 

    Neither “dividend” nor “corporate dividend” is defined by Missouri statute. Because Missouri’s income tax expressly incorporates terms from the Internal Revenue Code, the Commission looked at IRC Section 316, which “determines what constitutes a dividend” and Section 243, which “determines the circumstances under which dividends received by corporations may be deducted from federal income.” The Commission held that REIT dividends are dividends under Section 316, and nothing in Section 243 “transforms them into something else.” Further, as the Missouri statute provides that corporate dividends from sources within Missouri are deducted “to the extent included in federal taxable income”, the deduction is only applicable to dividends that are not deductible under federal law. Therefore, the REIT dividends, which were not deductible from federal income, are deductible from Missouri income if from a Missouri source.

    Great Southern Bancorp, Inc. & Subsidiaries v. Director of Revenue, No. 21-1768 (MO AHC, Jan. 26, 2024).

    In this episode of the SALT Shaker Podcast, Eversheds Sutherland Counsel Jeremy Gove welcomes back Sacramento SALT Partner Tim Gustafson for another California-focused conversation!

    Tim and Jeremy base their discussion around a recent article Tim co-authored in Tax Notes State with Associate Sharon Kaur about the California FTB’s informal guidance.

    Specifically, they delve into the work of the FTB, which administers the state’s corporate franchise and income taxes, and discuss its routine issuance of informal guidance on a broad array of topics and issues. Tim and Jeremy explore these topics, as well as the effect on taxpayers and practitioners.

    Similar to the article, Tim and Jeremy also cover two 2023 decisions, Appeal of Minnesota Beet and American Catalog Mailers Association, examining how these decisions may affect current informal guidance and the issuance of guidance in 2024 and beyond.

    The episode concludes with another edition of overrated/underrated – how do you feel about lettuce on sandwiches?

    Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

    Listen now:

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    Delaware bears an outsized importance for corporate America. While there are a number of reasons to incorporate in Delaware, Eversheds Sutherland attorneys Jeff Friedman and Jeremy Gove describe a significant downside – an annual franchise tax for the privilege of doing so. This article, published in Bloomberg Law, describes this Delaware tax that generates $2.2 billion in revenues and is easily avoided. 

    Read the full article here.

    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 state’s appellate court recently rejected a single-subject rule challenge to the state’s single-sales factor apportionment?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    The Appellate Division, Third Department, affirmed the Tax Appeals Tribunal’s decision that a taxpayer was providing taxable information services for sales tax purposes.  The taxpayer provided services that measured the effectiveness of its customers’ advertising campaigns.  The services included providing a report analyzing surveys of customers/internet users, including a comparison of the client’s campaign results with industry specific benchmarking data from a database in which the taxpayer’s survey responses were aggregated and anonymized. The taxpayer also provided advice and recommendations for improving advertisement effectiveness.

    The Appellate Division applied a rational basis standard of review and deferred to the Tribunal’s decision. First, the Appellate Division affirmed the Tribunal’s holding that the taxpayer provided information services and not consulting services because the primary function of the services was to collect and analyze information. Second, the Appellate Division affirmed the Tribunal’s holding that the services did not fall within the sales tax exclusion for information services furnishing information that “is not or may not be substantially incorporated in reports furnished to other persons” under Tax Law § 1105(c)(1), as portions of the taxpayer’s database data generally appeared in the reports furnished to customers.

    Matter of Dynamic Logic, Inc. v. Tax Appeals Tribunal of the State of N.Y., 2024 NY Slip Op 01136, (App. Div.).

    This week, Eversheds Sutherland is a proud platinum sponsor of Tax Executives Institute’s (TEI) 74th Midyear Conference at the Grand Hyatt Hotel in Washington, DC.

    SALT Partner Michele Borens will present on Wednesday, March 20, covering the taxability of “X” as a service, including background and recent cases, sourcing and nexus considerations, and more.

    For more information and to register, click here.

    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 state’s supreme court recently ruled that a state statute allowing municipalities to tax nonresidents for work done outside of the municipality does not violate the federal Due Process Clause?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    The California Franchise Tax Board (FTB) administers the state’s corporate franchise and income taxes. The California Legislature authorized the FTB to promulgate regulations in order to implement and interpret the governing statutes. Beyond issuing formal guidance, however, the FTB historically, and routinely, has issued informal guidance on a broad array of topics and issues for the purported benefit of taxpayers, tax practitioners, and FTB staff alike.

    While taxpayers and tax practitioners have disagreed with certain conclusions presented in the FTB’s informal guidance over the years, the materials by and large have provided valuable insight into the agency’s varied positions and interpretations, particularly for taxpayer reporting purposes. Regarding the points of disagreement, a question until recently remained as to what effect, if any, was to be given to the FTB’s informal guidance by a tribunal adjudicating a corporate tax controversy matter.

    Two 2023 decisions, Appeal of Minnesota Beet and American Catalog Mailers Association, offered differing answers to this question that may affect current informal guidance and the issuance of guidance in 2024 and beyond.

    In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Tim Gustafson and Sharon Kaur examine the two decisions closely and identify their potential fallout.

    Read the full article here.

    While providing a new revenue opportunity for college athletes, name, image, and likeness (NIL) deals have exposed recipients to potential risks—including tax liability—outside the university bubble.

    Since the US Supreme Court’s 2021 NCAA v. Alston ruling, college athletes have become eligible for paid endorsements and can monetize their athletic success outside of their school-funded scholarships and benefits.

    In this article published by Bloomberg Tax, Eversheds Sutherland Partners Tim Gustafson and Baird Fogel, US sports practice lead, explain the complicated tax issues college athletes face when they sign lucrative NIL deals.

    Eversheds Sutherland attorneys Charlie Kearns, Eric Coffill and Alla Raykin will speak during the 2024 ABA/IPT Advanced Tax Seminars held March 11 – March 15 in New Orleans, LA.

    Their panel presentations will cover a variety of income and sales and use tax topics, including how to effectively work with the California FTB, navigate the expansion of sales and use tax bases to include digital goods and services, and sales tax technology through automation.

    You can view the seminars’ program here and register here.

    The Virginia General Assembly passed the 2024-2026 Biennium Budget (House Bill 30) that would expand the sales and use tax to “digital personal property” and certain digital “taxable services” as of January 1, 2025.

    The General Assembly’s conference report resolved differences between the House and Senate budgets, respectively, on the sales tax treatment of business-to-business transactions. The House wanted a full exemption for business purchases of certain digital “taxable services,” but the Senate wanted to fully tax all purchases of such services. The conference committee reached consensus on the issue by sending Governor Glenn Youngkin a partial exemption for business purchases, where only business purchases of “software application services” would be subject to tax.

    The legislation now goes to the governor for his 30-day review period, where he may approve the legislation as-is, offer amendments to the legislation, or veto or line-item veto the legislation. If the governor offers amendments, the legislation may be approved by the General Assembly by simple majority. Any veto or line-item vetoes by the governor would need to be approved super (two-thirds) majority of the General Assembly. The Eversheds Sutherland SALT team will continue to monitor the Virginia budget process at it continues to move forward.

    On February 26, 2024, the Alabama Tax Tribunal (Tribunal) held that Huhtamaki Inc. (Huhtamaki), a packaging manufacturer, is not required to add back interest payments indirectly made to foreign affiliates through a U.S. parent company.

    Under Alabama’s add-back statute, a corporation must add back otherwise deductible interest expenses directly or indirectly paid to a related member unless an exception applies. One such exception is the subject-to-tax exception, which allows a corporation to avoid adding back income if the corresponding item of income is subject to tax based on the related member’s net income by a foreign nation that has an income tax treaty with the United States. The statute further provides: “[t]hat portion of an item of income which is attributed to a taxing jurisdiction having a tax on net income shall be considered subject to a tax even if no actual taxes are paid on such item of income in the taxing jurisdiction by reason of deductions or otherwise.” Ala. Code § 40-18-35(b).

    During the tax years at issue, Huhtamaki made several interest payments to its U.S. parent company, which then made payments to foreign affiliates in countries with an income tax treaty with the United States—a portion of such interest income was deductible in the foreign counties. The Alabama Department of Revenue (DOR) argued Huhtamaki failed to prove the exclusion to the add-back statute claimed for the interest deductions taken for the foreign affiliates on the Alabama return.

    Citing to its 2022 decision in State of Alabama v. Pfizer., CV.-2022-901481-00, in which the Tribunal held that a corporation is not required to add back interest paid to a related entity as the recipient was subject to tax on that income in a foreign nation, the Tribunal rejected the DOR’s argument. Agreeing with Huhtamaki, the Tribunal held that the fact the foreign affiliates were allowed to deduct a portion of the interest payments in calculating their net income does not defeat Huhtamaki’s entitlement to the subject-to-tax exception. The Tribunal further noted that the DOR did not cite any legal authority, other than a European Commission letter, to dispute Huhtamaki’s entitlement to the exception. The Tribunal also rejected the DOR’s request to reconsider the holding in Pfizer.

    Huhtamaki Inc. v. Ala. Dept. Rev., Ala. Tax Tribunal,Dkt. No. BIT. 19-890-JP (Feb. 26, 2024).

    This year’s Georgia’s legislative session is quickly progressing, with some major tax legislation moving towards passage. Last Thursday, February 29, 2024 was “Crossover Day”—the 28th legislative day of 40 total legislative days—the day by which all bills must have passed one legislative chamber to cross over for consideration by the other chamber. Although there is an opportunity for tax provisions to be added to other bills later, bills that have not passed one chamber prior to Crossover Day are generally dead for this session. Georgia’s Constitution requires that all revenue related bills originate in the House, so the majority of bills still alive for the year now go over to the Senate Finance Committee for final passage by the Senate before the end of the session. The final (40th) legislative day, Sine Die, is on March 28, 2024.

    Read the full Legal Alert here.

    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 state recently enacted an expansion to an income tax credit program that is used to encourage purchases of goods and services from vendors that hire workers with disabilities?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    On February 22, 2024, a California Court of Appeal held that the Digital Infrastructure and Video Competition Act of 2006 did not provide the City of Lancaster with a private right of action to pursue franchise fees from non-franchise holder streaming video providers.

    The Act regulates all “video service providers” and directs the Public Utilities Commission to issue state franchises authorizing the provision of video services in California.  The Act requires video service providers to pay a franchise fee to local governments for use of the public rights-of-way to construct and maintain their networks.  The City argued that the streaming video providers are video service providers under the Act and must obtain a franchise and pay the resulting franchise fees.

    The Court of Appeal held that the Act did not provide a right of action for local governments to pursue franchise fees from non-franchise holders.  The court found that the Act only expressly authorizes a local government to bring an action concerning the underpayment or nonpayment of franchise fees against franchise holders.  Additionally, the court held that the legislative intent did not indicate the creation of an implied right to bring a legal action against any company the City believes should, but does not, hold a franchise.  Thus, the Court of Appeal concluded that the City was not authorized, expressly or impliedly, to bring action against the streaming video providers because they were not franchise holders.

    City of Lancaster v. Netflix, Inc., et al., 99 Cal.App.5th 1093 (Cal. Ct. App. 2024).

    The California Court of Appeal for the Third Appellate District held that the purchase of “discounted” cell phones bundled together with wireless services requires payment of sales tax based on the cell phone’s full price.

    Plaintiffs purchased cell phones at a reduced cost, together with wireless services, in a “bundled transaction.” The bundled transaction included the taxable sale of tangible personal property, as well as non-taxable sale of wireless services. The Department imposed tax on the non-discounted value of the cell phone. In response, the plaintiffs challenged Regulation 1585 on the grounds that it (1) violated the Revenue and Taxation Code, and (2) was not adopted in compliance with the Administrative Procedures Act.

    • Compliance with the California Revenue and Taxation Code
      The parties agreed that only the purchase of the cell phone was taxable (and the wireless services were nontaxable), but disagreed on how to measure the payment (i.e., on the validity of Regulation 1585). Regulation 1585 defines “bundled transaction” as the retail sale of a wireless telecommunication device which contractually requires the retailer’s customer to activate or contract with a wireless telecommunications service for periods greater than one month as a condition of that sale. The court found that the regulation filled the gap of how to measure the portion attributable to the tangible personal property versus the service by “effectively attributing the portion of the contract price that is equivalent to the unbundled sales price to the cell phone, and the rest to the service.” Therefore, the court held, the regulation was not contrary to the California Revenue and Taxation Code.

      The court also looked at Regulation 1585’s history, noting that a regulation is likely correct if it has “consistently maintained the interpretation in question, especially if [it was] longstanding.” In supporting its conclusion in favor of the regulation’s validity, the court discussed how Regulation 1585 became operative in 1999 and had not been amended since.
    • Procedural Challenge to Regulation 1585
      The plaintiffs also contended that the regulation’s promulgation did not satisfy the requirements under the Administrative Procedure Act because the Department did not thoroughly discuss the economic impact the regulation would have on businesses. Nonetheless, the court concluded that the Department was not required to discuss the economic impact of retailers because there was substantial evidence in place to support that Regulation 1585 would not adversely impact businesses and individuals. And, the court held that the Department met all other procedural requirements set forth by the Administrative Procedures Act when promulgating Regulation 1585.
    • Application of Regulation 1585
      In applying the regulation, the court concluded that the carrier-retailers were not truly offering a discount on the cell phones because they were being compensated by the monthly payments in the bundled transaction. Therefore, the court held that sales tax should be applied on the full price of the cell phone.

    Ultimately, the Court of Appeal held for the Department, finding that (1) the Department could allocate a portion of the contract price in a bundled transaction based on the full price of the cell phone, and (2) the regulation was adopted in compliance with the Administrative Procedures Act.

    Bekkerman v. Cal. Dep’t of Tax & Fee Admin., No. C093763, 2024 Cal. App. LEXIS 128 (Ct. App. Feb. 27, 2024).

    Introducing Winston, our esteemed SALT Pet of the Month for March! Named after former UK Prime Minister Winston Churchill, Winston is a Cavalier King Charles Spaniel and the beloved mate of Kevin Reddick, Senior Director of Tax at Home Depot.

    Winston’s senior age and wardrobe full of bow ties may signal a calm, distinguished demeanor; however, this is mistaken! Winston has regular episodes of the “zoomies” and is able to jump to chest height on his humans. He will always bark hello to his canine neighbors and is enthusiastic about playing long games of fetch.

    Although he’s a lively lad, Winston also enjoys snuggling. He will lay with his humans as they read, and take naps in his cozy dog chair that fits him perfectly. Winston also likes to paw-trol Kevin’s walk to his home office, ensuring he’s set up for success on work-from-home days. What a good boy!

    It’s an honor to welcome you to the SALT Pet of the Month family, Winston!

    Where do we go from here? Capital University Law School will host a symposium on March 6 to address the tax issues arising from increased remote work. Eversheds Sutherland Partner Charlie Kearns will help address the challenges from withholding for hybrid workforces and the revenue impact as individuals now routinely work outside the office.

    Register here.

    The Washington Court of Appeals upheld the constitutionality of a county document recording surcharge that financed affordable housing, eviction prevention, and housing stability services. A trade association of homebuilders challenged the surcharge as a property tax that violates the uniformity requirement of the Washington Constitution. The court held that the surcharge was a tax because its primary purpose was to raise revenue for a desired public benefit. However, the surcharge was not subject to the uniformity requirement because it was an excise tax, not a property tax. The document recording surcharge was not a property tax because it is not levied on property ownership, but rather on “the exercise of rights in and to property or the exercise of a privilege.”

    Bldg. Indus. Ass’n of Washington v. State of Washington, No. 57502-7-II, (Wash. Ct. App. 2024).

    On February 15, 2024, a New York state administrative law judge concluded that a winery “used” its property and qualified as a New York manufacturer under the state’s Qualified New York Manufacturer (QNYM) provisions, even though it had no employees at the winery and outsourced its land management operations to an independent land management contractor. 

    The New York State Department of Taxation and Finance issued an assessment to the winery, asserting that it did not qualify as a QNYM. The QNYM program provides multiple benefits to corporate taxpayers in New York, including a 0% corporate franchise tax rate.  In order to qualify, taxpayers must satisfy at least one of two tests. The first test – at issue in this case – requires that taxpayers (1) be “principally engaged” in the production of goods by manufacturing, viticulture, etc., (2) owned at least $1,000,000 of qualifying property in New York, and (3) principally used the property in the production of goods by manufacturing, viticulture, etc. 

    The Department argued that the winery was not entitled to the QNYM benefits on the basis that it did not principally use its qualifying property in the production of goods. But the ALJ rejected the Department’s argument that the taxpayer’s use of the third-party contractor was impermissible because nothing in the QNYM provisions suggested that property is not “used by” its owner if the owner contracts with a third-party to perform labor on or related to the property. The ALJ also rejected the Department’s argument that the property was not used in late December 2016 (and that the benefits were thus unavailable for that year). While the grapes were in a dormancy period at that time, it is still a “crucial part of the annual growth cycle for grapes.” 

    In the Matter of the Petition of E. & J. Gallo Winery, DTA Nos. 830277, 850146 (N.Y. Div. Tax App. Feb. 15, 2024).

    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: A Chancery Court in which state recently held that software licenses are intangible property, therefore the gross receipts from the sale of software licenses are not subject to tax under the state’s Business Tax Act?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    On February 14, 2024, the California Office of Tax Appeals (OTA) denied the California Franchise Tax Board’s (FTB) request for rehearing in the Appeal of Microsoft Corporation and Subsidiaries (OTA Case No. 21037336). Microsoft is allowed to include 100 percent of its foreign dividend income in its sales factor denominator. This is a huge opportunity for similarly situated California water’s-edge taxpayers. 

    Read the full Legal Alert here.

    On January 25, 2024, the New York State Supreme Court Appellate Division ruled against the taxpayer, finding that the taxpayer’s equipment did not qualify for exclusion from real property tax. Taxpayer, SLIC Network Solutions, provides internet, telephone and cable television services via fiber-optic cables to customers throughout New York State. Under the State’s real property tax law, this type of equipment is taxed as “local public utility mass real property” “when owned by other than a telephone company.” Taxpayer argued that its fiber-optic cables are excluded from the definition of public utility mass real property because the cables are used in the “transmission of . . . cable television signals.” The Hearing Officer rejected this argument and the Supreme Court upheld the determination.

    Real property equipment “used in the transmission of news or entertainment radio, television or cable television signals” is excluded from the definition of local public utility mass real property, however courts have interpreted the exclusion as applying to fiber-optic installations only if they are “primarily or exclusively used” for one of the excluded purposes. Accordingly, the taxpayer argued that the primary use of the fiber-optic cables was to provide cable television services and that its provision of internet and telephone services did not undermine that primacy. To support its argument, the taxpayer produced testimony and affidavits asserting the taxpayer’s extensive use of the cables for transmitting television signals as well as the significant company costs attributable to the television business. The Appellate Division agreed with the trial court that the taxpayer had not demonstrated its entitlement to the exclusion, since the taxpayer had not provided evidence showing the “ancillary nature” of the internet and phone services, or comparing the use of fiber-optic cables for cable television signals to the level of usage of the same lines for internet and telephone services.

    Matter of SLIC Network Sols., Inc. v. N.Y. State Dep’t of Taxation & Fin., 2024 NY Slip Op 00342, (App. Div.).

    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 state’s House recently proposed a bill that would limit property taxes on machinery used to manufacture critical materials?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    On February 7, 2024, the South Dakota Supreme Court held that South Dakota’s use tax, as applied to the taxpayer, did not violate the Commerce or Due Process Clauses of the Fourteenth Amendment, despite some of the taxed equipment being used in South Dakota for only one day.

    The taxpayer, a Minnesota-based company that specializes in installing drain tile for farming and government applications throughout the United States, completed drain tile projects in South Dakota using equipment that had been purchased in other states and on which the taxpayer had not paid sales tax in those states. The South Dakota Department of Revenue imposed a use tax on this equipment, including equipment used in South Dakota for as little as one day.

    The taxpayer argued that the application of use tax was unconstitutional because the tax imposed was not fairly related to benefits the taxpayer received and was disproportionate to taxpayer’s activity in South Dakota. Specifically, the taxpayer contended that its use of equipment in South Dakota was “limited,” therefore the taxpayer did not receive benefits commensurate with the tax it paid. Additionally, the taxpayer argued that the tax was disproportionate in light of the fact that 90% of the taxpayer’s activities occurred outside of South Dakota.

    Applying the four-part standard described in Complete Auto Transit, Inc. v. Brady, the South Dakota Supreme Court held the Department’s application of use tax to the taxpayer satisfied the Commerce Clause. The court held that the tax was fairly related to the benefits provided to the taxpayer because it enjoyed the same benefits as any other business present in the state and was free to use the equipment in state as often as it wanted. Moreover, the court found that the use tax statute was externally consistent and did not require that the equipment be “at rest” to be subject to the tax. Rather, the taxed activity was “simply an in-state use of equipment that was purchased outside the state without ever having paid sales taxes on the property.”

    Ellingson Drainage, Inc. v. S.D. Dep’t of Revenue, 3 N.W.3d 417 (S.D. 2024).

    A California appellate court held that Proposition 39, which mandated single-sales factor apportionment, did not violate the single-subject rule. In 2012, California voters enacted Proposition 39, which established a program to promote the creation of clean energy jobs. It funded the program by eliminating the option for taxpayers to apportion its California tax based on a three-factor apportionment formula, requiring instead single-sales factor apportionment. A Texas-based provider of credit score and credit reporting services paid tax to California pursuant to the single sales-factor method and filed a complaint for refund on the basis that Proposition 39 was invalid under the single-subject rule for ballot initiatives. The court held that Proposition 39 did not violate the rule because its purpose was to fund a clean energy job creation program by raising taxes on some multistate businesses. The proposition’s provisions were “reasonably germane” to this purpose because “they provided the mechanisms to raise tax revenues and direct them to clean energy job creation.” Plus, the provisions were “functionally related” because the apportionment formula change funded the clean energy jobs program.

    One Technologies LLC v. Franchise Tax Board, 314 Cal.Rptr.3d 718 (Cal. Ct. App. 2023).

    Taxpayer, a fleet management company, leases vehicles to businesses pursuant to a lease agreement that contains a terminal rental adjustment clause (“TRAC”) which is a clause that adjusts the amount of rent due under the lease at the end of the lease based on the value of the vehicle at that time. Depending on the vehicle’s value, the lessee may owe additional rent at the end of the lease or be entitled to a refund of rent previously paid. 

    By statute, New York requires that sales tax be remitted on rent payments required by a vehicle lease at the beginning of the lease if the lease lasts more than one year. N.Y. Tax Law § 1111(i) The taxpayer remitted sales tax on the sum of the total estimated rent payments at the time the parties entered into the lease agreement. At the end of the lease, if the TRAC resulted in a refund of rent to the lessee, the taxpayer refunded the tax paid on that rent and took a credit on its New York sales tax returns. If the TRAC resulted in a payment of additional rent, the taxpayer remitted sales tax on that additional rent. After an audit, the Division of Taxation determined that the taxpayer could not take credits on its sales tax returns for sales tax it refunded due to the TRAC. The ALJ ruled in favor of the Division, stating that the taxpayer properly collected and paid the sales tax due at the beginning of the leases and that no statutory provision allows the taxpayer to take credits for sales tax refunds paid to its lessees.

    The taxpayer appealed to the Tax Appeals Tribunal arguing that, inter alia, the TRAC provision is an integral part of the lease agreements and thus the lease end adjustments must be included when calculating taxable consideration. The Tribunal, affirming the ALJ, rejected the taxpayer’s argument reasoning that the statute “unambiguously” requires that the tax be paid at the beginning of the lease and that there was no legal basis for the sales tax to be refunded at the end of the lease. In support, the Tribunal pointed to the fact that during the 2022 legislative session the Legislature amended the statute to specifically allow sales tax refunds and credits for lease end adjustment on TRAC leases. The Tribunal stated that this change strongly support their conclusion “that such refunds and credits were not permitted by the version of the statute in effect during the period under review[.]”

    In the Matter of the Petition of Gelco Corporation, DTA No. 829011 (Dec. 21, 2023).

    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: A lawmaker recently proposed a bill that would provide tax relief for employers of tipper workers located in the state’s largest city – specifically during the time the city phases out the subminimum wage. In which state was the bill proposed?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    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: A recent bill introduced in which state proposes eliminating property from the state’s franchise tax calculation?

    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. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

    On February 5, 2024, the Offices of the Controller and Treasurer & Tax Collector for the City and County of San Francisco published a report outlining tax reform recommendations in time to inform a potential ballot measure for the upcoming November 2024 election. The report recommends significant changes to San Francisco’s gross receipts tax.

    Read the full Legal Alert here. 

    Meet George, our February SALT Pet of the Month!

    This adorable pup belongs to Karen Dewalt, VP of Global Tax at The Home Depot. As a true golden retriever, George loves being close to his humans. He will often playfully bark for “uppies,” asking to sit on someone’s lap. You should enjoy it while you can, George – you won’t be lap sized for long!

    George is also pawsitively loyal to both Karen and Notre Dame’s football team. On game days, he proudly dons his “Fighting Irish” jersey, showing off Notre Dame blue against his polished golden coat.

    Welcome to the SALT Pet of the Month family, George! We’re happy to have you steal the show.

    On February 9, Eversheds Sutherland Partner Liz Cha will present during the 2024 National Multistate Tax Symposium, held February 7-9 in Lake Buena Vista, FL. In its 20th year, the symposium will explore significant tax technical issues facing multistate tax professionals.

    Liz’s panel will cover multistate income and franchise tax sourcing. She will help examine real-world sourcing scenarios within SALT income tax/franchise tax market sourcing rules and developments.

    Over the past decade, data center incentives and exemptions increased in prevalence as states endeavored to attract more businesses in the growing and lucrative tech industry.

    In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Scott Wright, Laurin McDonald and Alla Raykin lay out general considerations and risks with these incentives as well as provide a detailed chart of each state’s incentive provisions.

    Read the full article here.

    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: The governor’s budget of which state included a proposal to extend the net operating loss carryforward period from 5 years to 20 years?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    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 state’s Supreme Judicial Court held that a prescription drug company’s income should be apportioned on a “market member basis” to the location where the prescription drugs were received?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    We are eager to share our summary of SALT highlights from the past year, which was recently published in Tax Notes State.

    2023 was an eventful year, and our Most Interesting State Tax (MIST) developments contain a mix of cases covering income tax, sales tax, and procedural issues.

    With numerous states grappling with similar issues that grabbed our attention in 2023, what MIST developments can we expect in 2024 and beyond? The anticipation is killing us.

    Read the full article here.

    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: In California, a superior court invalidated certain guidance issued by the Franchise Tax Board because it constituted a regulation within the meaning of the state’s Administrative Procedure Act, but was not enacted in compliance with that act. Which federal law was the guidance related to?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    The Texas Court of Appeals for the Third District upheld the Comptroller of Public Accounts’ Franchise Tax apportionment rule as facially valid, including the provisions apportioning receipts to Texas where the seller ships or delivers property in Texas—regardless of whether the buyer is ultimately located in the state. 

    The taxpayer, a company that transports and stores crude oil, argued that the apportionment regulation was facially invalid because it was contrary to the underlying statute. For purposes of the Franchise Tax, Texas statute provides that sales of tangible personal property are attributable to Texas “if the property is delivered or shipped to a buyer in [Texas,] regardless of the FOB point or another condition of the sale.” The taxpayer contended that the statute sourced sales to the buyer’s location. The taxpayer asserted that the apportionment regulation, 34 Texas Administrative Code Section 3.591, instead applied the tax on “transactions where the seller ships or delivers the property to the buyer in Texas, regardless of whether the buyer is located in state or out of state” (i.e., a “place of transfer” approach).

    On review, the court concluded that the statute was unambiguous. The statute’s only “reasonable construction” was that “sales of tangible personal property are apportioned based on where that property is delivered or shipped” and, thus, “not where the buyer is ultimately located when they plan to use, sell, or otherwise dispose of the property.” While the apportionment statute was derived from model UDITPA language and the Multistate Tax Compact, the court opted not to follow other states’ interpretations because, as states took differing approaches, there was no “‘uniform’ implementation of the Multistate Tax Compact apportionment provision.”

    NuStar Energy, L.P. v. Hegar, No. 03-21-00669-CV (Tex. Ct. App. Dec. 21, 2023).

    On November 6, 2023, the Ohio Board of Tax Appeals determined that Aramark Corporation (“Aramark”) was not entitled to a refund of commercial activity tax (“CAT”) paid on management fees earned by the company in performance of certain cost-plus agreements. Aramark Corporation v. Harris, Case No. 2019-2975 (Ohio Bd. Tax App. Nov. 6, 2023).

    Aramark is a food services, hospitality, facility services, and uniform services company. It provides a broad range of managed services to businesses and educational, healthcare, and government institutions. Some of Aramark’s services were provided pursuant to a “management fee” agreement where customers purchased food, supplies, and other items.  Even though Aramark purchases these items, its customers reimburse Aramark for the expenses. Aramark sought to exclude the gross receipts associated with these purchased items.

    Under Ohio’s CAT, there is an exclusion from “gross receipts” for “[p]roperty, money, and other amounts received or acquired by an agent on behalf of another in excess of the agent’s commission, fee, or other remuneration.” Ohio Rev. Code § 5751.01(F). The code defines an agent as “a person authorized by another person to act on its behalf to undertake a transaction for the other.” Id. § 5751.01(P). “An agent may include ‘[a] person retaining only a commission from a transaction with the other proceeds from the transaction being remitted to another person.’” Ohio Rev. Code § 5751.01(P)(2).

    The Ohio Board of Tax Appeals denied Aramark’s claim that it was acting as an agent on behalf of its clients. The Board explained that, pursuant to Ohio Supreme Court precedent regarding agency, Aramark “must be ‘endowed with authority,’ and such authority must be linked to the activities that generate the gross receipts.” Aramark at 6. The Board observed that the contractual language in one of the management fee agreements, expressly providing that Aramark was an independent contractor and acted as such in its day-to-day operations, was inconsistent with this precedent. Id. at 8. 

    Governor Glenn Youngkin has issued his proposed Virginia 2024 – 2026 Budget Bill. The Budget Bill would make three notable changes to Virginia’s tax structure, all of which would take effect on January 1, 2025: (1) increase the sales and use tax rate; (2) expand the sales and use tax base to digital products; and (3) reduce the personal income tax rates. Virginia currently does not impose sales tax on downloaded or electronically accessed digital products and software.[1]

    Sales and Use Tax Rate Increase. The Budget Bill would increase the state sales and use tax rates from 4.3% to 5.2%. This rate increase, plus the additional 1% sales and use tax imposed by local governments, would result a new total sales and use tax rate of 6.2%.

    Sales and Use Tax Base Expansion. The Budget Bill would expand the sales and use tax base by: 

    • Including “digital personal property” in “tangible personal property,” with the former defined as “digital products delivered electronically, including software, digital audio and audiovisual products, reading materials, and other data or applications, that the purchaser owns or has the ability to continually access, whether by downloading, streaming, or otherwise accessing the content, without having to pay an additional subscription or usage fee to the seller after paying the initial purchase price”; and 
    • Expanding the base to enumerated “taxable service[s],” which include: “1. Software application services; 2. Computer-related services; 3. Website hosting and design; 4. Data storage; and 5. Streaming services.” However, the term does not include, “any service transaction where the purchaser or consumer of the service is a business, or any other service otherwise exempt [from sales and use tax].”

    Eversheds Sutherland Observation: While details need to be worked out, the Budget Bill attempts to avoid taxation of digital business inputs in two ways. First, by characterizing “digital personal property” as “tangible personal property,” much of the existing Virginia sales and use tax law would apply to those transactions including, among other things, the resale exemption.[2] Second, the Budget Bill excludes business-to-business transactions involving “taxable services,” thereby avoiding tax pyramiding for Virginia businesses, including the commonwealth’s large data center market. 

    Personal Income Tax Rate Reduction. The Budget Bill would also reduce the personal income tax rate by approximately 12% for all earning brackets for taxable years beginning on and after January 1, 2025. For example, the highest marginal rate would be reduced under the plan from 5.75% to 5.1%. 

    The Eversheds Sutherland SALT team will continue to monitor the pending Virginia budget and update on any resulting tax changes.

    [1] See Va. Code Ann. § 58.1-648(C), which excludes “digital products delivered electronically, such as software, downloaded music, ring tones, and reading materials” from the communications sales tax. This provision would be repealed as part of the Budget Bill proposals.  

    [2] See, e.g., Va. Code Ann. § 58.1-602 (excluding from “retail sale” any “sale to any person for any purpose other than for resale in the form of tangible personal property or services [subject to sales and use tax]”; see also § 58.1-623 and V.A.C. 23 § 10-210-280 (relating to resale exemption certificates).

    Good tax legislation. Bad tax legislation. Massive budget shortfall. A November general election around the corner. Curious agency guidance. And looming corporate tax appeal decisions. 2024 is shaping up to be a wild year for California tax.

    Join Eversheds Sutherland attorneys Tim Gustafson and Eric Coffill on Thursday, January 25 for a discussion of what we’ve seen thus far on the California tax front and where the year may take us.

    Register now!

    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 state recently adopted final regulations to its business corporation franchise tax to implement reform that was enacted nearly a decade ago?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    2023 was a year of brisk activity in the state tax world. States remained focused on the digital economy, with numerous new tax proposals being offered in legislatures. Departments of Revenue were also busy issuing regulations and guidance—and in the case of New York’s corporate tax reform regulations, almost a decade in the making. State litigation dockets also continued to be active as they worked through heavy caseloads, issuing numerous income tax and sales tax decisions.

    Throughout the year, the Eversheds Sutherland SALT team continued tracking and summarizing SALT developments – nearly 200 items were posted to this site. In addition, we continued discussing key cases and SALT trends through our SALT Shaker Podcast. (You can catch up on 2023 episodes here, and if you would like to receive all of our updates by email, please register here.)

    The following selected developments exemplify interesting 2023 SALT trends. While the digital economy continued to take center stage from both a legislative and tax administration perspective, income tax disputes, and apportionment specifically, continue to remain a focal point of state tax controversies.

    Digital Economy Tax Proposals

    As with 2022, 2023 was yet again a busy legislative year with numerous jurisdictions discussing new ways to tax the digital economy, such as digital advertising taxes and social media taxes.

    Digital Economy Sales Tax Decisions

    It was not just the legislatures in 2023 focused on the digital economy, as several states issued decisions addressing the continually expanding digital environment in which we live.  We expect as many or even more of these type of decisions in 2024 as disputes work their way through litigation.

    Regulations and Department Guidance

    2023 was a busy year for Departments around the country as they promulgated and finalized long-awaited regulations, including the Texas Comptroller amending its sourcing regulations in light of the Texas Supreme Court’s 2022 decision in Sirius XM v. Hegar, and the New York Department of Taxation and Finance finally adopting regulations implementing the state’s 2015 corporate tax reform.

    Income Tax and Apportionment

    In 2023, income tax controversies continued to occupy a central role in state tax litigation around the country. Specifically, cases regarding apportionment, from cost of performance disputes to look through sourcing, highlighted litigation dockets. We do not anticipate this trend slowing down in 2024. 

    Sales and Use Tax Cases

    Sales and use tax cases continued to maintain its status as a leading focus of state tax disputes. 2023 also saw the role of class-action sales tax disputes and qui tam cases continue unabated.     

    Constitutional Issues

    In 2023, multiple jurisdictions issued decisions in favor of taxpayers on constitutional grounds, reinforcing the importance of raising constitutional claims during litigation.

    On January 5, 2024, the DC Tax Revision Commission released its “Chairman’s Mark,” which lays out the Commission’s tentative proposals for changes to the District’s tax structure. The Commission released a package of 39 proposals. The total net package is estimated to be revenue neutral.

    Read the full Legal Alert here.

    We’re pleased to introduce Jackson, our first SALT Pet of the Month for 2024! Jackson is a spirited 3-year-old Bernedoodle, adored for his companionship by mom Betsy Weiler, Corporate Tax Lead at Zoom.

    Jackson is named after Jackson Hole, Wyoming, in lieu of Betsy’s plans for a vacation home that were interrupted by the pandemic. While Betsy may have missed a home in the wilderness, she is never short on adventure with Jackson. The two have road tripped through Utah, Colorado, Wyoming, and Wisconsin, stopping along the way for skiing excursions and hikes.

    When the young pup is not on an adventure, he enjoys a peanut butter-filled dog treat. Jackson is as determined to eat all the peanut butter as he is to finish a hike! It’s also the perfect treat to give him as it keeps him occupied for a long time!

    In addition to his love of travel, playing fetch and peanut butter, he can’t help himself from trying to say hello to little ones in strollers. Jackson’s definitely gentle, but still a giant to them!

    We are happy to have you, Jackson. Here’s to many more outings in the New Year!

    On December 27, 2023, the New York Department of Taxation and Finance formally adopted long-awaited regulations implementing state corporate tax reforms that were enacted nearly a decade ago. Although the department solicited feedback from the public throughout the process that culminated in the rules’ formal adoption, there remain several rules that we are certain will cause irreconcilable disputes.

    In addition to the reasonable disagreements taxpayers and the department will have over these regulations, the state’s legislative response to the Tax Cuts and Jobs Act is all but certain to lead to litigation.

    Litigation at the state and city level generally follows the same process. In this article published by Law360, Eversheds Sutherland attorneys Jeff Friedman and Cyavash Ahmadi provide an overview of the litigation process and pose some questions worth thinking through before committing to New York tax litigation.

    Read the full article here.

    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 state recently announced that beginning January 1, 2024, sales, use, and excise tax payments, with the exception of quarterly payments, constitute an agreed liability by the taxpayer?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    On December 27, 2023, the New York State Department of Taxation and Finance officially adopted the business corporation franchise tax regulations it submitted to the State Register on August 9, 2023 – marking the final step in the State Administrative Procedure Act process to implement regulations regarding the state’s corporate tax reform that was enacted nearly a decade ago. 

    Read the full Legal Alert here.

    The Tennessee Chancery Court for the Twentieth Judicial District held that software licenses are intangible property and thus the gross receipts from their sale are not subject to tax under Tennessee’s Business Tax Act.

    The taxpayer is a software company engaged in the business of selling and licensing software used for various corporate and back office tasks.

    The Department issued tax assessments for years 2014 through 2018, contending that the taxpayer owed business tax on the gross receipts from software licensing—which the Department classified as a service subject to the business tax. Conversely, the taxpayer argued that its sales were not sales of services, but instead sales of intangible property and thus not taxable under the Business Tax Act.

    The court agreed with the taxpayer, relying on the holding in Commerce Union Bank v. Tidwell, where the Tennessee Supreme Court held that the sale of computer software is the sale of intangible property. After the Commerce Union decision, the state legislature amended the state sales tax statute such that the sale of software would be treated as the sale of tangible property and thus subject to sales tax. Nonetheless—as the court noted—the legislature chose not to make similar changes to the Business Tax Act.

    Applying strict statutory interpretation, the court held that the Commerce Union decision was still binding with regard to the Business Tax Act, classifying software as intangible property under that taxing regime. The court therefore held that sales of software licenses did not meet the definition of “services” under the Act because they involved the sale of intangible property. As a result, gross receipts from such sales are not subject to tax under the Business Tax Act. 

    SAP America Inc. v. Gerregano, No. 20-1249-II, Davidson Cty. Ch. Ct. (Aug. 9, 2023).

    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: An Administrative Law Judge in which state held that the Department of Revenue’s failure to timely issue the taxpayer a statutorily required written statement invalidated its assessment of net income tax?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    In this episode of the SALT Shaker Podcast, Eversheds Sutherland Associate Jeremy Gove welcomes Partner Jeff Friedman for another discussion of a landmark state tax case.

    For this installment, Jeff and Jeremy jump into Moorman Manufacturing Co. v. Bair, discussing the history of 3-factor apportionment, and how the Moorman decision paved the way for states shifting to single-sales factor apportionment. 

    After their discussion, the episode wraps with another edition of overrated/underrated – how do you feel about adults dressing up for Halloween?

    Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

    Listen now:

    Subscribe for more:

    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 city enacted legislation reinstating a tax credit for eligible emerging biotechnology companies for tax years beginning on or after January 1, 2023, and before January 1, 2026?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    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 state’s supreme court recently upheld the denial of a city wage tax credit for income taxes paid to another state by the city resident?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    The Pennsylvania Supreme Court held that the City of Philadelphia is not required to provide a city wage tax credit for income tax payments that a resident made to another state. For the purposes of a dormant Commerce Clause analysis, the court found that state and local taxes do not need to be considered in the aggregate. Therefore, Philadelphia did not violate the dormant Commerce Clause by imposing its wage tax on a resident who worked exclusively in Wilmington, Delaware, and crediting her for Wilmington Earned Income Tax payments while not providing an additional credit for the resident’s payments of Delaware Income Tax. In reaching its decision, the court first concluded that the wage tax was a “purely local tax … promulgated by Philadelphia’s City Council and … collected … for the sole benefit of the City and its residents,” and not a “state tax masquerading as a local tax” that would require the two taxes to be considered in tandem. The court then held that Philadelphia’s tax scheme did not discriminate against interstate commerce because it was internally consistent as any excess tax paid was a result of Delaware’s higher income tax rate rather than any inherent discrimination in Philadelphia’s tax scheme itself and externally consistent as the imposition was justified by the City’s provision of municipal benefits and services to its residents and of a full credit for the local Wilmington tax.

    Diane Zilka v. Tax Review Board City of Philadelphia, No. 20 EAP 2022 and 21 EAP 2022 (Pa. Nov. 22, 2022).

    Three’s company! Say hello to our December SALT Pets of the Month – Arthur Pendragon, DustyAnn and Boon. These furry friends belong to Betsy Vancura, Tax Accountant at Home Depot. Betsy is passionate about rescue animals, and this trio is just half of the fur babies who make her house a home.

    Arthur Pendragon, the “A”-mazing black shorthair cat, is one of five rescue kittens born in Betsy’s dining room in 2021. When Arthur and his siblings were born, he was the first one they picked up, and they gave him the letter “A.” His favorite treat is a small, boiled shrimp, which he receives every morning. He also enjoys getting his hair brushed and laying on his back, prepared for pets.

    DustyAnn, another one of Betsy’s rescue kittens born in 2021, gets her name from her beautiful “dusty” grey coat. While she doesn’t have a favorite treat, she enjoys cozying up in blankets and a good grooming session, like her brother.

    The last of this terrier-ific trio is Boon, a seven-year-old Scottish Terrier. Betsy has had him since he was just a pup, and is grateful to continue the tradition of having Scotties in the family. While he isn’t food motivated, he loves to go for a ride or a walk around the block. Watch out for some of his hidden toys under blankets – his own game of doggie hide-and-seek!

    We’re so excited to welcome these three to the SALT Pet of the Month family!

    Arthur Pendragon
    DustyAnn
    Boon

    The federal check-the-box entity classification rules allow certain entities to change their default classification. Unsurprisingly, not every state conforms to the federal check-the-box (CTB) election for state tax purposes. There are numerous implications resulting from state nonconformity to the CTB election rules. In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Liz Cha, Maria Todorova and Chelsea Marmor review recent cases that highlight some of these implications.

    Read the full article here.

    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 state legislature recently approved legislation that would allow the state’s revenue and justice departments to share taxpayer information under certain circumstances?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    On December 5, Eversheds Sutherland is a proud sponsor of the TEI Silicon Valley Chapter SALT day, a comprehensive SALT update covering a wide range of topics including the latest legislation, litigation and administrative developments.

    Speakers and topics include:

    • Michele Borens, Jeff Friedman, Eric Tresh – 2023 Litigation and Legislative Roundup
    • Michele Borens, John Ormonde – San Francisco’s Troubled Tax System: Where We Are and Where We’re Going
    • Jeff Friedman, Eric Tresh – Transfer Pricing and Intercompany Transactions
    • Jeff Friedman, Tim Gustafson – Income Tax is Cooler
    • Michele Borens, Eric Tresh – No, Sales Tax Is Cooler

    In addition, Eversheds Sutherland Partners Michele Borens, Jeff Friedman and Ted Friedman will present at COST’s Pacific Northwest Regional State Tax Seminar on December 6. The seminar will provide an update on significant state tax issues for California, the Pacific Northwest states and certain other significant states around the country.

    Speakers and topics include:

    • Michele Borens, Jeff Friedman, Ted Friedman – Discussion of State Tax Cases, Issues & Policy Matters to Watch
    • Michele Borens, Jeff Friedman, Ted Friedman – Transfer Pricing and Intercompany Transactions

    Finally, on December 6, Eversheds Sutherland Partner Todd Betor will present during the TEI New York Chapter’s 60th Annual Tax Symposium. During the full-day program, Todd’s panel will review where we are for SALT in 2023 and where we’re going in 2024. For more information and to register, click here.

    View and learn more about past and upcoming events and presentations for the SALT team.

    In this episode of the SALT Shaker Podcast, Federal Tax Partner Mary Monahan joins Associate Jeremy Gove for a discussion of Moore v. United States. 

    Ahead of the oral argument scheduled for December 5, Mary provides Jeremy with a federal tax perspective about the case, including covering the case’s background, the tax constitutionality issue before the Supreme Court, the legal arguments presented and more. 

    Their discussion concludes with a timely overrated/underrated question, likely debated by many last week – what are your thoughts on Thanksgiving turkey?

    You can read the Eversheds Sutherland Tax team’s Legal Alert about Moore at this link.

    Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

    Listen now:

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    On July 13, 2023, the Pennsylvania Board of Finance and Revenue (“BF&R”) denied a pharmaceuticals developer’s corporate net income tax refund claim based on adjustments to its apportionment formula and taxable income. The taxpayer filed, and the Pennsylvania Department of Revenue denied, a refund claim for the 2019 tax year on three grounds: (1) the reduction of the sales factor numerator to the amount of receipts from product consumed in Pennsylvania (i.e., excluding sales to distributors in Pennsylvania that were subsequently shipped outside of the state); (2) the exclusion from taxable income and its sales factor numerator of its royalties, management fees, and research and development cost share relating to activities outside of the United States; and (3) the use of a three-factor formula – rather than single sales factor – because it was a manufacturer relying extensively on capital and labor.

    The BF&R denied all three of the bases for the taxpayer’s refund claim. First, the BF&R found that products delivered to distributors in Pennsylvania were correctly included in the sales factor numerator because the taxpayer had sold its goods to Pennsylvania distributor customers and delivered the goods in Pennsylvania. The BF&R refused to look through to the distributors’ customers’ sales to calculate the taxpayer’s sales factor. Second, the BF&R denied the taxpayer’s “request for multiform income treatment” because of the “lack of sufficient evidence proving entitlement to such treatment.” Third, the BF&R denied the taxpayer’s request for special apportionment because it had “not shown that the standard apportionment methods did not fairly represent the extent of its business activity within Pennsylvania.”

    In re Gilead Sciences, Inc., Dec. No. 2224811 (Pa. Bd. Fin. & Rev. Jul. 13, 2023).

    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: The Maine Supreme Judicial Court recently held that an owner of property valued at more than $1 million can appeal an abatement denial to the local county commissioners or to which state administrative body?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    On Wednesday, December 6, Eversheds Sutherland Partner Todd Betor will present during the TEI New York Chapter’s 60th Annual Tax Symposium. During the full-day program, Todd’s panel will review where we are for SALT in 2023 and where we’re going in 2024. For more information and to register, click here.

    View and learn more about past and upcoming events and presentations for the SALT team.

    The Washington Court of Appeals affirmed a Board of Tax Appeals decision that found an out-of-state bank had a sufficient physical presence in the state to be subject to Washington’s Business & Occupation (B&O) tax. The bank did not have any employees or property in Washington, but issued credit cards, including private label credits cards, to customers in Washington. The Court of Appeals concluded that the bank had a physical presence in Washington because in-state retailers promoted the bank’s private label credit cards, accepted card applications and payments on the cards on the bank’s behalf, and the bank used Washington attorneys to file collection-related lawsuits against Washington residents.

    The court also rejected the bank’s argument that even if it was subject to the B&O tax, no income could be apportioned to Washington because the bank did not engage in business activities in the state. The Court of Appeals stated that the ordinary meaning of the term “business activities” in the context of a credit card issuer included issuing credit cards in Washington and earning substantial income from those cards, and that the bank engaged in those activities in the state. Thus, the Court found that apportioning the bank’s income to Washington based on the billing address of Washington cardholders fairly represented the bank’s business activity in the state.

    Citibank (South Dakota) National Association v. Dep’t of Revenue, No. 57127-7-II (Wash. Ct. App. Nov. 14, 2023).

    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 state’s Department of Revenue recently issued guidance regarding the recently-enacted 4% surtax on individual income that exceeds $1 million?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    The sales taxation of software has long been controversial. When sales of software became commonplace in the 1970s and 1980s, it was largely available and commercially distributed on a tangible medium. Today, software is provided in ways that do not constitute the transfer of title or possession of tangible personal property, such as the Software-as-a-service (SaaS) distribution model.

    While only a few states explicitly tax SaaS or digital automated services as enumerated services, tax administrators may still attempt to tax them.

    In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Michele Borens, Cyavash Ahmadi, and Meriem El-Khattabi explore recent administrative actions and judicial, tax tribunal, and legislative responses to the evolving provision of software. 

    Read the full article here.

    The Maine Supreme Judicial Court held that a prescription drug company’s income should be apportioned based on the location where its prescription drugs are received, rather than the headquarters locations of the health plans or employers paying for the drugs.

    The drug company sought income tax apportionment based on a “market client basis,” arguing that its services were primarily received by its clients such as health insurers and employers. The court held that the clients’ “members” or insureds were the primary recipients of the drug company’s services, and therefore the company’s income must be apportioned on a “market member basis” to the location where the members received their prescription drugs. “Market client basis” sourcing was not appropriate because the company’s client agreements and its 10-k filings established that although the company contracted with health plans and employers, the ultimate recipients of its services were the individuals receiving the drugs and covered health services.

    Express Scripts Inc. v. State Tax Assessor, No. BCD-22-331, (Me. Nov. 7, 2023).

    A North Carolina Administrative Law Judge held that the Department of Revenue did not have the authority to adjust the taxpayer’s net income because the Department failed to timely issue a statutorily required written statement.

    The Department believed the taxpayer had not accurately reported income properly attributable to North Carolina due to intercompany transactions that either lacked economic substance or were not at fair market value and issued a proposed assessment pursuant to N.C. Gen. Stat. § 105-130.5A(k). Although the Department is generally permitted to make such adjustments to a taxpayer’s net income, certain statutory requirements must be met. One such requirement is that the Department “shall” provide the taxpayer a written statement within 90 days of issuing the proposed assessment, detailing the support for the Department’s findings and its proposed method for computation of net income. 

    Here, it took the Department nearly five years after issuance of the notice of proposed assessment to provide the required written statement. The ALJ analyzed the language within the 90-day deadline, ruling that the use of the word “shall” in reference to providing the written statement and the imposition of a deadline following the phrase “no later than” indicated the requirement was mandatory, not directory. Because the Department did not comply with a mandatory requirement, the Department lacked authority to adjust the taxpayer’s income under this code section.

    Ingram Micro, Inc. v. N.C. Dep’t of Revenue, 22 REV 04478 (N.C. Office Admin. Hearings Oct. 27, 2023).

    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: The Ohio Board of Tax Appeals recently held that receipts from healthcare services should be sourced where the patient is located, for purposes of which state level tax?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    The Multistate Tax Commission (MTC)’s 2023 Fall Committee Meetings are off to an exciting start, considering the announcement that Philadelphia will be joining the MTC’s Joint Audit Program. The District of Columbia and Philadelphia are the Program’s only non-state members.

    The MTC’s Joint Audit Program provides audit services to the participating taxing authorities. The Program’s audit staff performs audits and provides proposed findings—often assessments—to jurisdictions that participate in each audit. Over the last 5 years, the MTC’s Joint Audit Program has completed the equivalent of 1,647 audits.

    Read the full Legal Alert here.

    Eversheds Sutherland is a proud sponsor of the 2023 New England State and Local Tax Forum, which provides an annual update on significant state and local tax developments from across the nation with a particular focus on New England.

    On Thursday, SALT Partner Liz Cha will discuss the future of cost of performance sourcing, discussing cases in which the taxing authorities have been successful and cases in which the courts have pushed back, as well as what the current landscape looks like after the latest wave of litigation and where we may be headed next.

    View and learn more about past and upcoming events and presentations for the SALT team.

    In this article originally published by CalCPA in the September issue of California CPA, Eversheds Sutherland Senior Counsel Eric Coffill provides some considerations in deciding whether to grant or deny an auditor’s request for a statute waiver in a pending audit, a common issue arising in FTB audits.

    Read the full article here.

    Please join us for the NYU School of Professional Studies’ 42nd Institute on State and Local Taxation. This important conference, scheduled for December 11-12, 2023 in New York City, will provide insightful updates, practical advice, and in-depth analysis of the latest developments and current issues in state and local taxation. Check out this year’s exciting agenda here.

    Sessions include:

    • Overview and Preview of Federal Constitutional Issues – A spirited review of the most significant constitutional cases
    • Rest Insured: The Pros and Cons of Insuring State Tax Positions and Controversies – What exactly is tax insurance, and what are the considerations to obtaining a policy? Considerations may vary between the insured (taxpayer) and the insurer. Hear about how insurance companies assess the insured’s return position/transaction/litigation position
    • Big Gain Hunting – A discussion of recent decisions confronting the issues that arise from transactions that produce big gains (and losses)
    • And more!

    Eversheds Sutherland is a proud sponsor of the Institute on State and Local Taxation. We hope to see you there.

    Register now!

    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 state Department of Revenue recently found that a resident partnership was liable for additional composite tax on guaranteed payments made to nonresident partners?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    On November 7, SALT Partner Todd Betor will present about current uses and trends of tax liability insurance for members of the Atlanta Tax Forum.

    In addition, on November 10, Todd and fellow SALT Partner Ted Friedman will present during the 2023 Bank & Capital Markets Tax Institute, which provides a current state of the industry for bank tax professionals. Todd and Ted’s session will cover recent SALT developments, including judicial decisions, administrative guidance, legislative changes, and other matters relevant to the banking and capital markets industry. In addition, the panel will focus on corporate income tax, but will also cover recent sales/use and other state and local tax issues.

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

    Happy Halloween from the Eversheds Sutherland SALT team! Check out some of our festive and creative costumes, for humans and dogs alike!

    Share your costumes (or impressive pumpkin carvings!) with us: SALTonline@eversheds-sutherland.com!

    1, 2: Associate Cat Baron and her family, which includes former SALT Pet of the Month, Winnie

    3: Associate Madison Ball’s dog, Agnes

    4-6: Associate John Ormonde and his family, including their impressive pumpkin carvings

    7: Legal secretary Janet Curry’s grandchildren

    8: Associate Sam Trencs and her family

    Paws and relax as we introduce our November SALT Pets of the Month, Pebbles and Lucy!

    The two adorable mutts found their furever home with Kathryn Kelly, State Tax Manager at IHG Hotels and Resorts, after being adopted from BarkVille Dog Rescue and Atlanta Lab Rescue. In December of 2021, 3-year-old English Bulldog and Australian Cattle mix Pebbles was only meant to be fostered through the holiday season but quickly became a “foster fail” after unleashing the love. In September of this year, 2-year-old German Shepherd Lab mix Lucy joined the family as well after winning Kathryn over at an adoption event with her irresistible ears.

    These two enjoy piling onto the couch to watch a Braves game after being dog-tired from a long walk and wolfing down anything coated in peanut butter. Pebbles loves to treat herself to rolling in the grass, especially when the temperature drops. Funnily enough, Lucy instantly bonded with Kathryn’s cat Fred, who she is absolutely mutts about!

    The journey of rescuing Pebbles and Lucy would not have been possible without BarkVille Dog Rescue and Atlanta Lab Rescue and the work they do within the Atlanta community! Kathryn encourages everyone to find ways to give back to their local rescue shelters to help save one paw at a time.

    We are elated to welcome these two pups to our SALT Pet of the Month family!

    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 state’s Administrative Law Court upheld the Department of Revenue requirement that the taxpayer and its affiliates file a combined return because separate-entity filings resulted in distortion?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    What should federal income tax advisors know about SALT issues? On October 30, Eversheds Sutherland SALT Partner Jonathan Feldman will revisit Wayfair and explore pass-through entity taxes as a panelist during the 58th Annual Southern Federal Tax Institute.

    On November 2, Eversheds Sutherland Associate John Ormonde will serve as a panelist during the 2023 Annual Meeting of the California Tax Bar and Tax Policy Conference. His session will focus on the interplay between the California personal income tax law and the tax law for entities in the context of sourcing income.

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

    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: The Massachusetts Department of Revenue recently announced a four percent surtax on taxpayers with taxable income over a certain threshold amount. What is the amount?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    In an article for Bloomberg Tax, Eversheds Sutherland attorneys Liz Cha and Chelsea Marmor summarize recent tax developments in New York, including proposed corporate tax reform regulations and two court opinions on income sourcing, Matter of Techar and Matter of Jefferies Group LLC & Subs.

    Read the full article here.

    This week, Eversheds Sutherland is proud to support Tax Executives Institute’s 2023 Annual Conference—75th Anniversary Celebration. SALT Partners Todd Betor, Ted Friedman and Tim Gustafson will contribute to the comprehensive program that will include nearly 40 sessions focused on US federal, international, and state and local tax, as well as Canadian tax, financial reporting, and corporate tax management issues.

    Presenters and topics include:

    • Tim Gustafson – Recent Developments in State Income Tax
    • Todd Betor – Accounting for State and Local Taxes: The Basics Every In-House Tax Professional Should Know
    • Ted Friedman – National SALT Litigation Update

    In addition, Eversheds Sutherland is a proud sponsor of the 30th Annual Paul J. Hartman SALT Forum, held October 23 – 25 in Nashville, TN. The forum will discuss current developments as well as the practical solutions and planning opportunities in structuring and reporting state and local tax transactions.

    Speakers and topics include:

    • Jeremy Gove – “Do the Due:” What To Do With Due Process
    • Maria Todorova – Market-Based Sourcing – Looking Through the Looking Glass
    • Jeff Friedman – 86-272 Sourcing and Nexus

    Finally, on October 24, SALT Partner Dan Schlueter will cover current property tax developments and litigation during the 2023 Broadband Tax Institute (BTI) Annual Conference, held in Scottsdale, AZ.

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

    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 state’s commissioner recently determined that a data center operator was entitled to a sales and use tax refund on its equipment purchases?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    The Ohio Board of Tax Appeals denied an out-of-state healthcare organization’s apportionment of the Commercial Activity Tax related to healthcare services.

    The taxpayer sought to apportion its gross receipts related to laboratory services and healthcare provider services based on where the taxpayer’s costs were incurred. The Board rejected the taxpayer’s position and found that the lab work and healthcare provider services are sourced based on where the benefit of these services is received. Citing to Defender Security Co. v. McClain, 162 Ohio St.3d 473 (2020), in which the Ohio Supreme Court held that under Ohio’s sourcing rule, the “paramount” consideration when determining what proportion of the benefit is attributed to Ohio is the physical location where the purchaser actually used and received the benefit of what was purchased. The Board found that while some of the services were conducted outside of Florida, the benefit of the services is received where the Ohio patients are located. 

    The Board also noted that even if the laboratory testing and administrative services could be sitused outside of Ohio, the taxpayer failed to support its apportionment method with sufficient documentation. 

    Total Renal Care Inc. v. Harris, No. 2019-848 (Ohio Bd. Tax App. July 24, 2023) (unpublished).

    The taxpayer, a designer, marketer, and wholesaler of apparel, footwear, jeans, and other fashion accessories, shipped products to Ohio-based distribution centers of major retailers and paid the commercial activity tax for all items shipped to the distribution centers, even those that were ultimately received by customers outside of Ohio. The taxpayer applied for a refund for gross receipts realized from products that were sent to Ohio distribution centers but were ultimately shipped to locations outside of Ohio. The taxpayer provided labels for most of the retailers it shipped to that showed where the products would ultimately be delivered, and the Department of Taxation accepted those as sufficient evidence to situs those sales outside of Ohio. However, for two retailers (DSW and Dressbarn), the labels did not indicate where the products would ultimately be delivered, so the Department sitused those sales to Ohio.

    The taxpayer appealed the refund denial to the Ohio Board of Tax Appeals. At the hearing the taxpayer provided evidence in the form of a report showing the distribution of each DSW product throughout all of its stores. This report was based on a data sample collected from DSW’s website over a 3-month period using custom software. The Department argued that the Board should only consider information the taxpayer had at the time it sold the products to DSW and Dressbarn and, that as far as the taxpayer knew at the time, the products were delivered to purchasers in Ohio.

    While the Board rejected the Department’s argument that the taxpayer must have contemporaneous knowledge of the ultimate destination of the product at the time it is transported, the Board also determined that the taxpayer failed to meet its burden in proving that the Department’s findings (i.e., that the DSW and Dressbarn products should be sitused to Ohio) were not valid. The Board stated that the representative sample used was related to a time well after the tax period and “extremely short” in comparison (the sample looked at a period of 3 months and the tax period was 6 years). The Board also mentioned that while the taxpayer’s method may be sufficient in other circumstances, it was too far removed and reflected too narrow of a time frame to establish that the products sent to DSW and Dressbarn were ultimately received outside of Ohio. As a result, the Board affirmed the Department’s final determination.

    Jones Apparel Group, et al. v. McClain, Case Nos. 2020-53, 2020-54 (Sept. 13, 2023).

    Eversheds Sutherland is a proud sponsor of COST’s 54th Annual Meeting, covering all types of state and local taxes that business taxpayers are confronted with on a daily basis. Held in Las Vegas, NV between October 17 – 20, members of our SALT team will present on the following topics:

    • Jeff Friedman – 2024 and Beyond: The Acceleration of Business Tax Increases? 
    • Jonathan Feldman – Judicial Deference in Tax Controversies
    • Tim Gustafson – Local Taxes – Constitutional Constraints and Best Practices for Tax Administration
    • Todd Betor – Financial Accounting for SALT
    • Charlie Kearns – The New Mobile Workforce – Employees Working from Anywhere

    For more information and to register, click here.

    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: California Governor Gavin Newsom recently signed legislation establishing a new 11% excise tax on what kind of products?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    Saddle up to meet our October Pet of the Month, Arson!

    This striking Andalusian gelding is well traveled, having made his way from Madrid to New York to his final destination of Georgia where he was united with his owner, Jessica O’Quin, State and Local Tax Director at InterContinental Hotels Group.

    Joining forces with Jessica after her previous horse had to reign in his more vigorous jaunts, Arson loves to be the mane attraction, especially by horsing around and performing tricks at random in hopes of earning a cookie. At five years of age, Arson enjoys galloping through the pasture with other horses where he lives in a stable state of mind. In future years, Jessica aims to compete in dressage and mounted archery with Arson.

    Welcome to the SALT Pet of the Month family, Arson!

    In a June 1, 2023 determination, the Virginia commissioner concluded that a Virginia data center operator was entitled to a sales and use tax refund on its equipment purchases, regardless of whether they were delivered to a storage facility prior to delivery to the data center. 

    Virginia allows a sales and use tax exemption for certain equipment purchased or leased for use in a data center. In reliance on this exemption, a Virginia data center operator pursued refund claims on its purchases of qualifying equipment. The Department denied the refund claims on the equipment that was delivered to the company’s Virginia storage facility prior to delivery to the data center itself. 

    On appeal, the commissioner concluded that the data center operator’s equipment purchases qualified for the exemption, despite first being delivered to a storage facility. The commissioner observed that the statutory exemption did not include a requirement that the data center use the purchased items immediately. Rather, the exemption applied to eligible equipment either “used or to be used” in the operation of the data center. The commissioner further noted that storing equipment in reserve is “an essential part of data center operations.”  The incentive provided by the data center exemption would be impaired by “[p]rohibiting data centers from purchasing items for future use.”

    Va. Public Document Ruling No. 23-67, Va. Dep’t of Tax. (Jun. 1, 2023).

    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: The Department of Treasury in which state recently updated its sales and use tax guidance on computer software and digital goods?

    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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

    The Texas Comptroller of Public Accounts held its annual briefing in Austin on September 26 and provided taxpayers with updates regarding the administration of research and development credits, pending litigation, rule updates and related topics. The meeting – which was the first all in-person briefing since the beginning of the pandemic – struck an optimistic tone regarding the strength of the Texas economy and the Comptroller’s efforts to recover from its recent staffing shortages.

    A Texas-sized R&D Backlog

    The Texas Comptroller has struggled to administer the R&D credit over the past few years, resulting in a significant backlog of R&D audits and appeals. Texas’ R&D credit was a topic of intense interest for this year’s annual meeting and was covered in many of this year’s presentations. 

    Brett Hare, the director of the Comptroller’s Direct Tax Section, said that the agency is making progress on its large backlog of R&D cases. Tax Hearings Attorney Supervisor Sarah Berry similarly said that her team was starting to move forward with pending R&D-related hearings and would consider taxpayer settlement requests for R&D issues.

    Audit Director Emma Fuentes said that the audit division has shifted its approach to reviewing R&D credits. R&D credits are no longer being sent solely to the Tax Policy Division, which had been overwhelmed by the volume of requests. Now, a team from the Comptroller’s headquarters assists auditors to review R&D credit documentation. Fuentes also said that the Comptroller’s office understands that taxpayers typically cannot provide perfect documentation to substantiate R&D claims. Therefore, the Comptroller expanded the types of documentation that it will consider such as contemporaneous emails from personnel demonstrating that testing activity occurred.

    Nick Souza of the Comptroller’s Policy Division said that the agency continues to focus on the Four-Part Test to determine whether a project has conducted qualifying research activities. The Four-Part Test is the test described in IRC, §41(d) (“Qualified research defined”) that determines whether research activities are qualified research. The four parts of the test are the Section 174 Test, the Discovering Technological Information Test, the Business Component Test, and the Process of Experimentation Test.

    Souza added that taxpayers should continue to submit information used to qualify for the federal R&D credit, but that such documentation is not always conclusive for Texas purposes because the IRS does not always analyze the Four-Part Test, and the Texas-specific R&D expenses may not be apparent.

    Virtual Currency, Cloud Computing, Data Processing and other Indirect Tax Developments

    The Comptroller’s Indirect Tax Division highlighted two recent memorandums concerning virtual currency and credit card reporting services:

    1. No. 202309029L, the Comptroller clarifies that it considers electronic video games and associated virtual currency, virtual goods, and other content to be taxable amusement services. Meanwhile, membership fees, subscription fees, or similar charges, by whatever name called, for access to an electronic game or associated content are charges for membership or access to special privileges.
    2. In Memo No. 202302004L, the Comptroller determined that services to assign credit ratings to legal entities are taxable as credit reporting services.

      Two legislative changes that the Indirect Tax team is helping administer are H.B. 1515, which modifies the residency requirement for qualified Enterprise Zone employees to permit remote work, and S.B. 1122, which deals with the taxability of designated doctor exams related to workers’ compensation claims.

      The Indirect Tax Analyst Melissa Schulz said that her team is working on updates to Comptroller Rule 3.330, to provide examples of data processing services. Schultz also added that the team is discussing topics such as resale exemptions for cloud computing, out-of-state software licenses, and what emerging technologies may constitute taxable data processing.

      Franchise Tax apportionment, reporting, and other Direct Tax Updates

      The Comptroller finalized amendments to its franchise tax apportionment rule, discarding the now-repudiated “receipt-producing, end-product act” test. The Comptroller proposed these amendments in response to the Texas supreme court’s unanimous decision in Sirius XM Radio, Inc. v. Hegar. Eversheds Sutherland’s SALT Team represented Sirius XM in this litigation.

      Comptroller’s rule replaces the term used by the Texas supreme court—“equipment”—with the more general term “property” in apparent recognition that the location of property that is not equipment may be relevant as well.

      The Direct Tax team discussed the implementation of S.B. 3, which increases the threshold before small businesses are required to pay and file franchise taxes. The Tax Policy division also issued a memo to the Audit division on the impact of Hegar v. Health Care Services Corp. to stop-loss insurance. Based on the decision in Health Care Services Corp., insurers can allocate premiums received for stop-loss policies purchased by employers to finance self-funded employee health care benefits when calculating gross premiums subject to premium and maintenance tax if the insurer follows a reasonable allocation methodology that is supported by sufficient evidence.

      Audit Sampling Gone Wrong

      The Comptroller’s audit team discussed an initiative to change how audit samples are developed. Audit Director Emma Fuentes said that her team has noticed instances where a taxpayer’s audit sample complies with the Comptroller’s standards, but is nevertheless so large that it becomes inefficient. The example provided was an audit sample of 6,000 items that took approximately 1,500 hours to review. Methods to reduce sample sizes include merging sample categories, eliminating immaterial sample categories, and increasing the variances between dollar stratums up to eight percent.

      Refund Claims for Nonpermitted Taxpayers

      Nonpermitted taxpayers are required to fill out a Form 00-985, “Assignment of Right to Refund” in order to file refund claims. The Audit Director Fuentes said that her staff has noticed a widespread issue of taxpayers losing their refund claims due to statute of limitations because the form is not being sufficiently completed, specifically the requirement to itemize the transactions that form the basis for the refund claim. Audit staff are now conducting more thorough reviews of the Assignment of Rights forms as they come in, but Fuentes implores service providers to be more thorough when submitting the forms.

      Ongoing Audit Staffing Problems

      The Comptroller’s audit division remains understaffed. Director Fuentes said that the audit division is averaging staffing levels around 460 auditors down from a pre-pandemic average of 570. Interest waivers may be available for taxpayers who experience audit-related delays.

      Tax Hearings Bypass Process

      Victor Simonds, Senior Counsel of Tax Compliance, highlighted the progress of the Comptroller’s relatively-new hearings bypass process. Simonds noted that although the process allows taxpayers to quickly access District Court, taxpayers should not ask auditors to summarily deny claims to expedite the process. Mr. Simonds said that it was important to develop a complete record for District Court and that the hearings bypass process has been successful at fully or partially resolving many claims.

      See you in court… This Year’s Texas Tax Litigation Update

      Bree Boyett from the Comptroller’s Tax Litigation Team provided an overview of recent significant tax cases, including:

      • Apple, Inc. v. Hegar: An Internet Tax Freedom Act challenge to the imposition of sales tax on iCloud and iTunes matching services as data processing services.
      • Hibernia Energy LLC v. Comptroller: A case concerning how flow-through status for federal tax purposes is converted to taxable entity status for the Texas franchise tax.
      • Anadarko Petroleum Corporation v. Hegar: A COGS case regarding whether a $4 billion payment related to the Deepwater Horizon oil spill could be deducted as a cost of goods sold under an “origin of the claim” theory. 
      • American Airlines v. Hegar: A franchise tax controversy in which an airline claims that Texas’ imposition of franchise tax on baggage and passenger fees is prohibited by the Anti-Head Tax Act.
      • Sidetracked Bar LLC v. Hegar: A case holding that an electronic sweepstakes using magnetic card strips was taxable as an amusement service.
      • Boaz Energy II Operating LLC. V. Hegar: A sales tax case concerning whether tangible personal property purchased in connection with the operation of secondary recovery injection wells is exempt as property specifically installed to reuse and recycle wastewater streams generated within the manufacturing, processing, fabrication, or repair operation. Similarly, XRI Holdings, LLC v. Hegar is a case about whether water used for fracking qualifies for a sales tax exemption for wastewater treatment.
      • Avalon Exploration and Production LLC v. Hegar: A case regarding whether oil soluble chemicals are exempt from sales tax because they become a component of property sold for resale.

      What’s Next for Texas

      The Texas economy continues to outpace expectations according to the Comptroller’s Chief Revenue Estimator, Brad Reynolds.

      Reynolds said that the forthcoming revised revenue estimate abandons predictions of a recession, and that there are no strong indications that Texas will experience a recession next year. Notable areas of increased Texas tax collections include hotel occupancy, insurance and franchise taxes. Reynolds also noted that state coffers received a boost for increased apportionment from service providers that relocated their corporate headquarters to the state.

      The presentations throughout this year’s briefing struck an equally optimistic tone for the agency’s continuous efforts to improve its staffing, resolve the backlog of R&D cases, and push to clarify existing guidance. Taxpayers will continue to navigate the Comptroller’s evolving rules and audit process, as well as litigate some highly interesting cases in court. Eversheds Sutherland’s tax team will keep monitoring Texas developments and provide insights on what Texas taxpayers can expect in the Lone Star State.

      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 state’s Supreme Court recently held that the sales tax exemption for the sale of aircraft parts and maintenance did not apply to aircraft lease charges for repairs and maintenance?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      So you think you know sales tax? Eversheds Sutherland SALT attorneys Liz Cha and Jeremy Gove will present on sales tax topics during the 2023 IPT Sales Tax Symposium, held in Chicago from October 1-4.

      Liz’s panel will identify notable local taxes and equip taxpayers with the skills to minimize risk, while Jeremy will explore trends in states’ manufacturing exemptions, with a focus on applicable cases and other hot topics.

      For more information and to register, click here.

      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 state recently held that payroll, property and sales that generated deductible agricultural cooperative income must be included in the taxpayer’s corresponding payroll, property and sales apportionment factors?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      On September 19, 2023, the D.C. Tax Revision Commission met for the second time to discuss proposals for changes to the D.C. tax scheme. Among the multiple topics reviewed, the Commission’s members discussed whether to create a business activity tax, which would primarily target entities that do not pay the District’s net income taxes on business entities – Corporation Franchise Tax or Unincorporated Business Franchise Tax. However, reception among the members on this proposal was mixed. The Commission also discussed a broad range of proposals, covering a range of tax types.

      Business Activity Tax

      For background, the District’s status as a federal enclave and not a state (while “functioning” as a state, county, and municipality for tax purposes) is unique among U.S. jurisdictions.  Pursuant to the Home Rule Act[1] and ultimate oversight by Congress, the District cannot impose tax on the personal income of non-residents. Because the District cannot tax the income of non-residents, it imposes the Unincorporated Business Franchise Tax to tax the entities of which they are owners, such as partnerships. However, the Unincorporated Business Franchise Tax does not apply to the income of professional partnerships.

      To address what it views as those inequities, the Commission now proposes creating a Business Activity Tax. The tax would apply at a 0.5% or 1.0% rate on the formula of Gross Receipts – [Cost of Goods Sold + Capital Purchases]. The Commission also considered the Business Activity Tax liability being a nonrefundable credit against the Corporation Franchise Tax or the Unincorporated Business Franchise Tax. In its proposal paper, the Commission specifically identifies law partnerships as being subject to new tax liabilities, along with, potentially, nonprofit entities. 

      The Commission’s members were not convinced by the business activity tax proposal. There were concerns about the tax applying to businesses that failed to make a profit and, also, providing a disincentive to start-ups considering locating in the District. The Commission’s members did not entirely rule out the tax, though, because of its potential as a revenue-raiser.

      Other Proposals

      The Commission brainstormed a number of other policy ideas affecting income taxes, taxation of partnerships, property taxes, and administrative issues, including:

      • Joyce to Finnigan. The District currently uses the Joyce method of combined reporting.  In other words, District combined reports may include only entities that separately have nexus with the District. The Commission’s members broadly supported switching to the Finnigan method of combined reporting, which would treat the entire combined group as includible in the combined return, unless otherwise excluded.
      • Pass-Through Entity Tax. Unlike many other states, the District does not currently have a SALT cap workaround option for individuals to bypass the federal cap on deductions for state taxes paid. The federal cap does not apply for taxes paid by businesses because they qualify instead as deductible business expenses. By allowing unincorporated pass-through entities that are not subject to the unincorporated business franchise tax (such as law and accounting partnerships) to pay entity-level tax and giving their owners an equivalent tax break at the individual level, the owners can reduce their federal income tax liabilities. This change would be optional for District taxpayers. The members of the Commission also supported this proposal.
      • Finally, the Commission’s members also discussed: (1) switching from I.R.C. rolling conformity to static conformity; (2) whether to increase the franchise tax filing thresholds and minimum tax amounts; (3) repealing, or increasing the threshold for, personal property tax; and (4) eliminating or limiting the District’s bar on issuing clean hands certificates for taxpayers with outstanding tax liabilities.

      Future meetings and next steps

      The Commission currently has scheduled four more proposal review sessions – September 26th, October 10th, October 20th, and October 24th. At the next meeting, the Commission expects to discuss whether to levy a per-employee service fee on employers and create an “extreme” wealth tax.

      [1] D.C. Code Ann. § 1-206.02(a)(5).

      On Wednesday, September 20, Eversheds Sutherland Partners Michele Borens, Jeff Friedman, Ted Friedman and Maria Todorova will provide various SALT updates to TEI’s Seattle Chapter.

      Sessions and speakers include:

      • Jeff Friedman – WA DOR update
      • Michele Borens, Maria Todorova – Sales Tax Is Cooler
      • Jeff Friedman, Ted Friedman – No, Income Tax Is Cooler
      • Michele Borens, Jeff Friedman, Ted Friedman, Maria Todorova – Why SALT isn’t Kosher?

      On September 13, 2023, the D.C. Tax Revision Commission met and evaluated over a dozen tax proposals. Most concerning, the Commission discussed the possibility of implementing a digital advertising tax or a data mining tax.

      D.C. Tax Revision Commission

      The Council of the District of Columbia established the Commission to comprehensively review the District’s tax code. The Commission’s mandate is to make tax policy recommendations on:

      1. Providing for fairness and equity in the apportionment of taxes and promoting progressivity;
      2. Broadening the tax base;
      3. Making the District’s tax policy more competitive with surrounding jurisdictions;
      4. Encouraging business growth and job creation; and
      5. Modernizing, simplifying, and increasing transparency in the District’s tax code.[1]

      By the end of 2023, the Commission is set to submit its slate of recommendations to the Council, along with specific steps for implementing the recommendations, such as draft legislation and regulations.

      The Commission previously released reports in 1998[2] and 2014.[3] Each Commission’s report made recommendations for changes to the District’s tax system. For example, in 1998, the Commission recommended a 1.5% business activities tax and “taxing sales of tangible products to District residents the same regardless of whether they are sold remotely or by District-based businesses.” In 2014, the Commission recommended reducing the District’s business franchise tax rate from 9.975% to 8.25%.

      D.C. Tax Revision Commission proposals

      Throughout 2023, the Commission has met with various tax and fiscal policy experts, as well as community and industry representatives. It has prepared a series of proposals to review and potentially suggest to the Council. On September 13, 2023, the Commission met for the first time to discuss these various proposals. In advance, the Commission released the list of proposals that they would review. 

      The first proposal on the list was “Strengthen and clarify taxation of digital ads and services.” The Commission released a proposal paper, elaborating on the topic. The proposal paper specifically listed as options: (1) a digital advertising tax act similar to Maryland’s enactment; and (2) a tax on “the extraction of consumer data by tech platforms in much the same way that states tax the extraction of valuable commodities like fossil fuels or precious metals.” The second option would be a “per-consumer excise tax that accounts for each user whose data is being mined.” 

      The sordid history of state digital advertising taxes

      Maryland became the first – and only – state in the United States to impose a tax on gross receipts from digital advertising services in 2022. The tax is imposed on gross revenues derived from digital advertising services in Maryland at graduated rates, from a minimum rate of 2.5% to a maximum rate of 10% of such revenues. The Maryland digital advertising generated immediate controversy, with taxpayers challenging the tax in state[4] and federal courts on federal statutory and constitutional grounds.[5] While those challenges have yet to result in a final nonappealable decision on the legality of the Maryland tax, we expect the Maryland Supreme Court to eventually reach the merits and, hopefully, find the tax to be unconstitutional. And while several other states have considered Maryland-style digital advertising tax legislation, those proposals ultimately have been rejected.

      With the history of Maryland’s digital advertising tax in mind, the Commission’s proposal paper acknowledged that any potential D.C. tax similar to Maryland’s tax would likely face similar legal challenges. But the paper noted that it may be able to “minimize challenges by, for example, imposing a tax on all advertising (as opposed to just digital advertising). There could then be less risk that the tax would violate the federal Internet Tax Freedom Act.” But imposing a broad advertising tax could prove difficult for the Council based on recent experience. In 2020, the Council considered expanding its sales tax base to include sales of advertising services and personal information, as part of its Fiscal Year 2021 Budget Support Act of 2020. Ultimately, the D.C. Council opted not to pursue expanding its sales tax base to these sales due to the adverse impact on local media and press, on top of the likely litigation that would follow if a targeted tax on digital advertising were adopted.[6]

      The Commission meeting on September 13th

      At the meeting, the Commission discussed the first batch of proposals but without formally voting on them, which will happen in a later meeting. Rather, the meeting was intended to advance discussion in preparation for later formal voting. 

      The Commission’s members were generally interested in pursuing a digital advertising tax or a data mining tax. The members saw these taxes as being worth consideration because of the potentially large amount of revenue they could generate. One member supported the taxes because he saw them as an expansion of the tax base to match changing technology, rather than a tax rate increase.

      However, there was hesitancy among the Commission’s members because of the ongoing Maryland litigation and potential tax implementation difficulties. The Commission’s members noted that the process to pass and implement these taxes could be long, especially as they were interested in whether the Maryland tax would survive legal scrutiny.

      The Commission also considered a variety of other proposals. For example, the Commission’s members reacted negatively to increasing the general sales tax rate from 6 percent to 7 percent due to regressivity concerns. However, they were supportive of eliminating the motor vehicle excise tax exemption for electric vehicles.

      Future meetings and next steps

      The Commission currently has scheduled five additional proposal review sessions—September 19th, September 26th, October 10th, October 20th, and October 24th. These sessions will shape which recommendations the Commission will make to the D.C. Council. Of particular interest for the September 19th meeting, the Commission likely will discuss a business activity tax proposal, which may resemble the Texas franchise (margin) tax and the Oregon corporate activity tax. Eversheds Sutherland will continue to follow these review sessions that will color the next decade of District taxation. 

      [1] D.C. Code Ann. § 47-462.

      [2] See Summary Report to the Mayor and Council of the District of Columbia, June 1998, D.C. Tax Revision Commission (June 1998), available at https://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/ocfo_part_i_summary_report.pdf.

      [3] Final Report, D.C. Tax Revision Commission (May 2014), available at https://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/DC%20Tax%20Revision%20050114.pdf.

      [4] The Maryland digital advertising tax was challenged in the Circuit Court of Anne Arundel County, with the plaintiffs seeking a declaratory judgment that the tax is unconstitutional and unlawful.  On October 17, 2022, the circuit court granted the plaintiffs’ motion for summary judgment and issued a final declaratory judgment, finding that the tax was unconstitutional and invalid because it violated the Internet Tax Freedom Act (which bars state and localities from imposing taxes that discriminate against electronic commerce), the Commerce Clause of the U.S. Constitution, and the First Amendment to the U.S. Constitution. Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia, LLC, et al. v. Comptroller of the Treasury of Maryland, Case No. C-02-cv-21-000509 (Md. Cir. Ct. final declaratory judgment issued Nov. 17, 2022).While the Maryland Supreme Court later concluded that the circuit court lacked jurisdiction to enter the declaratory judgment, the supreme court did not address the tax’s legality. Comptroller of Maryland v. Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia, LLC, et al., 484 Md. 222 (2023). As it stands, only one court has review the legality of Maryland’s digital advertising tax. That court found it to be unconstitutional under multiple theories.

      [5] The Chamber of Commerce of the United States is also pursuing a challenge to the Maryland digital advertising tax at federal court. However, the United States District Court for the District of Maryland concluded that the Tax Injunction Act precluded the Chamber’s substantive challenges to the tax. While the court initially allowed the lawsuit to proceed against the tax’s pass-through prohibition, the court later also dismissed that challenge as moot because of the Circuit Court of Anne Arundel’s declaration that the tax violated the U.S. Constitution. The Chamber is currently challenging these decisions before the United States Court of Appeals for the Fourth Circuit. Oral argument is set for September 20, 2023. Chamber of Commerce of the United States v. Lierman, No. 22-2275 (4th Cir. notice of appeal filed Dec. 13, 2022).

      [6] The sales tax on advertising services would have applied to “the planning, creating, placing, or display of advertising in newspapers, magazines, billboards, broadcasting, and other media, including, without limitation, the providing of concept, writing, graphic design, mechanical art, photography, and production supervision.” The tax would have encompassed both physical and digital advertising. The proposed sales tax on sales of personal information would have applied to “information or data that is derived from a person that identifies, relates to, describes, or is capable of being associated with, a particular person” and included a person’s browser habits and consumer preferences.

      This episode of the SALT Shaker Podcast welcomes a new voice into the mix, Eversheds Sutherland Associate Laurin McDonald. Laurin joins host and Associate Jeremy Gove to describe 80/20 rules used by states in the context of water’s-edge combined reporting, the subject of an article she co-authored in Tax Notes State.

      In addition to discussing the 80/20 rules, Jeremy and Laurin cover variations on the rules, compliance issues and recent cases that exemplify controversies that can arise from application of 80/20 rules.

      They wrap with an underrated/overrated question – how do you feel about concert encores?

      Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

      Listen now:

      Subscribe for more:

      The back to school buzz has begun! Time to hit the books and open a new chapter with plenty of learning and growth.

      To commemorate the start of the 2023 school year, we’ve collected photos from members of our Eversheds Sutherland SALT team for your enjoyment! We wish all these bright minds a wonderful academic year!

      1: Partner Charlie Kearns’ daughter Ella (1st grade)

      2: Paralegal specialist Jaime Lane’s daughter Cassidy (6th grade) and son Cooper (8th grade)

      3: Legal secretary Janet Curry’s granddaughter Raegan (pre-K)

      4: Associate John Ormonde’s daughter Betsy (pre-K)

      5: Partner Jonathan Feldman’s daughter Anna (8th grade) and son Micah (5th grade)

      6: Partner Tim Gustafson’s son Luke (4th grade) and daughter Cate (8th grade)

      7, 8: Legal secretary Melissa Bragg’s daughters Madelyn (4th grade) and Emma (10th grade)

      9, 10: Partner Maria Todorova’s daughter Addison (7th grade) and son Nicholas (5th grade)

      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: A tax court in which state found that a used car dealership was properly denied $1 million in sales tax deductions due to a failure to properly maintain records?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      There has been an alarming expansion of local taxes. In some localities, this includes new local taxes imposed on businesses. In other localities, this includes aggressive interpretations of existing local ordinances by local tax agencies.

      In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Michele Borens, John Ormonde and David Patterson examine a relatively old local tax — San Francisco’s gross receipts tax.

      Read the full article here.

      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 southwestern state city council recently voted to put a measure on the November ballot asking residents to approve a 3% excise tax on any residential property purchase price in excess of $1 million?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      The most purrfect pals, Lady and Monkey, are September’s SALT Pet(s) of the Month! Belonging to Mitch Trager, Senior Tax Manager at Forvis, these sisters make a pawsome duo, especially when teaming up to steal a spot on vacated chairs or in purrsuit of milk and butter, their favorite treats.

      Named by Mitch’s oldest son, the two cats are the perfect additions to the Trager family.

      Welcome to the SALT Pet of the Month family, Lady and Monkey!

      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: The California Court of Appeal, Fourth Appellate District, recently held that a citizens’ initiative need only receive what percentage vote to pass?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      The Michigan Department of Treasury issued a Revenue Administrative Bulletin (RAB) describing the taxation of computer software and digital products to reflect updated case law and legislation enacted in 2004, which, among other things, defined “tangible personal property” to include “prewritten computer software.” The RAB provides that the “key feature” in determining whether prewritten software is taxable is whether a party exercises a right or power over it, which turns on how it was delivered. For example, if a user merely accesses the software through a third-party server outside of the state, the software is not taxable. Additionally, the RAB provides that the Department will use the “incidental to service” test to determine whether a transaction that includes prewritten software and professional services is taxable. The RAB specifies that digital goods that are not prewritten computer software, like e-books, movies streamed over the internet, or podcasts are not taxable, but noted that applications or video games downloaded or otherwise installed onto electronic devices could constitute prewritten computer software. Finally, the RAB provide how to source sales of prewritten computer software following the repeal a statute that allowed consumers to apportion tax for software through a multiple-points-of-use exemption certificate.

      The South Carolina Administrative Law Court (ALC) held that the South Carolina Department of Revenue could require Tractor Supply and its affiliates to file a combined return notwithstanding that South Carolina law requires corporate taxpayers to file tax returns on a separate-entity basis. In a factually intensive ruling, the ALC found that the Department met its burden of proving that the taxpayer’s separate-entity return filings resulted in distortion and that combined reporting was a reasonable alternative method that fairly reflected the combined group’s business activity in the state. In rendering its decision, the ALC noted that the taxpayer’s expert admitted that the taxpayer’s original transfer pricing methodology was “flawed and unreliable” and its proposed alternative transfer pricing approach was not based on sufficient evidence. As a result, the ALC found that the Department was justified, in this circumstance, to exercise its discretion to require the taxpayer’s unitary group to file a combined tax return.  

      Tractor Supply Co. v. S.C. Dep’t of Revenue, No. 19-ALJ-17-0416-CC (S.C. Admin. Law Ct., Aug. 8, 2023).    

      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 state issued an emergency rule-making order regarding administrative rules surrounding sales and use tax and B&O tax for remote sellers?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      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: New Mexico recently updated guidance for online marketplace providers and sellers reflecting that out-of-state taxpayers pay gross receipts tax at what new reduced rate?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      On August 16, during the National Conference of State Legislatures’ (NCSL) 2023 Indianapolis Legislative Summit, Eversheds Sutherland Partner Charlie Kearns will cover the remote work revolution. He will discuss how the shift away from the office has caused issues for state and local economies, and cover remote work’s impact on commercial property values, public transit and the growing question of how to tax work that crosses state borders.

      In addition, also on August 16, Eversheds Sutherland Partner Todd Betor will participate in an industry panel during the Midwestern States Association of Tax Administrators (MSATA) Annual Conference 2023, providing his perspective on hot topics presented by attendees.

      Finally, Eversheds Sutherland is a proud sponsor of the Council On State Taxation (COST) 2023 SALT Workshop for Technology Companies, which covers the key SALT issues that technology companies are facing. Held in Foster City, CA from August 16-17, presenters and topics include:

      • Jeff Friedman – Update on States’ Digital Services Tax Initiatives
      • Michele Borens – Conundrums with the States’ Marketplace Facilitator Laws

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

      In this episode of the SALT Shaker Podcast, Eversheds Sutherland Partner Tim Gustafson joins Associate Jeremy Gove for a deep dive into California’s market-based sourcing regulation.

      Together they discuss various interpretations of and proposed amendments to the regulation offered over the past six years, and how the interpretations and amendments might affect taxpayers.

      They wrap with a series of underrated/overrated questions related to scents.

      You can read Tim’s article on the topic for Tax Notes State here.

      Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

      Listen now:

      Subscribe for more:

      On August 9, 2023, the New York State Department of Taxation and Finance (Department) submitted its draft corporate franchise tax regulations for publication in the State Register – a significant and necessary step in the State Administrative Procedure Act (SAPA) process to formally adopt regulations related to the sweeping reform of the state’s Corporation Franchise Tax that was enacted nearly a decade ago. 

      Read the full Legal Alert here.

      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 state’s Court of Appeals recently held that a qualifying taxpayer could elect the alternative apportionment method for manufacturers for the first time on an amended tax return?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      In the pending-precedential decision Appeal of Southern Minnesota Beet Sugar Co-op., the California Office of Tax Appeals (OTA) ruled that payroll, property and sales that generated deductible agricultural cooperative income under Cal. Rev. & Tax. Code Section 24404 must be included in the taxpayer’s corresponding payroll, property and sales factors. 

      The California Franchise Tax Board (FTB) argued that such payroll, property and sales should be excluded from both the numerator and denominator of the apportionment factors because the activities produced deductible income. The FTB relied on Legal Ruling 2006-01, which reflects the agency’s long-standing position that activities not resulting in net business income should not be reflected in the apportionment formula.  Despite the FTB’s request for deference to its interpretation, the OTA disagreed with the FTB’s position.  Looking to the plain language of the governing apportionment statutes, the OTA concluded that there were no grounds to exclude activities that give rise to apportionable business income whether or not deductible. Specifically, the OTA drew a distinction between income that is deducted, and income that is “exempted,” “excluded,” or “not recognized” under the terms of the Revenue and Taxation Code, the latter of which “generally do not enter into gross income (or gross receipts) to begin with.” 

      In the Matter of the Appeal of Southern Minnesota Beet Sugar Co-op., 2023-OTA-342P (Cal. OTA March 17, 2023), petition for rehearing denied, 2023-OTA-343 (Cal. OTA June 6, 2023).

      The Colorado Department of Revenue issued a private letter ruling concluding that a taxpayer’s income arising from the sale of Colorado real property is apportionable income because the property was used in the taxpayer property rental business. However, the proceeds from such sales are not “receipts” and thus not included in its Colorado apportionment factor calculation because the sale of the property did not occur in the regular course of the taxpayer’s business.  The taxpayer received receipts in the regular course of its business from property rentals, and disposed of its real property only on infrequent occurrences.  Thus, the Department concluded that proceeds for a sale of real property was apportionable income as it was “income arising from transactions and activity in the regular course of a taxpayer’s trade or business.” But, for purposes of determining the apportionment factor, receipts are included in the calculation only to the extent that they are “received from transactions and activity in the regular course of a taxpayer’s trade or business.”  The taxpayer’s business is property rental, not property sales, and thus the Department determined that the receipts received from the disposition of the real property are not “receipts” for purposes of determining the taxpayer’s Colorado apportionment factor.

      Colo. Dept. of Rev., PLR 23-002 (Mar. 13, 2023).

      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: The Washington DOR recently determined that an audio equipment rental company who rented and also operated the equipment was not entitled to an exemption from what state-level tax?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      The Wisconsin Supreme Court recently held that the state’s sales tax exemption for the sale of aircraft parts and maintenance does not apply to per-flight-hour aircraft lease charges for repairs and maintenance.

      Under Wis. Stat. § 77.51(15b)(a), sales tax applies to the total amount of consideration that the taxpayer receives for leasing its aircraft, without any deduction for the taxpayer’s cost of materials used, labor or service cost, or any other expense of the taxpayer. Although the taxpayer’s purchase of aircraft repairs and engine maintenance from vendors is tax-exempt, tax applies when the taxpayer passes those costs along to its customers as part of the total amount of consideration in a lease.

      The taxpayer sought to apply statutory exemptions related to aircraft: Wis. Stat. § 77.54(5)(a)3., which exempts the sale of “parts used to modify or repair aircraft,” and Wis. Stat. § 77.52(2)(a)10., which exempts the sale of “repair, service, … and maintenance of any aircraft or aircraft parts.” The court held that the taxpayer’s activities fell outside of the text of the exemptions because it was leasing aircraft to the lessees rather than re-selling aircraft repairs or engine maintenance services.  Further, the court found that the taxpayer was not incurring the repair and maintenance costs as the lessee’s agent.  The repairs and maintenance were cost of the taxpayer’s business that did not reduce the taxable sales price of the aircraft lease. 

      Citation Partners, LLC v. Wisconsin Department of Revenue, 985 N.W.2d 761 (Wis. 2023)

      Meet sweet Zita, our August Pet of the Month and rescue pup belonging to Jace Chevalier, Senior Tax Manager at T-Mobile. Named after the children’s book series “Zita the Spacegirl,” Zita joined the Chevalier family in 2021 by way of the Houston K-911 Rescue.

      Jace and his family speculate that Zita is a Corgi and Pit Bull mix. They are one hundred percent certain, though, that she’s a good girl!

      The five-year-old’s favorite munchies are bananas and sunflower seeds, and she also enjoys her two daily walks, chasing balls at the park and sunbathing on the deck.

      Her morning routine of stretching, rolling around on her back, and making good morning sounds is pretty funny. It also didn’t take her long to figure out how to remove that sweater she’s wearing in the picture below!

      We’re happy to have you, Zita!

      On August 9, join Eversheds Sutherland attorneys Charles Capouet, Cyavash Ahmadi and Meriem El-Khattabi for a review of the long-standing SALT Scoreboard publication and the important state tax cases from the first half of 2023. In addition to recapping case opinions, Charles, Cyavash and Meriem will analyze case trends and compare 2023’s results to prior years’ case tallies.

      Register to join us here.

      An Illinois Appellate Court affirmed a circuit court’s dismissal of a qui tam action filed against a United Kingdom-based tailoring shop. The court held that although the tailor’s failure to investigate its use tax collection obligations was “an ostrich-type situation,” the tailor nevertheless did not violate the Illinois False Claims Act.

       The Illinois False Claims Act provides two theories of liability:

      1. knowingly making, using, or causing to be made or used a false record or statement material to an obligation to pay or transmit money or property to the State; or
      2. knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay or transmit money or property to the State.

      The Act defines “knowingly” to include a person: (i) having actual knowledge of the information; (ii) acting in deliberate ignorance of the truth or falsity of the information; or (iii) acting in “reckless disregard” of the truth or falsity of the information.  The Relator claimed the tailor’s failure to investigate its tax responsibilities was reckless disregard of the tax law. 

      The tailor’s failure to investigate its use tax obligation could have been sufficient to demonstrate that it acted with reckless disregard, but the Relator failed to seek and submit discovery on the tailor’s nexus with Illinois to support a finding of scienter, i.e. the requisite knowledge under the False Claims Act.

      Further, in choosing to use the words “avoid” and “conceal,” the court found that the legislature intended to cover only those persons who intentionally choose not to meet their tax obligation, rather than a merely failing to pay tax.

      The record failed to show the tailor knowingly concealed, avoided, or decreased an overpayment it received from the State of Illinois. Therefore a dismissal of the qui tam action was warranted.

      People ex rel. Stephen B. Diamond PC v. Henry Poole & Co. LTD, No. 2018 L 10136 (Ill. App. Ct. June 30, 2023).

      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 state’s legislature recently overrode a governor’s veto of a bill that creates a payroll tax to increase funding for child care?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      The power and reach of administrative agencies — often led by unelected officials — has long been a source of controversy. Nearly 40 years ago, in Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., the U.S. Supreme Court held that an administrative agency’s interpretation of a statute administered by that agency should be given deference if (1) the statutory provision is ambiguous and (2) the agency’s interpretation is merely reasonable. Since then, the case “has become ‘the most cited case in modern public law.’” For state tax practitioners, this is nothing new — deference to a tax collector’s interpretation of the tax law was taken for granted well before Chevron was decided, and its application extended beyond formally promulgated regulations.

      Wide variation between and within states’ administrative deference doctrines are problematic for obvious reasons. Taxpayers and businesses are harmed when there is uncertainty whether the law will be applied the same way in factually (and substantively) similar circumstances. But the rise of state tax tribunals, recent judicial opinions, and legislative and voter actions call into question the continued existence and viability of Chevron and related doctrines: How much deference should tax administrators be entitled to (if any)?

      In this installment of A Pinch of SALT in Tax Notes State, Eversheds Sutherland attorneys Jonathan Feldman, Cyavash Ahmadi and Cat Baron explore the deference afforded to state administrative agencies and suggest that, perhaps, the high-water mark is behind us.

      Read the full article here.

      The New Mexico Taxation and Revenue Department recently updated FYI-206, which describes the gross receipts tax collection responsibilities for online marketplace providers and sellers. The updated guidance reflects the new reduced gross receipts tax rate used for out-of-state taxpayers, 4.875%. Additionally, the updated guidance provides that marketplace providers may use Form TRD-31117, Marketplace Provider Data Sharing Agreement, to report to the Department a list of marketplace sellers it facilities sales for and paying gross receipts tax on those sales.

      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 state recently approved legislation that requires its revenue services department to study the possibility of creating a blanket sales and use tax exemption for nonprofit organizations?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      Curious what the top 10 sales tax issues for 2023 are? Join Eversheds Sutherland attorneys Jonathan Feldman and Alla Raykin as they cover this topic during the Southeastern Association of Tax Administrators (SEATA) 73rd Annual Conference in Little Rock, AR on July 18.

      For more information and to register, click here.

      View and learn more about past and upcoming events and presentations for the SALT team.

      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: The Washington Court of Appeals recently held that a provider of what type of services for its affiliate’s enrollees met the insurance business exemption to the B&O tax?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      The Alabama Court of Civil Appeals affirmed the trial court’s decision and held that retroactive application of the 2014 revisions to the “prepaid telephone calling card” provision of the Tax Code were unconstitutional as applied to the taxpayer. Taxpayer, an authorized dealer for Boost Mobile (“Boost”), sold Boost prepaid wireless-service plans to customers, but did not collect and remit the sales tax on the transactions. After an audit, the Department of Revenue (“Department”) assessed the taxpayer for the unpaid sales tax on the transaction and took the position that the transactions were subject to the sales tax under the “prepaid telephone calling card” provision of the Tax Code even though, as a Department employee conceded at trial, the type of prepaid wireless service provided by Boost through the taxpayer did not exist when the provision was enacted. While the assessment was being appealed at the Tax Tribunal, the legislature revised the Tax Code to require that the type of prepaid wireless service provided by Boost through the taxpayer would be subject to the sales tax. The revisions also included a provision stating that this change was prospective only except for “audits that began or assessments that were entered” prior to the effective date of the changes. The taxpayer asserted that this retroactive application violated its due process rights. The trial court agreed, holding that the taxpayer was not liable for the sales tax because the revisions, as applied to the taxpayer, were unconstitutional since the changes only applied retroactively to taxpayers who were either under audit or had an assessment entered against them as of the effective date of the revisions but did not apply retroactively to other taxpayers.

      On appeal, the Alabama Court of Civil Appeals, held that the retroactive application of the revisions to some taxpayers but not others “was not supported by a legislative purpose furthered by rational means.” The court disagreed with the Department’s argument that the retroactivity was constitutional because the revisions only clarified the “prepaid telephone calling card” provision of the Tax Code and that this clarification was rational. The court stated that “it was not the clarification … that the trial court determined was not supported by a legislative purpose furthered by rational means; it was [the] retroactive application to a small number of taxpayers … while exempting other taxpayers from the retroactive application[.]” The court also rejected the Department’s argument that that the language of the statute before the revisions made the taxpayer liable for the sales tax. The court stated that the plain language of the statute did not subject the taxpayer’s “receipt of a prepayment for Boost’s wireless service” to the sales tax.

      Alabama Department of Revenue v. Cellular Express Inc., No. CL-2022-0701 (Ala. Civ. App. May 12, 2023).

      On March 23, 2023, the Washington Department of Revenue issued an emergency rule-making order. The purpose of the emergency rule was to make the public aware that certain of the Department’s administrative rules concerning remote sellers’ sales and use tax nexus and minimum nexus thresholds for the state’s business and occupation tax may be outdated. Specifically, the Department cautioned that the public should not use Rules 193 (Interstate sales of tangible personal property), 221 (Collection of use tax by retailers and selling agents), and 19401 (Minimum nexus thresholds for apportionable activities and selling activities) “to determine their sales or use tax collection obligations or to determine substantial nexus for apportionable activities and selling activities for periods beginning on or after October 1, 2018.” The Department explained that the rules may be outdated because, Substitute Senate Bill No. 5581 (2019) “clarified the sales tax obligation for remote sellers and when a person is deemed to have substantial nexus for business and occupation (B&O) tax purposes.” Substitute Senate Bill No. 5581 (2019) provides that substantial nexus is established by a nonresident individual or business entity who has more than $100,000 of cumulative gross receipts in Washington in the current or immediately preceding year.

      A whole latte love! Meet our July Pet of the Month, Latte! Latte is an adorable Cavachon pup, combining the Cavalier King Charles Spaniel and Bichon Frise breeds. He recently celebrated his first birthday in May with his owner, Eugina Lim, a tax manager in SALT audit at Amazon.

      Eugina came up with his name due to his coat color as a puppy. At the time, she thought his color perfectly resembled the color of milk poured into iced coffee. However, given a coat color transformation as he’s gotten older, he’s now more a milk than a latte.

      Since his arrival in New York from Missouri last year, he’s enjoyed many of the finer things in life, including chicken jerky cooked up by Eugina’s parents when they visit. He also likes to play with visitors’ shoes. Eugina always warns her guests to hide them upon arrival because Latte will make sure their shoes follow them into the living room. 

      He also makes sure to always keep his eye on the ball. Each time Eugina asks him “where’s the ball?” he drops everything and scurries around the room until he finds it. She (sometimes!) hides the ball just to add to the challenge. 

      We’re pleased to feature Latte this month!

      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 state recently passed an exemption from state and local sales and use tax for purchases of qualifying agricultural fencing materials by commercial farmers?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      This week on the SALT Shaker Podcast, host and Eversheds Sutherland Associate Jeremy Gove welcomes New York Associate Chelsea Marmor back to the show for an update on New York tax developments.

      Jeremy and Chelsea kick off their discussion with a review of New York Governor Kathy Hochul’s Fiscal Year 2024 Executive Budget and the implications of its tax – and nontax – provisions. They particularly focus on the revenue raisers and what it all means for taxpayers going forward.

      They wrap with an underrated/overrated question – are mascots overrated?

      Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

      Listen now:

      Subscribe for more:


      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 state’s Supreme Court recently held that capital gains resulting from the sale of an urban redevelopment project were not subject to personal income tax?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      The Supreme Court granted certiorari on June 26 with respect to the Ninth Circuit’s decision in Moore v. United States. The question presented is whether the section 965 transition tax is a “direct tax” that violates the Apportionment Clause of the US Constitution.

      The Supreme Court has not invalidated a federal tax on constitutional grounds since Eisner v. Macomber, over a century ago. The last time the Supreme Court addressed the direct tax clause, in the Affordable Care Act case NFIB v. Sebelius, it required only a few paragraphs to hold that a tax on the condition of not having health insurance was not a direct tax. The opinion in NFIB was written by Chief Justice Roberts and joined by four other members of the court, two of whom (Justices Sotomayor and Kagan) are still on the bench.

      Read the full Legal Alert here.

      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 state legislature recently introduced a bill that would provide an income tax credit equal to 95% of donations made by a taxpayer to a lower-performing public school?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!


      The NYU School of Professional Studies is hosting its Introduction to State and Local Taxation Conference. This two day conference in the heart of Manhattan will provide attendees with the key concepts of state corporate income tax AND state sales and use tax. This conference is perfect for those who are new to SALT or those looking to brush up on the foundational concepts. 

      From July 24-25 in New York City, hear from state and local tax leaders as they describe fundamental concepts and practical applications of state corporate income tax and sales taxation. Topics include:

      • Sales and Use Taxation Fundamentals
        • Differences between Sales and Use Taxes
        • Sales tax exemptions and administration
        • Sales taxation of services and digital products
        • Marketplace facilitator tax requirements
      • Corporate Income Taxation Fundamentals
        • Determining the corporate income tax base
        • Allocation and apportionment
        • Separate, Consolidated, and Combined Reporting
        • The Unitary Business Principle
      • Gross Receipts Taxes
      • State Tax Research Tools, Tips and Tricks
      • And more…

      We hope to see you there! For more information or to register, click here.

      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: New York’s State Legislature recently approved a bill that would extend a partial property tax abatement for what type of property owners in New York City?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      This week, Eversheds Sutherland Partners Liz Cha and Eric Tresh will present during the 2023 TEI Region 8 Annual Conference in Hilton Head Island, SC. Liz and Eric will tackle a state tax controversy update.

      For more information and to register, click here.

      View and learn more about past and upcoming events and presentations for the SALT team.

      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: The Internet Tax Freedom Act was recently held to prohibit which city’s tax on online storage services?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      Meet two very special ladies and our June SALT Pets of the Month, Haley and Hildee! Both dogs were rescued and now live in Northern California with Ben Wylie, Senior Tax Director at Instacart, and his family.

      Haley was originally homeless in the streets of Taipei, Taiwan until she was hit by a car. She was lucky to receive sponsorship and medical attention, but lost her left eye and had her hip joint removed. The Wylie’s had her transported to the San Francisco Bay Area to join their family and continue her recovery. Haley is now very active and loves hiking, going to the beach and playing with her many toys. Understandably, she still dislikes cars!

      Haley’s sister Hildee hails from Compton, CA. She was left outside a local shelter with a broken back, starving, and with other serious medical and dental issues. Despite her many challenges, Hildee has an amazing spirit and loves all people, dogs and even cats. She has since worked hard on her physical therapy and was determined to walk again. Hildee is now wheelchair free and enjoys her (several) short walks per day. Hildee is also an avid soccer fan and has become the unofficial team mascot for Ben’s daughter’s soccer team.

      We’re so happy to have these two ladies as our SALT Pets of the Month!

      On Thursday, June 8, New York-based SALT Partner Todd Betor will participate in the TEI New York Chapter’s M&A Tax Conference, held in person. The full day of programming will cover all aspects of M&A tax from both the buy side and sell side. Todd’s panel will discuss operational issues – state and local income, sales, and real estate transfer taxes including NOLs and sell side and buy side issues. 

      For more information and to register, click here.

      The Court of Appeals of Virginia, upholding the trial court’s decision, held that the successor to The C. F. Sauer Company could elect the manufacturer’s apportionment method for the first time on its amended tax return. By doing so, the court (preliminarily*) paved the way for qualifying taxpayers to take a wait and see approach to deciding on whether to elect Virginia’s alternative apportionment method for manufacturers is right for them. Virginia’s standard apportionment method prescribes a three-factor formula comprised of a taxpayer’s property factor, payroll factor, and double-weighted sales factor, whereas the manufacturer’s apportionment method for tax years beginning on or after July 1, 2014 is comprised of a single-sales factor. Considering that the manufacturer’s apportionment method is irrevocable for three taxable years, the flexibility in making such an election could be crucial for taxpayers that are uncertain of the impact that the alternative method could have when filing their original tax returns. To reach its conclusion, the court rejected the Department’s argument that certain provisions (e.g., the recapture provision) and phrases (e.g. any interest accrued would be “from the original due date for filing”) in the statute directly conflicted with the trial court’s ruling (and the taxpayer’s position) and showed the legislature’s intent to limit the election to the original tax return. Rather, the court found that there is no conflict and that, unlike other Virginia tax elections, the plain language of the statute “simply does not prevent a taxpayer company from electing to use the manufacturer’s apportionment method in a timely amended return.” Further support for the court’s reading was found in the “legislature’s liberal acceptance of amended returns generally elsewhere in the tax code.” *Virginia does not permit an appeal to the Supreme Court of Virginia as a matter of right in tax cases that do not involve the State Corporation Commission.

      Commonwealth of Virginia, Department of Taxation v. 1887 Holdings, Inc., Record No. 0598-22-2 (Va. Ct. App. May 23, 2023).

      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 state recently enacted significant tax legislation that decouples from the TCJA changes to IRC § 174, imposes sales tax on certain digital goods, and revises eligibility for the pass-through entity tax election?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      On Thursday, June 1, Eversheds Sutherland Partner Jeff Friedman will present at the Villanova University Charles Widger School of Law’s First Annual State and Local Tax (SALT) Forum, which will bring together SALT thought leaders from around the country to discuss relevant policy, practice, procedural and technical issues. Hosted by the Villanova University Graduate Tax Program, the conference will cover the struggles of applying traditional tax laws to today’s digital economy. Jeff’s panel will discuss digital economy controversies.

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

      This week on the SALT Shaker Podcast, Eversheds Sutherland Associate Jeremy Gove is pleased to welcome Professor Richard Pomp, a state and local tax professor at both the University of Connecticut School of Law and NYU School of Law, to discuss the pending U.S. Supreme Court cert petition in Quad Graphics, Inc. v. North Carolina Department of Revenue.

      Professor Pomp recently filed an amicus brief with COST supporting Quad Graphics in its request to have the US Supreme Court review its North Carolina Supreme Court decision, which upheld the North Carolina Department of Revenue’s sales tax assessment rather than a use tax assessment. The decision was upheld despite Quad Graphics lacking sufficient nexus to be subject to the North Carolina sales tax.

      Jeremy and Professor Pomp discuss the Quad Graphics case and the cert petition in greater detail, and how it relates to two long-standing U.S. Supreme Court cases: McLeod v. J.E. Dilworth Co. and General Trading Co. v. State Tax Commission.

      To end the show, Jeremy proposes a pertinent question now that business travel is on the rise – have backpacks replaced briefcases?

      Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

      Listen now:

      Subscribe for more:

      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: Recently, a New York Administrative Law Judge ruled that New York’s corporation franchise tax on receipts from broadband services and other internet access services is preempted by what federal statute?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      In this installment of A Pinch of SALT for Tax Notes State, Eversheds Sutherland Partner Tim Gustafson reviews California’s market-based sourcing regulation, various interpretations of and proposed amendments to the regulation offered over the past six years, and how the interpretations and amendments might affect taxpayers.

      Read the full article here.

      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: The Supreme Court of Missouri recently held that replacement equipment used to provide telecommunications services was exempt from which state tax?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      On February 27, 2023, the Washington Court of Appeals held that a provider of pharmacy services and pharmacy benefits services (PBM) to its affiliate’s enrollees met the insurance business exemption to the Business and Occupation Tax because its activities were at least functionally related to insurance business. The taxpayer fulfilled the PBM services required by an affiliate’s Washington State Health Care Authority contract, including managing the availability and payment of the enrollees’ pharmacy benefits on behalf of the affiliate.  Washington provides a B&O Tax exemption to “any person in respect to insurance business upon which a tax based on gross premiums is paid to the state.” The Department contended that the taxpayer would be exempt only if it provided services that were “functionally related” to its affiliate’s insurance business. The amounts it received from the affiliate for its services would then be exempt to the extent that the affiliate paid the Washington premiums tax. The court held that “where activities are required to be performed under the insurance contract in exchange for premium payments and a tax is paid on those premium payments the activities are at least functionally related to ‘insurance business’” under the insurance benefit exemption. Because the activities performed by the taxpayer were required under its affiliate’s HCA contract – and if performed by the affiliate would be insurance business activities – the taxpayer’s activities were functionally related to the insurance business and satisfied the exemption.

      Envolve Pharm. Sols., Inc. v. Washington Dep’t of Revenue, 524 P.3d 1066 (Wash. Ct. App. 2023).

      Eversheds Sutherland Partner Ted Friedman will participate in a SALT panel during the Wall Street Tax Association’s Spring Tax Conference in New York, NY on May 17. He will help cover a variety of SALT topics, including legislative developments, recent judicial decisions of interest, and Multistate Tax Commission projects to watch. 

      In addition, Eversheds Sutherland Partners Todd Betor and Charlie Kearns will help present a training for the TEI Nashville Chapter on May 17, covering a SALT legislative update, as well as pass-through entity workarounds.

      Also on May 17, members of the SALT team will present at the TEI Orange County Chapter SALT event.

      Speakers and topics include:

      • Michele Borens, Jeff Friedman – SALT Controversy Update
      • Jeff Friedman, Cyavash Ahmadi – Use Tax Considerations for Purchase of Software and Digital Products/Services
      • Michele Borens, John Ormonde – Local Tax Complications
      • Michele Borens, Jeff Friedman, Cyavash Ahmadi, John Ormonde – SALT Legislative Roundup

      Finally, Eversheds Sutherland attorneys Maria Todorova and Laurin McDonald will present an ethics session for the TEI St. Louis Chapter on May 18.

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

      On January 12, 2023, the Louisiana Board of Tax Appeals held that sales of remote personal electronic storage capacity services were not subject to the New Orleans French Quarter Economic Development District sales and use tax. A federal statute, the Internet Tax Freedom Act, prohibits states and political subdivisions from imposing taxes on Internet access. Effective November 1, 2007, Congress expanded the ITFA’s definition of Internet access to include, among other items, “personal electronic storage capacity” that is provided independently or not packaged with Internet access. The taxpayer offers a service that allowed users, via an Internet connection, to upload their personal digital content to the taxpayer’s remote servers and access their personal digital content from any of their Internet-connected devices. The taxpayer provides the storage service at no cost, but also offers customers the option to pay a subscription fee for additional storage capacity. The Board held that under the plain meaning of the ITFA, the storage service provided subscribers with “personal electronic storage capacity.” Therefore, the storage service is Internet access and not taxable. The Board further noted that services are generally not taxable, unless specifically enumerated. The storage service was thus also not taxable because it was not specifically enumerated.

      Apple Inc. v. Samuel, Dkt. No. L01283 (La. Bd. Tax App. Jan. 12, 2023).

      On December 29, 2022, the District of Columbia Court of Appeals held that transfer and recordation taxes were due on the portion of consideration from a sale of land and related improvements related to reversionary interests in land improvements. The taxpayers argued that the acquisition consisted of two distinct steps: (1) taxable land sales, via special warranty deeds; and (2) non-taxable terminations of ground leases, via lease termination memoranda.  The District generally does not tax either the formation or termination of ground leases of less than thirty years. The taxpayers allocated a portion of the purchase price to the land based on the assessed value for real property taxes and paid transfer and recordation taxes on that amount. The taxpayers asserted that the remainder of the purchase price was allocated to the non-taxable terminations of ground leases. Following an audit, the District contended that the acquisition was a single taxable transaction in which the land and buildings transferred to the purchaser and the pre-existing ground leases terminated.

      Ultimately, the Court of Appeals held that the taxpayers had not accounted for – and owed tax on – reversionary interests in the land improvements transferred between parties.  Because the consideration attributed by the taxpayers to the ground lease terminations also included a portion attributable to the taxable reversionary interests in land improvements, the Court of Appeals remanded the case to the Superior Court to resolve the factual issue.

      District of Columbia v. Design Ctr. Owner (D.C.) LLC, 286 A.3d 1010 (D.C. 2022).

      On February 6, 2023, the Texas Comptroller of Public Accounts released a memorandum summarizing the internal-use software regulations related to the state’s franchise tax research and development credit and the sales tax R&D exemption. The comptroller significantly revised these regulations in 2021 and then reversed the revisions in 2022, causing confusion among members of the state’s tech industry.

      In this installment of A Pinch of SALT for Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman, Mary Monahan and Dennis Jansen examine the recent memorandum and discuss what’s next for the Texas R&D credit.

      Read the full article here.

      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: Recently, a bill was introduced in the New York state legislature that would impose a delivery surcharge on any item purchased online and delivered within New York City. How much is the delivery surcharge for?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      On March 10, 2023, the Supreme Judicial Court of Massachusetts held that capital gains resulting from the sale of an urban redevelopment project were not subject to Massachusetts personal income tax. As an incentive for private entities to invest in constructing, operating, and maintaining urban redevelopment projects, Massachusetts exempts these entities “from the payment of any tax, excise or assessment to or from the commonwealth … on account of a project.” The court concluded that the exemption extends to capital gains from the sale of such urban redevelopment projects because the gains are “on account of” the project. The court relied on an analysis of the statute’s plain language, finding that “on account of” the project meant “because of” the project. The court concluded that capital gains – the increased value of the properties – are causally related to the project and thus exempt. The court’s conclusion was buttressed by the statute as a whole and its legislative history, which demonstrated that the tax exemption was established to stimulate the investment of private capital. The court observed that “[a]chieving a capital gain from the sale of [the] project is often a significant driver for real estate investors[.]”

      Reagan v. Commissioner of Revenue, 203 N.E.3d 1150 (Mass. 2023).

      On Wednesday, May 10, members of the Eversheds Sutherland SALT team, including Partners Todd Betor, Michele Borens, Jeff Friedman, Ted Friedman, Tim Gustafson and Maria Todorova, will present on a variety of state and local tax topics at the TEI Denver state and local tax seminar.

      Speakers and topics include:

      • Jeff Friedman, Maria Todorova – State and Local Tax Update
      • Todd Betor, Ted Friedman – State Tax Issues in M&A
      • Michele Borens, Tim Gustafson – Use Tax Considerations for Purchases of Software and Digital Products/Services
      • Jeff Friedman, Todd Betor, Michele Borens, Ted Friedman, Maria Todorova – Why State and Local Tax is Awesome!

      Meet mama Dory! This precious tabby cat and her league of kittens are under the careful watch of Maria Biava, Senior Managing Associate General Counsel at Verizon.

      For the last several years, Maria has been on a mission to rescue feral cats from a Philadelphia neighborhood once known for housing local breweries. Named after a specific beer hop, Dory (short for Dorado) came to be in Maria’s care after Maria found her in the parking lot of a series of townhomes.

      A vet appointment revealed Dory was pregnant, so Maria brought her home to give her shelter and help find homes for her kittens!

      Dory and her cuddly kiddos are available for adoption in the Philadelphia area. If you’re interested in providing a forever home, email SALTonline@eversheds-sutherland.com.

      We’re so glad to feature Dory and her kittens as the May SALT Pets of the Month!

      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 state’s court of appeals recently held that meter-reading services are non-taxable data processing services exempt from retail sales tax?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      This week, Eversheds Sutherland Partners Liz Cha, Maria Todorova and Eric Tresh will participate in panel sessions during TeleStrategies’ 2023 Communications Taxation Conference in New Orleans, LA. The conference addresses the challenging and complex domain of telecommunications taxation, regulatory compliance and fees.

      On May 4, Liz and Eric will provide an update on key litigation and controversies involving the taxation of telecommunications services, including the application of telecommunications taxes to hardware and software, court interpretations of the limitations of the Internet Tax Freedom Act and the unbundling of taxable and nontaxable products and services. 

      Also on May 4, Eric will participate in a panel that looks at how to create and implement bundled pricing for tax and regulatory purposes. Eric will help review issues associated with market pricing and elasticity of demand, minimizing taxes, and risk management.

      Finally, on May 5, Maria will help discuss the complexities of gross receipts taxes, as well as new taxes and fees applicable to the communications industry. In addition, she will highlight issues and controversies related to these taxes.

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

      On April 18, 2023, the Supreme Court of Missouri affirmed the Administrative Hearing Commission’s (AHC) decision that replacement equipment used to provide telecommunications services was exempt from use tax under the State’s manufacturing exemption in effect in 2011 and 2012.

      Like most States, Missouri exempts from sales and use tax equipment used in manufacturing or producing a product or taxable service ultimately intended to be sold at retail. Under Missouri law, telecommunications services are taxable services when sold at retail. In 2018, the legislature amended the sales and use tax statute to make clear that equipment used in the production of telecommunications services qualified for the manufacturing exemption.  The amendment expressly provided that it was not intended to change the law and was only a clarification of existing law. 

      This case involved purchases of telecommunications equipment by Charter Communications Entertainment I, LLC (CCE I) in 2011 and 2012 (prior to the statutory amendment). The court found that the equipment qualified for the exemption as equipment used in “manufacturing” and that CCE I had sufficiently shown that its replacement equipment was “used directly” in manufacturing telecommunications services. In rendering its decision, the court found that the provision of telecommunications services constituted manufacturing because it transforms an input (the caller’s voice) into an output with a separate and distinct value from the original. It also agreed with the AHC that CCE I was not also required to establish that its replacement equipment is “substantially used” in manufacturing—relevant because CCE I used its equipment not only to provide telecommunications service but also cable and Internet service as well.

      Accordingly, the court affirmed the AHC’s decision, awarding CCE I with a $1.5 million refund on use taxes paid on replacement equipment purchased in 2011 and 2012.

      Charter Commc’ns Ent. I, LLC v. Dir. of Revenue, Mo., No. SC99517 (April 18, 2023).

      In the latest episode of the SALT Shaker Podcast, Eversheds Sutherland Associate Jeremy Gove is joined by SALT Partner Tim Gustafson to discuss the ins and outs of the one-of-a-kind settlement process in California.

      Before diving into specific considerations for taxpayers, Jeremy and Tim provide an overview of the settlement process itself, including a discussion of the agencies involved, the oft-surprising rules in play, and the impact on controversy generally.

      Their conversation ends with an overrated/underrated question pertaining to casual office wear – how do you feel about jeans?

      You can read the article Tim referenced, co-authored by Partner Liz Cha, in Tax Executive here.

      Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

      Listen now:

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      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: According to the Illinois Independent Tax Tribunal, what type of fuel is not eligible for the expanded temporary storage exemption under the Retailer’s Occupation Tax?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      Assembly Bill 6008, introduced on March 30, 2023, would impose a $3 delivery surcharge on any item purchased online and delivered within New York City. The person selling the item to be delivered within New York City is liable for the surcharge and the surcharge “shall be passed along to the purchaser and separately stated on any receipt” provided to the purchaser.

      Deliveries of food, diapers, baby formula, drugs and medicines are exempt from the surcharge under this proposed legislation. If enacted, the surcharge would take effect on January 1, 2025.

      The North Carolina Department of Revenue issued a letter ruling that concluded an online platform owner and administrator was not a marketplace facilitator because it neither collected nor otherwise processed payment for any items sold on the website. The taxpayer requesting the ruling was an affiliate of original equipment manufacturers “OEMs), and operated a platform whereby the OEMs sold parts to established customers. The taxpayer administered the electronic infrastructure of the platform and provided connection support. The taxpayer did not receive any compensation for the use of the platform or for orders received through the platform. An independent entity processed all customer payments, or made payment processing services available.

      North Carolina’s definition of “marketplace facilitator” under N.C. Gen. Stat. § 105-164.3(133) has two parts: (1) listing or otherwise making available for sale a marketplace seller’s items through a marketplace owned or operated by the marketplace facilitator; and (2) collects the sales or purchase price of a marketplace seller’s items, processes payment, or makes payment processing services available to purchasers. The Department concluded that while the taxpayer satisfied the first part, it did not meet the second part. Neither the taxpayer nor its affiliates collected or processed payments; instead, an unrelated entity handled that function.

      N.C. Private Letter Ruling No. SUPLR 2022-0008 (Dec. 9, 2022).

      Eversheds Sutherland is a proud sponsor of TEI’s Region 10 43rd Annual Tax Conference, held in Huntington Beach, CA from April 26 to 28. Eversheds Sutherland Partner Michele Borens will help provide updates in the taxation of the digital economy and cryptocurrency, and Partner Jeff Friedman will discuss a current state of the states.

      Find out more information and register here.

      During COST’s 2023 Income Tax Conference & Spring Audit Session, Eversheds Sutherland Partner Maria Todorova will present on hot topics in transfer pricing and intercompany transactions, discussing transfer pricing methodologies employed, how to counter aggressive assertions of profit shifting, and risks and opportunities around intercompany transactions and transfer pricing.

      Finally, on April 27, Eversheds Sutherland attorneys Todd Betor, Jeremy Gove and Chelsea Marmor will lead a state litigation update during the TEI Minnesota Chapter’s 37th Annual President’s Seminar.

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

      Say hello to Diego! Adopted in 2022, this 13-year-old certified good boy is owned by Brandi Drake, Senior Director of Strategic Tax at Charter Communications.

      When he first came home with Brandi and her husband, Matthew, he looked at them for permission for everything – except for one thing. Despite being a senior pup, he fought his way onto their bed, laid down, and refused to move. With the help of some added steps, he has snoozed there every night since!

      He loves all treats, but is particularly fond of dental sticks and doggie ice cream. In fact, he will not go to bed until he gets his nightly dental stick!

      Beyond his love for sleeping in his humans’ bed, he enjoys his daily walks and belly rubs. He will also destroy any new toy within minutes, and makes sure to bring Brandi his favorite ball every time she gets home from work and greets him.

      We are thrilled to feature Diego as our April pet of the month!

      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 state legislature recently introduced a bill that would amend the state income tax return to let filers register to be an organ donor?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      The California Court of Appeal held that the Los Angeles County Assessor erred by failing to remove the value of certain nontaxable intangible assets when valuing a hotel for property tax purposes. Intangible assets are generally exempt from property tax in California. In valuing the hotel, the Assessor used the income valuation approach, which looks to the current and future income stream associated with the property in order to calculate its present, taxable value. The taxpayer argued that in calculating the income stream, the Assessor failed to remove income associated with three intangible assets: a subsidy from the City of Los Angeles valued at $80 million (directly tied to the City’s hotel tax collected on the rooms); a onetime upfront payment made by the hotel’s operators, Ritz Carlton and Marriott, of $36 million dollars for the right to operate the hotel; and “hotel enterprise assets,” including “flag and franchise, food and beverage, and assembled workforce,” valued at $34 million dollars. 

      First, the Assessor argued that the $80 million subsidy was not exempt from tax because it “runs with the land and is associated with the ownership of the property.” Relying on Elk Hills Power, LLC v. Board of Equalization, 57 Cal. 4th 593 (2013), the Court rejected the Assessor’s argument, finding that the correct test is whether “the asset is directly necessary to the productive use of the property, whether it is intangible, and whether it can be valued.”  Because all three of these requirements were met, the Court found the subsidy was not taxable and must be removed from the income stream.

      Second, turning to the $36 million dollars paid by Ritz Carlton and Marriott for the right to operate the hotel, the Court found that the Assessor erred by treating the payment as income attributable to the hotel. Rather, the Court concluded, it “was not income to the hotel; it was a price break the managers gave the hotel on payments from the hotel.” 

      Third, the Court found that the income attributable to the “hotel enterprise assets” had to be removed from the income stream. The Assessor argued that the value of these assets, owned by the hotel’s operators, had already been removed from the income stream by deducting the fees paid to the operators under the so-called “Rushmore” approach.  Following SHC Half Moon Bay, LLC v. County of San Mateo, 226 Cal. App. 4th 471 (2014), the Court found that this method failed to account for the value of these assets, reasoning that if the “fee were so high as to account completely for all intangible benefits to a hotel owner,” the owner would have no reason to pay it.

      Olympic & Georgia Partners, LLC v. County of Los Angeles, 2023 Cal. App. LEXIS 263 (2023).

      The Washington Court of Appeals held that a company’s collection of data from electric and natural gas meters constituted data processing services exempt from the retail sales tax. The taxpayer collected data from meters used by an energy company’s customers, converted the data into a usable form, and transmitted the data to the energy company so that it could be used for customer billing.

      Washington law defines data processing services (an exception from taxable digital automated services) as “primarily automated service[s]…where the primary object of the service is the systematic performance of operations by the service provider on data supplied in whole or in part by the customer to extract the required information in an appropriate form or to convert the data to usable information.”  The Department contended that the taxpayer’s services did not constitute exempt data processing because the primary purpose or true object of the services was the collection and transmission of data—not its processing. The taxpayer disagreed, arguing that the primary purpose of its services was the manipulation and conversion of the data into information usable for its customers, as opposed to the transmission of the data itself.

      Relying on precedent, the Court of Appeals concluded that the company was primarily providing data processing services. The court focused on the distinction between services involving the mere transmission of data, versus those involving manipulation or conversion of the data. Because the company (1) converted the data into an appropriate form in a process that took several hours, (2) quantified the information, (3) identified patterns in the information, and (4) without the company’s conversion the data was useless to the customer, the court held that the manipulation and conversion of the data was the true purpose of the transaction. As a result, the court concluded that the company’s services met the statutory definition of data processing and were therefore exempt from retail sales tax. 

      Landis+GYR Midwest Inc. v. Washington Department of Revenue, Case No. 56877-2-II, Wash. Ct. App. 2d  (March 28, 2023).

      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 state recently held that taxpayers are not entitled to a set interest rate for their refund because no consistent interest rate has been provided on all refunds?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      This week on the SALT Shaker Podcast, Eversheds Sutherland Associate Jeremy Gove welcomes Chris Emigholz, Chief Government Affairs Officer at the New Jersey Business & Industry Association (NJBIA), to the show.

      First, they cover Chris’ role at NJBIA and what NJBIA does for New Jersey taxpayers. They then dive into a meaty tax discussion of current issues and legislative proposals in the state, including corporate tax rate reduction, the state’s remote work tax policies, unemployment insurance payroll taxes, and proposed changes to how New Jersey taxes GILTI.

      Jeremy picks his latest overrated/underrated question from a large menu – how do you feel about diners?

      Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

      Listen now:

      Subscribe for more:

      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: During Georgia’s 2023 legislative session, which bill would have increased the tax on tobacco and vaping products by 20 cents?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      In a recent unreported decision, the Maryland Appellate Court held that taxpayers were not entitled to a 13 percent interest rate on a judgement after the legislature lowered the state’s refund interest rate during the pendency of the taxpayers’ appeal.

      The taxpayers successfully challenged the limits that Maryland state law placed on the tax credit for income taxes paid to other states. The law authorized a tax credit against state income taxes but not county income taxes. While the taxpayers’ claim was pending, the state legislature lowered the interest rate for tax refunds from 13 percent to the 2015 prime lending rate. The court characterized the lower interest rate as “sound fiscal planning” because of the estimated $200 million in potential refund claims that would be paid if the taxpayers prevailed with their claim.

      The court held that the legislature set up the tax refund interest rate on “shifting sands,” and that the state has never consistently provided interest on all refunds nor locked the interest rate in place. Accordingly, the taxpayers could not reasonably rely on or have a settled expectation of a specific rate.

      The court also noted that this is the fourth appeal to reach an appellate court in this controversy, deeming it a “threequel.”

      Wynne v. Comptroller of Maryland, Md. App. No. 1561 (March 15, 2023).

      During the 2023 legislative session, the Georgia General Assembly passed significant tax legislation including decoupling from IRC § 174, imposing sales tax on certain digital goods, and revising eligibility for the pass-through entity tax election.

      March 29, 2023 was “Sine Die” or the 40th and final legislative day of the 2023 session. Both chambers of the General Assembly passed the below bills before the end of the session. These bills are now transmitted to the Governor, who can sign or veto the legislation within 40 days after the end of the legislative session. If the Governor fails to take any action, the legislation becomes law upon the expiration of the 40-day period (May 8).

      Read the full Legal Alert here.

      In this week’s episode of the SALT Shaker Podcast, Eversheds Sutherland Associate Jeremy Gove welcomes a fellow New York resident to the show, Partner Todd Betor. Todd recently re-joined the SALT practice in January.

      Jeremy and Todd delve into a key area of Todd’s practice, SALT issues arising as a result of mergers, acquisitions, or dispositions.

      Jeremy and Todd’s conversation covers a few key reasons why it’s important for SALT advisors to be involved in a deal, such as the potential disconnect between state and federal tax treatment of certain transactions. In addition, they talk about why it’s important to review major SALT considerations that go into a deal, and how the consideration of SALT issues can affect tax savings.   

      They conclude with this week’s overrated/underrated consideration – Nashville hot chicken.

      As referenced in this week’s show, you can read more of Todd’s key takeaways from his presentation at TEI’s 2023 M&A Seminar here.

      Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

      Listen now:

      Subscribe for more:

      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 state’s Department of Revenue recently released guidance specifying that sales of “canned” computer software are taxable sales of tangible personal property regardless of the form in which the software is transferred or transmitted?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      On Wednesday, March 29, Eversheds Sutherland attorneys Eric Coffill and Chelsea Marmor will participate in the TEI Philadelphia Chapter’s virtual East/West Summit, covering SALT updates on both coasts.

      In addition, on Thursday, March 30, Eversheds Sutherland Partners Michele Borens, Jeff Friedman and Tim Gustafson will present at the TEI Virginia Chapter’s SALT Day, covering a legislative update as well as use tax considerations for purchasing electronically delivered software, SaaS, digital services and digital content.

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

      The unitary combined reporting method for state corporate income taxation has been adopted by an increasing number of states. While combined reporting requirements vary significantly from state to state, nearly all combined reporting regimes require or allow a water’s-edge method that limits the members of a group return to entities that are incorporated in the United States and meet other combined reporting requirements. 

      The water’s-edge combined reporting method makes sense for many taxpayers and stems from criticisms and litigation aimed at the worldwide combined reporting method. Problems with worldwide combined reporting include compliance challenges associated with varying accounting methods required by other countries, conversion of foreign currencies, and even the lack of available data associated with non-U.S. entities.

      There are instances when a domestic incorporated entity is largely engaged in business outside the United States. To help solve this problem, many states adopted the Pareto principle, which states that “for many outcomes, roughly 80 percent of consequences come from 20 percent of causes (the ‘vital few’).” Application of an 80/20 rule in the context of water’s-edge combined reporting requires taxpayers to include in a water’s-edge return those foreign entities that conduct at least 20 percent of their business in the United States (an inbound 80/20 company), and exclude those domestic corporations that conduct at least 80 percent of their businesses outside the United States (an outbound 80/20 company).

      In this installment of A Pinch of SALT for Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman, Cyavash Ahmadi and Laurin McDonald describe 80/20 rules used by states in the context of water’s-edge combined reporting and the compliance issues that can arise as a result.

      Read the full article here.

      The Texas Comptroller of Public Accounts amended its franchise tax apportionment rule, as published in proposed form in the March 10 issue of the Texas Register. The rule, which is now final, discards the “receipt-producing, end-product act” test in light of Eversheds Sutherland’s litigation in Sirius XM Radio, Inc. v. Hegar. Taxpayers should consider the new rule and potentially filing refund claims.

      Read Eversheds Sutherland’s description of the Comptroller’s now-adopted amendments here. Eversheds Sutherland attorneys will continue to monitor any developments.

      48 Tex. Reg. 200 (January 20, 2023) available at:

      https://www.sos.state.tx.us/texreg/pdf/backview/0120/0120prop.pdf.

      Meet our March SALT Pets of the Month, 12-year-old Sunny and 5-year-old Lily! These lovely ladies belong to David Weiner, Vice President and Tax Counsel for A&E Television Networks. 

      Sunny and Lily were both rescued as adult pups and were happy to join David’s family in 2017 and 2020. Sunny, whose coat is an adorable wiry mix of orange and white, and Lily, who has black and white markings, are both mixed breeds and around 50 pounds each. They get along like two peas in a pod!

      Sunny was found in Louisiana, which must have been hard for her since she hates the heat.  Sunny wants to stay outside all day (and night!) during the winter. The colder the temps, the better! Prior to the pandemic, Sunny volunteered at schools and government offices as a certified therapy dog with David’s wife, Paula. She offered emotional support and stress relief.

      Meanwhile, Lily was an owner surrender from South Carolina. Prior to her adoption, Lily had not spent much time indoors, but she has quickly gotten used to the good life, especially time on the couch. Lily can often be seen lounging on David’s bed, as well.

      Around December 2021, Sunny began dragging one of her back legs. She was diagnosed with degenerative myelopathy, which is a genetic condition that affects dogs’ spinal cords. It causes progressive loss of coordination and weakness, but thankfully, the condition has not spread to her front legs. Sunny has adapted very well and uses a dog wheelchair outside. Neighbors and acquaintances are very supportive of her and often stop to inquire about her health or just give her scratches! 

      The girls are beloved by David and Paula’s children Sabrina, age 17, and Cole, age 13.

      We’re so happy to welcome them to the SALT Pet of the Month family! 

      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 state legislature recently excluded digital advertising taxes from the governor’s appropriation bills?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      On February 24, 2023, the Wisconsin Tax Appeals Commission upheld the Department’s assessment that Skechers’ licensing transaction with its wholly owned subsidiary, Skechers USA Inc. II (SKII), lacked a valid business purpose and economic substance. On the formation of SKII, Skechers entered into a license agreement with its subsidiary that generated significant royalty deductions, which Skechers claimed on its Wisconsin tax returns. The Department disallowed the royalty expense paid by Skechers to SKII, assessing that the intercompany transactions between Skechers and SKII were sham transactions.

      In its decision, the Commission agreed with the Department, finding that Skechers was unable to show that these intercompany transactions had a valid business purpose other than tax avoidance. While the Commission acknowledged that there may be some valid, non-tax, intellectual property related benefits to the formation of SKII, none of these benefits were considered by Skechers before the formation of SKII. The Commission further found that the royalty payments had no economic substance as Skechers failed to provide any documentary evidence showing a change to business practices, profitability or intellectual property before and after the creation of SKII and the transactions at issue.

      Therefore, the Commission upheld the Department’s assessments, finding that Skechers failed to present persuasive evidence or testimony that it had a valid business purpose for entering into the licensing transaction with SKII that generated royalty deductions claimed on its Wisconsin tax returns and that the licensing transaction had economic substance.

      Skechers USA Inc. v. Wisconsin Department of Revenue, docket numbers 10-I-071 and 10-I-072, in the State of Wisconsin Tax Appeals Commission.

      The Illinois Department of Revenue (IDOR) released a general information letter outlining the applicability of Illinois Retailers’ Occupation Tax (ROT) on computer software licenses and maintenance agreements.

      The letter states that sales of “canned” computer software are taxable retail sales in Illinois and are considered to be tangible personal property regardless of the form in which it is transferred or transmitted. However, if the computer software consists of “custom” computer programs, then the sales of such software may not be taxable retail sales. In addition, if the computer software, including canned software, is licensed and the license agreement meets the specified criteria in 86 Ill. Adm. Code § 130.1935(a)(1) (distinguishing licenses from sales a retail), neither the transfer of the software license nor the subsequent software updates are subject to ROT. With respect to the software maintenance agreements, the letter provides that taxability depends on whether the charges for the agreements are included in the selling price of the tangible personal property. The IDOR notes that software maintenance agreements are not taxable if the agreements for the maintenance of tangible personal property are sold separately from the tangible personal property. However, the service providers would incur use tax based on their cost price of tangible personal property transferred to customers incident to the completion of the maintenance service.  On the other hand, if the charges for the software maintenance agreements are included in the selling price of the tangible personal property, the charges are part of the gross receipts of the retail transaction and subject to ROT, but no ROT is incurred on the maintenance services or parts when the repair or servicing is performed.

      Ill. Dep’t of Revenue, Gen. Info. Ltr. ST-22-0023-GIL (Oct. 19, 2022) (released Feb. 2023).

      On March 15, 2023, the two houses of the New York State Legislature released their respective amendments (Senate Bills S.4008 and S.4009, Assembly Bills A.3008 and A.3009, collectively the Amendments) to New York Governor Kathy Hochul’s Fiscal Year 2024 Executive Budget (the Budget Bill) (see our prior legal alert). While the Amendments make notable changes to the Budget Bill, outlined below, which tax proposals the Amendments do not include is equally important to the future of New York’s tax climate. 

      Read the full Legal Alert here.

      Next week, Eversheds Sutherland is a proud sponsor of Tax Executives Institute’s (TEI) 73rd Midyear Conference, held this year between March 19-22, 2023 at the Grand Hyatt Hotel in Washington, DC.

      Eversheds Sutherland SALT Partners Liz Cha and Charlie Kearns will present, and the details of their presentations are below.

      Monday, March 20
      Market Sourcing – Fair Apportionment?
      2:15 – 3:15 p.m. ET
      Speaker: Liz Cha

      Wednesday, March 22
      Remote/Mobile Workforce: Where Are We Now?
      8:30 – 9:30 a.m. ET
      Speaker: Charlie Kearns


      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: The Tax Policy Division of the Texas Comptroller of Public Accounts issued guidance summarizing (and incorporating by reference) certain federal statutes and regulations related to which (in)famous tax regime?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      On March 1, 2023, a Florida Circuit Court rejected the Department of Revenue’s attempt to achieve a market-based sourcing result under Florida’s costs of performance sourcing rule that applies to receipts from services. In Billmatrix Corp. et al. v. Dep’t of Revenue, the court granted summary judgment in favor of a number of affiliated corporations that had sourced their receipts from the provision of financial technology services based on the location of the corporations’ income-producing activities and associated costs of performance. Following an audit, the Department had issued corporate income tax assessments after making adjustments to source the corporations’ receipts based on the location of the corporations’ customers. The court, however, found that the Department’s “focus on the ‘location,’ ‘destination, or ‘actions’ of customers contradicts the plain language of the rule and must be rejected.”  The court held that, “to determine the taxpayer’s income-producing activity the Department must look at the transactions and activity the taxpayer directly engages in for the ultimate purpose of obtaining gains or profits, rather than looking at the actions or location of the customer.”

      The Billmatrix ruling comes on the heels of a decision issued on November 28, 2022 by the same court that also addressed Florida’s costs of performance sourcing regime. In Target Enter., Inc. v. Dep’t of Revenue, the court rejected the Department’s argument that a corporation that performed services for an affiliate failed to provide sufficient documentation to support the use of the costs of performance sourcing rule and that, as a result, the Department was entitled to use its equitable authority to craft a new apportionment methodology. The court found that the relevant income producing activity was the corporation’s provision of services to its affiliate under a services agreement, that the services were performed by the corporation’s employees, and that the best evidence of the costs to perform the services was the corporation’s payroll apportionment workpapers. The court determined that the workpapers provided by the corporation “make abundantly clear that the greater proportion of the costs to perform [the corporation’s] services were incurred outside Florida.”

      The two Florida decisions stand in stark contrast to an opinion issued by the Pennsylvania Supreme Court on February 22, 2023. In Synthes U.S. HQ, Inc. v. Commonwealth, the court held that under the state’s former costs of performance statute applicable to receipts from the provision of services, a corporation’s sales should have been sourced to the location where “the service is fulfilled and the income is finally produced, which is at the customer’s location.” The court reached its conclusion despite the fact that the Pennsylvania Legislature enacted a statutory amendment that adopted explicit market-based sourcing for receipts from services beginning in 2014 – after the years at issue in the case. Without citing to any Legislative history, the court stated that it did not view the amendment “as an attempt to alter the general framework for sourcing sales, but rather as an attempt to clarify the sourcing of sales of services to the point of delivery to the consumer.”

      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 administrative office recently held that parts used to repair equipment that is subsequently shipped back to out-of-state customers is subject to use tax because the repairer is deemed the consumer?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      The Pennsylvania Supreme Court held that a taxpayer was not eligible for a sales tax refund on purchases made using coupons because the receipts did not sufficiently describe the coupons, and did not clearly indicate which item(s) the coupon discounted. Where a consumer uses a coupon, Pennsylvania sales tax is generally not due on discount amounts. In this case, the taxpayer engaged in three separate transactions using coupons. In the first transaction, the taxpayer purchased six items using five coupons of varying amounts, and none of the coupons related to a specific item. In the two remaining transactions, the taxpayer purchased a single item and used one coupon. The coupons appeared as “SCANNED COUP” on each of the three transactions’ receipts. Sales tax was imposed on the total purchase price before the coupon discounts were applied. The taxpayer sought a refund, contending that sales tax was only due on the post-discount price.

      Reversing the Commonwealth Court, the Pennsylvania Supreme Court concluded that the coupons used in the transactions were taxable because they did not meet the specific requirements the Pennsylvania regulation, 61 Pa. Code § 33.2(b)(2), prescribes for excluding discounts from the sales tax base. The court explained that sales tax should be imposed on the full purchase price unless (1) the amount of the item and coupon are separately stated and identified, and (2) both the item and the coupon are described in the invoice or receipt. The court found that while the coupons were separately stated and identified as coupons in each of the receipts, the coupons were not sufficiently described. Without a proper description, the court explained, it is impossible to determine whether the coupons utilized were of the type that would establish a new purchase price. Thus, the court ruled that the taxpayer was not entitled to a refund of sales tax on the amount of the coupons.

      Myers v. Pennsylvania, Nos. 67 MAP 2021 and 68 MAP 2021, 2023 WL 2145639, — A.3d —- (Pa. Feb. 22, 2023).

      The Illinois Independent Tax Tribunal found that aviation fuel sold to airlines and subsequently stored at O’Hare International Airport was not exempt from Retailer’s Occupation Tax (ROT). The taxpayer collected the ROT on the sales, but later filed for refunds claiming these sales were exempt from the ROT under the expanded temporary storage exemption. Specifically, the exemption applies to: “tangible personal property purchased from an Illinois retailer by a taxpayer engaged in centralized purchasing activities in Illinois who will, upon receipt of the property in Illinois, temporarily store the property in Illinois (i) for the purpose of subsequently transporting it outside this State for use or consumption thereafter solely outside this State[.]” 35 ILCS 120/2-5(38) (Emphasis added).  The airlines advised the taxpayer that although airplanes received the fuel in Illinois, 98% of the fuel was consumed outside of the state. Based on this representation, the taxpayer filed refund claims arguing that such amounts were exempt from the ROT.

      Relying on a case interpreting similar language in the context of the Use Tax Act, United Air Lines v. Mahin, 49 Ill. 2d 45 (1971), the tribunal broadly construed the word “solely” and thus narrowly construed the exemption. Because a portion of the fuel (i.e., approximately 2%) was consumed in Illinois, the tribunal determined that it was not stored in Illinois for use of consumption thereafter “solely” outside the State. Thus, based on the “plain language” of the rule, the tribunal found the exemption did not apply. The tribunal found that applying the temporary storage exemption on a percentage basis would be against the holding of United Air Lines, which the court was unwilling to overturn.

      Am. Aviation Supply LLC v. Dep’t of Revenue, 21 TT 27, 21 TT 54 (IL Ind. Tax Tribunal, Jan. 3, 2023).

      The Tax Policy Division of the Texas Comptroller of Public Accounts issued guidance summarizing certain federal statutes and regulations related to Internal Use Software (IUS) that are now incorporated-by-references into Texas’ research and development (R&D) laws. Specifically, for purposes of the franchise tax R&D credit laws and the sales tax R&D exemption, the Comptroller incorporates-by-reference certain definitions that, prior to the amendment, were only recognized if taxpayers were required to apply those regulations to the 2011 federal income tax year. Instead, the Comptroller now recognizes these federal laws if taxpayers were allowed to apply those regulations to the federal 2011 income tax year.

      In federal tax year 2011, taxpayers were given the election between two different versions of Treas. Reg. § 1.41-4(c)(6): the version adopted in 2003 (contained in IRB 2001-5) and the version proposed in 2022 (contained in IRB 2002-4). Both versions of Treas. Reg. § 1.41-4(c)(6) have some identical provisions, including: (1) the general rule and exemptions from IUS treatment; (2) the definition of “computer services”; and (3) most—but not all—of the language and application of the High Threshold of Innovation Text (which must be satisfied in addition to the Four-Part Test).

      The two versions, however, contain some differences: (1) how IUS is defined; (2) details on the treatment of hardware and software developed together as a single product; (3) applicability of a portion of the High Threshold of Innovation Test; (4) the exception for software used to provide noncomputer services; and (5) the examples used in each version of the regulation.

      1. Definition of IUS. IRB 2001-5 is more limited, defining IUS as any software developed to be used internally and clarifying that the sale of the software does not remove its IUS classification. Instead, IRB 2002-4 establishes a presumption that software is IUS unless it is developed to be commercially sold, leased, licensed, or otherwise marketed, for separately stated consideration to unrelated third parties, as determined at the start of the research.
      • Hardware and Software Developed Together as a Single Product. Both versions of the regulation state a new or improved package of hardware and software developed together as a single product, of which the software is an integral part, will be exempt from treatment as an IUS, so long as the product is used directly by the taxpayer to provide services to customers in its trade or business. IRB 2001-5, however, states that the services provided by the taxpayer must be “technological services,” whereas IRB 2002-4 provides that the services can be any services.
      • High Threshold of Innovation Test. While most of the High Threshold of Innovation Test is the same between both versions, IRB 2001-5 has detailed rules for its application.  Note that both versions provide that only the activities related to the new or improved software are considered for the test (i.e., the effect of modifications to related hardware or other software are not taken into account). 
      • Exception for Software Used to Provide Noncomputer Services. IRB 2001-5 uniquely exempts software used in providing noncomputer services to customers from the IUS exclusion. The exception was eliminated entirely in IRB 2002-4—the IRS considered that software eligible for the exception would be credit-eligible under other provisions, making the exception unnecessary.
      • Examples. IRB 2002-4 eliminated one of the two examples provided in IRB 2001-5, and uniquely modified the other. IRB 2002-4 also includes twelve additional examples.

      The memo clarifies that taxpayers have the option to elect between the two versions—but any version they select will be applied in full (i.e., they may not elect between different provisions within both versions). The memo also clarifies that additional provisions from the 2016 regulations are not incorporated-by-reference.

      Texas Comp. Of Pub. Accounts, Tax Policy Division, Mem. 202302001L (February 6, 2023).  

      The California Office of Tax Appeals (OTA) held that a taxpayer was liable for use tax on parts used to repair equipment in California before shipping it back to out-of-state customers. The taxpayer is a distributor, retailer, and repairer of endoscopes and other medical devices, and as part of its optional lump-sum maintenance contracts, the taxpayer performed repairs at its California facility free of charge to the customers. The taxpayer purchased repair parts without tax and stored them in California. Upon completion of the repairs, the taxpayer shipped the repaired equipment via common carrier to its customers. The taxpayer did not accrue use tax on the repair parts, because the out-of-state customers were the consumers of the repair parts.

      The OTA disagreed with the taxpayer’s position, instead holding that the taxpayer’s performance of the repairs was a taxable use within California. The OTA relied on two California regulations which state that a person obligated under an optional warranty contract to furnish parts, materials, and labor necessary to maintain property is deemed to be the consumer, and the repairer under an optional lump-sum maintenance contract is the consumer of the parts and materials. Therefore, the OTA held that use tax applied to the repair parts.

      In the Matter of the Appeal of Olympus Am. Inc., 2023-OTA-087 (Cal. OTA Dec. 20, 2022).

      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 state recently dismissed a class action lawsuit because the tax at issue was actually an excise tax, rather than sales tax?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      An administrative law judge at the New York Division of Tax Appeals found that a company’s vendor management fees were taxable as the sale of pre-written software. The company offers a web-based application that helps to manage and procure staffing services from requisition through billing. The company argued that its fees are not taxable because “the primary purpose of its service was to act as a “matching” agent for suppliers of temporary labor and customers needing such labor and not the license of software.” The Department countered that the primary function test does not apply because they are licensing tangible personal property.  While the company also provided certain customization services, such charges were not assessed by the Department.

      The ALJ found the company used the same software for all of its customers; thus, the product was pre-written software – a type of tangible personal property and the primary function test should not apply. Nonetheless, even if the primary function did apply, the ALJ noted that the primary function of the sale was a license of software. In particular, “the software technology and license appear to be completely intertwined with all the services petitioner offers in the contract” and “the ultimate goal was to provide customers a seamless, automated and efficient system of fulfilling and monitoring their temporary employment needs, and that required, as the contract reflects, utilization of the software technology license.”

      In the Matter of the Petition of Beeline.com, Inc., DTA No. 829516, (N.Y. Div. Tax App. Feb. 9, 2023).

      As cute as he is cuddly, meet Zorro, our February Pet of the Month! Zorro is an adorable Cardigan Welsh Corgi that turned two this past Halloween. His proud parent is Jéanne Rauch-Zender, Editor in Chief of Tax Notes State.

      Beyond snacking on tasty treats, he loves to play baseball with Jéanne’s kids, and brings sweet and protective energy to their household. He’s also a little bossy!

      His current trick is an ability to carry his own leash, which comes in very handy. He loves to run as fast as possible, which often results in tripping over his short legs, common with his Corgi brothers and sisters.

      We’re glad to feature you, Zorro!

      In 2021, the Georgia Tax Tribunal ruled that a non-profit hospital was entitled to use Quality Jobs Tax Credits (QJTC) against its unrelated business income tax and its payroll withholding tax. The Tribunal’s decision was affirmed by the Fulton County Superior Court. In response to these court decisions, the Department has proposed legislation, to purportedly “clarify” the plain language of the QJTC statute. Rather than a mere clarification, HB 482 changes the existing law and if enacted as a clarification, the proposed legislation could deprive taxpayers of the credit for prior years and establish troubling precedent.

      Read the full Legal Alert here.

      In the latest episode of the SALT Shaker Podcast, Eversheds Sutherland Associate Jeremy Gove is pleased to welcome back Doug Lindholm, President and Executive Director of the Council On State Taxation (COST).

      Doug dives into the background of COST, how he came to assume his current position, and COST’s role in the state and local tax realm. Doug and Jeremy also touch on the founding of the State Tax Research Institute (STRI), the research and educational arm of COST, which is designed to enhance the public dialogue and understanding of state and local tax policy. 

      Jeremy’s newest overrated/underrated question deals with winter accessories. How do you feel about wearing scarves?

      Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

      Listen now:

      Subscribe for more:

      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: As showcased in the SALT Scoreboards for 2022, how many significant corporate income taxpayer wins were there for the entire year?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      Members of the Eversheds Sutherland SALT team will present during COST’s 2023 Sales Tax Conference & Audit Session in Denver, CO from February 22-24, 2023. The conference features presentations on the most recent transactional tax developments, initiatives and case law topics. SALT team speakers and topics include:

      • What’s Happening with Digital Service Taxes (DST) and Taxes on Digital Products? The New Frontier – Jeff Friedman
      • On-Demand Services and the States’ Marketplace Rules – What’s the Impact? – Michele Borens

      For more information and to register, click here.

      The King County Superior Court in Washington dismissed a class action lawsuit which alleged that Kroger, Whole Foods, Safeway, and Town & Country Markets improperly collected sales tax on exempt items. In dismissing the claim, the court found that the sales tax at issue is an excise tax. Further, the court found that the exclusive remedy for a wrongfully collected excise tax is to seek a refund from either the retailer or the Department of Revenue, and after that, pursue a civil action in Thurston County Superior Court. The class representatives argued that they were contesting the legality of the tax, and thus not required to follow the statutory procedures for refunds. The court disagreed, holding that the statutory procedural requirements applied regardless of whether the challenge was to the application of the tax as a whole or as to a factual or computational error in imposing or collecting the tax. Because the court did not reach the merits of the underlying claim, the court dismissed the matter without prejudice, allowing the class to re-file with the Department within 21 days.

      Caneer v. The Kroger Co., No. 22-2-08219-4-KNT (King Cnty. Sup. Ct., Jan. 20, 2023).

      On December 22, 2022, the Massachusetts Supreme Judicial Court held that a taxpayer’s use of computer cookies did not constitute substantial nexus with the state for periods prior to the United States Supreme Court’s decision in South Dakota v. Wayfair, Inc. The taxpayer sold auto parts entirely online and utilized cookies to track customers that visited its website. Effective October 1, 2017, the Massachusetts Department of Revenue promulgated a regulation that required nondomiciliary vendors that employed apps, cookies, or content delivery networks (“CDNs”) in connection with its sale of goods or services in the state to register, collect, and remit Massachusetts sales or use tax if during the preceding 12 months it also met certain transaction value and volume thresholds. This regulation applied to periods prior to the Wayfair Court’s abrogation of the physical presence nexus rule. Nevertheless, the Department assessed the taxpayer based on its electronic contacts with Massachusetts. The taxpayer protested the Department’s use tax assessment for October 1, 2017 to October 31, 2017.

      The Massachusetts Supreme Judicial Court held for the taxpayer. The court refused to apply Wayfair’s holding retroactively because “the regulation, by its own terms, limited its reach to nondomiciliary Internet vendors that satisfied the physical presence test set forth in Quill.” The court also admonished the Department for ignoring its position (contained in an amicus brief filed with the US Supreme Court) that it would not apply the Wayfair Court’s holding retroactively. Thus, the pre-Wayfair physical presence standard applied for the tax period at issue. Under that standard, the use of apps, cookies, and CDNs did not constitute physical presence in the state.  

      U.S. Auto Parts Network, Inc. v. Commissioner of Revenue, 199 N.E.3d 840 (Mass. 2022).

      State and local tax (SALT) issues may arise from mergers, acquisitions, or dispositions. Eversheds Sutherland Partner Todd Betor presented on Unique State Tax Issues at Tax Executives Institute’s 2023 Mergers & Acquisitions Seminar last week in Nashville, TN.

      In addition to the need for SALT advisors to get involved at the outset of a deal, the following are three key takeaways from Todd’s panel presentation.

      1. States (and some localities) divert from the federal tax treatment of certain transactions;
      2. SALT deal considerations go beyond how states view a transaction; and
      3. Considering SALT issues as part of a plan can result in meaningful tax savings.

      States Do Not Always Follow Federal Tax Rules or Results

      As a general rule, states are not bound to conform to the federal tax treatment of a transaction. Indeed, the myriad of state responses to the 2017 Tax Cuts and Jobs Act and, more recently, the 2020 CARES Act demonstrates how very real the disconnect between federal tax provisions and state conformity therewith can be.

      A prime example of this disconnect is illustrated by states’ varying levels of conformity to Internal Revenue Code (IRC) Section 381, which governs preservation/carryover of tax attributes,1 including net operating losses (NOLs) of the target company.

      While a majority of states generally conform to IRC Section 381, a fair number do not. Massachusetts, for instance, decouples from the federal provision with respect to NOLs via regulation – 830 CMR § 63.30.2(9)(a). That regulation provides in the case of a merger of two or more corporations where there is a single surviving/successor entity, the NOLs of the corporation merged out of existence are eliminated. In other words, the surviving/successor entity only succeeds to, or more appropriately, carries forward the NOLs that a surviving corporation incurred prior to the merger. An unexpected result may occur where two or more existing corporations consolidate into a new corporation. In that situation, Massachusetts regulations provide that the new corporation has no NOLs—any NOLs of the consolidated entities are lost.

      Massachusetts’ deviation from IRC Section 381 is but the tip of the state tax iceberg that companies and practitioners must navigate in evaluating and implementing a merger, acquisition, or divestiture, among other transactions. And this example merely serves to highlight the complexity state tax brings to a deal.

      SALT Deal Considerations Go Beyond How States View a Transaction

      How states ultimately view a transaction and the implications stemming therefrom is but one piece of the SALT considerations that go into a deal. Two examples of other major SALT considerations are discussed below.

      A significant SALT consideration is the “track record” of the target company/business, e.g., historic tax positions, filing methodologies, audit history, etc., which the buyer should consider in moving forward with a transaction. This issue relates to successor liability of the buyer for SALT exposures inherent in stock and asset deals.

      What a target’s SALT track record looks like, and how it looks through the lens of a buyer, can have a significant impact on a deal, including pricing. More often than not, a SALT risk is identified—typically in the diligence process, either proactively by the seller or raised by the buyer—that cannot otherwise be overcome by the buyer through negotiations (for example, the seller getting the buyer comfortable with the target’s position on the taxability of a service offering). When this occurs, the parties commonly seek to address the risk through seller indemnification, seller escrow (i.e., placing a portion of the purchase price in escrow pending a triggering point for use/release), and/or a purchase price reduction.

      How a SALT risk is handled in the transaction agreement (e.g., indemnification, escrow, purchase price adjustment) is generally dependent on the scope of the risk, the risk appetite of the buyer, and advice of SALT advisors. On this last point, it is often that the parties will have differing positions on the historic tax position of the target—typically with respect to sales and use taxes. SALT advisors can add value by substantiating a position or otherwise providing context and support for a target’s position. And the advice may support the elimination or narrowing of an indemnification provision, escrow amount, or purchase price adjustment.

      On the other side of the table, a SALT advisor’s role is to advise the buyer on the financial exposure related to pre-transaction tax liabilities of the target. This role is all the more important if a buyer is planning on, and/or the transaction agreement contemplates, the pursuing voluntary disclosure agreements (VDAs) to preemptively address SALT risks.

      From the buy-side, another significant SALT consideration is what the post-transaction tax picture may look like. Though the implications are post-transaction, this analysis and planning should be contemporaneous with the steps leading up to close.

      At a high-level, this generally involves a review of a target’s nexus footprint with a focus not just on current filing states, but also evaluating a target’s profile based on employee location (payroll), property location, and source of receipts (sales), and comparing that footprint to the buyer’s existing SALT filing profile. Hand-in-hand with the nexus evaluation is how the target will be viewed from an income tax filing perspective, particularly whether there will be “instant unity” of the target with the buyer’s existing business such that target would be included in the buyer’s existing state income tax reporting groups.

      Consideration of SALT Issues as Part of a Plan Can Have Meaningful Tax Savings

      Considering SALT issues as part of a plan can result in meaningful tax savings. For example, the use of equity consideration can lead to a significant state franchise (or net worth) tax exposure. These taxes are privilege taxes—taxes imposed for doing business in a state—that are generally based on a taxpayer’s total equity value.

      A prime example is the Illinois Franchise Tax, administered by the Illinois Secretary of State as opposed to the state’s Department of Revenue, which utilizes “paid-in capital” as the base for the tax (as imposed on corporations) and is imposed on a separate company basis.2 The term is broadly defined to include – 

      the sum of the cash and other consideration received, less expenses, including commissions, paid or incurred by the corporation, in connection with the issuance of shares, plus any cash and other consideration contributed to the corporation by or on behalf of its shareholders, plus amounts added or transferred to paid-in capital by action of the board of directors or shareholders pursuant to a share dividend, share split, or otherwise, minus reductions . . .. 3

      The franchise tax implications of using equity consideration, specifically issuance of additional equity, are illustrated in the 2004 case of USX Corp. v. White.4 In that case, USX Corp. (USX) had issued additional shares of its stock (133,184,470 shares), which was used as consideration in a reverse subsidiary merger with Texas Oil and Gas Corporation. For purposes of its Franchise Tax, USX reported $2.99 billion as the entire consideration received for issuing the new USX stock—a $2.99 billion increase in paid-in capital. The case ultimately dealt with the application of an exclusion Illinois affords to vertical mergers—which the court found did not apply to USX’s fact pattern.

      The above highlights the need for careful planning as to transaction consideration and its impact on a company’s franchise tax liability. Post-transaction debt restructuring can also have a significantly similar tax impact. All too often, though, SALT advisors are called upon to address the tax impact after the fact; further enforcing the need for SALT advisors to get involved at the outset of a deal.

      _______

      1 Putting aside limitations on tax attributes under IRC Sections 382, 383, and 384, and states’ conformity therewith. 

      2 805 ILCS §§ 5/15.25, 15.40, 15.55, 15.70.

      3 805 ILCS § 5/1.80(j).

      4 352 Ill. App. 3d 709 (Ill. App. Ct. 2004).

      The pending precedential Office of Tax Appeal’s (OTA) decision of Appeal of L. Smith, OTA Case No. 20036033 (Dec. 7, 2022) concerned whether California could impose income tax on a nonresident’s distributive share of gain from the sale of an interest in a timeshare developer operating in California as a limited liability company (Timeshare). This turned on two issues. 

      The first issue was whether a nonresident’s distributive share of gain on a sale of an interest in a pass-through entity must be sourced using the statute for sourcing gain from the sale of intangibles, Cal. Rev. & Tax. Code § 17952, or FTB’s regulation for sourcing partnership income from a trade, business or profession, Cal. Code Regs., tit. 18, § (“Regulation”) 17951-4.  Following the Court of Appeal’s decision in The 2009 Metropoulos Family Trust, et al. v. Franchise Tax Bd. (2022) 79 Cal.App.5th 245, 266 (see our prior coverage here), the OTA found that it must apply FTB’s regulation. Although Metropoulos concerned an S Corporation, OTA found that its holding applies equally to partnerships and limited liability companies taxed as partnerships.

      The second issue arose in the course of applying Regulation 17951-4:  whether the parent limited liability company (Holding Co) that sold the interest in Timeshare was engaged in a unitary business with Timeshare. If it was, then the apportionment factors of Timeshare would flow up to Holding Co, resulting in nearly 42 percent of the gain from the sale being sourced to California, as opposed to none. OTA found that Timeshare and Holding Co were engaged in a unitary business. Notably, OTA rejected FTB’s argument that a special unitary test applied to holding companies. It also explained that majority ownership is not required to be unitary in the partnership context because unlike “a corporate shareholder, only the partner’s ownership interest in the partnership’s income and apportionment factors may be combined.” The OTA’s analysis highlighted California’s alternative test for unity — the “three unities test” and “dependency or contribution test” — but focused on the latter because that is what FTB based its assessment on and the taxpayer failed to rebut FTB’s position. Critical factors that OTA relied on in reaching its decision were an integrated executive force, intercompany financing, and a covenant not to compete.

      The decision is available here.

      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: The Texas Comptroller of Public Accounts recently made amendments to its franchise tax apportionment rule in light of which case?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      A recent report issued by the New Jersey Division of Taxation includes a suggestion that state lawmakers consider a cloud computing tax. The report titled, “Studying the Impact of the Digital Economy” recommends adopting a sales and use tax model that differentiates between physical good and services and digital goods and services. The report notes that New Jersey law does not specifically address cloud computing services and thus sales tax does not apply to software as a service (SaaS) or platform as a service (PaaS). The report suggests that a review of tax policy regarding cloud computing services should be undertaken as the volume of transactions increases, but adds that “[t]o effectively tax cloud computing services, nexus and sourcing issues will also have to be addressed.”

      New Jersey Division of Taxation, “Studying the Impact of the Digital Economy.” (2023)

      The New York Tax Appeals Tribunal ruled that a semiconductor manufacturer was eligible to use the carryover refund from both the Empire Zone investment tax credit (EZ-ITC) for new businesses and the qualified investment project (QUIP)/significant investment project (SCIP) tax credit in the same year, resulting in a $152.3 million refund for the 2014 tax year. 

      In 1986, the Legislature created the Economic Development Zone Act to stimulate private investment and job creation in specific economically challenged areas of the state (the areas were later renamed Empire Zones). Among the tax incentives, the EZ-ITC allowed taxpayers a refund of 50% of its EZ-ITC carryover as a new business, and a 50% refund of its EZ-ITC carryover as the owner of a QUIP or SCIP. 

      GlobalFoundries, as an operator of a manufacturing facility in a designated Empire Zone, filed a refund claim for 2014 on the basis that it was entitled to combine the new business credit carryover refund and the QUIP/SCIP credit carryover refund, which together effectively provided a 100% refund of its EZ-ITC credit carryover. The Division of Tax Appeals rejected GlobalFoundries’s refund claim, ruling that the two credit carryovers are mutually exclusive, and that GlobalFoundries was only entitled to the original 50% refund. 

      On appeal, the Tax Appeals Tribunal overturned the ALJ’s decision, refraining from deferring to the Divisions requested deference to its interpretation and concluding that the new business credit and the QUIP/SCIP credit could be taken together. The Tribunal pointed to the unambiguous plain language of the statute, which “expressly provides” that a new business is entitled to a 50% refund of its EZ-ITC carryover, and the statute “also expressly provides that, in addition, any taxpayer that is approved as the owner of a QUIP or SCIP may elect to treat 50% of its EZ-ITC carryover as an overpayment of tax to be credited or refunded.” The Tribunal held that a natural reading of the language allows a taxpayer that qualifies for both benefits to receive both benefits. 

      Matter of the Petition of GlobalFoundries U.S. Inc., DTA No. 829184 (Tax App. Trib., Jan. 19, 2023).

      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: The Supreme Court of Virginia recently upheld a decision invalidating which county’s plan to claw back tax refunds?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      To kick off the SALT Shaker Podcast for 2023, Eversheds Sutherland Associate and host Jeremy Gove welcomes Maria Koklanaris, Senior Tax Correspondent for Law360, to the show. Together, they tackle state tax legislation and litigation that should be on your radar this year.

      Jeremy and Maria begin with an overview of state tax legislation season, including: two diverging trends, some states increasing taxes on people deemed “high earners” versus other states moving to cut taxes or simplifying their tax codes; and states’ continued attempts to tax the digital economy. 

      Beyond legislation, they also discuss cases to watch this year, which includes two U.S. Supreme Court cases dealing with unclaimed property, and a non-tax California ballot initiative case which has the potential to inform the application of “Pike Balancing” under the Commerce Clause. They also address the pending case before the Ohio Supreme Court confronting the tax impacts of remote work.

      You can read Maria’s articles they referenced here:

      To conclude, Jeremy picks his first overrated/underrated question of the year – how do you feel about hot chocolate?

      Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.

      Listen now:

      Subscribe for more:

      On February 7, Eversheds Sutherland Partner Todd Betor will present during Tax Executive Institute’s 2023 Mergers and Acquisitions Seminar in Nashville, TN, which covers the critical tax and operational issues relevant to M&A transactions. Todd’s panel will discuss unique state tax issues.

      For more information and to register, click here.

      In addition, Eversheds Sutherland Partners Michele Borens and Jonathan Feldman will present during the 2023 National Multistate Tax Symposium, held in Orlando, FL. Jonathan will present Cultivating a Thriving Multistate Tax Environment: Fostering Today for Tomorrow on February 9, and Michele will present Sales and Use Tax Hot Topics in Our Digital World: What’s New and Next on February 10.

      For more information and to register, click here.

      On January 19, 2023, the Michigan Court of Appeals held that a taxpayer, transitioning from the Michigan Business Tax (MBT) to the Corporate Income Tax (CIT), cannot claim prior MBT business losses on its first CIT return. For tax years 2008 through 2011, the taxpayer filed MBT tax returns and claimed employment tax credits. In 2012, Michigan replaced the MBT with the CIT, but allowed businesses to continue filing MBT returns until they had exhausted their credits. However, any such taxpayer must pay the MBT as the greater of the typical MBT amount or as if it had instead filed a CIT return. The taxpayer took this approach until it exhausted its credits in 2018. In tax year 2019, the taxpayer filed its first CIT return and claimed an MBT business loss carryforward as a deduction. The Department of Treasury denied the deduction. 

      The court first held that the taxpayer had not paid CIT from 2012 to 2018, even though it paid the “greater” CIT-based amount on the MBT return. The court concluded that the CIT-based amount is “[a]n amount equal” to the CIT liability, not a CIT liability itself. The court then concluded that the CIT does not allow a deduction for MBT business losses. The CIT defines “business loss” specifically with respect to the “corporate income tax base.” In contrast, the MBT “contemplates and uses a business income tax base which contains some different additions and deductions than those in the corresponding CIT statute.” Because the taxpayer did not previously file CIT returns and pay the CIT, it had no CIT base. It therefore had no CIT losses capable of being carried forward to tax year 2019. 

      Int’l Auto. Components Grp. N. Am., Inc. v. Dep’t of Treas., No. 360602 (Mich. Ct. App. Jan. 19, 2023) (unpublished).

      The Texas Comptroller of Public Accounts (the Comptroller) published proposed amendments to Texas’ franchise tax apportionment rule in the January 20 issue of the Texas Register, discarding the now-repudiated “receipt-producing, end-product act” test. The Comptroller proposed these amendments in response to the Texas Supreme Court’s unanimous decision in Sirius XM Radio, Inc. v. Hegar. Eversheds Sutherland’s SALT Team represented Sirius XM in this litigation.

      Read the full Legal Alert here.

      On February 1, 2023, New York Governor Kathy Hochul released her Fiscal Year 2024 Executive Budget and accompanying legislation (the Budget Bill). The Budget Bill includes several tax rate adjustments and technical fixes to the Tax Law, among other provisions.

      Read the full Legal Alert here.

      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 recently introduced bill would impose a tax on revenue from digital advertising services, specifically on persons with revenue from digital advertising services in excess of $25 million per year?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      In this article originally published by CalCPA in the January/February issue of California CPA, Eversheds Sutherland Senior Counsel Eric Coffill provides helpful tips for having a Power of Attorney (POA) submission to California’s Franchise Tax Board accepted the first time and for anticipating problems in using the POA.

      Read the full article here.

      New York and Massachusetts are the latest states to introduce tax legislation targeting digital advertising and data collection. Like the similar bills introduced earlier in Connecticut, New York, and Indiana, proposals similar to these latest New York and Massachusetts bills have been rejected by the respective legislatures in prior sessions.

      New York revisits the commercial data collection tax

      New York legislators continue to introduce bills targeting the digital economy and data collection. On January 18, New York State Senator Liz Krueger (D), Chair of the Senate Finance Committee, introduced S2012, which imposes a monthly excise tax on for-profit entities collecting and selling data from more than one million New Yorkers per month. The tax would apply regardless of how the data is collected, whether by electronic or other means.

      The tax rate in S2012 would apply on a graduated scale based on the number of New York consumers whose data the taxpayer collects in a month. The tax starts at 5 cents per individual per month on the number of New York consumers over one million, which would cost businesses at a minimum $50,000.05 per month. The tax rate then gradually increases both in rate plus an additional flat rate amount. The highest rate is 50 cents per month on the number of New York consumers over ten million, plus a flat rate of $2,250,000. This legislation was previously introduced by Sen. Krueger during both the 2021 and 2022 legislative sessions in New York.

      Massachusetts throws digital taxes against the wall to see what sticks

      Massachusetts legislators have introduced a flurry of bills that would tax digital advertising, commercial data collection, or the sale of personal information. On January 18 and 20, state legislators in Massachusetts introduced six draft bills that would adopt a digital advertising services tax. Additional bills were introduced that would tax commercial data collection or the sale of personal information. Those bills are:

      • HD 1507 was filed on January 18 and is pending committee referral. The bill draft would establish a special commission to conduct a comprehensive study relative to generating revenue from digital advertising that is displayed inside of Massachusetts by companies that generate over $100 million a year in global revenue.
      • HD 1683 was also filed on January 18; this bill draft would assess and levy in each calendar year an excise on the sale of digital advertising services provided within the commonwealth. Revenue from digital advertising services would be required to be remitted monthly. The excise would be assessed at a rate equal to 6.25 percent of the annual gross revenue from digital advertising services provided within the commonwealth. The first $1 million in revenue would be exempt.
      • HD 3052 was filed on January 20; the bill would impose a 5 percent tax on persons with revenue from digital advertising services in excess of $25 million per year. The tax would apply to digital advertising services accessed via a digital interface within the state.
      • HD 3144 would impose a tiered digital advertising tax with rates of 5, 10, and 15 percent based on annual gross revenues from digital advertising provided in the state, based on IP address of the user’s device on which the advertising is accessed. The tax is imposed on persons with more than $100,000 of digital advertising services in Massachusetts. The draft was filed on January 20.
      • HD 3230 would impose a 6.25 percent excise tax on digital advertising services provided in Massachusetts. The service will be deemed to be in the state if the advertising is received on the user’s device with an IP address in the state. The draft was filed on January 20.
      • SD 1439 was filed on January 19 and is pending committee referral. The bill would impose a tiered digital advertising tax with rates of 5, 10, and 15 percent based on annual gross revenues from digital advertising provided in the state, based on IP address of the user’s device on which the advertising is accessed. The tax is imposed on persons with more than $100,000 of digital advertising services in Massachusetts.
      • SD 1711 would tax on the collection of data by commercial data collectors. Similar to the New York Senator Krueger’s bill, SD 1711 would impose a tax on commercial data collectors that collect, maintain, use, processes, sells, or shares consumer data in support of its business activities. The bill also adopts a tired rate structure where the first $1 million of receipts is exempt, but rates thereafter range from $.05 cents per month of the number of Massachusetts consumers if data is collected from more than 1 million less than 2 million Massachusetts consumers, up to $750,000 per month plus $.30 cents per month on the number of Massachusetts consumers if data is collected from more than 6 million Massachusetts consumers.
      • SD 1768 would require persons who sell personal information or exchange personal information for consideration in the state to register with the Department of Revenue, and provide certain detailed information concerning the data and the collection of such data. The bill does not specifically impose a tax, but requires the Department to recommend ways to tax businesses selling personal information to the legislature, “to ensure appropriate compensation to the people of the Commonwealth.”

      Meet our January Pet of the Month, Belle! She belongs to Jonnell Quarrie, Director of Tax at MOD Pizza.

      Belle recently turned two in December, and is a delightful mix of Lhasa Apso and Cocker Spaniel. She joined Jonnell’s family on St. Patrick’s Day in 2021, and looks like Lady from the Disney classic Lady and the Tramp. Jonnell and her family almost renamed her. However, they decided there was enough change with her shifting households that they didn’t want to add a name change on top!

      When it comes to food, Belle likes to have whatever everyone else is having! She prefers the large dog food of Jonnell’s daughter’s German Shepard, Henny, even though it barely fits in her mouth! If the cats are getting canned food, she wants some of that – and if her humans are eating, she is always willing to do the pre-wash before they put the dishes in the dishwasher!

      For a puppy, Belle is pretty mellow, and loves to sleeps a lot. However, what she lacks in size she makes up for in volume! She is also fearless – she will run up to tackle Henny (who is 115 pounds!) to play with him. She also loves to have a great view. Since she was a puppy, she’s had her dog bed on top of Jonnell’s desk so that she can look out the window and see what’s happening in the neighborhood.

      Welcome to the SALT Pet of the Month family, Belle!

      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 two states recently proposed digital advertising/data tax bills (again)?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      The Supreme Court of Virginia recently upheld a circuit court decision invalidating a county’s plan to claw back tax refunds because it violated the state constitution’s uniform taxation requirement.

      The Isle of Wight County changed the valuation methodology for its machinery and tools tax (“M&T tax”), resulting in approximately $5.6 million in refunds for tax years 2013-2015. In response to the significant budgetary shortfall caused by the refunds, the county enacted a large one-year hike of its M&T tax rate for 2017 coupled with a “M&T Tax Relief Program” that provided “grants” to certain taxpayers. The grants were for the differential between the 2016 and 2017 rates, minus any refund amounts that a taxpayer may have received for the 2013-2015 period.  The net effect of this approach is that the only taxpayers who had to pay the significantly increased M&T tax rate were the ones who received refunds, and the increased amounts they owed were limited to the amount of the M&T tax refund they had received from the county.

      International Paper, one of the affected taxpayers, challenged its tax assessment for 2017.  The Supreme Court held that the M&T Tax Relief Program operated effectively as a partial tax exemption, which made International Paper’s 2017 M&T tax assessment non-uniform, invalid and illegal. Because the M&T tax rate hike was enacted in tandem with the M&T Tax Relief Program, both were invalidated. Additionally, the county procedurally defaulted on its argument that it was entitled to rely on 2016 rates, so the taxpayer was entitled to a full M&T tax refund for 2017.

      County of Isle of Wight v. International Paper Company, 881 S.E.2d 776 (Va. 2022).

      Representative J.D. Prescott (R) introduced Indiana HB 1517, which would impose a surcharge tax on social media providers. HB 1517 is similar to legislation introduced by Representative Prescott during the 2021 and 2022 legislative sessions that did not make it out of committee.

      Specifically, HB 1517 would impose a surcharge tax on social media providers equal to: (1) the annual gross revenue derived from social media advertising services in Indiana in a calendar year multiplied by seven percent; plus (2) the total number of the social media provider’s active Indiana account holders in a calendar year multiplied by $1.

      A “social media provider” is defined as a social media company that: (1) maintains a public social media platform; (2) has more than one million active Indiana account holders; (3) has annual gross revenue derived from social media advertising services in Indiana of at least one million dollars; and (4) derives economic benefit from the data individuals in Indiana share with the company. The bill defines a “social media platform” to mean an internet website or internet medium that: (1) allows account holders to create, share, and view user generated content through an account or profile; and (2) primarily serves as a medium for users to interact with content generated by other third party users of the medium.

      “Social media advertising services” means advertising services that are placed or served on a social media platform. The term includes advertisements in the form of banner advertising, promoted content, interstitial advertising, and other comparable advertising services.

      The bill contains an apportionment provision, which provides that the apportionment of annual gross revenue derived from social media advertising services in Indiana shall be determined using an allocation fraction, the numerator of which is the annual gross revenue derived from social media advertising in Indiana, and the denominator of which is the annual gross revenue derived from social media advertising in the United States, during the calendar year.

      The bill would be effective January 1, 2024. According to the bill’s fiscal note, the surcharge is expected to raise between $64.6 million and $88.3 million in FY 2024 and between $118.5 million and $173.9 million in FY 2025. The revenue would be distributed to an online bulling, social isolation, and suicide prevention fund.

      A number of Connecticut digital advertising bills and a New York data tax bill have been introduced to jumpstart the 2023 legislative sessions. Both states have considered – but ultimately rejected – legislation that would adopt targeted taxes on the digital economy in recent years.

      On January 18, 2023, proposed legislation was filed in the Connecticut House (HB 5673) and Senate (SB 351) that would establish a 10 percent tax on the annual gross revenues of any business with annual gross revenues exceeding $10 billion from digital advertising services. HB 5658 was also proposed, which similarly calls for a 10 percent tax on the annual gross revenues from digital advertising services on any business with annual gross revenues exceeding $10 billion, with no caveat that revenues be from digital advertising services. Similar proposals were introduced in Connecticut during the 2021 legislative session. Because Connecticut legislators may introduce legislation as a short statement in non-statutory language, HB 3573, SB 351, and HB 5658 lack the formal statutory language normally found in other states. The Joint Committee on Finance, Revenue and Bonding will now consider these proposed bills and determine if it should be sent to the Legislative Commissioners’ Office for full drafting of the bill’s text.  

      New York legislators are back at it again, too. On January 17, 2023, S1845 was filed and referred to the Budget and Revenue Committee. The legislation proposes to impose a 5 percent tax on the gross income of every corporation that derives income from the data New York individuals share with such corporations. The bill says little about how the tax will work – and fails to define or use existing defined terms within New York’s franchise tax.  As written, it is unclear whether the income to be taxed is limited to gross income earned from data procured from New York individuals or if a broader base (i.e., any gross income) applies.  This bill is similar to legislation introduced in both the 2021 and 2022 legislative sessions that did not make it out of committee.

      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: Eversheds Sutherland attorneys Jeff Friedman and Cyavash Ahmadi examined which New York False Claims Act related case in a recent article?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      The Illinois Court of Appeals held that an energy company’s book-out transactions, which do not involve the physical transfer of fuel, are taxable sales under the Cook County fuel tax ordinance because they involve the transfer of an ownership interest as to the fuel. The company enters into book-out transactions to settle forward contracts (i.e., agreements to deliver fuel on a specified date in the future) financially rather than through physical delivery of fuel. 

      Reversing the circuit court, the Court of Appeals rejected the taxpayer’s argument that no taxable event occurred because the fuel tax applied to the retail sale of gasoline and other fuel, and the “book-out” transactions were purely financial, without any physical transfer of property. The court agreed with the Department that the fuel tax ordinance “broadly” defined a taxable “sale” to include “any transfer of ownership . . . by any means whatsoever.” In the court’s view, the taxpayer’s forward contracts involved taxable transfers of intangible ownership interest.

      However, the court declined to apply penalties, concluding that the taxpayer’s position was a reasonable, albeit incorrect, interpretation of the law considering no physical transfer of property occurred.

      Marathon Petroleum Co. v. The Cook Cnty. Dep’t of Revenue, 2022 Ill. App. 210635 (Ill. App. Ct. 2022)

      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 state supreme court recently held that proceeds from sales of book club memberships are taxable?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      In this installment of A Pinch of SALT for Tax Notes State, Eversheds Sutherland attorneys Jeff Friedman and Cyavash Ahmadi examine Egon Zehnder, a case they argue demonstrates why New York’s False Claims Act should never have been expanded to tax cases. The case reflects fundamental problems that go to the heart of sound tax administration policies.

      Read the full article here.

      State and local authorities recently have used decisions and enforcement to go beyond the language in tax statutes.

      In this edition of “A Closer Look” in Bloomberg Tax, Eversheds Sutherland attorneys Jeff Friedman and Liz Cha look at examples of these attempts to expand the tax base and the challenges faced by those who litigate such cases.

      Read the full article here.

      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 super cute pup was the last SALT Pet of the Month for 2022, and who does it belong to?

      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. This week’s answer will be posted on Saturday in our SALT Shaker Weekly Digest. Be sure to check back then!

      2022 was a year of transition – we emerged from the pandemic and its fully-remote environment, and welcomed the return of face-to-face meetings and in-person conferences. Likewise, there was significant transition in the state and local tax world – while certain issues maintained their prominence (marketplace and apportionment developments, to name a few), new issues moved to the forefront of SALT conversations across the country (digital advertising taxes, digital goods, and crypto/virtual currencies, among others).

      The Eversheds Sutherland SALT team was kept busy throughout the year tracking interesting state and local tax developments – more than 280 were posted to this site. The items highlighted below exemplify the trends in 2022. (Note: If you would like to receive our posts by email, please register here).

      Digital Advertising Taxes

      Developments regarding digital advertising taxes grabbed headlines throughout 2022, and much of the spotlight was on Maryland.

      Digital Goods and Services

      Throughout the year, states and localities issued decisions and guidance addressing the ever-expanding modern digital economy. The rapid pace of guidance will certainly continue in 2023, and will likely give rise to additional controversies.

      Marketplace Issues Continue

      As in prior years, developments regarding marketplaces and marketplace facilitators continued with some frequency. Marketplace laws have significantly impacted sales tax collection and remittance obligations, and jurisdictions continued to provide guidance regarding these new regimes.

      Apportionment Disputes

      Apportionment maintained its status as a leading corporate income tax policy and controversy issue in 2022, and we see no sign of that changing in 2023.

      Crypto/Virtual Currencies and NFTs

      In 2022, we saw new and notable guidance regarding the treatment of crypto/virtual currencies and non-fungible tokens (NFTs), as states grappled with the wide-ranging state and local tax implications of their mainstream adoption.

      Remote Work, Worker Classification, Domicile and Residency

      Worker classification, domicile and residency continued to be hot topics in 2022, owing both to the increasing prevalence of remote work, and to on-going litigation involving personal income tax disputes across the country. While the pandemic began to recede in 2022, issues arising from the new(ish) remote and partially-remote working environment are certain to continue in 2023.

      The Multistate Tax Commission

      The Multistate Tax Commission (MTC) – an organization representing states’ interests in imposing state and local taxes – had another active year in 2022. The MTC focused on a variety of significant projects, from its transfer pricing effort, to the taxation of partnerships, to the taxation of digital products.

      On July 15, the U.S. House of Representatives voted in favor of H.R. 3086, the Permanent Internet Tax Freedom Act (PITFA), by a voice vote. PITFA would permanently extend the moratorium on state and local taxation of Internet access and “multiple” or “discriminatory” taxes on electronic commerce.

      Read the full Legal Alert here.

      On June 25, the Arm’s Length Adjustment Services Advisory Group of the Multistate Tax Commission met via teleconference to continue the process of developing a multistate arm’s length pricing adjustment service. States participating in the meeting included Alabama, Florida, Georgia, Iowa, Kentucky, North Carolina, Pennsylvania and the District of Columbia. The primary focus of the meeting was to follow up from the June 2 meeting in St. Louis.

      Read the full Legal Alert here.

      On June 18, the Judiciary Committee of the U.S. House of Representatives voted in favor of H.R. 3086, the Permanent Internet Tax Freedom Act (PITFA) by a vote of 30-4. PITFA permanently extends the moratorium on state and local taxation of Internet access and “multiple” or “discriminatory” taxes on electronic commerce.

      Read full Legal Alert here.

      Yesterday the Louisiana 24th Judicial District Court held that a cable service provider’s video-on-demand and pay-per-view video programming are not tangible personal property subject to sales tax. Jefferson Parish had alleged that the programming could be seen and heard and thus fell within the definition of tangible personal property.

      Read the full Legal Alert here.

      On June 2, the Arm’s Length Advisory Group of the Multistate Tax Commission met in St. Louis, Missouri, to begin the process of developing a multistate arm’s length pricing adjustment service. tates participating in the meeting included Alabama, Florida, Georgia, Iowa, Kentucky, New Jersey, North Carolina and the District of Columbia.

      Read the full Legal Alert here.

      On Thursday, May 8, the Multistate Tax Commission’s Executive Committee met in Washington, DC. During the meeting the Committee voted to advance its amendments to the Multistate Tax Compact’s definition of nonbusiness income, definition of “sales,” factor weighting, and the sourcing of service and intangible revenue. The next step in the Compact’s amendment process—which is identical to the Uniform Division of Income for Tax Purposes Act (UDITPA)—is a “Bylaw VII” survey by the MTC member states. The Committee essentially embraced the MTC’s original proposed amendments and failed to incorporate any of the comments and observations of its Hearing Officer, Professor Richard Pomp.

      Read the full Legal Alert here.

      Today, the Maryland Court of Appeals held that Maryland may tax out-of-state Delaware holding companies that license patents to their parent company, which was doing business in Maryland. Gore Enterprise Holdings, Inc. v. Comptroller of the Treasury and Future Value, Inc. v. Comptroller of the Treasury. The ramifications of this decision are significant because it calls into question whether a corporation must file a Maryland tax return if it engages in intercompany transactions with an in-state related parent company and also because it conflates the unitary business principle with the economic substance/business purpose doctrine. 

      Read the full Legal Alert here.

      While meeting in Denver this week, the Multistate Tax Commission’s Income Tax Uniformity Subcommittee advanced two separate projects to develop industry-specific apportionment regulations. One project will look at the electricity sales factor and the other will look at methods to source cloud services and software. Industry-specific apportionment projects like these help demonstrate why the MTC separately struggles with drafting a one-size-fits-all, uniform apportionment rule as they try to amend UDITPA.

      Read the full Legal Alert here.

      The Multistate Tax Commission plans to announce that they are accelerating their development of a transfer pricing audit program by soliciting the assistance of Dan Bucks, the former MTC Executive Director and Montana Director of Revenue. New Jersey recently asked the MTC to consider hiring transfer pricing auditors to assist in its Joint Audit Program and to help states with complex transfer pricing audits. The MTC subsequently reached out to states to gauge interest and possible funding.

      Read the full Legal Alert here.

      Yesterday the Los Angeles Superior Court held that Comcast did not establish a unitary relationship with its 57% owned subsidiary, QVC. The court found for Comcast and held that the evidence presented at trial demonstrated that none of the unitary tests were satisfied.

      Read the full Legal Alert here.

      In January, New York Governor Andrew Cuomo proposed broad corporate tax reform in his budget bill, which is currently winding its way through the legislature. The most significant proposal is a shift from a separate entity reporting regime to a full unitary combined group reporting regime. As part of this combined reporting methodology, the proposal would include captive insurance companies in the combined group—a stark departure from current New York tax law.

      Read the full Legal Alert here.