Weekly Update for Week of 2/20 – Iowa Discusses Taxability of Groupons; Iowa and Illinois Issue Rulings on Computer Software; Pennsylvania Governor Signs Marcellus Shall Bill and Legislation Expanding Keystone Opportunity Zone…and more.

 by Jennifer Weidler

ARIZONA

Two New Bills to Repeal State’s Use Tax Introduced to Arizona Legislature

Two new bills, HB 2623 and HB 2629, have been introduced to the state legislature.  Both bills attempt to repeal the state’s use tax for individuals.

 

HAWAII

Hawaii DOR Issues Letter Ruling on Qualification of Photovoltaic Energy Systems for Renewable Energy Credit

The Hawaii Department of Taxation issued a Letter Ruling, finding that taxpayers were entitled to the renewable energy technology income tax credit on photovoltaic energy systems, subject to a $500,000 per system statutory cap.

 

ILLINOIS

Illinois DOR Updates Publication on Withholding of State Income Tax

The Illinois Department of Revenue issued an updated publication, which explains the requirements for withholding of Illinois income tax.  For further details, please refer to the publication.

Illinois DOR Issues Explanation of Tax Treatment of Computer Software Transactions

The Illinois Department of Revenue issued a Letter explaining the tax treatment of computer software transactions.  The Letter details when hosted marketing services using a proprietary software platform would or would not be taxable.

 

IOWA

Iowa DOR Issues Guidance on Sales Tax Treatment of “Groupons”

The Iowa Department of Revenue issued guidance on the sales tax treatment of “Groupons” or other similar certificates, which are purchased via the Internet for a discount price.  Generally, sales tax is collected on the full price of the item purchased.  However, if the certificate on its face shows the price paid by the online purchaser, the tax is collected on that amount instead of the full price of the item.

Iowa DOR Issues Policy Letter Regarding Taxability of Hosted Software and Training Services

The Iowa Department of Revenue issued a Policy Letter explaining that a software provider’s gross receipts for hosted software and training services are not subject to sales tax.  The Department reasoned that the software is only accessible online and training is not an enumerated taxable service in the state.

Iowa Department of Revenue Issues Policy Letter Regarding Taxability of Replacement Fees

The Iowa Department of Revenue issued a Policy Letter explaining that where a customer loses a book and is charged a “replacement fee”, whereby no replacement book is provided to the customer, no sales tax is owed. The Department reasoned that since the replacement fee is a type of penalty fee, it is not subject to the state’s sales tax.

 

MARYLAND

Independent Audit Reveals Maryland Business and Economic Development Officials did not Require Documentation before Awarding Millions in Tax Credits

An independent audit report issued by the Office of Legislative Audits has revealed that Maryland Business and Economic Development officials did not require documentation prior to awarding millions of dollars in tax credits to various businesses.  The Business and Economic Development’s response to the findings indicated that, effective immediately, applications would require an accountings.

 

MASSACHUSETTS

Massachusetts DOR Finds Prepackaged Individual Salads Subject to State Sales Tax

The Massachusetts Department of Revenue issued a Letter Ruling, holding that prepackaged individual salads are subject to the state’s sales tax, regardless of where in the supermarket the salads are sold and irrespective of whether the salads are sold on an eat-in or to-go basis.  The Department found that due to the nature of the packaging and quantity, the supermarket in part functioned as a restaurant with regard to these items and was subject to the state tax on the prepackaged salads.

 

MICHIGAN

Michigan Court of Appeals Grants Refund Request Over Disputed Royalty Income

The Michigan Court of Appeals granted a pharmaceutical company’s tax refund request after finding that the company had presented sufficient evidence at trial to show that the disputed royalty income was in fact derived from a subsidiary’s use of patents.  The company provided affidavits from individuals involved in the preparation of the company’s tax returns, who averred that the relevant income it deducted did in fact derive from its subsidiary’s use of the company’s patents.  The court found this evidence to be sufficient and found that since the defendant had failed to produce any evidence to counter the company’s evidence, the company was entitled to summary disposition.

 

NEW JERSEY

New Jersey Issues Notice of Cosmetic Medical Procedures Phase-Out

The New Jersey Division of Taxation issued a Notice discussing the cosmetic medical procedures gross receipts tax phase-out, which will occur over the next two (2) years.  Commencing July 1, 2012, the phase-out will reduce the current 6% tax rate by 2% annually, thereby eliminating it completely by July 1, 2014.

New Jersey Issues Guidance on Changes to Urban Enterprise Zones Refund Procedures

The New Jersey Division of Taxation issued guidance, explaining changes to the urban enterprise zones refund procedures.  Those changes relate topoint-of-purchase sales tax exemption eligibility, statute of limitations, use tax self-assessed or audit assessments, improperly paid tax, and non-small qualified business transactions.

 

NEW YORK

New York Issues Guidance on Delivery Companies for Timely Filing of Returns

The New York State Department of Taxation and Finance issued guidance, which provides the names of those private delivery companies that taxpayer may use in order to timely file their tax returns.  Those delivery companies meeting the requisite federal and state criteria are DHL Express, Federal Express and the United Parcel Service.

 

PENNSYLVANIA

Pennsylvania Passes Legislation Establishing how Municipalities will Determine Condominium and Single-Family Home Assessments

The Pennsylvania Legislature passed H1582,effective April 16, 2012.  The bill establishes how municipalities are to determine assessments for both condominiums and single-family homes.  Additionally, the bill provides for incentives for residential properties in Business Improvement District and outlines a process for objections.

Pennsylvania Governor Signs Marcellus Shale Bill

The Pennsylvania Governor has signed HB 1950, which will impose a fee on natural gas drilling in the Marcellus Shale formation.  The Marcellus Shale formation is the largest domestic source of natural gas.

Pennsylvania Governor Signs Legislation Expanding Keystone Opportunity Zone

The Pennsylvania Governor has signed SB 1237, which expands the Keystone Opportunity Zone, Keystone Opportunity Expansion Zone, and Keystone Opportunity Improvement Zone Act.  The Keystone Opportunity Zones provide tax exemptions, deductions, credits and abatements to qualified businesses.

SOUTH CAROLINA

South Carolina DOR Reminds Taxpayers of be Aware of Fraud During Tax Season

The South Carolina Department of Revenue issued a News Release reminding taxpayers to be aware of potential fraud during tax season.  The News Release warned of communications in the form of phone calls, text messages, emails or other forms of communication, which ask for any personal identifying information.  Typically, the DOR will contact taxpayers via standard mail, with a possible follow-up phone call.

 

TENNESSEE

Tennessee DOR Rules that Manufacturer’s Drop Shipments are not Exempt from Tax

The Tennessee Department of Revenue issued a Letter Ruling, finding that a manufacturer’s drop shipments to a contractor were not exempt from sales and use tax, even where the customer presents a resale certificate.  The Department reasoned that the tax is imposed on all materials for specific jobs performed by contractors, and thus the drop shipments were found to be subject to the tax.

Tennessee DOR Rules Out-of-State Company Subject to Franchise and Excise Tax

The Tennessee Department of Revenue issued a Letter Ruling, holding that an out-of-state company who used local sales representatives to solicit its products was doing business in the state for franchise and excise tax purposes.  Moreover, the Department ruled that the company was not exempt under P.L. 86-272, since it used a direct shipment process to its local vendors.

 

TEXAS

Texas Supreme Court Dismisses Complaint Challenging Constitutionality of State Franchise Tax

The Texas Supreme Court dismissed a complaint that sought to challenge the constitutionality of the state’s franchise tax scheme.  The court found that the taxpayers failed to pay their taxes under protest or to request a refund from the comptroller prior to bringing suit.  As such, the court found that the statutory conditions required dismissal for lack of jurisdiction.

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