Posted tagged ‘cleaning’

Weekly SALT Update – Nov. 3, 2011

November 3, 2011

 By Paul Masters with contributions by Jennifer Weidler in Chamberlain’s Philadelphia office.

State DOR Letters and Policy Rulings

But where’s your paper … New Mexico hearings officer rules that a taxpayer does not qualify for a gross receipts tax deduction merely because the taxpayer did not possess any nontaxable transaction certificates as required by NMSA 1978, Section 7-9-43 (2001). Other states have similar requirements for certificates, but merely because they are “required” does not necessarily mean the courts agree.

Virginia Tax Commissioner rules that an egg tray washer was not “processing” as defined by Virginia Code § 58.1-609.3(2)(iii) as it was used between the processing to maintain cleanliness. Even though the equipment was necessary to operate the actual processing, the equipment itself was not involved in the processing of the eggs for sale. Similarly, a “honey wagon” that was used to collect the bird droppings and then spray the droppings as fertilizer on fields was not part of the processing, even though the droppings came from the waste resulting from the cleaning of the eggs. Finally, the Commissioner rules that pit fans used to dry bird droppings that are then sold to farmers as fertilizer are not processing, but do qualify for the agricultural exemption at Virginia Code § 58.1-609.2(1). Different result should apply in Texas, as drying an item is a physical change, thus processing.

State Regulations and Public Notices

North Carolina updates its taxability matrix for the SSUTA.

The New Jersey Division of Taxation has published answers to frequently asked questions relating to the NJ-1040 e-filing mandate. For the 2011 taxable year forward, tax preparers expecting to prepare eleven (11) or more New Jersey individual income tax returns must electronically file those returns for which an electronic filing option is available.  Those returns not included in the e-filing mandate are New Jersey nonresident, part-year resident, amended and prior year returns.

The Connecticut Department of Revenue issued an Informational Publication (IP 2011(15)) answering frequently asked questions regarding the Connecticut individual use tax.  The Informational Publication addresses changes in legislation affecting Connecticut use tax filing and payment obligations, which occurred during 2011.

Starting January 1, 2011, those tax preparers filing more than five (5) returns per year with New York are now required to e-file.  The New York Department of Taxation may impose a penalty on both the preparer and the taxpayer for a failure to electronically file returns.  Additionally, beginning with the return due on March 20, 2012, sales tax returns for annual filers must be filed electronically.

State Legislative Affairs

Economic nexus comes into play again. Michigan signs into law SB 650 which defines nexus for a financial institution as any of the following: (i) physical presence, (ii) Michigan source receipts of at least $350,000 or (iii) has an ownership interest in a flow through entity.

Judicial and Administrative Decisions and Pleadings

A coalition of public school districts in Texas files suit against the State of Texas on constitutional grounds, arguing that the state tax system funding public schools is unfair, and does not provide the schools with sufficient funding to provide a free education to students.

In another school funding case, a federal district court rules against Lynch, who argued that Alabama’s property tax rates, among the lowest in the country, violate the Civil Rights Act of 1964 and the Equal Protection Clause of the Fourteenth Amendment. How? The tax scheme limits the ability of rural counties to tax wealthy white landowners. The opinion is looooong – really long. In the end, the court focused on its view that the tax structure was based on economics, not race, and therefore passed muster under the rational basis standard.

On further thought … Washington Court of Appeals reverses its decision on remand and finds that a hospital was not entitled to an exemption for amounts collected and paid to a third-party service provider. In its initial decision, the Court of Appeals determined that the payments did not qualify as gross income subject to business and occupation (B&O) tax. But the Supreme Court reversed the Court of Appeals’ ruling in Washington Imaging Services, LLC v. Wash. Dept. of Rev., 252 P3d 885 (Wash. 2011). Because there was no independent obligation for its patients to pay the third-party service provider for services rendered, the hospital did not make payments on behalf of its patients as their agent, the payments made constituted gross income. The exemption under Wash. Admin. Code § 458-20-111 did not apply as they payments were not customary reimbursements or advances made in the ordinary course of business.

NY Division of Tax Appeals rules against the estimated assessment made by an auditor for sales tax. While the taxpayer lacked the records necessary to avoid an estimated audit, the auditor made assumptions not based on reality, used information limited to only one quarter and extrapolated over a multi-year period. Thus the assessment was arbitrary.

Illinois Court of Appeals affirms decision to use income valuation approach because the sales comparison method provided unreliable. The government had used comparisons that included sales resulting from Department of Justice divestiture orders. Such sales necessarily are not defined as arm’s length transactions.

The Texas Court of Appeals for the 14th District (Houston) rules that Hotels.com and other similar online companies need not remit occupancy tax on the full amount received by online customers for the purchase of hotel space through the web site. Rather, the hotel occupancy tax is levied solely on the amount received by the hotel.

Other Documents

None noted.

Weekly SALT News Update

September 21, 2011

State DOR Letters and Rulings

Florida ruled that when a cleaning service provider uses cleaning supplies to perform the cleaning services, sales and use tax is due on those supplies. However, to the extent those supplies are not used, but sold to a customer for their use, the transaction is exempt as a sale for resale.

The Texas Comptroller ruled that a series LLC would be treated as a single entity for Texas franchise tax purposes. The entity cannot be broken up into separate parts, but must file as one.

Alabama ruled that winter park provided amusement services subject to sales tax. The amusement services included hay rides, Christmas plays, and Christmas displays.

The Illinois Department of Revenue published a letter on the sales tax treatment of software maintenance agreements. It is a fairly aggressive position, with any transfer of “patch” code constituting a taxable transfer.

 

State Regulations and Public Notices

Both Georgia and West Virginia filed updated Section 328 taxability matrices for their respective states. Under the Streamlined Sales and Use Tax Agreement (SSUTA), each state must maintain a taxability matrix that defines the manner in which that state treats all defined items. It must make them available to the public.

New Jersey released guidance on sales tax imposed for investigation and security services that are sourced to that state. It opined that the taxable base is quite expansive, and should include the actual costs to perform the service, any materials or labor used, including interest, taxes paid, and any other expense. Reimbursable expenses such as meals and mileage must also be included.

Rhode Island issued a public notice of the revised regulation for the taxation of software, whether in electronic form or on physical media. A source at the Division of Taxation has advised that the proposed regulation has received little comment, and is not expected to change. The effective date for the taxation of prewritten software delivered electronically by download or other electronic means is effective October 1, 2011. The regulation also addresses the taxation of maintenance for prewritten software.

Indiana issued guidance on the taxation of drop shipments. It opined that generally the drop shipment, if properly followed, would not be subject to sales tax based on the sale for resale exemption. The purchaser requesting the drop shipment must present the prescribed Form ST-105.

 

State Legislative Affairs

Maryland’s legislative services staff presented the argument that a gross receipts tax would benefit the state and increase tax revenues. It used a Power Point presentation to make the sale.

At the federal level in an issue directly impacting the several states, unions are applying political pressure for legislators to vote “no” on HR 1439. HR 1439, known as the “Business Activity Tax Simplification Act,” would regulate the state taxation of interstate commerce and deal with the nexus issues being raised at the state level, employing the Joyce approach as opposed to the Finnigan approach. As an aside, Texas uses the Joyce approach for its franchise tax. The Congressional Budget Office has estimated that the act would “cost” the states $2 billion. The Multistate Tax Commission echos the concern of the cost to the states, and passage seems highly unlikely.


Judicial and Administrative Decisions

The Louisiana Court of Appeals for the First Circuit has ruled in favor of the taxpayers, Utelcom Inc. and UCOM, Inc., and reversed the trial court’s decision. The taxpayers owned limited partnership interests in three Delaware limited partnerships that were Sprint affiliates. They had not commercial domicile in Louisiana, and but for these limited partnership interests they had no connection with Louisiana. The taxpayers argued that Louisiana’s assessment of franchise tax against them violated the privileges, immunities, and protections afforded them by the Commerce Clause of the United States Constitution and the Due Process and Equal Protection Clauses of the United States and Louisiana Constitutions. Louisiana argued that “unity of purpose” caused the actions of related Sprint entities to create nexus with taxpayers. The Court found that there was no statutory basis for this proposed incident of taxation, that the entities were all separate juridical entities, and there was no “Louisiana codal, statutory, or jurisprudential authority” to attribute the actions of one Sprint entity against the other.

Louisiana also argued that the actions of the general partner of US Telecom acting as the general partner for Sprint Communications LP should be attributed to the taxpayers as some form of agent for the taxpayers. The Court found that the general partner has the authority to bind Sprint Communications LP, but it lacks the authority to act as the agent for the taxpayers.

Louisiana pointed to a regulation that allows taxation where a person conducts business in Louisiana through a partnership, joint venture, or otherwise. However, the Court pointed to the fact that the statute limits this to corporations, and that the Department of Revenues attempt to expand the taxing statute beyond the scope set by the legislature must fail. Though determining that the franchise tax would not extend to the taxpayers by statute, the Court, nonetheless, addressed the argument in Secretary, Dep’t of Revenue, State of La. v. Gap (Apparel), Inc., 886 So.2d 459 (La.App. 2004) (finding that a company’s receipt of royalties from the use of its intangible property in Louisiana). Because the property being used was not owned by the taxpayers, Gap did not apply.