Posted tagged ‘computer program’

Weekly SALT News Update

October 3, 2011

State DOR Letters and Administrative Rulings

The Indiana Department of Revenue provided guidance on what constitutes tangible personal property. That guidance includes the specific view that electricity is tangible personal property. It also discusses the taxation of intangibles in the state. It also ruled that medical devices are not exempt if there is not a prescription. So a sale of a medical device to a doctor or a hospital is not exempt as a device being prescribed. It may qualify for the sale for resale exemption, as the doctor resells the device to a patient, but the requirements to claim a sale for resale exemption must be followed.

The Connecticut Department of Revenue offered guidance on new sales tax changes for the sale of vehicles and extended warranties as a result of 2011 legislation. New taxable services include motor vehicle towing and road services, and motor vehicle storage services.

The Maine Department of Revenue revised guidance regarding warranty agreements, service contracts, and maintenance agreements.

Tennessee’s Department of Revenue ruled that an out-of state provider of telecommunication services is not subject to sales tax, but that the services are taxed where the services are actually performed. In another ruling, it found that a person who delivers rented tangible personal property to provide services must charges sales tax on those delivery charges. And over the counter sales of fuel are not exempt from sales tax, strictly construing the exemption for sales of fuel for residential use against the taxpayer. Last, software configuration services are not subject to sales tax.

 

State Regulations and Public Notices

Prior to the publication of Indiana Commissioner’s Directive #41, Indiana Department of Revenue imposed sales and use tax on products transferred electronically based on whether the products were taxable in their tangible forms. Citing compliance with the Streamlined Sales and Use Tax Agreement, the Department will impose sales and use tax on products transferred electronically only if the products meet the definition of specified digital products, prewritten computer software, or telecommunication services.

 

State Legislative Affairs

The bill in Michigan to institute a New York style Amazon tax has been introduced and numbered.

California adds olive trees to those items taxed at the 1% gross sales tax rate for deciduous pome and stone fruit trees, nut trees, and grapevines.

Massachusetts Senate pushed forward S.2015 that would authorize casinos and one slot parlors in the state. It levies a 25 percent gross gaming revenue tax, and a 40 percent daily tax on gross gaming revenue from a single slot parlor.

The National Conference of State Legislatures met in San Antonio, and reportedly ended with the Multistate Tax Commission (“MTC”) and Chainbridge Software, LLC playing defense. The MTC came under attack for not being quite up front and public in the decision making process, while Chainbridge was attacked for using unreliable data to calculate potential audit candidates for government authorities.

 

Judicial and Administrative Decisions

Texas Third Court of Appeals hears oral argument of DTWC Corp. v. Combs. The case involves a potential expansion of the sale for resale exemption to include any transfer of tangible personal property in connection with services, regardless of whether the services have been subject to sales tax. Also, potentially it loosens the requirement of consideration to be paid with a sale for resale. Oral argument appeared to go better for the taxpayer, the appellant, than the Texas Attorney General.

In Ivory Homes, Ltd. v. Utah State Tax Comm’n, No. 20090679, (Utah 2011), the Utah Supreme Court ruled against the taxpayer’s argument that charges for shipping that were not separately stated should be excluded from the imposition of sales tax. Utah does not impose sales tax on shipping charges so long as they are separately stated. Because there was no written evidence of an intent by the parties to separately charge sales tax, and the amount charged was presented as one amount (including shipping), sales tax was appropriate on the entire amount.

New York Tax Appeals Tribunal required a company to file a consolidated return with wholly-owned subsidiaries as taxpayer failed to rebut the presumption of distortion under 20 NYCRR 6-2-3.

The Ninth Circuit, in Confederated Tribes and Bands of the Yakama Indian Nation v. Gregoire, Dkt. No. 10-35776 (9th Cir. Sept. 23, 2011), ruled in favor of the State of Washington, finding that the requirement for retailers of an Indian tribe to collect tax was not a tax imposed on the tribe, but a pass through tax. Further, collection of the tax is a minimal burden imposed on the tribe and permitted pursuant to Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134 (1980).

 

Other News

Good article regarding the current status of the Amazon legislation across the country, including Amazon’s current “play nice” strategy with California.

Study by Rutgers University for the New Jersey Retail Merchants Association shows New Jersey lost between $52 million and $171 million due to non-payment by New Jersey residents of sales use taxes on Internet purchases.

Weekly SALT News Update

September 28, 2011

State DOR Letters and Administrative Rulings

The Wisconsin Appeals Commission ruled services are not presumed to be subject to sales tax. In looking to whether barge fleeting services are “taxable services,” the plain language of the statutes does not impose the sales tax and thus the state cannot interpret into the taxation of services those services that are not clearly included. Same rule follows inTexas.

Illinoispublished a ruling on the applicability of the manufacturing exemption in connection with a meat processing facility, and what parts of the plant equipment would qualify for the sales tax exemption.

The Missouri State Tax Commission set aside an assessor’s appraisal for property tax in favor of the income approach used by taxpayer as the taxpayer’s report was substantial and persuasive, recognizing actual economic conditions affecting the subject property.

The Missouri Department of Revenue ruled on the application of sales tax for cabinet manufacturing, finding that the transactions by a cabinet manufacturer would be exempt where title to the cabinets transferred to the customers passed after installation. It also ruled that devices used merely to improve appearance, but not required for medical purposes, is not exempt from sales tax as a medical device. Also, an online ticket broker with no nexus to Missouri is not required to collect sales tax Missouri for tickets sold to Missouri customers or for events in Missouri. It ruled on the concept of integrated manufacturing, and looked to prior decisions that greatly expanded the term such as the “manufacture” of telephone calls. Finally, information services are not subject to sales tax.

New Yorkoffered guidance in dealing with sales tax on transactions in which a person purchases a coupon for a reduced price for goods or services via the Internet. Think Groupon. It also offered guidance for sales tax liability of members of limited liability companies and partners of limited liability partnerships.

 

State Regulations and Public Notices

Rhode Islandhas published the final version of its regulations on the sales taxation of computer programs  There are no significant changes to the final version from that originally proposed.

The North Carolina Department of Revenue advised on “major” sales tax changes by the state legislature for both persons who are registered before the department and other taxpayers.

 

State Legislative Affairs

Michigan State Representatives Kowall and Ananich introduced HB 5004 that would introduce a New York-style Amazon law to require Internet retailers to collect use tax inMichigan.

There is a rumor circulating in the Beltway that the Main Street Fairness Act may be combined with other legislation in an effort to secure GOP support. The Main Street Fairness Act would use federal legislation to allow states to require persons selling taxable items but who are currently beyond the reach of the states to actually collect relevant state use taxes. Currently the bill lacks significant support (including any GOP legislators).

California law, in connection with its unclaimed property statutes, has extended “no apparent commercial value” property to be held for seven years, which is an increase from the prior rule that a holder must retain such property for 18 months.


Judicial and Administrative Decisions

In a case of first impression, the Colorado Court of Appeals has ruled that electricity is tangible personal property, and thus machinery used in the generation of electricity qualifies for the manufacturing exemption from sales and use tax. Other states have also treated electricity as tangible personal property, including Texas (Tex. Tax Code § 151.317) and Indiana.

The New Jersey Superior Court ruled against a taxpayer on an appeal of a property tax dispute. In the instant case, the taxpayer, who was without legal counsel, ignored previous court rulings requesting filings and appropriate responses. The court recognized the taxpayer’s apparent indifference to court orders and ruled against the taxpayer on the second run through the appellate court system, having already given the taxpayer a chance once before to amend his responses.

In the PRA Government Services case, in which anAlabamacourt is asked to rule on the legality of a class action against contingent fee  auditors for a state agency, the taxpayers have amended the complaint to add hundreds of local jurisdictions as defendants. This could be a key case dealing with class actions and the proper use of contingent fee auditors by state agencies.

The Alaska Superior Court ruled that the property tax exemption granted to married couples is discriminatory as applied to same-sex couples.

 

Other Documents

The handout used at the last Houston Bar Association tax luncheon is provided, which outlines the latestTexas legislative updates to the Tax Code, and recent judicial updates involving theTexas franchise tax, including the current constitutional challenge to the revisedTexas franchise tax at the Texas Supreme Court.

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.

Weekly SALT News Update

August 22, 2011

Tax Foundation Report Opines Texas Margin Tax Not a Model Act

A recent Tax Foundation report concludes that the Texas margin tax – untried when enacted in 2006 – collected less revenue than expected, caused significant confusion and compliance costs, resulted in litigation and controversy, and should not be tried in other states.

Tennessee and New York Opine Electronic Goods Not Subject to Sales Tax

Tennessee provided a written opinion that paper shop drawings would be subject to sales tax, but not a digital (paperless) version of the same. New York authorities similarly concluded that the sale of an electronic PDF would not be subject to sales tax, while a printed version of the PDF would be.

New Jersey Issues Apportionment Guidance

In the wake of the new apportionment guidelines set forth by the New Jersey Legislature, New Jersey authorities have outlined the manner for the phase-in of the single factor formula in replacement of the three-factor allocation formula for the Corporation Business Tax. For privilege periods beginning on or after January 1, 2012 but before January 1, 2013, the sales fraction will account for 70% of the allocation, and the property and payroll fractions will each account for 15% of the allocation. The following year will be 90% sales, and the next will be 100% sales fraction.

Louisiana Appeals Court Finds Sale of BP Refinery in Normal Course of Business

BP prevailed in its motion for partial summary judgment, arguing that its sale of a refinery in Louisiana should be classified as apportionable income, taxed proportionate to all the states in which BP does business, as opposed to allocable income and thus taxed only by Louisiana. Because BP was able to show that it regularly sold refineries, the Louisiana appeals court found that such sale was deemed to be part of its regular course of business, and thus the income to be taxed proportionate to its income in all states in which it does business.

Virginia Opines In-state Employees Do Not Constitute Nexus If No In-state Projects

Virginia tax authorities have opined that because the only link between an out-of-state company and Virginia was the presence of two employees who lived in Virginia but did not work on any in-state projects, there was not a sufficient contact to constitute nexus for income tax purposes.

Texas Comptroller Rules Any Filed Method Can Be Used for New Group

Previously, when a Texas Comptroller auditor determined that separate companies needed to amend their filings to report as one consolidated group, the auditor would insist that the only proper methodology would be that methodology used by the reporting entity. The Texas Comptroller has reversed this practice, and opined that the resulting entity can file using any methodology that had been previously filed by the combined entities.

Texas Comptroller Reverses on Software License As Tangible Personal Property

Previously, the Texas Comptroller had issued audits in which it would not treat a license of software as a sale of tangible personal property. As a result, taxpayers who licensed software could not receive the full benefit of the cost of goods sold methodology. This decision has been reversed, and the Texas Comptroller now agrees with taxpayers that the license of software does constitute a sale of tangible personal property for franchise tax purposes.