Posted tagged ‘digital goods’

Weekly SALT News Update

October 31, 2011

 

 By Paul Masters

State DOR Letters and Policy Rulings

Illinois Department of Revenue has issued several rulings, including:

* explains how prescription drugs are taxed, and the Service Occupation Use Tax on tangible personal property transferred incident to sales of service;

* explains taxation of software maintenance agreements and the Service Occupation Tax;

* rules that a chemical manufacturer’s containers used to ship fluid products to customers are not subject to sales or use tax because (i) the customers sell the products in the containers and provide the manufacturer with a resale certificate at the time of purchase, and (ii) title to the containers is transferred to the customers;

* when a construction contractor permanently affixes tangible personal property to real property, the contractor is deemed the end user of that tangible personal property. As the end user, the contractor incurs Use Tax on the cost price of that tangible personal property. See 86 Ill. Adm. Code 130.1940 and 86 Ill. Adm. Code 130.2075.;

* the “gross receipts” portion of the Retailers’ Occupation Tax is explained;

* information or data that is electronically transferred is not considered tangible personal property;

issues a detailed (and excellent) ruling on the application of the Service Occupation and Use taxes in connection with engineering services provided along with the sale of custom bridges;

* rules that integrally connected equipment to agricultural equipment (exempt) may also be exempt;

* a ruling regarding the new exemption for property used to repair aircraft; and

* in a significant ruling on Medicare, the DOR rules that in order for a Medicare payment to be exempt from sales tax, the payment must be made directly to the government. Any payments made to a patient or insurance company that would later be reimbursed by the government are subject to tax. It is all in the planning.

 

State Regulations and Public Notices

Ohio releases updated taxability matrix for Streamlined Sales and Use Tax Agreement.

 

State Legislative Affairs

Ted Poe is a conservative representative from Texas. Jackie Speier is a liberal representative from California. And they agree on one thing: states should be able to require Internet retailers to collect sales and use tax absent traditional nexus. H.R. 3179 has been introduced, and it has the support of representatives from both parties in several states, including Arkansas, California, Florida, New York, Tennessee, and Texas. It is known as the Marketplace Equity Act of 2011, and is the first bill that has a real chance of passage.


Judicial and Administrative Decisions

Michigan Tax Tribunal details factors to rely on in determining the proper valuation of commercial property. The case included a traditional battle of the experts (three against one), with the one prevailing because of a more careful study, ample explanation as to the reasoning employed, and better comparables.

 

Other Documents

None noted.

Weekly SALT News Update

October 11, 2011

State DOR Letters and Administrative Rulings

The Tennessee Department of Revenue rules that software configuration services are not subject to sales tax. The industrial equipment exemption does not apply as to sales tax in connection with the sale of compressed air with compressors on site. The assembly of leased equipment is subject to sales tax as services necessary to complete a sale.

In a shift, the Indiana Department of Revenue issues a statement that it will no longer impose sales tax on digital goods unless specific circumstances exist, citing the Streamlined Sales and Use Tax Agreement.

The Louisiana Department of Revenue issues guidance on the new exemption from sales tax for breastfeeding equipment.

The Missouri Administrative Hearing Commission upholds a retaliatory insurance tax against a Kansas insurance company.
The Montana Revenue Tax Appeal Board rules on property tax assessments based on comparables, and lays out how not to fight a property tax dispute.

New Jersey issues guidance on the sales tax treatment of manufacturer and seller coupons. It states that the coupons should be treated “like cash” since the seller gets the coupon value from the manufacturer. Thus sales tax is charged on the face value of the coupon. However, coupons issued by sellers are treated as discounts, and not as cash. Sales tax is imposed on the discounted value of the sale. Note that the sales tax treatment for coupons varies from state to state. For example, the Texas Comptroller seems to treat Groupon discounts as cash , while other coupons are reductions in price for sales tax. See also New York’s policy here.

The Kansas Department of Revenue clarifies that layaway charges are not subject to sales tax.

 

State Regulations and Public Notices

Arkansas and Kentucky revise their taxability matrix for the streamlined sales and use tax agreement.

The California Franchise Tax Board lays out the state franchise tax treatment of series LLCs. While California law does not provide for series limited liability companies, it does accommodate them for tax purposes.

The Mississippi Attorney General opines that property manufactured in Mississippi does not qualify for the free port warehouse exemption as it goes beyond the purpose of the exemption and does not comply with a strict reading of the statute.

 

State Legislative Affairs

None noted.


Judicial and Administrative Decisions

New York Tax Appeals Tribunal rules that a taxpayer must consolidate its returns. Presumption for consolidation when wholly owned and combined group engages in unitary business. Ernst & Young LLP was engaged to provide multistate tax planning ideas and strategies. No business purpose as transactions entered into had no potential for profit and unnecessary for credit and collection functions. E&Y report showing met Section 482 principles irrelevant as no proof that transaction “merits tax respect.”

The 9th Circuit rules in Confederated Tribes and Bands of the Yakama Indian Nation that a state requirement imposed by Washington for tribal members to collect sales tax does not violate the U.S. treaty with the tribe. The requirement imparts a minimal interference into the business of the tribe, and is constitutional.

The United States Supreme Court denied petition to both the KFC and the Lamtec cases. The two cases used an expansive interpretation of nexus to that has been hotly contested. The Court, without comment, declined the opportunity to clarify Quill.

The Maryland Court of Appeals in Timothy A. Frey, et al v. Comptroller holds that the nonresident tax on in-state income is constitutional. It is a compensatory tax, and should be upheld pursuant to Oregon Waste Systems, Inc. v. Department of Environmental Quality,511 U.S. 93 (1994).

The Commonwealth Court of Pennsylvania in Kurbatov v. Department of Labor elevated its decision to a published ruling, laying out the line on whether a person is an employee or an independent contractor.

 

Other Documents

Rutgers issues a study showing New Jersey lost up to $171 million in sales and use tax as a result of uncaptured Internet sales.

The Texas Taxpayers and Research Association sides with the Texas Comptroller and the Attorney General in the Allcat case, opining that the Texas franchise tax cannot be viewed as a net income tax, but is a tax on an entity not the natural partner. TTARA also pointed to the U.S. Bureau of the Census as declaring the Texas franchise tax to be a fee for doing business, and not a net income tax. The Texas Attorney General filed its brief on the merits. A detailed analysis is here.