Posted tagged ‘intangible’

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.