Posted tagged ‘tangible personal property’

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.

Virginia Commissioner Rules Contractor Liable for Sales Tax on “Deliver-Only” Supplies

May 25, 2011

 By Paul Masters

Virginia, like Texas, treats a contractor as the consumer, or the user, of materials that it purchases in order to perform construction and other contracting services.  See generally, Virginia Field Audit Guidelines. In the case of Texas, this application of this rule depends on the invoice methodology used by the contractor, i.e., whether the contractor uses a separated or completed contract. See generally, Texas Audit Procedures for Contractors and Repairmen.

In the instant case, the taxpayer fabricates and delivers to job sites various tangible personal property (“TPP”) which is used in real property construction, but also provides to its customer “deliver-only” TPP which is used by the other contractors in a performance of their contracts.  This property includes anchor bolts, plates, bollards and other similar construction materials.  The taxpayer took the position that the “deliver-only” TPP should be treated the same as the other structural components which the taxpayer provided to its customers in connection with construction contracts.  The taxpayer actually constructed the structural components, as opposed to no physical changes being made to the “deliver-only” TPP. The taxpayer pointed to Va. Code § 58.1-610 A which provides that a person who performs construction or any other service with respect to real estate or fixtures thereon and furnishes tangible personal property in connection with that construction “shall be deemed to have purchased such tangible personal property for use or consumption.”  Therefore, if the taxpayer was deemed to have consumed the “deliver-only” items, it would not be required to collect sales tax under the Virginia Tax Code.  The taxpayer also pointed to past audits in which the Virginia Tax Authority had not imposed sales tax on the deliver-only items.

The Tax Commissioner disagreed finding that because the taxpayer does not install the “deliver-only” items, it is not the end user or consumer of the “deliver-only” items.  Rather, the taxpayer’s customers, the other contractors, are the ultimate end users or consumers of the “deliver-only” items.  The provision by the taxpayer of the “deliver-only” items should therefore be considered a retail sale.  The Tax Commissioner pointed to Public Document 97-45 (Feb. 6, 1997), as authority for its position.

Contractors should be wary in cases in which it had has mixed contracts with third parties.  Where a contractor is engaged in providing contracting services, as well as the business of selling TPP to its customer, it is important to identify such amounts and treat them accordingly.  A person who is defined as the “user or consumer of all tangible personal property,” as explained in Va. Code § 10-210-410 A, may also be engaged in the business of selling tangible personal property to customers such as other contractors using that same TPP.  If so, the person is the Virginia tax authorities will treat the person as a dealer with respect to such sale, and would be required to obtain its Certificate of Registration (Form ST-4) identifying that it is selling tangible, personal property to customers for their use or consumption.