sutherland March 2015 salt shaker · By Stephen Burroughs and Jonathan Feldman ... This girl has...
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SUTHERLAND ASBILL & BRENNAN LLP www.sutherland.com March 2015 SUTHERLAND SALT SHAKER ® Shaking things up in state and local tax. In This Issue 1 2 4 5 Current Developments SALT Pets of the Month Recently Seen and Heard Come See Us Please visit www.stateandlocaltax.com to subscribe to receive the latest content! Alabama DOR Proposes to Expand Rental Tax to Digital Transmissions and Multi-Purpose Cable Boxes By Charles Capouet and Open Weaver Banks The Alabama Department of Revenue has proposed an amendment to the state’s rental tax regulation. If finalized, the regulation would tax the rental of “digital transmissions,” such as “on-demand” movies, television programs, streaming video, streaming audio and other similar programs, regardless of the method of transmission or the length of time of the rental. The proposed amendment would also reach certain cable television boxes and related accessories. By statute, the rental tax is levied on persons engaged in the business of leasing or renting tangible personal property. The regulatory proposal would treat cable or satellite television providers, online movie and digital music providers, app stores, and other similar providers of digital transmissions as engaging in the business of leasing tangible personal property and would subject them to the rental tax. The proposed regulation would also apply the rental tax to multipurpose cable boxes that function as digital video recorders or perform other functions in addition to accessing basic cable. Under the proposal, cable television boxes that are used solely to access basic cable are not subject to the rental tax. The Department has scheduled a public hearing to discuss the proposed regulation expanding the scope of Alabama’s rental tax for April 8, 2015. Prop. Ala. Admin. Code r. 810-6-5-.09 (2015). Will New Roads Lead to Georgia Tax Reform? By Stephen Burroughs and Jonathan Feldman Georgia’s Transportation Funding Bill may lead to significant tax reform for the state in 2016. In response to a nearly $1 billion transportation budget shortfall, on March 5 the Georgia House of Representatives passed H.B. 170, which would convert Georgia’s sales tax on motor fuel to a 29.2 cents-per-gallon excise tax. The Georgia Senate then passed a substitute version, setting the excise tax rate at 24 cents per gallon, eliminating the state’s tax credit for fuel-efficient vehicles and allowing Georgia localities to impose a 1% sales tax on motor fuel that costs less than $3.40 per gallon. The legislation is now in a conference committee that is trying to find a compromise between the two bills before the regular session ends this week. But perhaps overlooked in the Senate version of the Transportation Funding Bill is its creation of a “Special Joint Committee on Georgia Revenue Structure” (Committee). The Committee will be tasked with introducing “one or more bills or resolutions relating to tax reform” in the House of Representatives during the 2016 legislative session. If the Committee sounds familiar, that is because it last appeared in 2011 as a harbinger of sweeping tax reform in Georgia. While the Committee fell short of completely overhauling Georgia’s revenue structure, it did render significant changes to Georgia tax law: (1) it exempted energy used by manufacturers as part of the “integrated plant theory”; (2) established click-through and affiliate nexus provisions; (3) replaced the sales tax on motor vehicles with a one-time title and ad valorem tax; and (4) created the Georgia Tax Tribunal. A conference committee must reconcile the House and Senate versions of the Transportation Funding Bill by Thursday to avoid a Special Session. While the compromise bill will attempt to address Georgia’s transportation budget shortfall, it will also be important to monitor whether creation of the Special Joint Committee will be a bridge to nowhere or a road that leads to significant Georgia tax reform in 2016. H.B. 170, 2015-2016 Gen. Assemb., Reg. Sess. (Ga. 2015).
Transcript of sutherland March 2015 salt shaker · By Stephen Burroughs and Jonathan Feldman ... This girl has...
sutherl and a sb ill & brennan llp www. su the r l and . com
March 2015sutherl and
salt shaker®
shaking things up in state and local tax.
In This Issue
1
2
4
5
Current Developments
SALT Pets of the Month
Recently Seen and Heard
Come See Us
Please visit www.stateandlocaltax.com to subscribe to receive the
latest content!
Alabama DOR Proposes to Expand Rental Tax to Digital Transmissions and Multi-Purpose Cable Boxes
By Charles Capouet and Open Weaver Banks
The Alabama Department of Revenue has proposed an amendment to the state’s rental tax regulation. If finalized, the regulation would tax the rental of “digital transmissions,” such as “on-demand” movies, television programs, streaming video, streaming audio and other similar programs, regardless of the method of transmission or the length of time of the rental. The proposed amendment would also reach certain cable television boxes and related accessories. By statute, the rental tax is levied on persons engaged in the business of leasing or renting tangible personal property. The regulatory proposal would treat cable or satellite television providers, online movie and digital music providers, app stores, and other similar providers of digital transmissions as engaging in the business of leasing tangible personal property and would subject them to the rental tax. The proposed regulation would also apply the rental tax to multipurpose cable boxes that function as digital video recorders or perform other functions in addition to accessing basic cable. Under the proposal, cable television boxes that are used solely to access basic cable are not subject to the rental tax. The Department has scheduled a public hearing to discuss the proposed regulation expanding the scope of Alabama’s rental tax for April 8, 2015. Prop. Ala. Admin. Code r. 810-6-5-.09 (2015).
Will New Roads Lead to Georgia Tax Reform?By Stephen Burroughs and Jonathan Feldman
Georgia’s Transportation Funding Bill may lead to significant tax reform for the state in 2016. In response to a nearly $1 billion transportation budget shortfall, on March 5 the Georgia House of Representatives passed H.B. 170, which would convert Georgia’s sales tax on motor fuel to a 29.2 cents-per-gallon excise tax. The Georgia Senate then passed a substitute version, setting the excise tax rate at 24 cents per gallon, eliminating the state’s tax credit for fuel-efficient vehicles and allowing Georgia localities to impose a 1% sales tax on motor fuel that costs less than $3.40 per gallon. The legislation is now in a conference committee that is trying to find a compromise between the two bills before the regular session ends this week. But perhaps overlooked in the Senate version of the Transportation Funding Bill is its creation of a “Special Joint Committee on Georgia Revenue Structure” (Committee). The Committee will be tasked with introducing “one or more bills or resolutions relating to tax reform” in the House of Representatives during the 2016 legislative session. If the Committee sounds familiar, that is because it last appeared in 2011 as a harbinger of sweeping tax reform in Georgia. While the Committee fell short of completely overhauling Georgia’s revenue structure, it did render significant changes to Georgia tax law: (1) it exempted energy used by manufacturers as part of the “integrated plant theory”; (2) established click-through and affiliate nexus provisions; (3) replaced the sales tax on motor vehicles with a one-time title and ad valorem tax; and (4) created the Georgia Tax Tribunal. A conference committee must reconcile the House and Senate versions of the Transportation Funding Bill by Thursday to avoid a Special Session. While the compromise bill will attempt to address Georgia’s transportation budget shortfall, it will also be important to monitor whether creation of the Special Joint Committee will be a bridge to nowhere or a road that leads to significant Georgia tax reform in 2016. H.B. 170, 2015-2016 Gen. Assemb., Reg. Sess. (Ga. 2015).
MARCH 2015 SUTHERLAND SALT SHAKER® PAGE 2
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Meet Alice and Indy, our March Pets of the Month. Both were submitted through our SALT Shaker App by Dee Waldruff, Manager of State and Local Taxes at Paychex, Inc.
Alice (Tears on My Pillow) is a thoroughbred who recently celebrated her twenty-eighth birthday. She has lived on the Waldruff property (affectionately referred to as “Walderosa”) for the last 16 years. This girl has done it all—and has the extensive resume to show for it! In her younger years, she was a racehorse, eventer, show hunter, trail horse, 4H horse and lesson horse. She still enjoys quiet trail rides and jumping smaller fences.
Indy is a retired racing Greyhound from Alabama and has been a wonderful addition to the Waldruff family, which includes Dee, her husband and daughter, three horses, another dog, three cats and a guinea pig. He was adopted through the multi-breed rescue group, SHUG (Sighthound Underground), which rescues, rehabilitates, transports and supports Sighthounds from around the world.
According to Dee, it took nearly a year for Indy to come out of his shell. He did not know how to play or snuggle. But thanks to his persistent Labrador “sister,” he now enjoys playtime and being loved on by his humans.
Indy’s schedule is a busy one! He is a registered therapy dog with Therapy Dogs International, and spends one day each week at a local elementary school listening to third graders read to him; he visits college campuses during exam week to help students relieve stress; and he also attends local meet and greets for area Greyhound adoptions.
These two sweeties are thrilled to be featured as the March Pets of the Month!
SALT PET(s) OF THE MONTHAlice and Indy
SALT Pet of the Month: It’s Your Turn!!In response to many requests, the Sutherland SALT practice invites you to submit your pet (or pets) as candidates for SALT Pet of the Month. Please send us a short description of why your pet is worthy of such an honor, along with a picture or two. Submissions should be directed to Stephanie Fulps at [email protected].
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The Indiana Department of Revenue determined that forced combination of an Indiana taxpayer, its wholly owned disregarded entity and its out-of-state parent company was appropriate where the disregarded entity generated 92% of the federal consolidated group’s sales but only 0.14% of the consolidated taxable income for the taxpayer. The taxpayer was a member of a federal consolidated group of companies in the business of manufacturing, distributing and selling consumer goods, and owned a single-member disregarded entity responsible for distributing the consolidated group’s products to third-party customers. At audit, the Department found that the disregarded entity accounted for 92% of the consolidated group’s sales but reported its “Cost of Sales” at nearly three times the “Cost of Sales” reported by the entire consolidated group because the parent company increased the costs of goods sold for intercompany sales to the disregarded entity by 80%. The Department also found the income of the taxpayer was a meager 0.14% of the consolidated taxable income despite the fact that the average taxable income of the consolidated group was generally in the billions. In response, the taxpayer produced a transfer pricing study to justify its reporting position. The Department, however, determined that “transfer pricing studies are not Indiana-approved vehicles for justifying tax expenses through controlled party profits,” and noted the “arms-length” prices in the study had not been revised in over 30 years. The Department did use the study to further justify its decision to force combined reporting, though: “the audit noted that the [transfer pricing] study demonstrated that the Parent Company exerted significant control over its affiliates, including Taxpayer and Risk-Free Distributor and concluded that the entities were unitary and should file on a combined basis.” Ind. Dep’t of State Revenue, Letter of Findings No. 02-20130641 (posted Feb. 25, 2015).
Not in Our State: Indiana Rejects Federal Transfer Pricing Study to Justify Intercompany
Pricing and Forced CombinationBy Jonathan Maddison and Timothy Gustafson
The Missouri Supreme Court held that charges paid by a personal training company to a gym for the rental of office space and limited use of the fitness equipment when conducting personal training sessions are not subject to sales tax. The personal training company paid the gym $6,000 per month to rent office space and market and sell personal training services to the gym’s members. The Missouri Department of Revenue assessed sales tax on the monthly charge, asserting it was a fee paid to a place of recreation taxable under Mo. Rev. Stat. § 144.020.1(2). Because there was no sale of tangible personal property, the Court explained the rental fees would be taxable only if they were for the rendering of a taxable service. In its analysis, the court looked to the plain and ordinary meaning of the phrase “rendering a taxable service” and reasoned that the phrase required an affirmative act, rather than mere passivity. By renting office space and otherwise remaining passive regarding the interactions between the personal training company and its members, the court determined the gym did not perform an affirmative act for the personal training company. Accordingly, the court held the monthly rental fees were not subject to sales tax. Tatson, LLC v. Dir. of Revenue, No. SC94260 (Mo. Feb. 24, 2015).
Missouri DOR Gets Trained: Gym Rental Fees Not Subject to Sales TaxBy Jessie Eisenmenger and Timothy Gustafson
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Recently Seen and Heard
March 11, 2015Sutherland State Tax Ladies’ LunchNew JerseyLeah Robinson will host
March 17, 2015ABA/IPT Advanced Income, Sales/Use & Property Tax Seminar New Orleans, LALeah Robinson on How to Build an Audit File on “Unitary-ness”
March 17, 2015Georgia State and Local Tax Seminar for Japanese Manufacturing CompaniesAtlanta, GAScott Wright and Jonathan Feldman on Understanding the Georgia Manufacturing ExemptionsMadison Barnett on Unlocking Savings: Georgia Economic Development Credits and Incentives
March 17, 2015Time Warner SALT SummitBurbank, CAJeff Friedman on the State of the States
March 22-25, 2015TEI Midyear Meeting Washington, DCJeff Friedman and Prentiss Willson on Addressing State and International Tax Overlaps
March 26, 2015COST SE Regional Meeting Charlotte, NCScott Wright, Todd Lard and Maria Todorova on Getting Ready for Market Sourcing – How Will It Work?
March 26, 2015State Tax Ladies’ Lunch Philadelphia, PALeah Robinson will host
March 30, 2015Cable Tax Policy Meeting Hilton Head Island, SCJeff Friedman and Todd Lard will present
The Ohio Board of Tax Appeals determined that two out-of-state online retailers with no physical presence in Ohio were subject to Ohio’s Commercial Activity Tax (CAT). The Board, declining to rule on the taxpayers’ constitutional arguments, found that the online retailers met Ohio’s statutory bright-line presence nexus test based solely on their volume of taxable sales to Ohio customers. The retailers sold tangible personal property to consumers across the United States, including in Ohio, through their Internet websites hosted on servers outside of Ohio. The retailers’ warehouses and distribution centers were also located outside of Ohio. Although the retailers had no physical presence in Ohio, they did have at least $500,000 in taxable sales to Ohio customers. The retailers argued that they were not subject to the CAT because the Commerce Clause
of the U.S. Constitution forbids Ohio from imposing the tax on non-residents with no physical presence in Ohio. The Board declined to review the retailers’ constitutional arguments on the basis that, as an administrative body, it did not have jurisdiction over such arguments. The Board held instead that Ohio statutes do not contain an in-state physical presence requirement. With the initial L.L. Bean constitutional challenge having been settled, these cases may present the vehicle through which the constitutionality of Ohio’s bright-line presence nexus test is finally determined by a court. Crutchfield, Inc., et al. v. Testa, Case Nos. 2012-926; 2012-3068; 2013-2021 (Ohio Bd. Tax App. Feb. 26, 2015); Newegg, Inc., et al. v. Testa, Case No. 2012-234 (Ohio Bd. Tax App. Feb. 26, 2015).
Constitutional Challenges to Ohio CAT’s Bright-Line Presence Nexus Test Advance
By Stephanie Do and Madison Barnett
MARCH 2015 SUTHERLAND SALT SHAKER® PAGE 5
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Come See Us
April 21, 2015TEI Chicago Chapter State Tax Workshop Chicago, ILMichele Borens and Charlie Kearns on Nexus for Sales Tax PurposesLeah Robinson on the Taxation of All Things Digital Michele Borens and Leah Robinson on Sales/Use Tax Opportunities – Value Propositions for the Tax DepartmentMichele Borens on Sales Tax Audit Trends: A Panel Discussion Todd Lard and Charlie Kearns on Developments/Making Sense of the Legislation
April 21-22, 2015TEI Dallas/Fort Worth Tax School Dallas, TXJeff Friedman on Transfer Pricing Developments and MTC Initiatives
April 21-24, 2015COST Spring Audit Session & Income Tax ConferenceMemphis, TNAndrew Appleby on a New York Update – The Devil’s in the Details
April 29, 2015Sutherland Tax Roundtable Silicon Valley Santa Clara, CASutherland SALT will present on Defining Intellectual Property: The Tax Implications, The Net Chapter in Transfer Pricing and on Tax Reform: State Movement. Federal Gridlock? International Uncertainty
May 1, 2015TEI Carolinas Raleigh, NCMarc Simonetti and Andrew Appleby on New York Tax Reform Marc Simonetti and Zack Atkins on SALT Litigation Updates
May 6, 2015TEI Houston Houston, TXCarley Roberts and Leah Robinson on What’s Cookin in State Income Taxation with a Dash of Ethics
May 7, 2015DC Bar SALT Committee Washington, DCJeff Friedman on the Intersection of SALT and International Tax
May 13, 2015TEI Denver Denver, COMarc Simonetti on All Things MTCMarc Simonetti, Jeff Friedman and Michele Borens on a State Tax Controversy and Legislative UpdateMarc Simonetti and Leah Robinson on The Next Chapter in Transfer PricingMichele Borens and Carley Roberts on Developments in SourcingCarley Roberts on a California and Western States Update
May 15, 2015TeleStrategies Communications Taxation Orlando, FLEric Tresh on A Look Ahead - Forecasting Trends in State Tax Litigation for Communications Companies
May 15, 2015TEI LALos Angeles, CACarley Roberts and Jeff Friedman on Nationwide State Tax Cases, Issues & Policy Matters to Watch and on Wagging the Dog or David and Goliath, Who is Who?Jonathan Feldman and Madison Barnett on Recent Trends in Economic Nexus Carley Roberts and Michele Borens on MTC and COP vs. Market Issues Jonathan Feldman and Andrew Appleby on The Next Chapter in Transfer Pricing Tim Gustafson and Madison Barnett on Credits and IncentivesAndrew Appleby on New York Tax Reform: The 2015 DecisionsMichele Borens and Jeff Friedman on Business in BitcoinsMichele Borens and Andrew Appleby on Class Dismissed! Consumer Class Action Refund Suits
May 19-21, 2015STARTUP Spring Conference Richmond, VAEric Tresh and Maria Todorova on Alternative Apportionment
May19-21, 2015TEI Audits & Appeals Seminar San Francisco, CASutherland SALT will present
May 21, 2015TEI Tulsa Chapter Meeting Tulsa, OKJeff Friedman and Prentiss Willson on Addressing State and International Tax Overlaps
June 2-3, 2015COST Regional Meeting New Jersey Leah Robinson will present
June 3-7, 2015TEI Region VII Conference Hilton Head Island, SCJeff Friedman and Eric Tresh on State Tax Controversy Updates
June 15-18, 2015TEI Region VIII Conference Santa Barbara, CAJeff Friedman and Michele Borens on SALT – New Technologies: How to Classify/Determine Nexus and Other Issues
SUTHERLAND SALT SHAKER® PAGE 6
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MARCH 2015
the sutherland salt team
Jeffrey A. [email protected]
W. Scott [email protected]
Michele [email protected]
Marc A. [email protected]
Jessica L. [email protected]
Jonathan A. Feldman [email protected]
Charles C. [email protected]
Eric S. [email protected]
Timothy A. [email protected]
Jonathan E. [email protected]
Madison J. [email protected]
Zachary T. [email protected]
Andrew D. [email protected]
Prentiss [email protected]
Douglas [email protected]
Carley A. [email protected]
Jessica A. Eisenmenger [email protected]
Todd A. Lard [email protected]
Maria M. [email protected]
Suzanne M. Palms 404.853.8074 [email protected]
Michael [email protected]
Nicole D. Boutros 212.389.5058 [email protected]
Ted W. [email protected]
Stephanie T. [email protected]
Charles C. [email protected]
Stephen A. [email protected]
Leah [email protected]
Open Weaver [email protected]
Evan M. [email protected]
Robert P. Merten [email protected]
Olga Jane [email protected]
