INSIDE SALT
INSIDE SALT
In-Depth Coverage of Issues Surrounding State and Local Tax
INSIDE SALT
In-Depth Coverage of Issues Surrounding State and Local Tax
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New York State FY 2018 Budget Bill: Sales Tax Highlights

by and | Jan 31, 2017 | , , , , ,

On January 16, Governor Cuomo introduced the 2018 New York State Executive Budget Legislation. The bill proposes a number of changes to the New York State sales tax law. Below is a summary of the highlights.

Sales and Use Tax

  • “Marketplace Providers”

The governor’s bill proposes to impose sales tax registration and collection requirements, traditionally imposed on vendors, on “marketplace providers.” This provision is essentially an effort to obtain sales tax on sales to New York customers that make purchases over the internet from companies that have no physical presence in New York and do not collect sales tax in New York when those companies make sales through online marketplaces. In the governor’s Memorandum of Support of this bill, he affirmatively states that “the bill does not expand the rules concerning sales tax nexus”. Although, as noted below, this claim may not be true.

The bill effectively shifts the sales tax collection burden from the traditional vendor to the marketplace provider. The bill defines marketplace provider as “a person who, pursuant to an agreement with a marketplace seller, facilitates sales of tangible personal property by such marketplace seller or sellers.”

A person “facilitates a sale of tangible personal property” if the person meets both of the following conditions:

(i) such person  provides the  forum  by which the sale takes place, including a shop, store, or booth, an  internet  website,  a catalog,  or  a similar  forum;  and

(ii) such person or an affiliate of such person collects the receipts paid by a customer  to  a marketplace  seller  for  a  sale  of  tangible  personal  property.

The bill caveats that “a person who facilitates sales exclusively by means of the internet is not a marketplace provider for a sales tax quarter when such person can show that it has facilitated less than one hundred million dollars of sales annually for every calendar year after [2015].”

Unlike the definition of the term “vendor” in the current Tax Law, the definition of “marketplace provider” does not contain a doing business or physical presence component. Accordingly, despite the governor’s assertion that the bill does not expand the rules concerning sales tax nexus, this provision may expand the sales tax nexus rules by potentially imposing a sales tax collection obligation on marketplace providers that do not have a physical presence in New York.

In an effort to minimize the number of entities with a collection requirement, the bill provides that if a marketplace seller obtains a certificate of collection from the marketplace provider, it is not required to collect sales tax as a vendor.  The bill caveats that if the marketplace provider and the marketplace seller are affiliated parties, and the marketplace provider fails to collect the tax, the marketplace seller will remain liable for the sales tax.  For such purposes, parties are affiliated if they have as little as five percent of common ownership.

The proposed legislation would not permit marketplace sellers that sell to customers in New York through a [...]

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Illinois Supreme Court Holds City of Chicago Went Too Far in Taxing Cars Rented Outside Its Borders

by | Jan 25, 2017 | , ,

The Illinois Supreme Court, in Hertz Corp v. City of Chicago, 2017 IL 119945 (Jan. 20, 2017) , held that the City of Chicago’s ruling requiring rental car companies located within three miles of the City to collect tax on vehicle rentals is unconstitutional under the home rule article of the Illinois Constitution. Hopefully, the court’s ruling will stymie the City’s expansive interpretation of its taxing powers.

The tax at issue is the City’s Personal Property Lease Transaction Tax (Lease Tax), which is imposed upon “(1) the lease or rental in the city of personal property or (2) the privilege of using in the city personal property that is leased or rented outside of the city.” Mun. Code of Chi. § 3-32-030(A). While the Lease Tax is imposed upon and must be paid by the lessee, the lessor is obligated to collect it at the time the lessee makes a lease payment and remit it to the City. Mun. Code of Chi. §§ 3-32-030(A), 3-32-070(A).

The subject of this litigation is the City’s application of the Tax in its Personal Property Lease Transaction Tax Second Amended Ruling No. 11 (eff. May 1, 2011) (Ruling 11). The plaintiffs argued that Ruling 11 extends the reach of the tax ordinance beyond Chicago’s borders in violation of the home rule provision of the Illinois Constitution and violates the federal due process and commerce clauses. The Ruling “concerns [short-term] vehicle rentals to Chicago residents, on or after July 1, 2011, from suburban locations within 3 miles of Chicago’s border … [excluding locations within O’Hare International Airport] by motor vehicle rental companies doing business in the City.” Ruling 11 § 1.  The Ruling explains that “‘doing business’ in the City includes, for example, having a location in the City or regularly renting vehicles that are used in the City, such that the company is subject to audit by the [City of Chicago Department of Finance] under state and federal law.” Ruling 11 § 3. As for taxability of leased property, the Ruling cites the primary use exemption, exempting from Tax “[t]he use in the city of personal property leased or rented outside the city if the property is primarily used (more than 50 percent) outside the city” and stating the taxpayer or tax collector has the burden of proving where the use occurs.  Ruling 11 § 2(c) (quoting Mun. Code of Chi. § 3-32-050(A)(1)).

Ruling 11 contains a rebuttable presumption that motor vehicles rented to customers who are Chicago residents from the suburban locations of rental companies that are otherwise doing business in Chicago are subject to the Lease Tax. The Ruling applies to companies with suburban addresses located within three miles of the City. The presumption may be rebutted by any writing disputing the conclusion that the vehicle is used more than 50 percent of the time in the City. The opposite is assumed for non-Chicago residents. Ruling 11 § 3. The Ruling provides that such a writing can be as simple as a customer’s [...]

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NCSL Task Force on SALT Meets in Anticipation of Active Legislative Sessions

by , and | Jan 17, 2017 | , , , , , , , ,

On Saturday, January 14, the National Conference of State Legislatures (NCSL) Task Force on State and Local Taxation (Task Force) met in Scottsdale, Arizona to discuss many of the key legislative issues that are likely to be considered by states in 2017. The Task Force consists of state legislators and staff from 33 states and serves as an open forum to discuss tax policy issues and trends with legislators and staff from other states, tax practitioners and industry representatives.

Below is a short summary of the key sessions and takeaways from the first Task Force meeting of 2017. PowerPoints from all sessions are available on the Task Force website.

Nexus Expansion Legislation Expected to Continue

With lawsuits pending in South Dakota and Alabama over actions taken by states in 2016, MultiState Associate’s Joe Crosby provided an overview of 2016 nexus expansion legislation (as well as legislation introduced thus far in 2017), with NCSL’s Max Behlke pointing out that he expects a lot of states to act on this trend this year.

In particular, it was pointed out that the US Supreme Court’s denial of cert in DMA v. Brohl (upholding the decision of the 10th Circuit) should give states confidence about their ability to constitutionally adopt similar notice and reporting laws. Last month, Alabama Revenue Commissioner Julie Magee publicly stated that Alabama plans to introduce notice and reporting legislation similar to Colorado, along with at least two other states.

Economic nexus laws directly challenging Quill, similar to South Dakota SB 106 passed last year, are also expected to be prevalent in 2017—with five states (Mississippi, Nebraska, New Mexico, Utah and Wyoming) already introducing bills or formal bill requests that include an economic nexus threshold for sales and use tax purposes. Notably, the Wyoming bill (HB 19) has already advanced through the House Revenue Committee and its first reading by the Committee of the Whole and is expected to receive a final vote in the House this week. The Nebraska bill (LB 44) takes a unique approach in that it would impose Colorado-style notice and reporting requirements on remote sellers that refuse to comply with the economic nexus standard.

Behlke pointed out that he doesn’t see Congress acting on the remote sales tax issue in early 2017 due to other priorities—including federal tax reform. With a final resolution of the kill-Quill efforts by the US Supreme Court most likely not possible until late 2017 (or later), state legislatures are likely to feel the need to take matters into their own hands. From an industry perspective, this presents a host of compliance concerns and requires companies currently not collecting based on Quill to closely monitor state legislation. This is especially true given the fact that many of the bills take effect immediately upon adoption.

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BREAKING NEWS: US Supreme Court Denies Cert in Direct Marketing Association v. Brohl

by , and | Dec 12, 2016 | , , , , , , , , ,

This morning, the US Supreme Court announced that it denied certiorari in Direct Marketing Association v. Brohl, which was on appeal from the US Court of Appeals for the Tenth Circuit. The denied petitions were filed this fall by both the Direct Marketing Association (DMA) and Colorado, with the Colorado cross-petition explicitly asking the Court to broadly reconsider Quill. In light of this, many viewed this case a potential vehicle to judicially overturn the Quill physical presence standard.

Practice Note:  Going forward, the Tenth Circuit decision upholding the constitutionality of Colorado’s notice and reporting law stands, and is binding in the Tenth Circuit (which includes Wyoming, Utah, New Mexico, Kansas and Oklahoma as well). While this development puts an end to this particular kill-Quill movement, there are a number of other challenges in the pipeline that continue to move forward.

In particular, the Ohio Supreme Court recently decided that the Ohio Commercial Activity Tax, a gross-receipts tax, is not subject to the Quill physical presence standard. A cert petition is expected in this case, and could provide another opportunity for the US Supreme Court to speak on the remote sales tax issue. In addition, litigation is pending in South Dakota and Alabama over economic nexus laws implemented earlier this year. A motion hearing took place before the US District Court for the District of South Dakota last week on whether the Wayfair case should be remanded back to state court. If so, the litigation would be subject to the expedited appeal procedures implemented by SB 106 (2016), and would be fast tracked for US Supreme Court review. Tennessee also recently adopted a regulation implementing an economic nexus standard for sales and use tax purposes that directly conflicts with Quill that is expected to be implemented (and challenged) in 2017. While Governor Bill Haslam has praised the effort, state legislators have been outspoken against the attempt to circumvent the legislature and impose a new tax. Notably, the Joint Committee on Government Operations still needs to approve the regulation for it to take effect, with the economic nexus regulation included in the rule packet scheduled for review by the committee this Thursday, December 15, 2016.

All this action comes at a time when states are gearing up to begin their 2017 legislative sessions, with many rumored to be preparing South Dakota-style economic nexus legislation for introduction. While DMA is dead as an option, the movement to overturn Quill continues and the next few months are expected to be extremely active in this area. Stay tuned to Inside SALT for the most up-to-date developments.



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Revised Uniform Unclaimed Property Act Finalized for State Enactment—Legislative Drafting Notes and Interpretative Comments Added

by , and | Nov 18, 2016 | , , , ,

The fourth iteration of a uniform unclaimed property act—entitled the Revised Uniform Unclaimed Property Act (RUUPA or Act)—has been finalized by the Uniform Law Commission for state enactment. The new Prefatory Note, Legislative Notes, and Comments components offer further explanatory guidance on the Act.

Read the full article.



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BREAKING NEWS: No Physical Presence Required for Ohio CAT Imposition

by , and | Nov 17, 2016 | , , , , ,

Today, the Ohio Supreme Court issued its much-anticipated slip opinions in the three companion cases challenging Ohio’s Commercial Activity Tax (CAT) economic nexus standard. See Crutchfield Corp. v. Testa, Slip Op. No. 2016-Ohio-7760; Newegg, Inc. v. Testa, Slip Op. No. 2016-Ohio-7762; and Mason Cos., Inc. v. Testa, Slip Op. No. 2016-Ohio-7768.

In ruling 5-2 in favor of the state, the Ohio Supreme Court first held that physical presence is not a necessary condition for imposing the CAT because the CAT’s $500,000 sales-receipts threshold is adequate quantitative standard that ensures that taxpayer’s nexus with Ohio is substantial under the dormant Commerce Clause. In reaching this conclusion, the court specifically stated that “[o]ur reading of the case law indicates that the physical-presence requirement recognized and preserved by the United States Supreme Court for purposes of use-tax collection does not extend to business-privilege taxes such as the CAT.” (emphasis in original) Note that the court held this was the case regardless of whether the business-privilege tax is measured by income or receipts. In rebuking the taxpayer’s argument that Tyler Pipe affirmatively required some physical presence in the taxing state, the court held that physical presence is a sufficient (but not necessary) condition for imposing a business-privilege tax. See our prior blog on the oral argument for a more detailed description of the Tyler Pipe argument.

Second, the Ohio high court viewed the burdens imposed by the CAT on interstate commerce as not clearly excessive in relation to Ohio’s legitimate interest in imposing the CAT evenhandedly on sales receipts of in-state and out-of-state sellers. Citing these two bases, the Ohio Supreme Court affirmed the Board of Tax Appeals’ (BTA) decisions affirming the CAT assessments against the three appellants. The dissenting opinion viewed Quill as the proper standard for the Ohio CAT, and would have remanded the cases to the BTA for a determination of whether the taxpayer had physical presence.

Practice Note:

These companion cases were viewed by many as a potential vehicle to seek review of the continued viability of the Quill physical presence requirement (as Justice Kennedy called for in his widely-cited DMA concurrence last year). However, the narrow scope of the Ohio Supreme Court’s decision makes it difficult for this case to become the vehicle for the US Supreme Court to review Quill’s continuing viability for sales and use tax nexus.



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SCOTUS Asked to Hear Appeal Involving Constitutionality of Retroactive Tax Legislation

by | Oct 18, 2016 | , , ,

The Supreme Court of the United States has been asked to hear an appeal in a case involving the circumstances in which retroactive tax legislation will be constitutional.

In Dot Foods, Inc. v. State of Washington Department of Revenue, 372 P.3d 747 (Wash. 2016), the Washington State Supreme Court upheld legislation retroactively removing a corporate income tax exemption.  Although the legislature, in justifying its action, said that the retroactive legislation was intended to reflect the legislature’s initial intent, the facts did not bear that out.  The exemption was consciously adopted by the legislature and, indeed, upheld by the Washington Supreme Court when the Department of Revenue attacked Dot Foods’ use of it in an earlier case.  (more…)



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New Delaware Unclaimed Property Decision Further Complicates Landscape

by , and | Sep 29, 2016 | , , , , , ,

Another federal judge slams Delaware’s unclaimed property audit methodology but rejects the holder’s reliance on the priority rules as a defense to the audit demands. See Marathon Petroleum Corp. et al. v. Cook et al., No. 1:16-cv-00080-LPS (D. Del., Sept. 23, 2016). The court recognized the unjustness of Delaware’s audit approach, but followed a previous case finding the priority rules can only be raised by states with competing claims. (more…)



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BREAKING NEWS: Discussion Draft of Online Sales Simplification Act of 2016 Released

by , and | Aug 25, 2016 | , , , , ,

Today, the Chairman of the House Judiciary Committee, Rep. Goodlatte from Virginia, released the long-anticipated discussion draft of the Online Sales Simplification Act of 2016. Highlights of the bill include:

  • The bill implements the Chairman’s much-discussed ‘hybrid-origin’ approach.
  • The bill removes the Quill physical presence requirements for sales tax collection obligations under certain circumstances.
  • States may impose sales tax on remote sales IF the state is the origin state and it participates in a statutory clearinghouse AND the tax uses the origin state base and the destination state rate for participating states (the origin state rate is used if the destination state does not participate in the clearinghouse).
  • A remote seller will only have to remit the tax to its origin state for all remote sales.
  • A destination state may only have one statewide rate for remote sales.
  • Only the origin state may audit a seller for remote sales.
  • States that do not participate in the clearinghouse have significant restrictions on the ability to extract the tax from the remote seller.

Below is a more in-depth discussion of the intricacies of the bill.

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Settlement Reached in Temple-Inland; Delaware Internally Reviewing Unclaimed Property Audit Practices

by , and | Aug 11, 2016 | , , , , ,

The court case challenging Delaware’s unclaimed property audit methodologies has settled following an opinion brutalizing Delaware’s position. This settlement leaves the US District Court for the District of Delaware (District Court) holding as precedent, but the issue of what methods Delaware must jettison remains open.

Last Friday, Temple-Inland and Delaware filed a joint motion to dismiss with prejudice in the District Court after the parties agreed to settle the dispute. While the settlement agreement was not publicly disclosed, we understand that Delaware agreed to withdraw its entire assessment (totaling $2,128,834.13) and pay Temple-Inland’s attorneys’ fees and costs, including expert witness reports. The settlement avoids an affirmation by the US Court of Appeals for the Third Circuit that Delaware’s audit practices and estimation techniques collectively “shock the conscience,” but remains a significant holder victory given that the Temple-Inland District Court opinion, which is detailed in our prior blog, can now be cited as binding (and finally resolved) precedent by similarly situated holders under audit by the State. (more…)



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