On January 16, a bill (H. 756) was introduced in the Vermont Assembly that would repeal the sales and use tax exemption for remotely accessed prewritten computer software. If enacted as introduced, the exemption would no longer protect Vermont taxpayers from this legally suspect tax beginning July 1, 2020.

This is not the first time the Vermont Legislature has considered the issue of taxing cloud software. After the Department of Taxes administratively issued guidance interpreting the sales tax to apply to all prewritten software (including cloud-based software) in 2010, legislative actions were taken to curtail this administrative overreach—including a 2012 temporary moratorium and the aforementioned 2015 exemption—to preclude the imposition of sales tax on the mere accessing of prewritten computer software.

Practice Note: With the introduction of H. 756, Vermont is at risk of reverting back to the dark ages of cloud tax uncertainty that existed throughout the first half of the past decade. As noted below, there are substantial policy and legal flaws with this proposal that counsel against repeal of the exemption. Vermont Legislative Counsel estimates that repealing the sales tax exemption for cloud software would generate six to seven million dollars of revenue in FY 2021—hardly enough to justify the additional administrative complexities and disputes that will arise on audit (and potential litigation arising therefrom). Specifically, even if the cloud tax exemption is repealed, substantial uncertainty remains under Vermont law as to whether there is sufficient authority to impose sales or use tax on cloud service providers. Disturbing the existing certainty created under current law will take Vermont from one of the most favorable jurisdictions to do business in United States to one of the worst from a cloud service provider point of view. In a world where relocation can be accomplished at the click of a button, Vermont would be putting itself at a disadvantage over its neighboring states and incentivize new and relocating businesses to avoid consumption in Vermont in favor of states with more favorable (and more certain) tax laws.
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On January 14, LB 989 was introduced in the Nebraska Legislature, which would impose sales and use tax on “the retail sale of digital advertisements.” The bill defines “digital advertisement” as “an advertising message delivered over the Internet that markets or promotes a particular good, service, or political candidate or message” (see pages 5-6 of

Taxpayers may have celebrated too soon when the New Jersey Division of Taxation announced that it was withdrawing TB-85 and the GDP-based apportionment regime for global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII) in favor of a more fair apportionment regime. Read our first post on T8-85 here.

Yesterday, the Division issued a new Technical Bulletin (TB-92) on the state’s treatment of GILTI and FDII that is quite troubling. The guidance provides that GILTI and FDII should be included in the general business income apportionment factor and sourced as “other business receipts” to New Jersey. The guidance then provides that “to compute the New Jersey allocation factor on Schedule J, the net amount of GILTI and the net FDII income amounts are included in the numerator (if applicable) and the denominator. This is to help prevent distortion to the allocation factor and arrive at a reasonable and equitable determination of New Jersey tax.” 
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Many New Jersey taxpayers have a reason to celebrate today as the Division of Taxation withdrew Technical Bulletin-85, providing for a special apportionment regime for global intangible low-taxed income (GILTI) and income used to compute the foreign-derived intangible income (FDII) deduction that many felt was unfair and potentially unconstitutional.

In December 2018, the New Jersey Division of Taxation issued Technical Bulletin-85 providing for a special apportionment regime for GILTI and income used to compute the FDII deduction. Under Technical Bulletin-85, GILTI and income used to compute the FDII deduction were apportioned to New Jersey separately from other business income based on the New Jersey Gross Domestic Product (GDP) relative to the GDP in all states where the taxpayer had nexus. This regime was unfair and likely unconstitutional as applied to many taxpayers because the apportionment formula was in no way related to where GILTI and income used to compute the FDII deduction were earned.
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Recently passed budget legislation in both Connecticut and Rhode Island included tax increases on sales of digital goods and services. The Connecticut bill has been signed into law. The Rhode Island bill passed late last night awaits executive action. Below are brief summaries of the impacts of these bills on the sales taxation of digital goods and services (assuming the Rhode Island governor signs the bill) beginning October 1, 2019.

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On June 24, 2019, Wisconsin Governor Tony Evers (D), signed into law AB 10, entitled “2019 Wisconsin Act 7.” This Act either bars a deduction for, or requires that amounts deducted be added back to, Wisconsin taxable income “for moving expenses” deducted on federal income tax returns if the expenses are associated with a move of a business either out of the state or out of the country. This requirement would not apply to expenses incurred by a taxpayer in moving a business to a different location within the state of Wisconsin. The provisions apply regardless of the form of ownership of a business, either as a sole proprietorship, a corporation, or a pass through entity such as a partnership, limited liability corporation or subchapter S corporation. 
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This has been an eventful and exciting week for those interested in the states’ taxation of global intangible low-taxed income (GILTI). On Monday, taxpayers received the good news that New York Governor Cuomo signed S. 6615—a bill that excludes 95% of GILTI from the New York State corporate income tax base. By passing this bill,

The Illinois General Assembly enacted a number of new tax measures in a flurry of activity at the end of its legislative session. Some of the changes are taxpayer friendly and others are not. Unlike the no-deal chaos of past years, all of the measures have been or are expected to be signed by the state’s new Democratic governor, J.B. Pritzker.

This blog post summarizes the income-tax and franchise tax-related changes approved by the General Assembly. Subsequent posts will address sales/use, property and other tax changes.
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Legislators in Frankfort added a new “video streaming service” tax to the omnibus tax bill (HB 354) as part of a closed-door conference committee process before the bill was hastily passed in the House and Senate. Notably, the new video streaming service tax was not previously raised or discussed as part of HB 354 (or any other Kentucky legislation) before it was included in the final conference committee report that passed the General Assembly in March.

Specifically, as passed by the General Assembly, HB 354 will add “video streaming services” to the definition of “multichannel video programming service” subject to the telecom excise tax.  This is the same tax imposition that the Department of Revenue argued applied to video streaming services in the Netflix litigation—an argument that was rejected by the courts in Kentucky and then subsequently settled on appeal. Under existing law, Kentucky taxes “digital property” under the sales and use tax. The term is broadly defined and applies to audio streaming services, but expressly carves out “digital audio-visual works” (i.e., downloaded movies, TV shows and video; defined consistently with the SSUTA) from the scope of the sales and use tax imposition. HB 354 would not modify the treatment of digital goods and services under the sales and use tax, and changes that would be implemented are limited to the telecom excise tax imposed on the retail purchase of a multichannel video programming service.
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