Tax Tips – April 2010

Nexus News

CA, IA, MD

This NEW monthly feature will provide updates on the status of nexus presumption bills being introduced in state legislatures across the country, as well as other nexus-related news, as states continue pushing to expand nexus provisions and snare new taxpayers.

California
A new nexus presumption bill (A.B. 2078) has been introduced in the California Assembly. This legislation provides that any retailer, who is part of a controlled group of corporations, is presumed to be a retailer engaged in business in California for sales & use tax purposes, if a component member of the controlled group is a retailer engaged in business in California. This presumption can be rebutted by evidence that the controlled member did not engage in certain activities on behalf o f the retailer in the past calendar year. This legislation also contains provisions requiring retailers that are not required to collect tax to (1) notify purchasers of their responsibility to remit use tax and (2) submit quarterly reports to the Board of Equalization indicating names and addresses of purchasers, as well as transaction data, as specified by the Board. The bill was referred to the Assembly Committee on Revenue and Taxation in early April.

Iowa
The nexus presumption bill (H.F. 2510) previously introduced in the legislature in February died upon adjournment of the Iowa General Assembly on March 30, 2010.

Maryland
The nexus presumption bill (S.B. 824) previously introduced in the legislature in February died upon adjournment of the Maryland General Assembly on April 12, 2010.

NY Tax Appeal Winners and Losers

NY

New York courts have had a rash of untimely appeals recently, most resulting in a predictable outcome – the taxpayer loses. Ever wonder what defense for an untimely filing is a sure-fire loser and what might be a winner?

The Sure-Fire Loser

Pursuant to § 170.3-a of the Tax Law, a conciliation order is binding unless a taxpayer files a petition with ninety (90) days from the date of the order with the Division of Tax Appeals. The petitioner in Park City Builders Of New York, Inc. filed a petition with the Division of Tax Appeals 137 days after the conciliation order was issued.

The defense: Failure to timely file a petition with the Division of Tax Appeals was the result of a misunderstood communication with the Conciliation Conferee prior to the issuance of the conciliation order, which led petitioner to believe that it would automatically have a hearing before the Division of Tax Appeals.

The result: The petition was dismissed.

The Winner (at least it was a winner in the following circumstances!)

There is a 90-day statutory time limit within which a taxpayer may challenge a statutory notice by filing either a request for a conciliation conference with the Bureau of Conciliation and Mediation Services ("BCMS") or a petition for a hearing with the Division of Tax Appeals (Tax Law § 170.3-a[e]; § 1138[a][1]). The petitioner in American Hospitality Group, LLC, timely received a notice issued on January 16, 2009, but did not mail its petition for a conciliation conference until April 23, 2009, more than 90 days later.

The defense: Even though petitioner’s representative did actually receive a copy of the notice within sufficient time to file a petition, there was no evidence establishing that a copy of the notice was provided to petitioner's representative. While the Tax Law does not specifically mandate the service of the notice on a taxpayer's representative, case law has clearly established that the 90-day period for filing a petition or a request for conference is tolled if the taxpayer's representative is not served with a copy of the statutory notice (Matter of Hyatt Equities, LLC, Tax Appeals Tribunal, May 22, 2008).

The result: The petition was allowed to proceed.

What’s your strategy?

Organizations are rarely immune from an isolated untimely appeal. It may be strategic to arrange for your representative to receive copies of notices so that, with two “sets of eyes” deadlines are less likely to be missed – and, if they are missed, there is at least a potential winning defense as illustrated above.

Multiple Points of Use” Doctrine Survives and Thrives

LOUISIANA

Update from February 2010 and October 2009 editions; click here to read archived articles.

Hard on the heels of Indiana’s affirmation of the MPU doctrine earlier this year, comes Louisiana’s take on the matter in Revenue Ruling No. 10- 001, dated March 23, 2010.

In its analysis, the Louisiana Department of Revenue recognized that since “The transmission and consumption of electronic or digital data today is increasingly mobile and accessible through computers and mobile phones, and portable devices of the future” . . . “The situs for taxation then becomes a quagmire of points incapable of being administered for taxation purposes.” By analogy, “The Louisiana legislature has resolved this problem for taxation of communication services by establishing the situs of taxation as the customer's place of primary use. The Department will apply the same principle to transactions of downloaded content. Additionally, licenses acquired for use of software are taxable where they are intended to be principally used.”

The Department of Revenue cited, as authority for its position, South Central Bell Telephone Company v. Sidney J. Barthelemy, et al., 94-0499 (La. 10/17/94), 643 So. 2d 1240. The South Central Bell Court had only been required to consider the taxability of software that was downloaded, stored or had “come to rest” on computers in Louisiana. Nevertheless, the Department found that the Court’s decision supports the view that “If the electronically delivered property is deemed tangible upon conversion from electrical impulse, then even if it is only viewed in Louisiana on a computer screen, it has taken tangible form, has been “felt” by the senses of sight or sound or both, and has been used or consumed and is subject to tax, even if it is never stored in tangible form.”

The statutory authority for the Department’s position is found in Louisiana Revised Statute 47:301(7) defining the term “lease or rental”, in pertinent part, as “the leasing or renting of tangible personal property and the possession or use thereof by the lessee or renter, for a consideration, without transfer of the title of such property”. Accordingly, “Software located on a providers' remotely accessed server and utilized by subscribers in Louisiana without transfer of the data (capabilities for storage and permanent use) characterizes the transaction as one of lease.”

Based on our discussions with representatives from Louisiana’s Office of Legal Affairs, Policy Services Division, the contra would also be true; i.e. to the extent that software purchased by a taxpayer resides on its server in Louisiana but is accessed its employees outside of Louisiana, it would not likely be subject to sales and use tax (depending on the taxpayer’s unique facts and circumstances). Once again, this could be an important consideration for taxpayers located in Louisiana or considering favorable locations for establishing a computer “hub” or shared services center.

NEW: State Amnesty Programs At-a-Glance, updated monthly.

¹ Streamlined Sales Tax amnesty program does not include
use tax due on purchases or any other taxes.

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