SALT Strategies

SALT Strategies

Updates & Commentary On State & Local Tax Law


Posted in Sales and Use Tax

Bob_Goodlatte_OfficialIs the new Congress planning to alter some of the unpopular provisions of the 2013 Marketplace Fairness Act? It sure seems like it.

On January 13th, House Judiciary Chairman, Representative Bob Goodlatte, circulated a draft of the  Online Sales Simplification Act of 2015.  As reported in a Bloomberg BNA article, Goodlatte Turns to Origin Sourcing In New Proposal on Online Sales Tax, the draft seeks to adopt “a hybrid version of so-called origin sourcing” and a participating states’ distribution agreement to address the States’ online retailer sales tax concerns.

According to the article, a Judiciary Committee aide told the publication that OSSA is meant to “serve as a starting point for discussion on the Internet sales tax issue” and that Goodlatte welcomes feedback and new ideas.   The timing and intent of OSSA is well worth noting – both appear to be signs that the 114th U.S. Congress’ Judiciary Committee will take a different road than the one set forth in the 2013 Marketplace Fairness Act.

As we noted in our previous posts, The Marketplace Fairness Act Hearings – Why They Should Be On Your Radar and The Marketplace Fairness Act Hearings Highlight Diverse Solutions. Is the MFA The Answer to The Wrong Question, the MFA provisions affecting remote sellers have been a significant concern for online retailers.  Many of the MFA provisions have been meet with widely divergent comments by sales tax experts, industry groups and lawmakers.

OSSA Key Concepts

Like the MFA, OSSA attempts to address the issue of States’ lost sales tax revenue arising from their residents purchasing taxable items from out of state online retailers who are not registered to collect sales tax in their state. (It should be noted, the aforementioned residents should self-assess use tax on such purchases and remit that use tax to their resident states.) However, OSSA demonstrates a comprehensive departure from the approach set forth in the MFA as evident by its key foundational components.

OSSA relies on the implementation of two key critical foundational components – Origin Based Sourcing and Participating States’ Adoption of a Distribution Agreement- to resolve the States’ loss sales and use tax revenue from residents purchases from out of state online sellers.

Origin Based Sourcing

Unlike the MFA, OSSA does not try to require remote sellers to charge or collect sales tax based on the destination of the sale or location of the remote seller’s customer.  Instead, OSSA applies an origin based sourcing paradigm.  As set forth in the following excerpts from OSSA Section 2

Sec. 2: Limitation on Collecting Tax on Remote Sales

(a) A state may tax a remote sale only if it is the Origin state of the sale and party to the Distribution Agreement (i.e., the clearinghouse that nets out the $).

(b) Tax is applied at the Origin Rate (including local rate).

(c) Privacy Protection – No personally identifiable information is reported to the clearinghouse. Just the amount of the sale, destination state and (zip code). Exception is made for sharing, in the course of an audit only, “compliant taxpayer certificates” established in sec. 4.

(d) Sellers may be audited only by their home state taxing authority

 Distribution Agreement

OSSA’s second foundation concept is the adoption by participating states of a “Distribution Agreement” (i.e. Clearinghouse). The BNA Bloomberg article concisely summarizes the core aspects of OSSA’s Distribution Agreement.  First, OSSA calls for

“a commission, to be appointed by participating states, to determine the states’ shares of online sales tax revenue. Each origin state would forward each destination state its proportional share, based on a distribution agreement reached by the commission.”

The commission would craft a distribution agreement within 90 days of the panel’s creation. Each month, states would determine how much of the total tax imposed on remote sales is due them, based on sales attributable to that state under origin sourcing.”

As the Distribution Agreement is the backbone of OSSA, it would appear that states would have to “participate” or join in to the Distribution Agreement if they wish to collect tax on remote sales.

The following is an excerpt of some of the key provisions from Section 3 of OSSA:

Sec. 3: Distribution Agreement (i.e., Clearinghouse)

(a) Each State Governor appoints 4 representatives to a commission. At least one must represent remote sellers, the other three represent interests of government, consumers and non-remote sellers in the state. Commission produces a distribution agreement with the following terms:

3) Each Origin State forwards each Destination State its proportional share (determined in (2)) of the sales tax that the Origin State collected during the period via the proven clearinghouse method used in the Fuel Tax context.

4) States that do not join the Distribution Agreement cannot tax remote sales or receive distributions from the clearinghouse.

(b) Commission has 90 days to produce the agreement. After that, states cannot collect tax on remote sales at all (e.g., via aggressive affiliate nexus laws) until an agreement becomes effective.

 OSSA – One Strong Start Addressing Online Sales Tax

According to the House chairman circulates online sales tax draft article contained in THE HILL, OSSA is receiving attention from numerous groups.  One view expressed in the THE HILL article is that “{T}he draft is unlikely to find much support among retail groups that have lobbied for the Marketplace Fairness Act.” 

My initial view is more in line with that of Mr. DelBianco of NetChoice, as quoted in the article:

“With elegant simplicity, this bill treats sales tax obligations the same, whether you entered a store by foot, by mail, by phone, or via the Internet,” … “In short, this bill represents a compromise that gives states the revenue they’re missing, without punishing every small business that goes online to reach customers around the country.” 

In my humble opinion, Representative Goodlatte should be applauded for quickly introducing OSSA in the 114th Congress.  He should also be applauded for drafting OSSA’s strategic provisions that address the states’ sales/use tax concerns arising from online sales without compromising the Constitutional protections established under Quill. 

Multistate Tax ‘Nexus in Texas’ Alert – Comptroller Decision Sounds Sales Tax Warning For Software Providers

Posted in Nexus, Sales and Use Tax

stormsAs someone who regularly tunes into the Weather Channel, I keenly appreciate how meteorologists recognize dangerous patterns and potentially significant storms through analysis of weather hundreds of miles and days away from a location.  This ability to predict weather emergencies allow us to prepare and “batten down the hatches” well in advance of the dangerous weather.  Well, a recent Texas Comptroller’s decision that upheld a Texas ALJ Determination should be recognized by Multistate Tax meteorologists and prognosticators as a potentially dangerous nexus storm for all software providers.

In summary, the Comptroller’s Decision held that a Utah corporation had substantial nexus for sales and use tax arising from its Texas customers’ electronic downloading of software over which the Petitioner retained  “all property rights”  and title.

Comptroller’s Decision Key Facts and Findings

The Comptroller’s Decision was determined on the specific facts and findings pertaining to the Petitioner’s activities in Texas.  Undoubtedly any potential software provider or multistate tax advisor with clients who may be affected by this decision should undertake a comprehensive review of the decision’s specific findings and analysis.

However, I thought it would be helpful to set forth, in excerpt format, some of the key facts and findings contained in the Comptroller’s Decision as set forth in the decision’s “III. FINDINGS OF FACT” and “IV. CONCLUSION OF LAW”

  • Petitioner’s software and computer programs were deemed tangible personal property pursuant to Texas Tax Code Section 151.009.
  • Petitioner sold computer programs and digital content primarily over the Internet and via such common carriers as the U.S. Postal Service (USPS), the United Parcel Service (UPS), and Federal Express during the period under review.
  • Petitioner does not charge any ongoing maintenance or recurring licensing fees for any of its computer programs or digital images.
  • Petitioner does not charge customers for updates to computer programs they have already purchased, but does charge customers for upgrades from an older version of a program to a newer version.
  • The purchase and use of Petitioner’s products is governed by license agreements.
  • All the license agreements granted the customer (or user) a license that entitled them to use Petitioner’s products.
  • The user was either granted a personal non-exclusive, non-transferable license to use the 3-D Models, together with all accompanying written materials, images, and other data files or a license to use the product in accordance with the terms of the license.
  • The license agreements set no fixed period for the customer’s use of the license.
  • In some versions, the license agreements expressly provide that the license remains in effect only for so long as the user is in compliance with the terms and conditions of this agreement.
  • The products licensed under these License Agreements are provided for the user’s exclusive use.
  • The license agreements contain provisions specifically restricting the useof the products by third parties other than the user.

The Comptroller’s Decision also reviewed Petitioner’s other limited activities in Texas.  The Comptroller’s Decision did not find that Petitioner had established sufficient physical presence by its employees’ attendance of a week long education conference in 2002.

Nor did the Comptroller’s Decision find that a Petitioner employee’s attendance at a 2009 Texas conference provided sufficient physical presence in Texas to establish sales and use tax nexus.  It should be noted that the Petitioner was successful in establishing that its employee in 2009 “did not engage in any activities related to developing or promoting Petitioner’s sales. He did not sell, deliver or take orders for Petitioner’s products during his attendance at the conference. He did not visit any of Petitioner’s customers or vendors, offer technical support, or hold any outside meetings related to Petitioner’s business.”

 “Prepare for the Worst” Is Best Advice for Storms and Nexus

The Comptroller’s Decision should sound Texas Nexus Storm warnings to all software firms that are not presently registered  as a vendor for sales and use nor filing Texas sales and use tax returns.   This Decision sets forth the Comptroller’s view of what constitutes substantial nexus for sales and use tax in the context of companies that license the use of their software to customers located in Texas or to customers that may use their software in Texas.  My advice?  Prepare for a “blizzard” and be happy if you only receive  a “dusting” with respect to nexus.  But be mindful,  because for nexus in Texas a “dusting” may just be enough.



Polar Vortexes and November Blizzards – Time to Winterize Your Multistate Tax Machine

Posted in Nexus, Property and Other State/Local Tax Issues

snowblowerIt is not even Thanksgiving, but already as the news reported yesterday, US braces for more icy temperatures and snow as ferocious storm lingers.  Many years ago I adopted an approach for dealing with Northeast winters.  My approach centered around assessment, preparation and planning.  I called it “winterizing.” 

My son Andrew says I am the only person he knows who actually enjoys winter and gets excited by snow forecasts. He’s right – later on I’ll tell you why.  Anyway, I thought my approach for getting ready for Northeast winters might be useful in getting ready for the 2015 state tax year  - a tax year that  has the potential to be full of surprises and challenges. 

So with that in mind – time to “winterize” our State Tax Machine.  As part of the “winterization” of our Multistate Tax Machine,  over the next several posts, SALTStrategies will discuss topics, some tried and true, some relatively new, that should be reviewed as part of your preparation and planning for your 2015 State Tax Season. 

Nexus Check– The First Assessment Step of the Multistate Tax Winterization

Have Your Facts Changed During 2014?

As the 2014 tax year closes, this time of year provides an excellent opportunity to assess your state tax nexus status quo.  I thought I would provide a brief list of questions to help in your evaluation of your 2014 state tax nexus.  These questions were developed to help you evaluate and decide if you should rely on “Same As Last Year” facts and assumptions.  The following list of events may require further state and local tax assessment if they occurred during 2014:

  • Did you start a new business line or form a new entity?
  • Did you generate revenue from the rendering of services for the first time during the current year?
  • Did you add locations in new states?
  • Did your logistical operations or terms of sale change?
  • Did your customers or clients expand into new states that your company did not have nexus in in 2013?
  • Did your company start placing inventory on consignment at customer locations or at new customer locations?
  • For entities that operate as flow through entities (Limited Liability Companies, Partnerships, Limited Partnership, Limited Liability Partnerships and S Corporations), did the composition of any of your members, partners or shareholders change or  have a change in their resident state?
  • Did you start or settle a state tax examination?

If you answered, “yes” to any of these questions, you may not be able to rely on “SALY” and should get to work performing additional comprehensive state tax nexus analysis.


2014 Significant State Tax Nexus Developments

During 2014, state tax nexus continues at the forefront of numerous state tax issues facing both State taxing authorities and multistate taxpayers.  The following is a list of some of the significant state tax nexus matters that arose during 2014:


Adopts Amended Affiliate (“Click-Through”) Nexus Legislation

In late August, Illinois Governor Quinn signed S.B. 352.  This legislation amended the state’s use tax provisions that pertained to out of state sellers that engaged Illinois commission affiliates.  The law was drafted to address the 2013 Illinois Supreme Court decision in Performance Marketing Ass’n v. Hamer, 2013 IL 114496.   That decision deemed that Illinois’ Click-Through nexus provisions, as effective July 1, 2011, “were preempted by federal law” as the Illinois provisions were in conflict with federal Internet Tax Freedom Act that prohibits “discriminatory taxes on electronic commerce.”  This new legislation modifies and broadens the definition of a “retailer maintaining a place of business in the State” in response to the Illinois Supreme Court’s decision in Performance Marketing.  It is my understanding that S.B. 352 is effective January 1, 2015.


New Jersey

Adopts Legislation That Enacts “Click-Through” Nexus for Sales Tax.

In June, New Jersey enacted A.B. 3486 , legislation that contains, in addition to other tax provisions, New Jersey’s adoption of “Click-Through” nexus provisions for sales tax.  This legislation is effective for sales transactions that occur on or after July 1, 2014.



US Supreme Court Grants Petition for Writ of Certiorari In Direct Marketing Ass’n v. Brohl 

 In July, the US Supreme Court granted petitions for writ of certiorari in two sales and use tax decisions, one of which, Direct Marketing Ass’n v. Brohl, 10th Circuit Court of Appeals, No. 12-175 (08/20/13), deals with Colorado’s use tax reporting provision that may have broad ramifications, especially for non-Colorado remote sellers.

Colorado Enacts House Bill 1269 That Expands the Definition of “Doing Business” In State

In June, Colorado enacted the “Marketplace Fairness and Small Business Protection Act”  that expanded the definition of doing business in Colorado for sales and use tax purposes.  The Act amended the definition of “doing business” that effectively includes remote sellers through a adoption of a definition that a person has “presumptive physical presence” and doing business in the state if the person is (a) part of a group of corporations, and that controlled group has a component member that has physical presence in the state performing certain activities; or (b) the person enters into an arrangement with an in-state party that engages in certain activities for the out of state person.  As the details of The Act are beyond the scope of this post, you may wish to review The Act’s provisions especially those that address how to rebut The Act’s presumption. The Act is effective July 1, 2014.


New York Enacts Its FY 2014-15 executive budget Adopting Economic Nexus

When Governor Cuomo signed New York State’s FY 2014-15 executive budget into law in March, he ushered in sweeping changes to New York’s tax provisions – including the adoption of an economic nexus standard.  Although the budget does not specifically identify its provision as an economic nexus standard, a review of the provision immediately reveals New York has adopted an economic nexus standard.  Please see our earlier post New York State Tax “Climate Change” – Higher Taxes Forecast for Multistate Taxpayers  for a more detailed discussion of New York’s economic nexus provision.

 ”The time to repair the roof is when the sun is shining.” – John F. Kennedy

As President Kennedy implied in his 1962 Annual Message to Congress on the State of the Union, the time to take care of something is before it has become a problem.  Hopefully, this initial post will shed some light on “Winterizing Your Multistate Tax Machine” from a nexus perspective for 2015. 

Now why do I enjoy winter? I guess I see winter as a constant challenge that ever since my childhood  I enjoyed trying to meet. The more challenging and cold the weather, the more adventurous my friends and I became– whether it was having never ending snow ball fights, playing midnight “touch” football in the school yard or learning how to drive powerful rear-wheel drive cars in the snow – we loved the challenge!  As General George S. Patton  once said “Accept the challenges so that you can feel the exhilaration of victory.”   Here’s hoping to victory over our Winter Challenges.


State Tax Oktoberfest 2014 – Timing is Everything For State Tax Amnesty Programs

Posted in Corporate Income Tax

oktoberfestFor many reasons, October is one of my favorite months.  It marks the last of the year’s tax “busy season.” Fall Foliage throughout the region is coming into full color and there are excellent Oktoberfest feasts to enjoy.

As I reviewed my projects for the post October 15th season, however, I became increasingly aware that this month is an ideal time to focus on opportunities that may require my immediate or additional state tax attention. Most importantly, there are several states that have pending amnesty programs – some of which may close as early as October 31st. 

October 2014 State Tax Amnesty Programs

State tax amnesty programs can provide excellent opportunities to lessen state tax exposures.  Generally a state tax amnesty program will contain provisions that partially or fully abate penalties arising from the additional tax due or failure to timely file the tax return in question.  State tax amnesty programs may also offer a reduced interest rate on the tax being remitted pursuant to the state’s amnesty’s program.  The following is a summary of the State Tax Amnesty Programs (“STAPs”) that are available right now.  The following Summary STAPs was derived from the COST state amnesty program update published in late September.

Note that Louisiana’s Tax Delinquency Amnesty Program was the product of legislation that mandated that the state have an amnesty program to be held for at least two months in 2013, at least one month in the second half of 2014 and at least one month in during the second half of 2015.  Depending on which amnesty program a taxpayer pursued, an eligible taxpayer was entitled to varying abatement of interest and penalties – with the most beneficial abatement of interest and penalties being available to eligible taxpayers who applied to the 2013 amnesty program. A careful review of the Louisiana STAP 2014 and 2015 interest and penalty abatement provisions is definitely warranted.

 State Tax Amnesty Programs – Trick or Treat

Each of these programs may offer significant savings to you or your clients.  However, note that STAPs will generally impose specific limitations on eligibility to enter into the program.  In addition, you need to perform a careful analysis of the types of taxes that are eligible as well as the tax years or periods to be covered by the STAP before applying for any STAP. 

A number of states have formal or informal Voluntary Disclosure Agreement {VDA”} programs that may offer limited look back periods for eligible taxpayers.  VDAs may be excellent vehicles to lessen potential state tax exposures – especially those arising from potential nexus issues.   Analysis of the state tax compliance enhancements potentially afforded by VDA’s should be a best practice for any taxpayer who has state tax exposure concerns.

 Oktoberfest 2014 – Planning and Moderation Key to Enjoyment

 I have always admired the qualities associated with the Teutonic culture – its focus on planning, hard work and precision.  I especially identify with the Teutonic culture’s enthusiasm for celebration as the fruit of one’s hard work that is most clearly evidenced by Oktoberfest.  Hopefully after this long 2014 tax busy season and a careful review of the potential benefits that one or more of the above state tax amnesties may yield, each of us may enjoy a well deserved Oktoberfest celebration.

In Search of a New Jersey Gross Income Tax Treasure – Don’t Forget the Alternative Business Calculation Adjustment

Posted in Personal Income Tax

GreetingsfromNewJerseySearching for opportunities to reduce our clients’ New Jersey Gross Income Tax costs in the midst of the closing days of our 2014 tax busy season, we revisited one of New Jersey’s relatively recent legislative changes – the Alternative Business Calculation Adjustment.

The inability to offset income and losses occurring in different business categories in determining one’s New Jersey Gross Income Tax has always been an issue for individuals, trusts and estates. In 2011, the state passed legislation that lessened its impact. As a result, taxpayers may rely on the ABCA to partially offset gains from one category of gross income with losses from another category of gross income.

The ABCA and Why It May Be Worth Your Consideration

For tax years beginning on or after January 1, 2012, New Jersey Gross Income Tax taxpayers who have losses in certain business-related categories of income are permitted to take into consideration those losses to calculate an adjustment to their taxable income (“ABCA”). Taxpayers may also carry forward unused losses in those categories for a period of 20 years to calculate future adjustments. This change applies to residents, nonresidents, and estates and trusts.

The benefit of the ABCA is phased in commencing in 2012 as follows:

          2012                     10%

          2013                     20%

          2014                     30%

          2015                     40%

          2016 & after         50%

Prior to the adoption of the ABCA, New Jersey GIT tax provisions only permitted the offset of gains and loss if they were incurred in the same business category.  If a New Jersey taxpayer incurred net losses in one or more of the four income categories, those losses were not permitted to offset gross income from one or more of the other gross income categories.

The ABCA permits GIT taxpayers who have losses in one or more of the following categories to include those losses in the calculation of their ABCA to reduce their taxable income:

  • Net profits from business
  • Net gains or net income from rents, royalties, patents and copyrights
  • Distributive share of partnership income 
  • Net pro rata share of S corporation income.

 The ABCA may benefit both New Jersey resident and non-resident taxpayers.

 Don’t Rely on Tax Compliance Software To Automatically Calc the ABCA

Our experience with tax compliance software indicates that it may not automatically prepare the ABCA.  In addition, the software may not identify that the taxpayer may be eligible to use the ABCA in calculating its New Jersey GIT. 

Remember to Complete NJ-BUS-2

Taxpayers with income or losses from one or more of the four income categories are required to complete Schedule NJ-BUS-1, NEW JERSEY GROSS INCOME TAX , BUSINESS INCOME SUMMARY SCHEDULE.  In addition,  taxpayers with income and losses from one or more of the four income categories are required to complete Schedule  NJ-BUS-2,  NEW JERSEY GROSS INCOME TAX, ALTERNATIVE BUSINESS CALCULATION ADJUSTMENT. 

Revisit Your 2012 New Jersey 1040 and 1040 R

Since the ABCA was enacted effective for 2012 tax years, if you or your client incurred losses in one or more of the four business categories and a NJ-BUS-2 was not included in your 2012 New Jersey filing, you may wish to revisit this issue to determine if you have a potential opportunity for a refund as well as to determine if you have ABCA loss carry forward from 2012.

The ABCA One of New Jersey’s Somewhat Hidden Tax Treasures

As with so many states, New Jersey is a state full of “Hidden Treasures” ripe for our exploration.  The ABCA may be one of New Jersey’s not so hidden tax treasures for you and/or your clients.  For additional information check out New Jerseys official release on the Alternative Business Calculation  Adjustment.  Happy hunting!!

From Zero to 100 on the Pennsylvania BAP Highway

Posted in Sales and Use Tax

pennsylvaniaIn the midst of our busy season, we have come across a recurring issue with Pennsylvania RCT-101 Corporate Tax Reports which could lead to a tax due notice for companies with zero apportionment in the state.

 In several instances where a return has been filed that has zero business apportionment, Pennsylvania has adjusted the apportionment to indicate 100% Pennsylvania business apportionment.  This has occurred if such returns haves been prepared with:

  1.  Zeros for both the numerators and denominators on Form RCT-101 Page 4 of 6  Section D Schedule A-1; or
  2.  Zeros for both the numerators and denominators on Form RCT-101 Page 4 of 6  Section D Schedule C-1; or
  3.  Zeros for both the numerator and denominators on Form RCT-106, Page 2, Table 1, Table 2 or Table 3.

Affected taxpayers, i.e. those who have zero Pennsylvania apportionment with any of the above,  have received notices from The Department  for additional tax based on the Department’s unilateral adjustment to the Pennsylvania business apportionment that increases the affected return’s Pennsylvania business apportionment to 100%.

In our discussions with the Department, we were unofficially informed that this adjustment from zero Pennsylvania business apportionment to 100% Pennsylvania business apportionment is being triggered as the result of the aforementioned Forms indicating zeros in the factors’ denominators, “Total” or “ Inside  and Outside PA” input areas.

It appears  that every PA RCT-101 that indicates a zero business apportionment percentage should be reviewed to ensure that the denominators,  “Total” and “ Inside  and Outside PA”  input areas indicate an appropriate positive amount  with respect to that entity AND NOT SIMPLY “0”.

Failure to represent the zero business apportionment as indicated above may result in the Department issuing a tax due notice based on 100% Pennsylvania business apportionment.

In our discussions with the Department, we were informally told that to rectify a notice for additional tax based on the above fact pattern the taxpayer may be required to  file with the Department a BOARD OF APPEALS PETITION FORM, REV-65 BA within the requisite time set forth in the Department notice for additional tax setting forth why the Department’s assessment is incorrect. 

This form may also be submitted electronically to the Department.  In order to submit this Form on line, please see the Department’s Board of Appeals Online Petition Center webpage.  This online process is very effective in that the State sends a confirmation with the appropriate time stamp within one day of submission. 

Slow And Steady Wins The Compliance Race

As an avid auto racing fan, I often hear winning race car drivers during their victory interviews say that they found that “slow and steady wins the race” and that slowing down at certain points on the race track actually resulted in their fastest laps.  Their advice may be applicable and valuable in preparing Pennsylvania corporate returns with zero business apportionment – slow down and complete your apportionment input to avoid potentially costly notices and petitions for appeal. 

Must Reads For Your Summer Leisure – New York Hits The Shore With A Wave of Sales Tax Bulletins and Advisories

Posted in Sales and Use Tax

beachEach year the joy of Summer seems to more quickly pass into the demands of the Fall.  Perhaps your summer, like mine, is a coveted time to catch up on non-technical reading.  However, last week the New York State Department of Taxation and Finance issued approximately 15 Sales Tax Technical Bulletins and several Technical Advisory Opinions that may warrant interrupting your summer easy reading and that should be on your Summer Multistate Tax Reading List as well.  To assist in your reading pleasure and efficiency, this post provides links to New York’s early August blast of sales tax technical releases .  The technical guidance addressed in these tech bulletins and advisory opinions may affect multistate taxpayers in numerous industries and warrants your attention. 

Tax Bulletins/Sales Tax

The Department issued the following Sales Tax Bulletins that provide insights, guidance and links to additional Department materials for the areas discussed:

TB-ST-107, Cartons, Containers, and Packaging Materials

TB-ST-113, Certificate of Capital Improvement - Exemption Form ST 124

TB-ST-126, College Textbooks - Exemption Form ST-121.4

TB-ST-128, Computer Software

TB-ST-190, Drop Shipments

TB-ST-193, Drugstores and Pharmacies

TB-ST-243, Exemptions for Computer System Hardware (Form ST 121.3)

TB-ST-253, Farmers and Commercial Horse Boarding Operators - Exemption Form ST-125

TB-ST- 315, Government Employee Occupancy of Hotel Rooms - Exemption Form ST-129

TB-ST-535, Live Dramatic and Musical Arts Performance – Exemption Form ST-121.9

TB-ST-665, Operators of Internet Data Centers (Web Hosting) - Exemption Form ST-121.5

TB-ST-692, Promotional Materials - Exemption Form ST-121.2

TB-ST-757, Racehorses - Exemption Form ST-126

TB-ST-890, Tractors, Trailers, Semitrailers, or Omnibuses - Exemption Form ST-121.1

Sales Tax Advisory Opinions

In addition, the Department issued several Sales Tax Advisory Opinions, TSB-A’s, in its early August release.  Of particular interest is TSB-A-14(23)S, in which the petitioner requested guidance as to  whether the transfer of tangible personal property to a New York limited liability company (LLC) in consideration for a pro rata share of interest in the LLC is subject to New York sales and use tax.  The Department in this TSB concluded that the transfer of tangible personal property to the LLC is not subject to sales and use tax.  As each TSB-A is highly fact sensitive, you may wish to review the petitioner’s specific facts in your evaluation of this TSB-A’s potential guidance value.

In addition, the Department issued the following Sales Tax TSB-A’s.  For convenience, we have included the Department’s description of each TSB-A as set forth in its August 11th announcement:

TSB-A-14(22)S, Whether sales tax is imposed on Petitioner’s receipts for the service of acting as facilitator in the acquisition from the Federal Bureau of Investigation of criminal history information about applicants for employment with a client of Petitioner.

TSB-A-14(24)S, Whether fines charged for violating parking rules and regulations are subject to sales tax in New York State.

TSB-A-14(25)S, Whether wasabi and soy seasoned almonds are subject to New York State and local sales and use taxes.

August In New York – Why We Love NY

Hopefully New York’s early August wave of sales tax technical guidance and advisory opinions will not significantly interrupt your summer fun and leisure.  Perhaps like many aspects of New York, they will just help make our summer a bit more interesting.  However, just as waves may be more intricate and powerful than first perceived, the Department’s wave of sales tax technical advice warrants careful review even during this season of leisure. 

As the ads for New York tourism  call out to us and  the NYS Fair this month in Syracuse  serves as just one example of why New York remains so attractive  to many I am  reminded of  why I LOVE NY-  it is never boring.

2014 Multistate Tax Road Trip – New Jersey Budget May Create Tax Traffic Headaches for Multistate Taxpayers

Posted in Corporate Income Tax, Nexus

trafficNew Jersey’s Fiscal 2015 Budget, signed by Governor Chris Christie on June 30, 2014, includes Assembly Bill 3486 which contains tax provisions that may increase multistate taxpayers’ New Jersey income taxes.  In addition, the bill includes “click-through” nexus provisions that may impose New Jersey sales tax nexus upon non-New Jersey entities.  This post will summarize some of the more significant portions of the bill that may result in New Jersey tax traffic headaches for multistate taxpayers.

Income Tax Concerns

A.B.3486 contains several provisions that may increase your New Jersey income taxes.

Operational versus Nonoperational Income:  Typically referred to as “business” versus “non-business” income in other states, the bill broadens New Jersey’s definition of “operational.”  Specifically, it defines “operational” income as “income from tangible and intangible property if the acquisition, management, or disposition of the property constitute an integral part of the taxpayer’s regular trade or business operations and includes investment income serving an operational function.”  Thus if any of the three factors are met, the income is deemed to be “operational” income.  Prior to the bill’s adoption, the definition of “operational” income required that all three factors had to be satisfied.  This provision is applicable to all tax years ending on or after July 1, 2014.

Net Operating Loss Adjustment for Debt Cancellation: The bill also provides for an “adjustment”, i.e. reduction, in a corporation’s New Jersey NOL, corresponding to the amount of income excluded from federal taxable income pursuant to the application of IRC Sections 108(a)(1)(A), (B), or (C).  This provision is applicable to all tax years ending on or after July 1, 2014 inclusive of any affected NOL carryover to such period.

Partnerships And New Jersey Non-Resident Partners:   As a result of A.B. 3486, nonresident partners must file a New Jersey tax return that reports income subject to tax in New Jersey in order to be eligible to apply the tax paid by the partnership which is credited to the nonresident partner’s partnership account against its tax liability.  In addition, A.B. 3486 indicates that a partnership cannot “claim a refund of payments credited to any of its nonresident partners.”  This provision is applicable to all tax years ending on or after July 1, 2014.

Each of these provisions may pose complex issues to multistate taxpayers that warrant further analysis.

Sales Tax Concerns: “Click-Through” Nexus Alert

The bill also expands New Jersey’s sales tax nexus by adopting a “click-through” nexus provision.  Pursuant to New Jersey’s new sales tax nexus provision a  “person making sales of tangible personal property, specified digital products, or services taxable under the “Sales and Use Tax Act,” P.L.1966, c. 30 (C.54:32B-1 et seq.) shall be presumed to be soliciting business through an independent contractor or other representative” if:

  • The person making sales enters into an agreement with an independent contractor having physical presence in this State or other representative having physical presence in this State;
  • The agreement calls for a commission or other consideration, under which the independent contractor or representative directly or indirectly refers potential customers, whether by a link on an Internet website or otherwise, and;
  • The cumulative gross receipts from sales to customers in this State who were referred by all independent contractors or representatives that have this type of an agreement with the person making sales are in excess of $10,000 during the preceding four quarterly periods ending on the last day of March, June, September, and December.

The presumption set forth by this provision “may be rebutted by proof that the independent contractor or rep with whom the person making sales has an agreement did not engage in any solicitation in the State on behalf of the person that would satisfy the nexus requirements of the United States Constitution during the four quarterly periods in question. Nothing in this subparagraph shall be construed to narrow the scope of the terms independent contractor or other representative for purposes of any other provision of the ‘Sales and Use Tax Act,’ P.L.1966, c. 30 (C.54:32B-1 et seq.).”

New Jersey’s “click-through” nexus provision applies to sales, transactions involving taxable services rendered and uses occurring on or after July 1, 2014.

 Takeaway Tax Traffic Alert – Be Prepared To Stop

I hope our summary of the significant tax provisions of A.B. 3486 provides a “tax traffic” alert of the potential New Jersey income and sales tax concerns that may affect multistate taxpayers.  As I always slow down and heed the messages on those highly effective electronic signs that now guide travelers along the New Jersey Turnpike, multistate taxpayers and their tax advisors would be well advised to be “prepared to stop” and fully review A.B. 3486  provisions for potential ramifications to their New Jersey income tax and sales tax nexus.


2014 Multistate Tax Road Trip – Detour – New York Issues Nonresident Audit Guidelines with Comments on Gaied Decision

Posted in Personal Income Tax, Property and Other State/Local Tax Issues

As I was finalizing some research addressing a New York nonresident issue, I was pleasantly surprised to discover that the State of New York Department of Taxation and Finance just issued its 2014 Nonresident Audit Guidelines. It appears that these revised guidelines incorporate the State’s view of the ramifications arising from the  recent New York State Court of Appeals  decision, In the Matter of John Gaied, Appellant, v New York State Tax Appeals Tribunal et al., Respondents .

In the Gaied court decision, the New York Court of Appeals significantly limited what is considered a permanent place of abode with respect to a statutory residence for New York State personal income tax purposes.  The 2014 Guidelines on page 54 presents the NYS Department of Taxation and Finance’s initial formal guidance on how the department views the ramifications of the Gaied decision.

The Audit Guidelines, as well as a review of the Gaied decision, provide valuable insights for tax advisors who may have clients that are presently under  residency exams by New York State, as well as those seeking to provide guidance to clients that may meet the criteria of a statutory resident.


2014 Multistate Tax Road Trip – Setting Out On The Dynamic Highway Known As State Tax Nexus – Some Basics For the Nexus Entrance Ramp Discussion

Posted in Corporate Income Tax, Nexus


As we launch our 2014 Multistate Tax Road Trip, we will stop periodically at areas that despite their familiarity still warrant our time and attention.  Today, we will visit with the concept of nexus.  Even in 2014, state tax nexus continues to be a lightning rod for discussion, controversy and concern.  Let’s begin our journey with a brief pit stop at corporate income tax nexus.

State Tax Nexus

Before a state can subject an entity that has derived income from interstate commerce to one or more of its taxes, the state must establish that the company has “nexus.”  In general, state tax “nexus” is the minimum level of contact or activity within a state necessary for a state, city or locality to constitutionally subject an entity to that state, city or locality’s tax provisions and potentially taxation.

In theory, each state may independently adopt state tax “nexus” or “doing business” provisions that define the level of activity or connection that is necessary to establish nexus for the respective state’s taxes.  However, every state’s nexus provisions as well as each state’s application of their provisions must comport with the limitations as set forth by the U.S. Constitution, i.e. in the Commerce and Due Process Clauses, as interpreted by the U.S. Supreme Court decisions and federal statutes that define nexus.

Nexus – The Type of State Tax Matters 

Subject to the limitations mentioned above, states may have established specific state nexus thresholds for different state taxes; i.e. net income, franchise taxes based net worth or capital, gross receipts or sales taxes.  During our road trip, we will discuss the historic as well as the recent state tax income and sales tax nexus issues facing multistate taxpayers.

Corporate Income Tax Nexus – Some Context

Historically, corporate income tax nexus provisions typically required that the out-of-state corporation derive revenue from sources within the state and that the out-of-state corporation have some physical presence in the state.  Recently, states began to adopt ever increasingly aggressive nexus provisions – factor based and economic based corporate income tax nexus provisions.  

As businesses began to generate revenue from interstate commerce without having physical presence in remote states, state corporate income tax nexus provisions evolved by eliminating the physical presence requirement from their corporate income tax “doing business” and nexus provisions

In general, factor based state tax nexus provisions define the level of contact with the state necessary to subject a remote corporation to the state’s tax provisions based on the remote corporation’s receipts, payroll or property in the state.

Economic based state tax nexus provisions define sufficient contact with the state based only on the remote corporation’s receipts determined to be sourced to the state pursuant to the state’s revenue apportionment/allocation provisions.

Therefore, a corporation may be deemed to have sufficient nexus in a state that applies an economic nexus standard without having any physical presence or activities in the state. 

Public Law 86-272  may provide out-of-state entities (whose state activities are limited to the mere solicitation of orders for the sale of tangible personal property that are accepted and shipped from outside the state) with potential immunity from being subject to state taxes based on or measured by net income. 

In general, if a corporation’s activities in a state are limited to those permitted under P.L. 86-272, state factor based and economic based state corporation under the law.

However, as revenue streams broaden beyond those exclusively derived from the sale of tangible personal property, the potential protection afforded by P.L. 86-272 may become increasingly limited.

In addition, the application of such factor based and economic based nexus provisions may have significant state tax ramifications in states that have also adopted mandatory combined filing requirements for entities that are determined to be members of a unitary group.  

The Take Away – Don’t Rely On Same As Last Year {“SALY”} Assumptions

Now more than ever, states’ increasing dependence upon  factor based and economic based nexus standards demand that multistate businesses continuously monitor their activities, vendor relationships and related party transactions.   Relying on SALY nexus analysis in determining your corporate income tax nexus may have significant and costly state tax ramifications.

Our next post will explore the inter-play of factor based and economic based nexus provisions with the corporate income tax nexus benchmark, Public Law -86-272.  There may be some good news for businesses – recent court decisions appear to signal reluctance by certain state courts to accept factor based or economic based corporate income tax nexus provisions without some additional connection to the state by the out-of-state taxpayer.