IPT 2015 Sales Tax Symposium Indian Wells, California

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IPT 2015 Sales Tax Symposium

Indian Wells, California

Ask the Experts Southeastern

States (Alabama, Florida,

Georgia and Tennessee)

Recent State & Local Tax

Developments

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Presenters

2

• Michael D. Sontag, Esq.

− Bass, Berry & Sims, PLC – Nashville

− (615) 742-6260

− msontag@bassberry.com • Mary Benton, Esq.

− Alston & Bird LLP – Atlanta

− (404) 881-7255

− mary.benton@alston.com • Dave Elder, CPA

− McGladrey, LLP – West Palm Beach

− (561) 712-4808

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ALABAMA LEGISLATIVE

DEVELOPMENTS

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Alabama Legislative Developments

2015 Alabama Legislative Update

The Alabama legislature swirled in turmoil in 2015

starting with the governor’s promise of a $541 million

tax package (including mandatory combined reporting)

and ending with the legislature’s passage of a

scaled-down legislative package that including numerous

spending cuts. The budget bill was quickly vetoed by

the governor and while the house voted to override, the

senate had already adjourned, resulting in the need for

a special session.

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2015 Bills That Were Signed Into Law

Alabama Jobs Act of 2015

Alabama had aggressively pursued new and expanded

business facilities in the state through the capital credit the

effect of which was pay for new and expanded investment in

the state over 20 years with an annual 5% credit applied to

qualified capital investments in the state. Following the lead

of other states, the legislature has now replaced the capital

credit with two separate credits, a capital credit and a

partially transferrable jobs tax credit.

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Alabama Jobs Act of 2015 (cont’d)

 Create two distinct credits available to qualifying credits on a discretionary basis, the jobs tax credit and a capital investment credit.

 The job tax credit is calculated at 3% of the previous years annual wages of eligible employees

 The capital investment credit is calculated at up to 1.5% of qualified capital investment

 The requirements for the two credits are as follows:

– project within certain NAICS codes (broadly applicable)

– creation of “significant” new jobs for Alabama residents (at least 50 but subject to adjustment in

extraordinary circumstances)

– company must be approved by Secretary of Commerce, must be at least neutral in terms of

Alabama economic consequence

– cost/benefit analysis must reflect net increase in anticipated revenues

(7)

Alabama Legislative Developments

Alabama Veterans and Targeted Counties Act



Provides for enhanced incentives under the Alabama Jobs

Act for qualifying projects located in rural counties (less

than 25,000 people) or that create jobs for veterans



Jobs tax credit increased to 4%



Annual investment credit extended to 15 years



Limited to 2 projects per year (governor’s discretion)



Creates discretionary fund of $2,000,000 per project

located in qualifying counties

(8)

Alabama Reinvestment and Abatements Act

Expands significantly the projects that may qualify for sales, property and mortgage recordation tax abatements, as follows:

 First, the Act extends the maximum property tax abatement period from 10 to 20 years for all

eligible projects. Any abatement that extends beyond 10 years must be approved by the governing body, or its designee, of each jurisdiction wherein taxes will be abated.

 Second, the Act expands existing Alabama abatement law to cover significant refurbishments, overhauls, refreshes, and similar projects (“Refurbishment Projects”). It provides that

Refurbishment Projects making capital investments of at least $2 million are eligible for sales and use tax abatements, property tax abatements, and AIDT training at the discretion of the Governor and upon the recommendation of the Department of Commerce.

 Third, the Act creates a unique benefit for Refurbishment Projects by creating an exemption from taxes on increased utility services.

 Finally, the Act expands the list of industries that qualify for abatements for traditional projects and Refurbishment Projects.

 Companies can now utilize the abatements to grow, expand, and relocate their operations and also to retool and refresh their existing operations. This makes abatements an even more powerful tool, for Alabama businesses.

(9)

Alabama Legislative Developments

Flat Tax Study Commission Formed

Commissioner formed to study implementation of “simplified”

flat tax for individuals and businesses

Significant Laws That Did Not Pass (But Worth Watching):

Alabama Innovation Act (R&D and financial institution

excise tax credits)

Flat Tax Act

Mandatory Unitary Combined Reporting (MUCR)

Factor Presence Nexus

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FLORIDA LEGISLATIVE

DEVELOPMENTS

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Florida Legislative Update HB 33-A



Agricultural Exemptions -

creates and expands

several agricultural sales tax exemptions:

– Adds irrigation equipment and repair to the existing

exemption for the sales or lease of farm equipment;

– Exempts the sales price of up to $20,000 for a trailer

weighing 12,000 pounds or less;

– Exempts stakes used by a farmer to support plants during

agricultural production; and

– Expands the term “livestock” to include aquaculture species

(12)

Florida Legislative Update HB 33-A



Sales on Admissions and Membership Fees

Imposed by Gun Clubs (07/01/15)

–

Admissions/membership fees collected by an

organization whose primary purpose is to provide

shooting ranges for target or skeet shooting are

not subject to sales tax.

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 2015 Back-to-School Sales Tax Holiday – August 7 through August 16, 2015

– During this holiday period, Florida law directs that no sales tax or local option tax will be collected on purchases of:

 Clothing, footwear, and certain accessories selling for $100 or less per item,

 Certain school supplies selling for $15 or less per item, and

 Personal computers and certain computer-related accessories on the first $750 of the sales price, when purchased for noncommercial home or personal use.

(14)

Florida Legislative Update HB 33-A



Sales and Use Tax on Repairs of Boats or

Vessels Capped at $60,000 (7/01/15)

–

Repairs are capped at $60,000 per repair –

dealers should not collect more than $60,000 on a

single repair of a boat.

–

This amount includes the discretionary surtax.

(15)



College Textbook Exemption (07/01/15 – 06/30/16)

– There is an exemption for textbooks that meet the following conditions:

– The textbook must be required or recommended for use in a course offered by a

public postsecondary educational institution as described in Section (s.) 1000.04, Florida Statutes (F.S.), or a nonpublic postsecondary educational institution that is eligible to participate in a tuition assistance program authorized by s. 1009.89 or s. 1009.891, F.S.

– The purchaser must be a student at a qualifying school and must provide a physical or

an electronic copy of the following to the vendor:

 the student's school identification number, and

 an applicable course syllabus or list of required and recommended textbooks and instructional materials that meet the criteria in s. 1004.085(3), F.S.

 The vendor must maintain proper documentation to identify the complete

transaction or portion of the transaction that involves the sale of textbooks and/or instructional materials that are not subject to tax.

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Florida Legislative Update HB 33-A

 Communications Services Tax Rate Change (07/01/15)

– CST is reduced from 6.65% to 4.92%, the additional .15% gross receipts

tax remains.

– Sales of direct to home satellite services is reduced to 11.4%. – An alternate basis for a dealer to report tax is created.

 New Alternate basis means any month long period, other than a calendar month, with an end date on or after the 15th_{day of the}

calendar month; ex: Oct 22 – Nov 21.

 The Communications services tax dealers are permitted tax allowance collection of .75 or .25 is disallowed if the tax return is delinquent at time of payment.

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GEORGIA LEGISLATIVE

DEVELOPMENTS

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Georgia Legislative Developments

Transportation Funding Act of 2015

Transportation funding was the top priority of the 2015

legislative session. To that end, the General Assembly

passed HB 170, which restructured the sales and

excise taxes on fuel and instituted a per-night fee on

hotel reservations.

HB 170 became effective July 1, 2015.

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Georgia Legislative Developments

 Removes the state sales tax from sales of motor fuel for use on highways, and replaces it with an excise tax on distributors of 26 cents per gallon for gasoline and 29 cents per gallon for diesel. The excise tax adjusts yearly in direct relationship with the fuel efficiency of vehicles registered in Georgia.

 Allows local sales taxes to continue to apply to sales of fuel, but only up to a sales price of $3 per gallon.

 Eliminates the state sales tax exemption on jet fuel sold to a commercial airline at Atlanta’s airport, but earmarks sales tax from jet fuel collected after July 1, 2017 for aviation purposes.

(20)

Georgia Legislative Developments

 Eliminates the income tax credit for low-emission and zero-emission vehicles.

 Institutes user fees for alternative-fueled vehicles and certain heavy vehicles.

 Allows for a new special purpose local option sales tax for transportation.

 Levies a $5 per night fee on rentals of hotel rooms, to be used for transportation.

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Georgia Legislative Developments

Sales Tax Exemption for Zoos and Aquariums

(HB 428)

 Provides an exemption from state and local sales and use tax for purchases of tangible personal property used to renovate or expand aquariums located in Georgia until January 1, 2017, up to a tax value of $750,000.

 Provides an exemption from state and local sales and use tax for purchases of tangible personal property used to renovate or expand zoos in Georgia between July 1, 2016 and June 30, 2018, up to a tax value of $350,000.

(22)

Georgia Legislative Developments

Sales Tax Exemption for Nonprofit Health Centers

(HB 426)

 Reenacts an exemption from state sales tax for sales to nonprofit health centers, provided that the health center is established and receiving funds through the U.S. Public Health Service Act.

 Reenacts an exemption from state and local sales tax for sales to nonprofit volunteer health clinics that treat primarily indigent persons.

 The exemptions are in effect from July 1, 2015 through June 30, 2018 and require yearly application to the Department of Revenue.

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TENNESSEE LEGISLATIVE

DEVELOPMENTS

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Tennessee Legislative Developments

Political Climate



Tax collections down for FYE June 30, 2014

–

Sales and use taxes – down $33 million

–

Franchise and excise taxes – down $215 million



Raises for teachers and state workers eliminated



College and university budgets decreased $12.9

million



TennCare budget cut $25 million

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2015 Legislative Developments

Governor Haslam Proposes the “Revenue Modernization Act”

 Goal to “level the playing field” between in-state and out-of-state companies doing business in Tennessee. Out-of-out-of-state companies doing business in Tennessee “aren’t always

required to pay the same taxes that our in-state and homegrown companies do”

 Governor speaks of effort “to close certain loopholes” by

adapting to changes in the way products are bought and sold

 Clear intent is to raise revenue through provisions to tax out-of-state companies who are doing business in Tennessee but not subject to tax (or taxed in a disproportionate manner as

compared to Tennessee based companies)

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Tennessee Legislative Developments

2015 Legislative Developments

General Assembly Adopts the “Revenue

Modernization Act”



The new bill sets forth certain “bright-line”

standards for nexus and greatly expands

jurisdiction to impose tax on out-of-state

companies doing business in Tennessee



Adopts “factor presence” and “economic nexus”

standards for purposes of franchise, excise, and

business taxes

(27)

General Assembly Adopts the “Revenue Modernization Act”

 New bill defines “substantial nexus in the state” to include

(1) Taxpayer organized or commercially domiciled in the state (2) Taxpayer owns or uses its capital in the state

(3) Taxpayer has systematic and continuous business activity in the

state, or

(4) Taxpayer has a bright-line presence in the state

(a) Taxpayer’s total receipts derived from state based on standard apportionment

formula in excess of $500,000 or 25% of total receipts everywhere

(b) Taxpayer’s property in the estate is greater than $50,000 or 25% of average

value of taxpayer’s property everywhere

(c) Taxpayer’s total compensation paid in state exceeds $50,000 or 25% of total

compensation

(28)

Tennessee Legislative Developments

General Assembly Adopts the “Revenue Modernization

Act”



Thus – effective January 1, 2016, “economic nexus” is

the standard for franchise, excise, and business taxes



J.C. Penney National Bank, 19 SW3d 831 (Tenn. Ct. App.

1999) held that physical presence is required to impose

franchise/excise taxes under U.S. Constitution. How can

that be changed by statute?



Department has announced that it will retry J.C. Penney

as no longer, in its mind, good law.

(29)

Under new law, taxpayer can deduct intangible

expenses paid to affiliate if

– Discloses amount with return, and

– Affiliate is registered for and paying Tennessee excise tax

or is not required to pay such tax under economic nexus standards

Failure to make required disclosure results in automatic

negligence penalty of $10,000 or 50%

(30)

2015 Legislative Developments

Adoption of Market-Based Sourcing for All Sales

Sales of Services – The state now sources

all sales of services based on market-based

sourcing for purposes of franchise and excise

taxes.

All such sales are sourced to this state if

“delivered to a location in this state.”

(31)

General Assembly Adopts the “Revenue Modernization Act” Adoption of Market-Based Sourcing for All Sales

 Licenses of Intangibles –

– Receipts are sourced to Tennessee “if and to the extent the intangible

property is used in this state”

– If related to “marketing a good or service to a consumer” only if

“purchased by a consumer who is in this state.”

 If “market” state cannot be determined then sales to Tennessee shall be “reasonably approximated”

 If market cannot be reasonably approximated then sales are excluded from the numerator and denominator of the sales factor (thrown out).

(32)

Tennessee Legislative Developments

Special Apportionment Rules Adopted for Certain

Certified Distribution Sales



To qualify –



Taxpayer’s sales of tangible personal property in

this state must exceed $1,000,000,000



Taxpayer’s receipts factor in this state must

exceed 10%

(33)



Qualifying taxpayers can make an annual

election for special treatment of their “certified

distribution sales”



“Certified distribution sales” means products sold

in this state for ultimate resale or consumption

outside the state

(34)

General Assembly Adopts the “Revenue Modernization Act” Rather than paying regularly determined excise tax on these sales, qualified taxpayers making the election would remove the sales from their sales factor and, instead, pay

 0.5% tax on gross receipts from certified distribution sales less than $2 billion

 0.375% tax on gross receipts from certified distribution sales between $2 and $3 billion

 0.25% tax on gross receipts from certified distribution sales between $3 and $4 billion

 0.125% tax on gross receipts from certified distribution sales greater than $4 billion

(35)

Tennessee Legislative Developments

General Assembly Adopts the “Revenue Modernization Act” Special Apportionment Rules Adopted for Certain Telecom, TV, and Internet Providers

 To qualify –

– Must be principally engaged in selling telecom, internet, cable TV, or

satellite TV

– Taxpayer’s group must –

 Expend more than $150 million on in-state TPP and payroll

 Make more than $150 million in sales subject to Tennessee sales tax

 If qualified – Sales factor is average of market-based sourcing and cost of performance sourcing

(36)

Tennessee Legislative Developments

Adoption of Triple-Weighted Sales Factor



The legislature, in a further effort to make

Tennessee tax “friendly” for in-state businesses,

has adopted a triple-weighted sales factor so

that the apportionment formula is (1 x Property,

1 x Payroll, 3 x Sales) ÷ 5.

–

Effective for tax years beginning July 1, 2016

(37)



Sales of services subject to the business tax –

–

Act clarifies that gross receipts from sales of services

“delivered to a location” outside Tennessee are not

subject to the business tax.

–

Tracks language of franchise & excise tax sourcing

rules

(38)



Broadened Sales Tax on Digital and Digitally

Accessed Products

–

Tennessee will now tax all “videogame digital product”

defined as the right to access and use computer software

for amusement purposes

–

Taxable use of computer software broadened to include

right to access and use software that remains in the

possession of a third party if accessed by customer in

Tennessee

(39)

Tennessee Legislative Developments



Legislation provides that previously non-taxable

services are still not taxable and Department has

claimed no intent to tax cloud or software services

- but language imposing tax on use of software

appears to suggest otherwise



Expect numerous disputes about the line between a

non-taxable software service and a newly taxable use

of software

(40)



Tennessee Adopts “Click-through” Nexus for Remote

Sellers of Property Into Tennessee Marketplace



Remote sellers will be deemed to have nexus in

Tennessee and, thus, subject to sales tax if

– they enter into agreement with a person located in state who

receives commission on Tennessee sales and

– sales into Tennessee marketplace from those relationships

exceed $10,000 in preceding 12 months.

(41)

Tennessee Legislative Developments



Can rebut presumption of nexus with –

“clear and convincing evidence that the person with

whom the dealer has an agreement or contract did not

conduct any activities in this state that would

substantially contribute to the dealer’s ability to establish

and maintain a market in this state during the preceding

twelve (12) months.”

•

No brightline method for rebutting presumption

(42)



Commissioner is authorized to waive penalties

for failure to procure a license required by law



Prior law prohibited penalty waivers in these

circumstances



New law allows penalties to be waived, but a

taxpayer must show “good and reasonable”

cause for failing to receive the license

(43)

Other Notable 2015 Developments

Sales Tax on Warranties or Maintenance Contracts



Tennessee imposes sales tax on the full sales price of

warranties and contracts for software or equipment

maintenance and repair

– No tax is imposed on later work (if no additional charge)



Newly enacted legislation clarifies that the tax applies –

– When the underlying property or software is subject to tax; or – When the underlying property or software is located in the

State; or

– When the purchaser’s address is in the State, and the location of the underlying property or equipment is not known.

(44)

Tennessee Legislative Developments

Streamlined Sales Tax Law “Delayed” --- AGAIN!!



Tennessee has adopted most of the SSTP

definitions effective 2003



Tennessee has never fully implemented destination

sourcing (sale still takes place at place where title

transfers and not state of ultimate destination).



New law extends full implementation of SSTP to

July 1, 2017

(45)

Diabetic Testing Supplies Exempt from

Sales Tax



Exempt supplies include glucose monitors,

test strips for blood, visual read test strips,

and lancets



Prior litigation found these items not exempt

because they are not “prosthetic devices”

(46)

Hall Income Tax Exemption Raised



Effort to repeal the Hall Income tax failed



The maximum allowable income exemption level

was raised to –

–

$37,000 for single taxpayers 65 years old and older

–

$68,000 for joint filers 65 years old and older



Taxpayers below these levels are not required to

file Hall income tax returns

(47)

Tax Incentive Legislation Revised



Sunsets several rarely or never used credits



Equipment used for research and development

added to definition of industrial machinery



Back office operations – such as accounting, legal,

or IT functions – added to the list of qualified

business enterprises for the F&E job tax credit



Requires the ECD to periodically review tax

incentives and report to the General Assembly

(48)

Tennessee Legislative Developments



Informal conference process revised

– Response to tax tribunal legislation proposed last session – Effective January 1, 2015

– 90 day period to file suit to challenge assessment begins

when assessment becomes “final”

 Final = informal conference decision

 Final = 31 days after initial assessment if no informal conference

– Still must request conference in writing within 30 days of

initial assessment notice

(49)

Tennessee Legislative Developments

 Appearance of independence

– “Personnel conducting informal conferences shall exercise

independent judgment with the objective of resolving disputed proposed assessments without litigation.”

– “Informal conference personnel shall not engage in ex parte

communications with audit division personnel regarding the issue under review.”

 But can communicate ex parte regarding “ministerial, administrative, or procedural matters”

 Can also ask audit personnel to examine and make a recommendation if new evidence submitted at conference

– Informal conference personnel can recommend to the Commissioner

that the Department compromise a proposed assessment

(50)

Tennessee Legislative Developments



Additional changes in informal conference

legislation

–

Department may compromise tax liabilities without

written approval of Comptroller or Attorney General

 Comptroller and AG have right to require approval for any or all compromises

–

Department may publicize guidance from informal

conference decisions

 Taxpayer information remains confidential

–

Conference decisions cannot be cited as precedent

(51)

2013 Legislative Changes

Business Tax Reform



Business tax is a gross receipts tax imposed at low

rate but very broadly inclusive of TPP and services



Tennessee Department of Revenue took over

administration of the locally imposed tax in 2009

(and has aggressively audited taxpayers)



Numerous taxpayers took advantage of voluntary

disclosure

– VDA no longer available as separate offer

(52)

Business Tax Reform



Features of new law

– The tax is now state imposed and administered (but shared

with local jurisdictions and assumed to apply in all local jurisdictions)

– The tax applies without regard to “location” in Tennessee if

business performs services for customers located in

Tennessee, leases property that is located in Tennessee, delivers TPP to buyer in Tennessee in own vehicle or

purchases and sells property in Tennessee through use of in-state employees, agents, independent contractors

– The tax is “market based” (the “benefit” of the service

must be received in Tennessee)

(53)

Tennessee Legislative Developments

Business Tax Reform



Department is focusing auditors on this issue



Disputes under old and new law working through litigation

– E.g., Flash Oil Company v. Roberts

 The Taxpayer is a petroleum wholesaler with no business locations in Tennessee

 Its customers can go to in-state terminals with whom Flash Oil has an agreement to withdraw fuel

 The Business Tax has traditionally been imposed on doing business in Tennessee locations, based on business locations

 Flash Oil has no business locations and contends that it is not “doing business” in the local jurisdictions

 Department imposed business tax on sales made in Tennessee

(54)

ALABAMA JUDICIAL

DEVELOPMENTS

(55)

Alabama Judicial Developments

CSX Transportation, Inc. v. Alabama Department of Revenue, No. 12-14611 Doc. No. 2:08-cv-00655-AKK (11th Cir. Jul. 1, 2013) (cert. petition granted July

1, 2014)

 The Eleventh Circuit U.S. Court of Appeals rules that Alabama’s imposition of sales tax on diesel fuel purchased by railroads, but not on diesel fuel used by interstate motor carriers or barge lines, is discriminatory and violates the

Railroad Revitalization and Regulatory Reform Act (the “4R Act”), 49 U.S.C. § 11501, reversing the district court decision in favor of the Department. The Eleventh Circuit adopted a narrow view, one that looks only at the alleged

discriminatory tax itself. Thus, the court only looked at whether Alabama’s sales and use tax was discriminatory under the 4R Act, not whether the entire taxing scheme, taking into account exemptions and other taxes levied on CSX’s major competitors but not on railroads, was discriminatory toward CSX.

 The Supreme Court agreed with the Eleventh Circuit decision insofar as it found that CSX’s competitors are an appropriate comparison class for its claim that Alabama’s sales tax discriminates, but held that the Circuit Court erred in failing to consider the impact of other comparable taxes.

(56)

Alabama Judicial Developments

Alabama Department of Revenue v. AAA Cooper

Transportation, No. 2120516 (Ala. Civ. App. Jan.

17, 2014)



The Alabama Court of Civil Appeals reversed the

judgment of the trial court and held that a

transportation company’s purchase of tractors were

subject to sales tax in Alabama because the title

transferred and deliveries took place in Alabama.

The court also held that the transportation company

did not act as a common carrier by delivering the

tractors to its own out-of-state terminals.

(57)

Alabama Judicial Developments

Stone Bridge Farms, LLC v. State of Alabama Department of Revenue, ATT Docket No. S. 14-510 (January 27, 2015)

 Chief Judge Bill Thompson of the newly-established Alabama Tax Tribunal has issued his first ruling involving the scope of his authority as a judge when the taxpayer did not specifically raise an argument or defense in its notice of appeal. The issue involves whether a Tax Tribunal Judge may invalidate an Alabama Department of Revenue regulation, even though the taxpayer challenging the underlying assessment did not attack the

regulation in its pleadings or at the hearing.

 The Chief Judge ruled that by timely appealing, the taxpayer had invoked the jurisdiction of the Tribunal, and that the validity of the regulation was also before the Tribunal, because the Department cited the regulation as the basis for the assessment in its Answer, adding that “the Alabama

Legislature has empowered the Tax Tribunal to increase or decrease a final assessment upon appeal ‘to reflect the correct amount due.’” Ala. Code § 40-2A-7(b)(5)d.1.

(58)

FLORIDA JUDICIAL

DEVELOPMENTS

(59)

Verizon Business Purchasing, LLC. v. State

of Florida, Department of Revenue

First DCA

 The Department and Verizon, the Taxpayer, entered into an extension agreement extending the statute of limitations (SOL) for issuance of the tax assessment to March 31, 2011.

 The Department issued a Noticed of Proposed Assessment (NOPA) on Feb. 8, 2011.

– The deadline to protest the NOPA would be April 11, 2011 –

(60)

Verizon Business Purchasing, LLC. v.

State of Florida, Department of Revenue,

 ISSUE: Whether the Department timely assessed the

Taxpayer for purposes of the Statute of Limitations when it issued the NOPA within the agreed upon SOL.

 Section 95.091 Limitations on actions to collect taxes

– (3)(a): …the Department of Revenue may determine and

assess the amount of any tax, penalty, or interest due under any tax enumerated in s. 72.011 which it has authority to administer

…

(61)

Verizon Business Purchasing, LLC. v.

 Does Section 95.091(3)(a) mean a final assessment?

 The Appellate Court Held:

– A Taxpayer is under no legal obligation to pay a tax

assessment until the assessment becomes final.

– Section 213.21(1)(b) provides that the “statute of limitations

upon the issuance of the final assessments shall be tolled during the period in which the taxpayer is engaged in a

(62)

Verizon Business Purchasing, LLC. v.

 The Legislature could have used the word “assessment” but instead it choose to qualify the word assessment with “final”.

 This leads to the conclusion that the assessment contemplated in the SOL is a final assessment.

(63)

Verizon Business Purchasing, LLC. v. State

of Florida, Department of Revenue,

 What does this mean for Taxpayers?

The Department will need to issue the NOPA 60 days prior to the expiration of any extensions.

– Had the Depart issued the NOPA 60 days prior to the

agreed upon extension of March 31, 2011 – the NOPA would have become final within the SOL

 Had the Taxpayer challenged the NOPA prior too the expiration of the SOL, the SOL would have been tolled under Section 213.21(1)(b).

(64)

Alachua County v. Expedia, Inc.

Florida Supreme Court

 Online Travel Companies (“OTCs”) negotiate rates with Hotels.

 Patrons of the Hotels buy through OTC – but pay the Hotel who then remits a service fee to the OTC.

 The difference between amount the OTC charges and the Hotel charges is referred to as the “markup charge”.

(65)

Alachua County v. Expedia, Inc.

 The Tourist Development Tax (“TDT”):

– 125.0104 Tourist development tax; procedure for levying;

authorized uses; referendum; enforcement.—

– (3) TAXABLE PRIVILEGES; EXEMPTIONS; LEVY; RATE.—(a)1.

It is declared to be the intent of the Legislature that every person who rents, leases, or lets for consideration any living quarters or

accommodations in any hotel, apartment hotel, motel, resort motel, apartment, apartment motel, rooming house, mobile home park,

recreational vehicle park, condominium, or timeshare resort for a term of 6 months or less is exercising a privilege which is subject to

taxation under this section, unless such person rents, leases, or lets for consideration any living quarters or accommodations which are exempt according to the provisions of chapter 212.

(66)

Alachua County v. Expedia, Inc.



The Transient Rentals Tax (“TRT”):

– 212.03 Transient rentals tax; rate, procedure,

enforcement, exemptions.—(1)(a) It is hereby declared to be the legislative intent that every person is exercising a

taxable privilege who engages in the business of renting,

leasing, letting, or granting a license to use any living quarters or sleeping or housekeeping accommodations in, from, or a part of, or in connection with any hotel, apartment house, rooming house, tourist or trailer camp, mobile home park,

recreational vehicle park, condominium, or timeshare resort… For the exercise of such taxable privilege, a tax is hereby

levied in an amount equal to 6 percent of and on the total rental charged for such living quarters or sleeping or

housekeeping accommodations by the person charging or collecting the rental…

(67)

Alachua County v. Expedia, Inc.

 The issue is whether the total monetary amounts that OTC’s charge their customers to secure reservations for transient accommodation rentals in Florida counties subject to taxation under the TDT?

– The entire monetary charge includes the markup charges

(68)

Alachua County v. Expedia, Inc.

 The Court concluded that the tax at issue applies only to the funds received for the rental of transient accommodations and not the markup charge.

 The Court leaves it open to the Legislature to revise the current statutes to include markup charges within the total customer charges to be subject to taxation rather then just the portion paid to the Hotel.

(69)

Direct TV v. Department of Revenue

First DCA

 2001 the Florida Legislature passed the Communications Services Tax Simplification Law, (“CST”)

 CST imposed a different tax rate for cable TV provides and satellite TV providers.

 Directv, Inc. contend that the statute unconstitutionally

discriminates against interstate commerce in both effect and purpose, which is in violation of the Commerce Clause.

(70)

Direct TV v. Department of Revenue

 To discriminate – the statute must place a greater economic burden on those industries or companies outside the state and give economic advantage to those operating with the state.

 The Court held:

– The state tax portion of the CST is discriminatory in effect because it

affects similarly-situated entities, cable and satellite companies, by

imposing a disproportionate burden on satellite service and conferring an advantage upon cable services, which use in-state infrastructure.

– Because the state tax portion of the CST burdens interstate commerce by

imposing a higher tax rate on those communication companies that do invest in local economies, it violates the Commerce Clause.

(71)

GEORGIA JUDICIAL

DEVELOPMENTS

(72)

Georgia Judicial Developments

Georgia Tax Tribunal Gets New Judge

On April 16, 2015 Gov. Nathan Deal selected Larry O’Neal as the judge of the Georgia Tax Tribunal. At the time of his appointment, he was the majority leader in the Georgia House of

Representatives. O’Neal was also a tax attorney at a firm in Perry, Georgia.

Outgoing Judge Charles Beaudrot, Jr., returned to private practice.

(73)

Georgia Judicial Developments

Georgia Power Co. v. MacGinnitie, 2015-1 Ga. Tax Trib. (Jan.

5, 2015).

 During the years in question, Georgia provided a sales tax exemption for machinery and equipment “necessary and integral to the manufacture of tangible personal property.” Electricity is considered tangible personal property under Georgia law.

 The taxpayer claimed a refund for sales and use tax paid on its purchases of equipment for its transmission and distribution of electricity, arguing that:

– The “manufacture” of electricity is not complete until it reaches the

consumer.

– The taxpayer’s power plants and distribution system are one integrated

plant located throughout the state.

(74)

Georgia Judicial Developments

Georgia Power Co. v. MacGinnitie, 2015-1 Ga. Tax Trib. (Jan.

5, 2015).

 The Tax Tribunal rejected both of the taxpayer’s arguments, holding that the manufacture of electricity begins and ends at the power generating plants, and that nothing happens in

transmission and distribution to “manufacture” the electric

energy into something else. In addition, the Tribunal held that the General Assembly had no intent to turn the taxpayer’s service area into one enormous manufacturing plant.

 The taxpayer appealed the decision to the Fulton County Superior Court, which upheld the Tribunal’s decision.

(75)

Georgia Judicial Developments

Inglett & Stubbs Int’l Ltd. v. Riley, 2015-2 Ga. Tax Trib. (Feb.

11, 2015).

 The taxpayer maintained international contracts with the federal

government for construction at overseas US Army bases. Pursuant to those contracts, the taxpayer purchased tangible personal property pursuant to orders by the US Army. Certain property was delivered to its warehouse in Georgia where it was repackaged for efficient transit and shipped overseas to the bases. The Department of Revenue

assessed use tax on the taxpayer as a per se consumer of the goods it held in its Georgia warehouse prior to international shipment.

 Georgia taxes as a per se consumer a person who “contracts to furnish tangible personal property and to perform services under the contract within this state.” O.C.G.A. § 48-8-63(b).

(76)

Georgia Judicial Developments

Inglett & Stubbs Int’l Ltd. v. Riley, 2015-2 Ga. Tax Trib. (Feb.

11, 2015).

 The taxpayer argued that the phrase “within this state” in Section 48-8-63(b) prohibits the application of per se consumer liability because all of its contracts were performed overseas. Consequently, its storage of the tangible personal property was a nontaxable resale to the federal government.

 The Tax Tribunal held that Section 48-8-63(b) does not apply to the taxpayer; nonetheless, the common-law contractor-as-consumer rule that existed before the enactment of the statute operates to make the taxpayer the per se consumer of the property it stores in its Georgia warehouse.

 The taxpayer has appealed to the Fulton County Superior Court.

(77)

Georgia Judicial Developments

Douglasville Hospitality, Inc. v. Riley, 2015-5 (Ga. Tax. Trib.

July 23, 2015).

 The taxpayer purchased a hotel from a previous owner. The previous owner filed sales and use tax returns for the hotel, and before the sale of the hotel, the Department of Revenue assessed sales tax on the previous owner. The taxpayer purchased the hotel without a receipt of payment of tax or a clearance letter from the Department.

 After the purchase, the Department assessed the previous owner’s sales tax liability against the taxpayer under statutory successor liability.

 The taxpayer argued that the general three-year statute of limitations on assessments that began when the previous owner filed sales tax returns barred the Department from assessing the taxpayer as

successor after the three years had run.

(78)

Georgia Judicial Developments

Douglasville Hospitality, Inc. v. Riley, 2015-5 (Ga. Tax. Trib.

July 23, 2015).

 The Tribunal held that the Department’s application of successor

liability to the taxpayer is not a new assessment, but a derivative of the original assessment, so the 3-year statute of limitations is inapplicable. Moreover, the statute applying successor liability contains no

independent statute of limitations. Because the Department assessed the liability against the previous owner within 3 years of his filing a return, the Department’s assessment of the taxpayer and its

subsequent issuance of a tax execution were not time barred.

(79)

Georgia Judicial Developments

City of Atlanta v. Hotels.com, L.P., No. A15A0117 (Ga. Ct. App.

July 9, 2015).

 The City of Atlanta previously won a judgment against the taxpayer at the Georgia Supreme Court requiring the taxpayer to pay occupancy and sales tax on the retail price that the taxpayer charges to

customers for rooms it resells from hotel operators.

 The case returned to the Georgia Court of Appeals on the City’s claim for conversion of the tax monies that the taxpayer did not remit.

 The Court of Appeals applied the general rule that a claim for

conversion cannot apply to sums of money, and upheld the trial court’s dismissal of the City’s action.

(80)

TENNESSEE JUDICIAL

DEVELOPMENTS

(81)

Tennessee Judicial Developments

Vodafone Americas Holdings, Inc. v. Roberts, No.

 Facts – Vodafone holds 50% interest in Verizon Wireless through Cellco general partnership

 2 Issues

– Does Vodafone have nexus with Tennessee as a result of ownership of “passive”

general partnership interests?

– Can Commissioner use variance power to require market-based sourcing as

opposed to cost of performance sourcing?

 Trial Court ruled for Department on both issues

 Taxpayer appealed variance issue

 Court of Appeals decided to uphold assessment based on their conclusion that the Commissioner’s variance authority can be applied anytime the

market for services is located in Tennessee and the majority of the costs of performance are incurred outside the State of Tennessee.

 Tennessee Supreme Court granted application to review and oral argument heard on June 2, 2015

(82)

Tennessee Judicial Developments

DirecTV, Inc. v. Chumley, Civil No. 03-2408-IV

 Sales and Use Tax Refund Lawsuit

 Issue: Commerce Clause challenge to cable exemption

 The Taxpayer, a satellite television service provider, filed suit challenging the exemption applicable to cable television services, arguing that the exemption for cable violates the Commerce Clause and the Equal Protection Clause of the United States Constitution

 This is a case that is similar to lawsuits filed in Ohio, North Carolina and Florida

 The Taxpayer lost in all the states where it litigated similar issues, but trial court ruled for taxpayer on Commerce Clause claim in this case

 Department appealed

 Appellate Court overturned Chancery Court finding satellite and cable providers not similarly situated because subject to different regulations

– As a result – no Commerce Clause protection

 Supreme Court of Tennessee has denied review. U.S. Supreme Court Petition possible.

(83)

Tennessee Judicial Developments

TN Court of Appeals decides three telecommunications cases

 AOL, Inc. v. Roberts (Aug. 12, 2013)

– Services connected AOL users to AOL’s data centers

– Trial court held that the service was taxable as telecommunications – Court of Appeals affirmed

 Level 3 Communications v. Roberts (Sep. 20, 2013)

– Internet access services that provided a “link to the internet”

– Trial court held that the service was not taxable as telecommunications – Court of Appeals affirmed

 IBM Corp. v. Farr (Sep. 24, 2013)

– Wide area network services provided customers with access to information – Trial Court held that the services were taxable as telecommunications – Court of Appeals reversed

 Test – what is the “true object” of the service?

83

(84)

Tennessee Judicial Developments

Five Oaks Golf & Country Club Inc., v. Farr, 2014 Tenn. App. LEXIS 159 (March 20, 2014)

 Facts:

– Taxpayer sued for refund of sales and use taxes based on two claims – Both sides moved for summary judgment

– Taxpayer conceded one claim – worth about 70% of refund sought – Trial Court found for taxpayer on remaining claim (and against

taxpayer on conceded claim)

– Both sides moved for attorney fees and expenses claiming to be the

prevailing party

 Issue – who is the prevailing party when a taxpayer wins a partial refund?

(85)

Tennessee Judicial Developments

Five Oaks Golf & Country Club Inc., v. Farr, 2014 Tenn.

App. LEXIS 159 (March 20, 2014)



Trial court found taxpayer was the prevailing party



Court of Appeals reversed, finding neither party entitled to

fees and expenses

– Court found there was no “prevailing party” because each party won one issue and each party “received substantial relief”

– Court rejected Department’s argument that it was the prevailing party because its success was worth a larger percentage of amount at issue

– The question is “necessarily fact intensive” and each case “must be evaluated under its own unique facts”

(86)

Tennessee Judicial Developments

Pfizer Inc. v. Farr, No. 09-1946-II (Davidson County

Chancery Court)



Substantive Issue to be Addressed

– Must Commissioner grant variance to allow “look through”

variance on sales to McKesson that are shipped through McKesson’s Memphis Regional Redistribution Center?



Case has been resolved but many other

pharmaceutical manufacturers have similar claims

– Some in litigation – Allergan Sales v. Roberts (11-1596-III)

and Sanofi-Aventis U.S., LLC v. Roberts (______________)

– Some pending before Department – Some still to be filed

(87)

popularcategories.com, Inc. v. Farr, Civil No. 09-781-I

 Challenge to Franchise & Excise Tax Assessment

 Issue: Whether Taxpayer is allowed to use cost of performance for calculating apportionment factor

 Taxpayer was a holding company that sold its interest in an operating company, a domain name aggregator

 Taxpayer maintains that under costs of performance, the receipts from the sale of its subsidiary should be excluded from the numerator in calculating the Tennessee apportionment formula

 Earnings producing activity of soliciting and negotiating sale took place outside Tennessee

 Lower court rules that only business activity was in Tennessee (all taxable here)

 Follow-on lawsuit: popularcategories.com, LLC v. Farr, 09-1887-I

(88)

Tennessee Judicial Developments

Comcast Holdings, Inc. v. Roberts, Civil No. 12-1749-I



Challenge to Franchise and Excise Assessment



Issue: Whether Taxpayer properly apportioned net earnings

and net worth to Tennessee using cost of performance



Taxpayer filed using cost of performance



On audit, TDOR concluded that the taxpayer improperly

included programming costs in the calculation of the earnings

producing activity and concluded that the apportionment factor

should be increased to include all revenue earned in

Tennessee from Tennessee customers.



There is also an adequacy of capital issue in this case for

calculating the franchise tax base

(89)

Affinion Benefits Group, LLC v. Roberts, Civil No. 10-1073-I

 Issue: sourcing sales of bank incentive packages

 Taxpayer sells insurance and benefits packages to banks to resell to bank customers

 Taxpayer claims cost of performance all takes place at bank locations where sales activities occur

– Department claims cost of performance in Tennessee where fulfillment

and back office activities occur

 Taxpayer claims it is entitled to a variance to use market sourcing

– Department claims variance not proper

 Settled by agreement

(90)

Tennessee Judicial Developments

Three cases continue to explore limits of sales tax on IT services

 Fujitsu America, Inc. v. Roberts, No. 11-159-III

– TEKsystems claim – Configuration services

 Accenture LLP v. Roberts, No. 12-1259-III

– TEKsystems claim

 Offshore services

 Cognizant Technology Solutions US Corp. v. Roberts, No. 13-1780-I

– Configuration, consultation, testing and other nontaxable services – Out-of-state services

– TEKsystems claim

– Agency claim for all services other than programming

(91)

Tennessee Judicial Developments

International Evangelistic Mission Ministries, Inc.



State Board of Equalization denied property tax

exemption for wooded land owned by religious

organization



Land owner admitted that current use of the land was

“limited” and “random”

– Claimed “hopes for the future are unlimited”



Exemption denied

– “Occasional or sporadic uses of the property for religious activities are not sufficient to meet the use test”

– Prospective use of property is irrelevant to determination of its present tax status

(92)

ALABAMA ADMINISTRATIVE

DEVELOPMENTS

(93)

Alabama Administrative Developments

Alabama Department of Revenue releases

amended rule on leasing, rental of tangible

personal property that would have expanded

that to include video-on-demand and other

digital streaming services and then removes

proposal in reaction significant industry

opposition.

(94)

FLORIDA ADMINISTRATIVE

DEVELOPMENTS

(95)

Florida Technical Assistance

Advisements



Florida Technical Assistance Advisement No.

14C1- 012 ,10/14/2014 -

Corporate Income Tax

– Request for authority to discontinue consolidated filing was

granted.



Florida Technical Assistance Advisement No.

14C1-013, 11/10/2014

– Corporate Income Tax

(96)

Florida Technical Assistance Advisement

No. 14A- 026 10/20/2014

Public Works Contract – the Department confirmed its position that in order to qualify for the exemption, 6 criteria must be met. These are:

1. The political subdivision must execute the purchase orders directly to the materials vendors.

2. The political subdivision must acquire title to, and assume liability for, the tangible personal property at the point in time when it is delivered to the job site;

3. Vendors must directly invoice the political subdivision for supplies; 4. The political subdivision must directly pay the vendors for the tangible

personal property; and

5. The political subdivision must assume all risk of loss or damage for the TPP

6. The political subdivision must issue a Certificate of Entitlement with each purchase order, along with a copy of its Consumer's Certificate of

(97)

Florida Technical Assistance

Advisement No. 14A-027, 10/23/2014

 A Taxpayer, who is an admission provider, sells a type of ticket that includes food and drink (access to a buffet).

 Section 212.04(1)(b) requires the sales price or actual amount received from an admission to be stated on the face of the

ticket – thus the sales price of the tangible personal property (food and drink) must be separately stated.

(98)

Florida Technical Assistance

Advisement No. 14A-027, 10/23/2014

 Because the sales price of the admission is required to be shown, the food and drink must be separately stated.

 The Taxpayer – and not the Vendor – was deemed liable for the tax. The documentation between Taxpayer and Vendor stated “all inclusive, all taxes…” however, pursuant to section 212.07(4) Vendor is precluded from absorbing the tax and the tax must be separately stated.

 Section 212.07(8) requires that if Vendor failed to separately state sales tax then Taxpayer is liable.

(99)

Florida Technical Assistance

Advisement No. 15A-001, 01/16/2015

 Taxpayer sells orthopedic implants which are marketed by a network of independent contractor sales representatives/distributors.

 Taxpayer’s manual with its distributors specifies that TP’s surgical

instruments and sample kits constitute rental arrangements by which these products are rented to the distributor.

 Taxpayer places the surgical instruments and sample kits in the possession of the Distributor through a rental arrangement.

 Once the orthopedic products are purchased by the end users (typically hospitals) the Taxpayer places the surgical instruments under

“consignment” because once the instruments and kits become obsolete they are returned to the Taxpayer for replacement. The Taxpayer

capitalizes and depreciates these items once they are removed from inventory for this purpose.

(100)

Florida Technical Assistance

Advisement No. 15A-001, 01/16/2015

Question 1: Whether the transfer of possession of “consignment”

surgical instruments, subject to consideration in the form on consignment fees (as per the manual) constitutes a “rental” of the instruments to Taxpayer’s Distributors (who are not

employees).

Answer: The transfer of possession of consignment surgical instruments to Taxpayer’s Distributors in exchange for rental consideration is considered to be rentals of the instruments by Taxpayer. Consequently, absent a properly documented resale certificate obtained from the Distributor, Taxpayer should collect and remit tax on the “gross proceeds” derived from the rentals of the consignment surgical instruments.

(101)

Florida Technical Assistance

Advisement No. 15A-001, 01/16/2015

Question 2. Whether the transfer of possession of “consignment”

implant sample kits, subject to consideration in the form of consignment fees as set forth in the manual, constitutes a

“rental” of the samples to Taxpayer’s Distributors for purposes of Chapter 212, F.S.

Answer: The transfer of possession of consignment implant sample kits to Taxpayer’s Distributors in exchange for rental consideration is considered to be rentals of the kits by

Taxpayer. Consequently, absent a properly documented resale certificate obtained from the Distributor, Taxpayer should collect and remit tax on the “gross proceeds” derived from the rentals of the consignment surgical instruments.

(102)

Florida Technical Assistance

Advisement No. 15A-001, 01/16/2015

Question 3. Whether the transfer of possession of “loaner”

surgical instruments, subject to consideration in the form of the “rental charge” as set forth in the manual, constitutes a “rental” of the instruments to Taxpayer’s Distributors for purposes of Chapter 212, F.S.

Answer: The transfer of possession of loaner surgical

instruments to Taxpayer’s Distributors in exchange for rental consideration is considered to be rentals of the instruments by Taxpayer. Consequently, absent a properly documented resale certificate obtained from the Distributor, Taxpayer should collect and remit tax on the “gross proceeds” derived from the rentals of the consignment surgical instruments.

(103)

Florida Technical Assistance

Advisement No. 15A-001, 01/16/2015

Question 4. Based on the answers to the first three questions above, whether Taxpayer’s removal of “consignment” surgical instruments, “loaner” surgical instruments, and sample implants from Taxpayer’s inventory held for resale, and accompanying handling of these items to prepare them for shipment to Distributors or customers, constitutes a taxable “use” of these items by Taxpayer, for which Taxpayer must accrue and remit use tax to Florida.

Answer: Taxpayer’s removal of consignment surgical instruments, loaner surgical instruments, and sample implants from Taxpayer’s inventory held for resale, and accompanying handling of these items to prepare them for shipment to Distributors or customers for rental transactions, does not constitute a taxable “use” of these items by Taxpayer, for which Taxpayer must accrue and remit use tax to Florida because the transaction is a rental transaction wherein Taxpayer is collecting and remitting tax on the rental consideration received.

(104)

Florida Technical Assistance

Advisement No. 15A-001, 01/16/2015

Question 5. Whether Taxpayer should collect and remit Chapter 212 tax on consignment fees received from Distributors as

consideration for the rental of “consignment” surgical instruments and sample implant kits, only as to instruments and sample kits that are located in Florida during their rental periods, or whether Taxpayer should collect and remit Chapter 212 tax on such

instruments and sample kits located any place in the United States during their rental periods.

Answer: Absent a properly documented resale certificate obtained from the Distributor, Taxpayer should collect and remit Florida sales tax on consignment fees received from Distributors as consideration for the rentals of “consignment” surgical

instruments and sample implant kits, only for instruments and sample kits that are located in Florida during their rental periods.

(105)

Florida Technical Assistance

Advisement No. 15A-001, 01/16/2015

Question 6. Whether Taxpayer should collect and remit Chapter 212 tax on rental charges received from Distributors as

consideration for the rental of “loaner” surgical instruments, only as to instruments that are located in Florida during their rental periods, or whether Taxpayer should collect and remit Chapter 212 tax on such instruments located any place in the United States during their rental periods.

Answer: Absent a properly documented resale certificate

obtained from the Distributor, Taxpayer should collect and remit Chapter 212, F.S., tax on rental charges received from

Distributors as consideration for the rentals of “loaner” surgical instruments, only as to instruments that are located in Florida during their rental periods.

(106)

Florida Technical Assistance

Advisement, No. 15A-002 01/28/15

 The Taxpayer is in a designated brownfield area on which the Taxpayer is the process of constructing low-income housing.

 As long as all of the housing units are designated for persons described in s. 420.0004(9), (11), (12), or (17) and a timely

application for refund is made with paperwork documenting the building materials purchased, and that the building materials were used in the project, then there is an eligible sales tax refund under s. 212.08(5)(o).

(107)

Florida Technical Assistance

Advisement, No. 15A-003, 02/24/15

 Taxpayer owns and operates data centers that house customer’s networking, storage and communications

technology infrastructure, including servers, storage devices, switches, routers, and fiber optic transmission equipment.

 Taxpayer has an MSA with customers whereby the customers can op to pay a “Breakered Power Fee” for power usage.

Monthly fee regardless of actual use, however, a there is max limit based on power circuit breakered capacity limit.

(108)

Florida Technical Assistance

Advisement, No. 15A-003, 02/24/15

 Are these power fees subject to the gross receipts tax? Section 203.01(1)(c)1 provides: The tax imposed under

subparagraph (a)1. shall be levied against the total amount of gross receipts received by a distribution company for its sale of utility services if the utility service is delivered to the retail

consumer by a distribution company and the retail consumer pays the distribution company a charge for utility service which includes a charge for both the electricity and the transportation of electricity to the retail consumer.

(109)

Florida Technical Assistance

Advisement, No. 15A-003, 02/24/15

The power fees charged are not subject to the gross receipts tax, because, Taxpayer is not a distribution company, it charges a set rate based on circuits (not usage) and it does manipulate or purify electricity if buys.

(110)

Florida Te