Multi-State Tax Law Blog
Earlier in 2017, Premier Netcomm Solutions LLC (“Premier”) lost on reconsideration in New Jersey tax court. The case dealt with the taxability of software as a service (“SaaS”) dating back to an audit from 2004 through 2005. After initially beating for state, the court overturned a prior decision on reconsideration, which ultimately upheld New Jersey’s tax assessment.
Premier seems to be a classic IT provider in that it provides services such as network supports, internet access, consulting and design of IT and telephone projects, trouble shooting, remote training, data back-up, and network monitoring for businesses. In the original decision, the court sided with Premier that its sales were not subject to sales tax. The court concluded that prior to 2005, sales of services related to prewritten software were not taxable. In so doing the court invalidated New Jerseys tax assessment against Premier.
Unhappy with the decision, New Jersey’s Division of Taxation sought reconsideration, which is very difficult to prevail on. The Court seemed to grant reconsideration because the original case erred fundamentally on its analysis. Primarily, the court originally believed the law did not tax such services until its 2005 amendment. However, the amendment was really based on New Jersey’s membership into the Streamline Sales and Use Tax Agreement (“SSUTA”) in 2005, which required it to adopt a uniform definition. Therefore, based on a 2004 Bulletin, the court reconsidered the case and ruled that the services were and have been subject to tax since 2004.
SaaS type transactions can be very difficult to analyze from a sales tax perspective. The laws are often inconsistent from state to state and seemingly similar services can be treated differently within the same state. It is often advisable for a company to get a state and local tax attorney to determine if there service is subject to tax in various states, and, if so, what can be done to mitigate exposure. It is even more frustrating to have a court invalidate an assessment only to come back later and tax it on reconsideration.
About the Authors: Gerald “Jerry” Donnini II is a partner of the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Donnini concentrates in the area of Florida and Federal tax matters, with a heavy emphasis on the tobacco, convenience store and petroleum industries . He also handles a myriad of multi-state state and local tax issues. Mr. Donnini is a co-author for CCH’s Expert Treatise Library: State Sales and Us Tax and writes extensively on multi-state tax issues for SalesTaxSupport.com.