Sales and Use Tax

Published on: June 28, 2016

A Win for Local Cable Companies in the Supreme Court of Utah

On December 14, 2015, the Supreme Court of the State of Utah issued its ruling in the case of DIRECTV and DISH Network v. Utah State Tax Commission. At issue in this case was a tax scheme that provided a sales tax credit for “an amount equal to 50%” of the franchise fees paid by pay-TV providers to local municipalities for use of their public rights-of-way.

The franchise fees were imposed for the running of cable and the construction of hubs on public property. Therefore, it is exclusively cable providers who pay franchise fees and qualify for the credit. Meanwhile, satellite providers such as DIRECTV are not subject to franchise fees and do not qualify for the tax credit.

DIRECTV argued that the tax credit was a violation of the dormant commerce clause of the Constitution. The dormant commerce clause is a legal term that means that states cannot either discriminate against interstate commerce or unduly burden interstate commerce because the power to do is in the hands of Congress. From a practical perspective, allowing 50 states to regulate interstate commerce differently would cause complete chaos, so the federal government wants to reserve that power for itself. Furthermore, states’ motivation to help their own local businesses would weaken the national economy as a whole.
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Published on: June 23, 2016

Tennessee Jumps into the “Economic Nexus” Bandwagon

By Jerry Donnini, Esq.

Since Quill in 1992, states only have the power to impose taxes on businesses if they have a “physical presence” in the State. For example, in order for a state to be allowed to require a company to charge sales tax, the company must have a place of business in the State, employees in the State or have a representative in the State. However, as the economy has shifted, more and more States are enacting an “economic nexus” to impose a tax on businesses.

But, what is economic nexus?
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Published on: April 18, 2016

Florida Appellate Court Rules Against DBPR in Blunt Wraps Case

By Jerry Donnini, Esq.

Our firm has been extremely involved with Florida’s wholesale tobacco tax for the past several years. Since Micjo in 2012, the Florida wholesale tobacco tax area has been fraught with seemingly endless litigation. In addition to the Micjo litigation, which focused on whether Florida tax applied to Federal Excise Tax (“FET”), there was another parallel of litigation which centered on a product called a blunt wrap or a cigar wrapper. Florida’s 1stDCA spoke loud and clear on April 6, 2016, by determining that the Wrap product is not subject to Florida tax, which appears to be a giant step towards putting an end towards at least 1 important issue for the industry.
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Published on: April 4, 2016

OTC’s On the Hook for Bed Tax in Maryland

By Jerry Donnini, Esq.

State and local governments are continually searching for ways to increase revenue through taxation of online companies conducting business within their state or county. One such way is by assessing a rental tax against online travel companies (“OTCs”).

OTCs typically facilitate the rental of a hotel room for vacationers and charge a fee for their services. OTCs play a significant role in the hotel rental business by providing consumers with a variety of choices based on price, location, and other factors. OTCs also provide benefits to hotels through promotion and advertising, and providing the ability for vacationers to rent a room at a lower price. Further, OTCs increase hotel occupancy rates and promote tourism thereby creating revenue for state and counties.
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Published on: March 24, 2016

South Dakota Enacts Nexus Standards

By Jerry Donnini, Esq.

Yet another state jumped on the band wagon to force out-of-state companies to collect and remit state tax. Specifically, South Dakota recently passed legislation adding sales and use tax collection requirements for out-of-state businesses conducting sales within the state. The legislation continues the trend of states enacting aggressive nexus statutes aimed at out-of-state online retailers.

The concept of nexus is derived from the Commerce Clause and the Due Process Clause of the United State Constitution. Essentially, these Federal limitations limit the ability of a state to tax business that takes place outside of the state. However, if a business has enough of connection to a state, then the state can force the business to abide by its state and local tax laws.

In Quill Corporation v. North Dakota (U.S. 1992), the U.S. Supreme Court held that nexus required a physical presence of the business within the state to require a business to follow a state’s state and local tax laws. The physical presence requirement has resulted in much litigation throughout the country. Essentially, there has been confusion as to how much of a connection to a state is required before a physical presence is established.

Published on: March 21, 2016

Wisconsin Follows the Online Travel Company Trend

By Jerry Donnini, Esq.

I have been writing about the taxability of the online travel companies for some time. Recently, the Florida Supreme Court case of Alachua County v. Expedia, Inc., ruled that the local bed tax should be imposed on the amount the hotel received rather than the higher amount the customer pays the Online Travel Company (“OTC”). Similarly, the Court of Appeal of Wisconsin recently held that reservation facilitation services are not among the taxable services enumerated in section 77.52(2)(a)1, Wisconsin Statutes.

In the Wisconsin case, the Wisconsin Department of Revenue (“WDOR”) attempted to assess tax on any “internet service provider” that provides lodging throughout Wisconsin. The WDOR argued that the markup amount retained by the internet service provider is subject to tax under section 77.52(2)(a)1, Wisconsin Statutes.

However, the law worked very differently. Specifically, in Wisconsin, section 77.52(2)(a)1, Wisconsin Statutes, tax is only imposed on “the furnishing of rooms or lodging to transients by hotelkeepers, motel operators and other persons furnishing accommodations that are available to the public, irrespective of whether membership is required for use of the accommodations.” The crux of this case turns to the word “furnishing.” Is an online travel company “furnishing” a hotel room?

Published on: January 13, 2016

Saturday’s Challenge to Cleveland Income tax for NFL Players

By Jerry Donnini, Esq.

In 2015, two cases highlighted important victories for athletes in personal income tax cases. Athletes often make very comfortable salaries for performing at the highest level within their profession. Along with the success of the job, comes traveling and performing in many cities. Being that professional athletes get paid on a game by game basis, state income taxes can also become somewhat complicated. Should athlete’s get paid based on their home state or city? Should they get paid based on the number of games they play in a particular city or state? Or should some different formula apply?

The City of Ohio was in the limelight in 2015. In Ohio, the city collects a personal income tax, along with the state. IN addition, Cleveland uses the “games-played” method to calculate the amount of an athlete’s income attributable to Ohio. In other words, in order to calculate Cleveland income, the athlete divides the number of games played in Cleveland by the total number of games played. As a result, Cleveland gets its fair share of the tax. Seems fair right?

As an example, take a typical NFL season with 16 regular season games and 4 preseason games or 20 total games. If an athlete only played 1 away game in a particular season, typical of an NFL season, then the ratio would be 1 game in Cleveland divided by 20 games or 5 percent of each player’s annual income allocated to Cleveland.

Published on: November 24, 2015

Class Action Takes on Pizza Delivery Fee in Florida

By Jerry Donnini, Esq.

Few understand or even bring up sales tax issues when they order pizza. The next time you order pizza, take a look at the receipt and see if the pizza shop charges you for the delivery. Taking it a step further, what happens if you purchase an item and pay for shipping charges? Is tax due on just the item, or is it also due on the delivery charge as well? The answer depends largely on whether the delivery charge is separately stated and if it is optional. This issue will be in center stage for a recent class action filed in Broward County against Pizza Hut.

Lauren Minniti, the class representative, purchased a pizza from Pizza Hut and had it delivered. Pizza Hut allegedly charged her tax based on the charge for the pizza and for the separately stated delivery fee instead of tax on the pizza alone. Was this correct?
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Published on: August 26, 2015

Colorado – Blunt Wraps are Not Tobacco Products

By Jerry Donnini, Esq.

In December 2006, the Colorado Department of Revenue (“DOR”), on its own volition, unilaterally decided to increase their revenue stream by taxing more tobacco products. Taxpayers were given an FYI Notice stating that all products containing any amount of tobacco would be considered “tobacco products” within the meaning of the statute. When that was challenged in Creager Mercantile Company, Inc. v. Colorado Department of Revenue, the DOR issued a final determination that blunt wraps sold by Creager were “tobacco products” within the meaning of the statute despite not having any authority from the legislature to make such a determination. The taxpayer decided to fight back.
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Published on: August 6, 2015

Holiday in August! – FL DOR Sales Tax Holiday Has Arrived!

By Jerry Donnini, Esq.

With the every-so-exciting Florida Sales Tax Holiday (“Holiday”) running August 7th through August 16th, all Floridians must become knowledgeable so that we can maximize our savings as buyers. The Holiday does not solely apply to Parents and Students looking for their essential pencil sharpeners, the Holiday applies to all sales throughout Florida–so thrilling! Just think about all the wonderful school supplies you could stock up your office drawers this upcoming week. Like everything that seems too good to be true, this 10 day Holiday has a few rules that must be discussed. The following are the limitations for the Holiday:

• Clothing selling for $100 or less per item;
• Footwear selling for $100 or less per item;
• Certain Clothing Accessories selling for $100 or less per item;
• Certain School Supplies selling for $15 or less per item (Note – This does not include books); and
• Personal Computers and Certain Computer-Related Accessories on the first $750 of the sales price, when purchased for noncommercial home or personal use.
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