Articles Posted in State and Local Tax Attorney

Published on:

Imagine having an online business.  One day, you decide to use Amazon’s Fulfillment By Amazon (“FBA”) services.  Unbeknownst to you, your inventory is stored by Amazon in several states.  One day, you get a letter from the Department of Revenue.  The letter says that because you have nexus with that state, you must collect sales tax on sales to customers of that state.  Your first thoughts are “what is nexus” and “why does that mean I have to collect sales tax, especially when my store is not in that state?”

Many states assert a business has nexus (that is, a connection) with that state merely by having inventory present in the state.  It is irrelevant there are no employees, independent contractors, or office locations in the state.  Rather, you, like many other online sellers, used Amazon’s FBA services.

Amazon’s FBA service stores your inventory across the country.  Consequently, these states declare you, and any other seller with inventory in the state through Amazon’s FBA service, have nexus.  Thus, you must collect sales tax on sales to customers located in the state.  This article discusses nexus and the application to remote sellers that only have inventory stored in these other states by Amazon.  The article goes on to explain the sales tax implications for sellers using Amazon FBA services.

Published on:

In the United States, tipping at restaurants is never really optional. While customers are the ones who write in a tip on their bills at their discretion, it is generally expected to leave 15-20%.  Occasionally when large parties visit a restaurant, a mandatory tip is imposed by the restaurant on the bill. This ensures that servers, who may dedicate a large portion of their shift to a particular party, do not leave empty handed.

But when a tip is mandatory, is it really a tip? Or is it actually part of the food price? This was the question addressed by the Idaho Supreme Court. While tips are generally not taxable, restaurant food is taxable. When a tip becomes requisite payment for restaurant food, it becomes no different in substance than the sales price on the menu. As a result, if mandatory tips are, in fact, part of the sales price, then they too are subject to tax. Yes, that means you have to pay tax on the tip.

While the consequence of paying tax on mandatory tips only adds a small amount to the total bill, the cumulative effect can be substantial on the restaurant. This was the experience of an Idaho restaurant, Chandlers’-Boise LLC, that was found liable for sales tax on the amounts it automatically added to customer checks. The restaurant, which added gratuity to parties of six or more, argued in Chandler’s-Boise, LLC v Idaho State Tax Comm’n. 398 P.3d 180 (Idaho 2017), that such tips were exempt under Idaho law.

Published on:

Over the past several decades nexus has been at the forefront of the state and local tax world.  Since the Quill ruling in 1992, states have aggressively created ways in which a company can have a sufficient connection to their state.  Once the connection, or “nexus,” is made, a state can require a company to charge collect and remit sales tax to it.  As the economy has changed more to an online model, states continue to play catchup to get their fair share of the taxes.

Perhaps the most popular issue on a national multi-state tax level is whether a company has nexus with a state if they use the Fulfillment by Amazon (FBA) services.  In short, if Amazon houses a company’s inventory in a distribution center, does that inventory create nexus – ie – an obligation for that company to collect and remit taxes to that particular state.  That question has been affirmatively answered in most jurisdictions and companies have been blindsided by huge tax obligations often spanning many years.

For those companies that have been living in fear of large tax assessments, a Multi-State Tax Amnesty was recently released by the Multi-State Tax Commission (MTC).  Effective August 17, 2017 through October 17, 2017, several states will allowed companies who used FBA programs to come forward and comply.  Under the program, if a company complies, the state will forgive back taxes, interest and penalties in exchange for several requirements on a go forward basis.   To date, the participating states are:

Published on:

Tennessee has issued a notice stating that tours fall under the definition of “amusement” and are subject to sales and use tax. While amusements typically appear as places of amusement, such as amusement parks, concerts, and other shows, Tennessee also includes tours under that definition.

The first category of tours includes tours by vehicle. Included in this category are trolley tours, river cruises, and bus tours. Pub crawl tours on group bicycles probably fall under this category as well. Meanwhile, the second category of tours that are included under the definition of “amusement” are ghost tours, plant tours, pub crawls, etc.

This clarification is important for a state with a substantial amount of tourism. As the country music capital of the world, Nashville attracts many visitors who participate in these tours. However, the Department acknowledged that it is important to remember that exemptions exists to this rule. For example, tours conducted by a nonprofit, government agency, or for a Tennessee historic property are exempt from tax.

Published on:

As it turns out, Colorado really was just the beginning. As of January 1, 2018, Washington will begin requiring remote sellers to either remit sales and use tax or comply with reporting and notice requirements similar to those in Direct Mktg. Ass’n v. Brohl (DMA IV), 814 F.3d 1129 (10th Cir. 2016). Who is subjected to this burden in the land of Nirvana and the Space Needle? Remote sellers with gross receipts in the current or preceding year of at least $10,000 are, which makes Washington state another to skirt around Quill, the SCOTUS case that requires actual, physical presence for a state to have nexus with a taxpayer, with a reporting requirement.

But the legislative change goes further. Not only are retailers who make income from sales within the state required to follow this, but referrers who receive income from referral services within the state are subject to it as well if the total gross income from that is at least $267,000.

With 33 states facing revenue shortfalls in fiscal years 2017 and 2018, there is no doubt a need to increase taxes. However, states can go about this in a wide variety of legal ways. They can expand the tax base by taxing services or currently nontaxable technology. They can even increase the tax rate if they want to. Instead, Washington is imposing these reporting requirements to reach companies with whom they fail to meet the nexus standard to impose collecting and remitting requirements.  This overreaching of the states will likely be challenged. The question is: by whom?

Published on:

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.

Published on:

Over the past several years software as a service (“SaaS”) has been a booming industry.  Pioneers in the cloud computing industry, like Salesforce, have developed web based applications that offer a wide range of services to the user.  Driven by competitors such as Microsoft, Adobe, Sap, ADP, Oracle, IBM, Intuit and Google, the SaaS industry has become a $204 billion industry and grown by more than 16% last year.

Traditionally, from a sales tax perspective, states tax the sale of tangible personal property but not services.  While many states adhere to that mantra, several states have moved towards taxing software despite being intangible in nature.  Still, it can be difficult to determine whether SaaS is more like a software, which may be taxable, or if it feels more like a service provided, which is not taxable in many states.

States have been consistently inconsistent across the country in determining whether to tax SaaS.  States often have similar statutes and reach completely different conclusions in their quest to analyze SaaS.  Further, many situations occur in which a state can treat two seemingly similar SaaS companies differently within their own state.  In an attempt to comply, companies often struggle with charging the appropriate sales tax in the correct state and/or their state income tax obligations, with respect to SaaS.

Published on:

If states could impose tax on every company that makes a sale within its borders, they would. Luckily, the Commerce Clause of the Constitution requires something known as “nexus,” or a connection, between a company and state in order for that company to be subject to state and local taxes. The standards for nexus can be ambiguous, particularly in recent years as a result of the radical changes to traditional business models that have occurred with the internet.

While nexus may seem easy to determine using the physical presence test, the definition of physical presence has in fact been something that courts across the country have struggled with since the beginning. That struggle has only become increasingly complicated with the internet and virtual marketplaces that no longer require a company to open a brick and mortar shop everywhere it wants to sell its products.

Recently, Washington state has found nexus with a company that made wholesale sales through infomercials. This particular company sent employees to Washington to participate in trade shows and other promotional events. However, they did not have a physical business location within the state.

Published on:

Hawaii was the most recent in a line of states to take a stance in the long tax battle between online travel companies, such as Priceline, Expedia and Orbitz, and states over what is commonly referred to as “tourist development taxes,” or “bed taxes.”  Over the last couple of years, states have fallen on both sides of the issue of whether hotel rooms are taxable at the price a hotel receives for a room or the price that an online travel company sells a room.  The Hawaii case, Travelocity.com, L.P. v. Hawaii Director of Taxation, involves two taxes, the first of which is called a “GET” or “general excise tax,” and the second of which is called a “TAT” or “transient accommodations tax.”

The 2015 court decision has been clarified this month in an announcement by the state that online travel companies were in fact liable for the “GET,” along with any penalties for late payment, on their portion of the sale price for hotel rooms located in Hawaii. However, online travel companies are not liable for the “TAT.” This is similar to states like Florida, in which the amount the online travel company receives for the rental of a room within Florida is not subject to local tourist taxes.

The state reasoned that the portion of the sale that online travel companies receive is in fact for “occupancy rights” that are used in their entirety within the state of Hawaii when the sale is for a room within the state. Under that reasoning, the state determined that the revenue made by the online travel companies is subject to Hawaii state tax.

Published on:

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.
Continue reading