On February 5, 2014, the North Carolina Department of Revenue (the “Department”) began its Trust Tax Recovery Program, which offers amnesty to qualifying companies owing collected but unpaid trust taxes. The Department describes trust taxes as those taxes paid by a customer to a seller or withheld from an employee, and held in trust by the business until filed and paid to the Department. This broad definition encompasses taxes owed on motor vehicle leases and rentals, sales and use taxes, scrap tire and white goods disposal taxes, and certain other withholdings. Also included are use taxes collected on a remote sale to an individual in North Carolina. Use tax liability for certain transactions where tax was not paid to a seller at the time of purchase is not within the definition of trust taxes, as the tax is not the possession of the seller. Read more
Archive for Jeremiah Lynch
On February 11, 2014, the United States Court of Appeals for the District of Columbia Circuit (the “Court of Appeals”), in the case of Loving v. Internal Revenue Service, affirmed an order of the District Court enjoining the Internal Revenue Service (IRS) from enforcing regulations related to paid tax-return preparers. The subject regulations were issued by the IRS in 2011 and purported to require paid tax-return preparers to pass a qualifying exam, pay annual registration fees, and meet certain professional continuing education requirements.
The IRS argued it had authority to regulate tax-return preparers based on 31 U.S.C. § 330, which authorizes the IRS to “regulate the practice of representatives of persons before the Department of Treasury.” The Court of Appeals disagreed, describing the IRS’s Read more
Maryland’s annual Shop Maryland Energy sales tax holiday begins at 12:01 a.m. February 15, 2014 and ends at 11:59 p.m. February 17, 2014. Now in its fifth year, the program allows for the waiver of the state’s 6% sales tax on qualified Energy Star appliances purchased in Maryland during this period. Energy Star products are those products designated as meeting or exceeding the Environmental Protection Agency’s efficiency requirements for the program.
The sales tax holiday applies to Energy Star labeled:
• Air conditioners,
• Washers and dryers, Read more
On Tuesday, January 21, 2014, Governor Andrew Cuomo of New York announced his executive budget for 2014-2015. Included in the budget are a number of tax reforms geared towards accomplishing the policy goals also outlined in the budget announcement, among them simplifying the tax code and reducing rates and assessments. Manufacturers are the recipients of a few of these reduced assessments. The budget provides for a 20% credit on property taxes paid by manufacturers who own property, and “upstate manufacturers” have their tax rate on income eliminated entirely, from a previous rate of 5.9%. Similarly, the 18-a temporary assessment on utilities has been eliminated for industrial customers, three years in advance of its scheduled expiration date. Read more
On January 22, 2014, Massachusetts Governor Deval Patrick announced his budget for fiscal year 2015. While much of the budget is focused on investments in infrastructure and education, those in the tax community will be particularly interested in the proposition to close tax loopholes the Governor has attempted to close in past years. Included among these loopholes, according to the summary, is a proposition to impose tax on the markup that online travel companies receive. Similarly, the budget proposes to apply the room occupancy tax on new forms of transient rental, such as apartments, condos, and homes. The budget seeks to close another loophole by applying the corporate tax rate to pass-through entities owned by insurance companies and security corporations.
The budget summary anticipates that closing these loopholes will raise $40 million but Read more
Effective December 3, 2013, New Jersey residents and non-residents may enter into a Voluntary Disclosure Agreement (“VDA”) with the New Jersey Division of Taxation (“Division”) for unfiled personal income tax. The VDA program is not available to anyone who is currently under criminal investigation, has been contacted by the Division for delinquencies or deficiencies, or is attempting to amend a previous individual return.
Requests to enter into a VDA must be in writing and contain the tax years at issue and the reason(s) for not filing. The Division reviews the VDA request and rejects or confirms the taxpayer’s request. When a taxpayer is granted a VDA, the Division waives the late filing and payment penalties for the years covered by the agreement. The taxpayer receives a 5% post amnesty penalty and must pay statutory interest. Upon completing all duties Read more
The Supreme Court of the United States earlier today, declined to hear argument on two cases involving online retailers.1 In the cases of Overstock.com, Inc. v. NY Dept. of Taxation, et al. and Amazon.com LLC, et al. v. NY Dept. of Taxation, et al., the Court denied writs of certiorari without comment, effectively staying out of the dispute for now but leaving the status quo undisturbed. The New York Court of Appeals, the highest court in the state, had previously rejected arguments from the plaintiffs that New York is violating the US Constitution by requiring companies to collect sales tax from customers without having a physical presence in the state.
In 1992, the Supreme Court determined that physical presence is a requirement for establishing nexus between a company and a state for purposes of sales tax.2 The recent advent of state-level “Ecommerce laws” and the Federal Marketplace Fairness Act (currently held up in committee) has reignited the debate over physical presence as a requirement for Read more
The Supreme Court of Illinois recently affirmed a lower court’s ruling that the state’s click-through nexus legislation was preempted by a federal law governing taxes placed on electronic commerce.
In 2011, the Illinois General Assembly enacted Public Act 96-1544,1 which added new click-through nexus legislation and sought to tax a common contractual arrangement known as “performance marketing.” In performance marketing, an online retailer contracts with an individual to place hyperlinks for a retailer’s website in consumer-targeted or high-volume areas, as a means for creating online presence and directing potential customers to the retailer’s website. Illinois’s legislation sought to establish nexus with retailers making more than $10,000 per year through performance marketing relationships.
The Performance Marketing Association, Inc. (“PMA”) filed a complaint against the representative for the Illinois Department of Revenue, seeking declaratory and injunctive relief from the click-through nexus element in Public Act 96-1544. The circuit court of Cook County sided with PMA, finding that the click-through nexus legislation was preempted by the Internet Tax Freedom Act (ITFA), 2 which prohibits “multiple discriminatory taxes on electronic commerce.” Accordingly, the circuit court granted PMA’s motion for summary judgment. Read more
Massachusetts Repeals Tax on the Modification of Pre-Written Software and Computer System Design Services
On September 27, 2013, Governor Deval Patrick signed into law Massachusetts House Bill 3662 (“H.B. 3662”), which repeals the Commonwealth’s sales and use tax on computer system design services and the modification, integration, enhancement, installation, or configuration of pre-written software recently implemented by House Bill 3535 (“H.B. 3535”). H.B. 3535 became effective July 31, 2013, a mere 58 days ago. The repeal applies retroactively to July 31, 2013, with companies required to return to customers any sales tax collected for these services.
The Massachusetts Senate voted unanimously for the repeal, and the House of Representatives had only a lone dissenter. The Legislature originally passed the law by overriding the Governor’s veto of H.B. 3535 by a vote of 123-33 in the House and 35-5 in the Senate. The tax on computer system design services and the modification, integration, enhancement, installation, or configuration of pre-written software was expected to raise $160 million for the Commonwealth’s transportation systems and projects.
TECHNICAL INFORMATION CONTACT:
Jeremiah T. Lynch, Principal – Ryan
The New Jersey Department of Taxation issued Publication ANJ–29, which offers new guidance regarding what constitutes a taxable information service. New Jersey sales tax applies to the collection, compilation, or analysis of information, where the purpose of the transaction is the information itself, not a related professional service. Known as “information services,” these transactions commonly include sales of mailing lists, market research reports, and credit reporting services. Sales of information services can also include fees charged for access to information, such as stock quotes or legal research, delivered in any medium, electronic or tangible.
Information services do not include the furnishing of data for the purposes of a larger professional service. For example, a lawyer who gathers personal information about a client during the course of representation is doing so for purposes of legal representation. In this instance, the object of the transaction is not information collection itself. As such, the transaction would not qualify as a taxable information service. Along the same lines, transactions for the sale of data that are personalized, and not incorporated into reports furnished to others, are similarly not taxable information services. Custom market research reports, for example, are created for one client and not for outside distribution, and are therefore not taxable. Read more
Just weeks after passing the Commonwealth’s Transportation Finance Bill (“H.B. 3535”) through a legislative override, twenty top business leaders in Massachusetts filed an initiative petition to the state’s attorney general to repeal the law that made various computer services subject to sales and use tax. H.B. 3535 was passed into law on July 24, 2013 and took effect a week later on July 31, 2013. If the Attorney General deems the petition constitutional, the petitioners must collect 68,911 certified voter signatures by December 4, 2013. The Legislature will then view the petition and determine whether to repeal, modify, or take no action. If the Legislature takes no action, the petitioners will need to collect an additional 11,485 signatures. At that point, Massachusetts voters would decide whether to repeal the tax when they head to the polls in November of 2014. Besides business leaders moving to repeal the bill, Massachusetts State Senator Karen Spilka (D-Ashland) filed petition, S.D. 1872, to repeal the new sales tax. Senator Spilka previously voted in favor of H.B. 3535.
H.B. 3535 has created quite a buzz around Massachusetts, as businesses scramble to understand and properly apply sales and use tax to computer system design services and the modification, integration, enhancement, installation, or configuration of standardized software. As of August 9, 2013, the Massachusetts Department of Revenue publication Frequently Asked Questions: The New Computer and Software Services Tax Effective 7/31/13 had ballooned to fifty five questions, as the department continues to add new questions submitted by taxpayers. The Read more
Connecticut Department of Revenue Services (“Department”) will conduct a tax amnesty program (“Program”) during the period of September 16, 2013 until November 15, 2013 for any taxable period ending on or before November 30, 2012 (House Bill 6704, enacted June 18, 2013 and effective July 1, 2013). The Program applies to all taxes administered by the Department, with the exception of the motor carrier road tax. The Program is available to delinquent, deficient, and non-filer taxpayers. If an amnesty application is filed along with the payment of tax and interest during the amnesty period, the Department will not seek criminal prosecution or collect any civil penalties.
Under the Program, the Department will calculate interest at 1% per month on tax that is past due. However, taxpayers that make payment of all outstanding taxes and interest during the amnesty period will have the interest reduced to one-quarter of what is due. Taxpayers that have not filed a return for the period for which amnesty is sought are subject to a 25% penalty in addition to tax and interest.
Amnesty applications that are granted will serve as an express and absolute waiver of any judicial or administrative rights of appeal for the taxpayer. Further, no payment made by a taxpayer under the Program is eligible to be refunded or credited to the taxpayer.
Amnesty is not available for: Read more