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Tag Archive for Ryan LLC

Illinois Click-Through Legislation Preempted by Federal Law

TaxConnections Blog Post 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

Court Grants Summary Judgment For California Taxpayers In Technology Transfer Agreement Case

TaxConnections Blogger Richard Carlson posts about California Court CaseOn September 27, 2013, Los Angeles Superior Court Judge Steven Kleinfield ruled in the taxpayers’ favor, granting their motion for summary judgment in the case of Lucent Technologies, Inc. et al. v. State Board of Equalization. (Cal. Ct. App. September 27, 2013)]. This motion was granted in response to an action brought by the taxpayers for the refund of sales and use taxes assessed by the State Board of Equalization on what the Judge ruled to be technology transfer agreements.

Finding several factual similarities, the court relied heavily on the analysis set forth in Nortel Networks Inc. v. California State Board of Equalization. [Nortel Networks Inc. v. California State Bd. of Equal. No. B213415 (Cal. App. Ct. January 18, 2011)]. The court concluded, in its opinion, that there were no triable issues of fact and found, among other things, that the software in question qualified as exempt under the technology transfer agreement statutes. The issue of prejudgment interest was left outstanding due to its absence from the briefs submitted, but a hearing on this issue has been scheduled for November 18, 2013.


Richard V. Carlson, Principal – Ryan, LLC

Dave Naney, Principal – Ryan, LLC

In accordance with Circular 230 Disclosure

Massachusetts Repeals Tax on the Modification of Pre-Written Software and Computer System Design Services

TaxConnections Picture - Computer SoftwareOn 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.

Jeremiah T. Lynch, Principal – Ryan

In accordance with Circular 230 Disclosure

Proposed Regulations Provide Favorable Guidance on Research and Experimentation Expenditures

TaxConnections Picture - U.S.TreasuryThe United States Department of the Treasury and the Internal Revenue Service (IRS) have issued proposed regulations that address several long-standing discrepancies between how taxpayers and the IRS interpret the tax code related to the Section 174 deduction for research and experimentation (R&E) expenditures. The new regulations clarify that the eligibility of R&E expenditures for the tax deduction is not impacted by the subsequent sale of the resulting tangible property, such as a prototype, created through the R&E process.

“Today’s proposed rules provide the tax certainty necessary to reward businesses that invest in innovation,” said Assistant Secretary for Tax Policy Mark J. Mazur. “Research and development are critical to addressing the challenges we face as a nation, and we will continue to pursue opportunities to clarify the tax code in a way that promotes economic growth and job creation.”

These regulations, which are proposed to apply to tax years ending on or after the date final regulations are published, also include a new “shrinking-back” provision and definition of the term “pilot model.” Specifically, the “shrinking- back” provision, which is similar to the research credit rule under Regulation Section 1.41-4(b)(2), addresses expense treatment in which the Section 174 requirements are met with respect to only a component of the larger product but not with respect to the product as a whole. Additionally, the proposed definition of “pilot model” as any representation or model of a product that is produced to evaluate and resolve uncertainty concerning the product includes a fully functional representation or model, which thereby provides for a full-scale prototype to be eligible for the R&E deduction. Read more

New Jersey Issues Guidance on Taxability of Information Services

New Jersey decision on Information Services - Blog PostThe 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

Massachusetts Business Leaders Initiate Repeal of Sales Tax on Computer and Software Services

Repeal of Sales Tax on Computer and Software Services Blog PostJust 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’s Tax Amnesty Program Starts September 16, 2013

TaxConnections Picture - Books_Hour_GlassConnecticut 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

State Sales Tax Holidays Summary For July and August 2013

TaxConnections Picture - Tax FreeAlabama

Back to School Sales Tax Holiday: August 2–4, 2013

State sales tax (or use tax) will not be collected on the sale/purchase of the following “covered items”: 1) articles of clothing with a sales price of $100, or less, per article of clothing; 2) a single purchase, with a sales price of $750, or less, of computers, computer software, and school computer supplies; 3) noncommercial purchases of school supplies, school art supplies, and school instructional material, up to a sales price of $50 per item; and 4) noncommercial purchases of books with a sales price of not more than $30 per book. (Ala. Code § 40-23-211; Ala. Code § 40-23-210; Ala. Admin. Code r. 810-6-3-.65). A county or municipality may, by resolution or ordinance adopted at least 30 days prior to the first full weekend of August, provide for the exemption of “covered items” from county or municipal sales or use taxes during the same time period, under the same terms, conditions, and definitions as provided for the state sales tax holiday.


Back to School Sales Tax Holiday: August 3–4, 2013

State and local sales tax will not be collected on the sale of 1) clothing and footwear with a sales price of less than $100 per item; 2) clothing accessories and equipment with a sales price of less than $50 per item; 3) school supplies; 4) school art supplies; and 5) school instructional materials.


Sales Tax Holiday: Third Sunday in August through the following Saturday (August 18–24, 2013) Read more

Massachusetts Legislature Overrides Governor’s Veto; Passes Transportation Finance Bill

TaxConnections Picture - Gas ChartOn July 24, 2013, Massachusetts lawmakers voted to override Governor Deval Partick’s veto of the Commonwealth’s Transportation Finance Bill (“H.B. 3535”). As a result, the gas tax will increase by three cents per gallon; tax on cigarettes  by one dollar per pack; and computer system design services and the modification, integration, enhancement, installation, or configuration of standardized software will now be subject to sales and use tax. The revenue generated from H.B. 3535, as appropriately entitled, is designed to aid Massachusetts’ transportation systems and projects. The gas and cigarette tax increases, and sales and use tax on computer services are effective July 31, 2013 (seven days from the enactment of H.B. 3535).

“Computer system design services” are the planning, consulting, or designing of computer systems that integrate computer hardware, software or communication technologies and are provided by a vendor or a third party. “Modification, integration, enhancement, installation, or configuration of standardized software” are viewed as services that modify, enable, or adapt pre-written software to meet the business or technical requirements of a particular purchaser and to operate on the purchaser’s computer systems, regardless of how those services are described or billed to the customer. These services may also be described as customization services for pre-written software.

On July 25, 2013, the Massachusetts Department of Revenue released Technical Information Release 13-10 (“TIR – 13-10”), which provides guidance for the application of sales and use tax to these newly taxed computer services. This guidance includes transition rules for existing computer services contracts, sales and use tax filing requirements, and information on sourcing rules, including Multiple Points of Use. Read more

Louisiana Tax Amnesty Starts September 23, 2013

TaxConnections Picture - Louisiana FlagLouisiana revenue officials announced that the state’s 2013 Tax Amnesty Program (“Program”) will begin September 23, 2013 and end November 22, 2013. The Program applies to all taxes administered by the Louisiana Department of Revenue (“Department”), except motor fuels taxes, and provides taxpayers an opportunity to avoid all penalties and to get a waiver of half of the interest that would otherwise be owed on the unpaid taxes. Taxpayers must apply to participate and be approved by the Department to meet the Program’s qualification criteria. In announcing dates for the 2013 amnesty period, Revenue Secretary Tim Barfield said all qualified taxpayers accepted into the Program will receive a letter from the Department accompanied by information about the tax periods and amounts owed, as well as payment instructions that the taxpayer should follow to ensure payment is made before the amnesty ends on November 22, 2013. Barfield also announced that the agency has created a website to provide and update information to taxpayers about the Program.

The previously announced Program was authorized by House Bill 456 (“H.B. 456”), which lawmakers passed, and Governor Bobby Jindal signed into law in June 2013. The bill established parameters for the Program, including the criteria for participation, and directed the Department to offer amnesty in 2013, 2014, and 2015 during periods to be set by the agency.

Amnesty is available for the following taxes: Read more

California Phases Out Enterprise Zones, Creates New Sales Tax Exemption

TaxConnections Picture - NewsCalifornia is phasing out its Enterprise Zone Program (“Program”) and replacing it with three new tax incentives, including a statewide sales tax exemption for some manufacturers and biotechnology companies. The changes were authorized by Assembly Bill 93 (“AB 93”), which passed the state Senate on June 25, 2013 and was approved by the Assembly on June 27, 2013. The bill was signed Thursday, July 11, 2013 by Governor Jerry Brown, who had earlier issued a statement calling AB 93 “a big bipartisan win for California businesses and working people. AB 93 will help grow our economy and create good manufacturing jobs.” On July 3, 2013, the Assembly passed Senate Bill 90 (“SB 90”), which further refined some of the changes that had been adopted in AB 93 and that was also signed on July 11, 2013.

The Program provided businesses operating in designated enterprise zones with certain tax preferences under both the state corporations tax and personal income tax, including an income tax credit for sales tax paid on certain business purchases, hiring credits, net interest deductions, business expense deductions, and net operating loss deductions. AB 93 eliminates the Program effective January 1, 2014, subject to the following:

• Unused sales or use tax credits may be carried forward for ten years.

• Unused hiring credits may be carried forward for up to ten years or through December 2023.

• The net interest deduction may be applied to interest received before January 1, 2014. The deduction will expire for taxable years beginning on or after January 1, 2014, and officially withdrawn on December 1, 2014. Read more

California’s Computer Software Exemption Remains In Jeopardy

TaxConnections Picture - Computer SoftwareIn the aftermath of a 2011 court defeat involving software taxation, California revenue officials appear poised to seek legislative assistance in undoing the court’s ruling and imposing sales and use taxes—retroactively—on a wide variety of computer software programs. California broadly levies taxes on the sale or use of tangible personal property in the state. However, there is a statutory carve out from these taxes for computer software provided to a user under the so-called Technology Transfer Agreements (TTAs). In recognition of the notion that software is intangible property, these taxes apply in the case of a TTA only to the value of any tangible medium, such as a disk or magnetic tape, on which the licensed program may be transferred to the software user.

The State Board of Equalization (BOE), which administers these taxes, had, by rule, limited the favorable treatment for TTAs to transfers of custom software, not pre-written, or “canned” software programs. In Nortel Networks, Inc. v. Board of Equalization, 191 Cal. App. 4th 1259, 119 Cal. Rptr. 3d 905 (2011), the California Court of Appeals invalidated these rules and awarded the telecommunications equipment maker a multimillion dollar refund.

The California Supreme Court declined to review the decision, leaving taxpayers with a clear victory. But, for two years, the BOE has refused to give up the fight. The agency acknowledged that it is holding back millions of dollars of refund claims filed by other taxpayers. All the while, the BOE appears to be searching for ways to eliminate taxpayer rights to recover or to dramatically reduce the amounts they are entitled to receive:

• It has mounted a collateral challenge—this time against Lucent Technologies, Inc. — in a Los Angeles courtroom in an attempt to re-litigate the Nortel issues. Read more