TWIST - January 13, 2020

Summary of state tax developments in Colorado, Michigan, Missouri, and a Multistate update on Wayfair.

Weekly TWIST Podcast Overview

Hello, this is Sarah McGahan with KPMG’s WNT state and local tax practice. If you’re a regular reader or listener of TWIST, you’ll realize that we are trying something new this week. Instead of reading the long scripts describing the cases or legislation for the week, I’m going to briefly summarize the developments. Longer write-ups are available on the TWIST webpage.

So, what happened last week? Well, the developments we are concentrating on this week are actually mostly developments addressing local taxes. First up is Colorado. As many of you know, Colorado has home rule jurisdictions that impose and administer local sales and use taxes. This first development is an appeals court case out of Colorado addressing whether a movie theater taxpayer owed City of Aurora use tax on its Master Licensing Agreements. These are the agreements that allow theaters to show films to customers. Now, it was pretty well settled that the taxpayer owed use tax when it obtained the films in 35 millimeter form. However, the taxpayer had started receiving digital files via a portable hard drive and argued that, given the change in method of obtaining the films, these transactions were no longer subject to use tax. The taxpayer also argued that it entered into the MLAs for resale purposes. The court rejected both of these arguments. In the court’s view, the true object of the licensing agreements were for the taxpayer to obtain, for the designated timeframe, tangible personal property that was inseparable from its intangible attributes. The court also held that the taxpayer was the end user and consumer of the films and they were not exempt from use tax as sales for resale.

Another decision we are covering this week is a Missouri Supreme Court opinion addressing whether a telecommunications company owed license fees to certain localities on its telecommunications service revenues. The lower court had ruled in the localities’ favor and, in addition to back taxes, also awarded the cities pre- and post judgement interest and attorney’s fees. The Missouri Supreme Court affirmed. Finally, the third development we are covering today is a nexus case from the City of Detroit. This case has a long history- it started in the Michigan tax Tribunal where in 2017 the court held the taxpayer largely did not have City of Detroit nexus because it lacked a physical presence in the City. The Tribunal decision was affirmed by the court of appeals and the City appealed to the State Supreme Court. Well, interestingly, the case is now back with the Tax Tribunal to reconsider the holding in light of the Wayfair decision. Interestingly, the tax years and the original Tax Tribunal decision pre-dated Wayfair.  Finally, in Wayfair news, Illinois issued an emergency regulation providing guidance on its marketplace facilitator law that became effective 1/1/20. If your company is a marketplace facilitator or a marketplace seller, I encourage you to read this regulation. Because of Illinois’ rather unique sales and use tax regime, there are some nuances that need to be considered. In sum, marketplace facilitator collect only on transactions subject to Use tax, not Retailer’s Occupation Tax or ROT. If the sale is subject to ROT, the duty to collect remains with the seller. There are some examples in the regulation that provide some insight on when a marketplace facilitator must collect. Finally, on January 6, 2020, the Alaska Remote Seller Sales Tax Commission approved a uniform ordinance addressing the sales tax obligations of remote sellers and marketplace facilitators. The Commission was created to administer and enforce sales tax collections on remote sales made into local jurisdictions that are or become members of the Commission. Currently, there are 22 local governments that are members of the Commission. 

I hope you enjoyed this TWIST update. As I mentioned before, there are longer summaries of these cases and developments available via the links below. Talk to you next week.

This Week's Developments

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Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US