TWIST - February 10, 2020

Summary of state tax developments in Arizona, Colorado, Louisiana, Massachusetts, and a Multistate update on Wayfair.

Weekly TWIST Podcast Overview

Welcome to TWIST for the week of February 10th. This is Sarah McGahan from KPMG’s Washington National Tax state and local tax practice. If you are a regular TWIST reader or listener, you probably noticed we are trying something new this year. Instead of reading longer summaries of each development, we are doing a round-up of the week’s happenings in our podcast and longer write-ups on the developments we discuss are available on the TWIST webpage.

So, first up this week.  In Massachusetts, the Supreme Judicial Court affirmed an Appellate Tax Board decision holding that a taxpayer’s remotely accessed software products were taxable sales of prewritten computer software. A departmental regulation extends the sales and use tax to transfers of rights to use software installed on a remote server. In the taxpayer’s view, the regulation extending the sales tax to remotely accessed software was invalid as it went beyond the scope of the statute which specifically referred to transfers of software.  The court agreed with the Board in determining that there had been a taxable “transfer” when customers purchased the right to use the taxpayer’s software on a remote server.

In Arizona, the court of appeals rejected a taxpayer’s argument that exemptions applicable to mining machinery and equipment extended to dyed diesel fuel used to power equipment used in mining or processing. The court acknowledged that although the diesel was vital to the mining operations, it was not equivalent to the machinery and equipment that it powered and did not function like items traditionally thought to be machinery or equipment.  Further, the court observed that if the legislature had wished to exempt dyed diesel fuel from the TPT, it would have done so plainly.

In Wayfair-related news, In Colorado the Department of Revenue recently issued a private letter ruling to a taxpayer that was considering entering the vehicle-sharing or peer-to-peer car sharing business as a platform operator. The ruling explains that the company would be considered the lessor of the vehicles and would be required to collect and remit sales tax and the daily car rental fee. Three states - West Virginia, Nebraska and North Carolina issued guidance addressing the sales tax obligations of marketplace facilitators. The Nebraska guidance is of particular importance to food and food delivery app and platform providers. In other state-Wayfair related news, multiple bills have been introduced in Missouri, Florida, Mississippi, Kansas, and Tennessee that would adopt sales and use tax economic nexus and/or marketplace facilitator provisions.

Finally, in Louisiana, the Department of Revenue issued a Revenue Information Bulletin addressing the state’s new elective pass-through entity tax. Recall, effective for tax years beginning on or after January 1, 2019, Louisiana allows an S corporation or an entity taxed as a partnership for federal income tax purposes to elect to be taxed as if the entity had filed a federal income tax return as a C corporation. The RIB explains how and when pass-through entities should make the election and clarifies that the act of electing entity level taxation will not, in and of itself, subject the electing entity to franchise tax liability.

Please stay tuned to TWIST for additional state tax updates!

This Week's Developments

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Featured Speaker

Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US