TWIST - February 24, 2020

Welcome to TWIST for the week of February 24th. This is Sarah McGahan from KPMG’s Washington National Tax state and local tax practice. If you are a TWIST subscriber, you’ve 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 will be available on the TWIST webpage.

In the first case we are covering today, a Colorado appeals court concluded that the doctrine of issue preclusion did not prevent a taxpayer from challenging a sales and use tax assessment. In this case, the taxpayer had been audited before and had ended up in litigation with the City of Golden Colorado, a home rule jurisdiction. After a second and third audit, the City argued that the taxpayer was precluded from challenging the taxability of certain of its transactions based on findings in the earlier trial.  After carefully reviewing the record from the original trial, the court held that there had not been any findings as to the reliability of the taxpayer’s overall accounting system or sales journals and, in sum, the taxpayer was not barred from challenging the taxability of its transactions in the subsequent case.

 The second decision we are covering is an Ohio Board of Tax Appeals ruling addressing a dispute between the Ohio Tax Commissioner and a captive automobile financing company over whether certain types of receipts were subject to commercial activity tax or CAT. Specifically, the taxpayer argued that receipts from sales of retired leased vehicles, (2) receipts from securitization transactions, and (3) subvention payments were all excluded from the CAT base. The Board ultimately agreed with the taxpayer that all of these receipts were not taxable for various reasons. Interestingly, in reaching this conclusion, the Board found the federal treatment of the receipts, while not controlling for Ohio purposes, to be persuasive.

In other news, the New Jersey Division of Taxation issued TB-95, which sets forth extensive guidance on computing and using net operating losses and carryovers in the combined group context. Recall, for privilege periods ending on and after July 31, 2019, New Jersey requires entities engaged in a unitary business to file combined returns. Also, effective for tax years ending on and after July 31, 2019, New Jersey combined group net operating loss deductions and New Jersey combined group net operating loss carryovers must be calculated on a post-allocation basis. Previously, these were calculated on a pre-allocation basis.  In short, taxpayers expecting to be in a loss position and/or that have current NOL carryforwards that must be converted into prior net operating loss conversion carryovers will want to carefully review the Bulletin.

Finally, the Florida Department of Revenue issued a Technical Assistance Advisement in response to a taxpayer’s inquiry as to the taxability of its online platform offering. The taxpayer provided an Internet-based platform where viewers could, free of charge, watch real-time streaming videos, as well as videos that have been saved on the platform and were viewable on demand. An enhanced experience was also available for those customers that purchased a subscription, such as being able to view videos without ads. The Department determined the taxpayer’s sales of subscriptions would be subject to Communications Services Tax with the sale sourced to where the customer received the video service.

That’s all we have for this week. Please stay tuned to TWIST for future state tax updates.