TWIST - June 8, 2020

Welcome to TWIST for the week of June 8th. This is Sarah McGahan from KPMG’s Washington National Tax state and local tax practice.

We have several very different developments to cover this week. First up, we have certain sales and use tax developments. The first is a case from the Missouri Supreme Court that gave the Kansas City Chief’s their second big win this year.  Recall, last year, the Missouri Administrative Hearing Commission held that the Chiefs were liable for sales and use tax certain items purchased during renovations to their stadium. Central to the Commission’s decision was a finding that the team gave consideration for the items and therefore acquired ownership of the items. The state’s supreme court reversed, holding that because the team did not provide valuable consideration in exchange for the contested items in the audit, it was not the purchaser of the items for sales and use tax purposes.

In other sales and use tax news, the Arkansas Department of Finance and Administration determined that a taxpayer/contractor’s purchases made on behalf of a government-owned hospital for use in a construction project were exempt from gross receipts and use tax because the taxpayer was the agent of the government hospital.  After reviewing the agreement between the taxpayer and the hospital, Revenue Legal Counsel concluded that because the contractor had essentially stepped into the shoes of the hospital, the purchases were exempt from tax.

The last sales and use tax development is actually a series of developments in Louisiana that have been undertaken to implement the Wayfair decision. Importantly, the state will begin enforcing its sales and use tax economic nexus thresholds of over $100,000 of sales or 200 transactions on July 1, 2020. In addition, Senate Bill 138, which is pending signature, would require marketplace facilitators to collect and remit tax on facilitated sales also effective July 1, 2020.  

In corporate income tax news, an appeals court in Tennessee recently held that a statute that prohibited an affiliated group of taxpayers, two disregarded LLCs and the partnership that was their sole member, from computing their excise tax in a consolidated manner was not unconstitutional. Notably, the court held that reducing the risk of under-reporting and holding business entities accountable for reporting their business earnings was a legitimate objective for the state and the statute had a rational basis.  In the same decision, the court also held that the proceeds from settling a malpractice lawsuit constituted business earnings under Tennessee law. The court noted that if the attorneys had not committed malpractice by improperly filing patents, the revenue generated by those patents would have been taxable as business earnings. In the court’s view, the nature and basis of the settled action was akin to a business transaction in which the taxpayer was compensated for lost business earnings.

Finally, in COVID-19-related news, the Massachusetts Department of Revenue issued a draft Technical Information Release or TIR addressing the state’s conformity to federal tax changes in the CARES Act, such as conformity to the changes to 163j and the suspension of limitations on the use of NOLs. In DC, emergency legislation was signed that decouples the District from the NOL changes in the federal CARES Act. And, in Arizona, Senate Bill 1021, now awaiting signature by the governor, would require the Arizona Department of Revenue to accept a return, statement or other document that is electronically signed.

Thank you for listening and stay well.

To read about recent state and local tax guidance on extensions in response to COVID-19, please click here and bookmark KPMG TaxNewsFlash-United States to stay current as more guidance is regularly released.