TWIST - August 17, 2020

Welcome to TWIST for the week of August 17th, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

The first development today is a sales and use tax case in which the Georgia Tax Tribunal held that a telecommunications company taxpayer was entitled to a refund of sales and use taxes paid on purchases of telecommunications equipment. Under Georgia law, an exemption from sales and use tax applies to the sale or lease of computer equipment to any high-technology company. The Department had denied the refunds on the basis that the equipment at issue was telephone central office equipment or other voice data transport technology specifically excluded from the scope of the exemption. The Tribunal, however, determined that deference to the Department’s interpretation of the term computer equipment was not warranted and the majority of the unique assets for which refunds were sought were computers. Further, tribunal concluded that the equipment was not telephone central office equipment or other voice data transport technology specifically excluded from the scope of the exemption.

In other news, the Missouri Administrative Hearing Commission ruled that charges for taking customers on fly fishing trips were not subject to sales and use tax. The Department of Revenue had argued that the taxpayer’s guided fishing trips were subject to sales and use tax because the taxpayer was operating a “place of amusement, entertainment, or recreation.” The Commission, relying on earlier cases, disagreed. The taxpayer did not control the lakes— the purported place of amusement— and customers did not pay a fee for access to the Missouri lakes.  In fact, they were free to fish at any time without paying a fee. The taxpayer’s charges provided customers with an enhanced fly fishing experience, but were not an indispensable part of fly fishing.

In income tax news, The Minnesota Supreme Court recently held that the gain from the sale of a majority interest in a unitary business was business income subject to Minnesota tax.  The taxpayer sold a majority interest in a subsidiary, which operated an internet-based business throughout the U.S.  The taxpayer treated the gain from the sale as income that was not subject to Minnesota tax.  The Minnesota Supreme Court rejected the taxpayer’s arguments that the state did not have sufficient connection with the sale and that the gain constituted nonbusiness income.

Finally, a North Carolina federal bankruptcy court held that to the extent North Carolina’s pass-through entity withholding statute purported to impose a tax obligation against a debtor LLC for income taxes imposed on nonresident owners of the LLC, it was preempted by the Internal Revenue Code and federal bankruptcy law.  

To read about the recent state and local tax relief guidance, click here and bookmark KPMG TaxNewsFlash-United States to stay current as more guidance is regularly released.