TWIST - September 28, 2020

Welcome to TWIST for the week of September 28, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

We have two developments today from Colorado.  The first is a private letter ruling confirming that electronically delivered software and SaaS are not subject to Colorado sales and use tax. The Department also concluded that the taxpayer’s provision of a backup service that was provided, in part, by the use of servers owned by the taxpayer, was not taxable because the “true object” of the transaction not the use of tangible personal property, but was the provision of non-taxable software products and related services.

The Colorado Department of Revenue has also proposed three rules in response to legislation enacted in 2019 providing that domestic corporations with no property and payroll or de minimis property or payroll can be included in a Colorado combined group. The proposed rules addressing this legislation include a rule clarifying that the law change applies to tax periods beginning on and after September 1, 2019.  The Department is holding a virtual hearing on the proposed rules on September 30, 2020.

In a recent Legal Opinion, an Arkansas Revenue Legal Counsel addressed the sales and use tax collection obligations of an online travel company (OTC) under two different models by which the company facilitates transactions with customers. With respect to the so-called merchant model accommodations and rental car transactions, Revenue Legal Counsel concluded that the OTC was a marketplace facilitator required to collect and remit on the gross proceeds derived from these transactions.

Finally, the District of Columbia Fiscal Year 2021 Emergency Budget Support Act limits the tax benefits provided to Qualified High Technology Companies (QHTCs).  First and foremost, the reduced six percent rate of corporate franchise applicable to these companies is repealed and QHTCs are subject to the normal rate of 8.75 percent. Other changes affect special credits allowed to QHTCs and a personal property tax exemption specific to QHTCs is also repealed. A permanent version of the Budget Support Act is currently pending congressional review.  Thank you for listening today and stay well.