TWIST - November 16, 2020

Welcome to TWIST for the week of November 16, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

Our first development today is that the Texas Comptroller recently published proposed revisions to the regulation addressing apportionment of margin in the Texas Register. Many of the changes relate to the rules for sourcing service receipts and the proposed regulation adds guidance on interpreting the location where a service is considered performed. Generally, a service will be performed at the location of the receipts-producing, end-product act or acts. This new test, so to speak, aligns with language adopted by the appeals court in the Sirius XM case. There are numerous other changes in the proposed regulation.

In sales and use tax news, the New York State Department of Taxation and Finance issued an advisory opinion concluding that receipts from digital advertisements produced by the taxpayer’s prewritten computer software were subject to sales and use tax.  By granting customers access to the software for their own use, the taxpayer was making a sale of taxable tangible personal property to the extent any of its customers’ employees who used the software were in New York. 

The Virginia Commissioner of Revenue ruled that a company that prepared meals in airport kitchens and worked with airlines to create meals that were particular to the airline’s standards and needs was not entitled to the sales and use tax exemption applicable to industrial manufacturing. Specifically, in the Commissioner’s view, the taxpayer’s activities did not fall within the qualifying NAICS code.

Finally, the IRS recently released Notice 2020-75 indicating that proposed regulations will be issued on the deductibility of state and local tax payments made by passthrough entities. Importantly, the Notice indicates that amounts paid by a passthrough entity for state and local taxes will be deductible for an individual owner of the passthrough entity, without regard to whether the state tax is mandatory or elective.

Thank you for listening to TWIST and stay well.