TWIST - November 23, 2020

Welcome to TWIST for the week of November 23, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

A California trial court recently issued a Writ of Prohibition against the California Department of Tax and Fee Administration barring it from enforcing a regulation addressing the sales tax due on bundled sales of mobile devices and wireless telecommunications service.  Under the regulation at issue-Regulation 1585- the provider-retailer is required to calculate and pay sales tax on the unbundled price of the mobile device. That’s the price that a consumer would pay for purchasing the mobile device separately. However, the petitioners in the class action suit contended that, under California law, sales tax is based on the consideration actually charged by the provider-retailers for mobile devices. The trial court agreed and held that the regulation was arbitrary and capricious to the extent required sales tax to be based on the price of an unbundled mobile device.

In other sales tax news, the both the House and Senate versions of the Massachusetts appropriations bill would require accelerated sales tax remittance for certain vendors. Specifically, vendors with sales tax liability of more than $150,000 in the preceding calendar year would be required to remit taxes collected on any taxable sale made on or before the twenty-first day of the filing period by the twenty-fifth day of that period. The bill has passed the House and Senate in different forms and the differences will be reconciled in conference committee. 

On the income tax side, the Massachusetts Appellate Tax Board recently upheld the Commissioner’s imposition of tax on capital gain realized by a non-resident S corporation from the sale of an interest in a Massachusetts LLC. The taxpayer had argued the gain from the sale of the LLC, which was not unitary with the taxpayer, lacked the requisite minimum connection to Massachusetts and did not involve availment of the protections and benefits of Massachusetts law as required by the Due Process and Commerce Clauses of the United States Constitution. After reviewing a number of cases, the Board rejected the taxpayer’s arguments and upheld the assessments.

Finally, back in December 2019, the Nebraska Department of Revenue issued a General Information Letter or GIL addressing the state tax treatment of GILTI and FDII.  Almost a year later, the Department issued a revised GIL that supersedes the earlier one. Similar to the prior guidance, the GIL confirms that (1) GILTI is included in Nebraska income; (2) the IRC section 250 deductions for GILTI and FDII are allowed; and (3) GILTI is not eligible for the state’s foreign dividend subtraction. However, in the revised document, the Department clarifies that IRC section 78 dividends attributed to GILTI are eligible for the foreign dividend exclusion, Further, the revised letter changes the previous guidance as to how GILTI should be included in the apportionment factor.