TWIST - December 7, 2020

Welcome to TWIST for the week of December 7, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

We’ve got an interesting variety of developments to cover today. First, the City of Chicago recently increased the Personal Property Lease Transaction Tax rate from 7.25 percent to 9.0 percent as applied to nonpossessory leases of computer property. This rate increase will be effective on January 1, 2021.  Chicago has interpreted this tax as applying to transactions involving access to cloud-based services, remotely hosted software, and certain online services if the lessee/user is located in Chicago.

In other indirect tax news, the West Virginia Supreme Court recently concluded that an oil and gas production company was entitled to the state’s “direct use” sales tax exemption for purchases and rentals of crew quarters and related equipment, and portable toilets, sewage systems, and related water systems. In the court’s view, these purchases were necessary as they allowed the taxpayer’s drillers to remain on-site to perform ongoing work related to the operation and monitoring of the drilling operations. Considering the remote setting of the drilling operations, the court concluded these purchases were integral and essential to the mining operations.

In corporate income tax news, the Multistate Tax Commission’s Executive Committee voted unanimously to advance revisions to the Commission’s statement on Public Law 86-272 to the next stage of approval.   Since 2018, a  Commission Work Group has been examining the application of P.L. 86-272 to business activity conducted by an Internet seller. Under the revised statement, if a business interacts with a customer via the business’s website or app, the business is generally considered to be engaged in a business activity within the customer’s state. The next stage of the process is a “bylaw 7 survey” of MTC Compact and Sovereignty states.  The survey asks if the state would consider adopting the proposal.  If a majority of states answer “yes,” the proposal moves to the final stage, which is a vote of the Compact and Sovereignty states.

Finally, on Election Day, Arizona voters approved Proposition 208. Under this measure, effective January 1, 2021, a 3.5 percent additional rate of tax is imposed on taxable income above $250,000 annually for single filers and on taxable income above $500,000 annually for married persons filing jointly. Recently, two lawsuits were filed seeking to prohibit the enforcement of Proposition 208. Generally, the plaintiffs allege that the measure needed to be approved by a 2/3 vote of the electorate. It passed by a 51.75 percent margin. The plaintiffs also allege that measure impermissibly attempts to circumvent state constitutional limitations on the aggregate expenditures from local revenues for all school districts.

Thank you for listening and stay well.