TWIST - December 14, 2020

Welcome to TWIST for the week of December 14, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

First up today is a property tax decision from a California appeals court addressing whether the transfer of real property between legal entities triggered a reassessment for property tax purposes. The taxpayer at issue was a Revocable Trust that owned all the voting stock in a corporation. The Trust and several other individuals also owned non-voting stock in the corporation. In the transaction at issue, the corporation transferred real property to the Trust. The Trust’s beneficiaries did not include the persons who owned the non-voting stock in the corporation. The issue was whether the real property that was transferred could be reassessed to fair market value.  Resolution of this issue was dependent on whether the term “stock” as used in a statutory exception from triggering a change in ownership referred to only voting stock or all classes of stock. If the definition of stock referred to all stock, then there would be a change in ownership, and thus a reassessment, because the individuals who owned non-voting stock before the transfer to the Trust did not own any stock in the corporation after the transfer. The court ultimately rejected the Trust’s arguments that the term “stock” in the statute meant only “voting stock” and therefore the court concluded that a change in ownership had occurred.

In indirect tax news, the due date for renewing Arizona Transaction Privilege Tax licenses for all taxpayers whose activities are subject to TPT is January 1, 2021. Failure to renew licenses in a timely manner may result in penalties and/or late fees.  In a recent Memorandum of Decision, the Indiana Department of State Revenue addressed whether a taxpayer was entitled to a sales tax refund on its purchases of software and payments for access to software.  In the decision, the Department addressed the taxability of software as a service for periods prior to July 1, 2018 when a specific exemption for remotely accessed software became effective. Under Sales Tax Information Bulletin 8, from November 2011 to December 2016, remotely accessed software was subject to sales tax regardless of whether the software constituted a service or whether the software user had an ownership interest in the software. From December 2016 forward, the Bulletin was updated to provide that remotely accessed software may be subject to sales tax if the circumstances specifically point to a degree of "constructive" ownership of the software. The revised Bulletin listed a number of factors to consider when determining whether constructive ownership was transferred to the user. Finally, in New York, a taxpayer’s per minute charges for renting doghouse space to dog owners were subject to sales tax as sales of taxable storage services. In addition, the membership fees dog owners paid for access to the doghouse program were prepayments made for access to taxable storage services.

Thank you for listening and stay well.