TWIST - January 25, 2021

Welcome to TWIST for the week of January 25th, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

The Idaho State Tax Commission has filed a petition for certiorari asking the U.S. Supreme Court to review the Noell Industries decision. Recall, in this case, the Idaho Supreme Court held that gain recognized by a corporation from the sale of a majority-owned interest in an LLC did not constitute business income. In reaching this conclusion, the court determined the taxpayer was not unitary with the LLC, largely because the taxpayer corporation was a holding company that lacked business activity. In its petition, the Idaho State Tax Commission is asking the Court to apply the Mobil Oil decision to pass-through entities and asserts that there is currently a split among the states as to whether the Mobil tests for determining a unitary business extend to pass-through entities.

In other corporate income tax news, House Bill 21-1002, which passed within the first few days of the Colorado legislative session, was signed into law on January 21, 2021 by Governor Polis. This bill creates a complex corporate state income tax subtraction to offset the state’s previous decoupling from certain CARES Act provisions.

In sales and use tax news, the Louisiana Board of Tax Appeals addressed whether a state sales and use tax exemption statute preempted a local New Orleans statute imposing tax on sales of food products to certain educational institutions. The Board concluded that the New Orleans Home Rule Charter’s authority must yield to the provisions of the Louisiana Constitution when, as here, the Legislature had made the sales tax exemption uniformly applicable to all taxing authorities. Applying the City ordinance would be inconsistent with the Constitution because it would essentially allow the City to unacceptably override the Legislature’s express authority to enact tax exemptions.

Finally, the New York State Department of Taxation and Finance recently issued two advisory opinions, concluding in both that certain online services were not subject to sales tax.  The first opinion addressed the taxability of a service that allowed customers to remotely send large volumes of e-mails through the service provider’s platform. The Department concluded that the primary function of the provider’s integrated email service was to provide remote access to its servers and to enable its customers to effectively send large volumes of emails. Accordingly, in the Department’s view, New York was prohibited from taxing this service under the Internet Tax Freedom Act. In the second advisory opinion, the Department addressed whether a service provider’s provision of online courses that included pre-recorded lectures, syllabi, modules, quizzes, and a grading procedure were subject to sales tax. The courses could be accessed remotely or downloaded to a user’s device. The Department concluded that these services were not taxable because the primary purpose of the courses was to educate customers.