TWIST - August 9, 2021

Welcome to TWIST for the week of August 9, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

First up this week, we have a couple of indirect tax developments. In Colorado, the Department of Revenue, applying the true-object test, ruled that a cable television provider was selling non-taxable services, rather than tangible personal property. The content delivered by the taxpayer was considered tangible personal property, but the provision of the content to subscribers via fiber optic and coaxial cable included a service component. In the Department’s view, taken as a whole, the transactions were more analogous to a service.

Next up, the Connecticut Department of Revenue Services issued guidance on upcoming tax relief for sellers of meals. Any establishment that sells “meals” may retain 100 percent of the sales taxes it collects on meals during one week in fiscal year 2022. This includes hotels, casinos, caterers, food service contractors, as well as restaurants, snack bars, taverns, etc. The establishment may select one of three different weeks- the first period is August 1, 2021 through August 7, 2021.

A Tax Review Officer in Washington State concluded that an out-of-state retailer had substantial nexus in the state for the 2014-2017 tax years. The retailer made sales of household products through its own website and through a marketplace facilitator. Per its agreement with the facilitator, the retailer’s inventory was stored at a distribution center in the state. After the Department of Revenue assessed retail sales tax and retailing B&O, the retailer protested arguing that because it did not direct or ship the inventory into Washington State, the presence of the inventory could not create nexus for it. The retailer also asserted that it was no longer the owner of the goods while they were present in Washington because risk of loss transferred to the facilitator. The Tax Review Officer rejected both arguments.

In corporate income tax news, an Arkansas ALJ ruled that IRC section 965 income was nontaxable income included in the calculation of gross income for purposes of determining an Arkansas net operating loss (NOL). The Arkansas Supreme Court has previously required nonbusiness income allocated to other states, as well as dividend income specifically excluded from gross income, to be added back in computing the Arkansas NOL. This situation was a bit different in that Arkansas does not adopt IRC section 965. After reviewing the holdings in the cases, the ALJ concluded that the Department’s position was consistent with controlling authority and that the IRC section 965 income was nontaxable income required to be added back. 

Thank you for listening to TWIST and stay well.