Weekly TWIST Podcast Overview
This Week's Developments
Welcome to TWIST for the week of September 27th, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.
First up, in corporate income tax news, the Superior Court of New Jersey, Appellate Division, issued the latest ruling in ongoing litigation over the deductibility of royalty payments made to a related party. When it audited the taxpayer at issue, the Division of Taxation allowed a deduction only for the royalty payments that the recipient/subsidiary paid tax on. In 2019, the tax court rejected the Division’s position and held that the taxpayer was entitled to a full deduction under the unreasonable exception. The Appellate Division reversed, concluding that there was nothing unreasonable about allowing an exception only to the extent the related party paid New Jersey Corporation Business Tax on the royalty income. In the court’s view, “this was a balanced approach” that considered the need to close loopholes as well as avoid an unreasonable addback.
The Supreme Court of Ohio recently held that Cincinnati’s local tax on “outdoor advertising signs” violated the First Amendment. In the court’s view, the tax was structured in a way that burdened activities protected by the First Amendment and created a potential tool for censorship. Thus, the court determined that the tax did not meet the strict scrutiny standard and was unconstitutional.
In Pennsylvania, the Department of Revenue issued a sales tax bulletin addressing the taxability of remote help supply services, which are subject to Pennsylvania sales and use tax. The Department clarified that to determine if the tax applies, the taxpayer must look to where the delivery or use of the service occurs. The status of the person, whether remote or in person, is not determinative and if the delivery or use of the service occurs within Pennsylvania, the services will be subject to the sales and use tax.
Finally, the Washington State Department of Revenue issued a Special Notice addressing the state’s new heavy equipment rental tax. Effective January 1, 2022, dealers will be required to charge their customers a heavy equipment rental tax of 1.25 percent on rentals of equipment made from a retail location in Washington. The tax will be to the location at which the equipment is picked up by or delivered to the customer. This new tax is administered much like the retail sales tax and is imposed in addition to the state and local sales tax.
Thank you for listening to TWIST and stay well.