Welcome to TWIST for the week of March 28th, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.
First up today, House Bill 1099 was recently enacted in Colorado that imposes numerous new requirements on online marketplaces. Under the new law, online marketplaces must require a “high-volume third-party seller” to disclose certain information to the marketplace, including the seller’s bank account number, contact information, and business or individual tax identification number. A “high-volume third-party seller” is a third-party seller that has entered into 200 or more discrete sales or transactions of new or unused consumer products for which the third-party seller has earned aggregate total gross revenues from sales on the marketplace of $5,000 or more.
In other legislative news, Tennessee Senate Bill 2397, signed into law on March 24, 2022, adopts IRC section 174 as it applied and existed immediately before the enactment of the Tax Cuts and Jobs Act. This means that Tennessee corporate taxpayers will not be required to capitalize certain R&D expenses beginning with the 2022 tax year.
While not yet enacted, Iowa Senate File 2372, which has passed the Senate and has moved to the House for consideration, would adopt numerous sales and use and corporate tax changes, including revising the taxation of software as a service and conforming to the federal Tax Cuts and Jobs Act NOL provisions.
In administrative news, the Missouri Department of Revenue recently ruled that the sale of “digital” wine club memberships was subject to sales and use tax. Individuals paying a fee to join the digital wine club had access to a library of electronic materials on wine, cooking, reviews, travel tips, special offers, business and personal development resources, and discounts from the taxpayer’s affiliate partners. In the Department’s view, because the charge for the digital wine club included both taxable and non-taxable items without separating them, the taxpayer’s digital club memberships were subject to Missouri state and local sales tax.
Finally, the New Jersey Division of Taxation recently issued guidance addressing the state’s income and sales tax treatment of transactions involving convertible virtual currency.
Thank you for listening to TWIST and stay well!
Recently, legislation was enacted in Colorado that imposes numerous new requirements on online marketplaces regarding the disclosure of information by “high-volume third-party sellers.” Under the new law, online marketplaces must require a “high-volume third-party seller” to disclose certain information to the marketplace, including the seller’s bank account number, contact information, and business or individual tax identification number. A “high-volume third-party seller” is defined as a third-party seller that in any continuous twelve-month period during the previous twenty-four months has entered into 200 or more discrete sales or transactions of new or unused consumer products for which the third-party seller has earned aggregate total gross revenues from sales on the marketplace of $5,000 or more. A “third-party seller” means any seller that sells or offers to sell consumer products through an online marketplace, but does not include: (1) a seller that operates the online marketplace’s platform; (2) a business entity that has made available to the general public the entity’s name, business address, and working contact information; or (3) a business entity that has an ongoing contractual relationship with the online marketplace to provide the marketplace with the manufacture, distribution, wholesale distribution, or fulfillment of shipments of consumer products.
The law includes extensive additional requirements for online marketplaces to follow concerning high-volume third-party sellers, including:
Finally, the bill provides that a violation of the law is an unfair or deceptive trade practice under Colorado law. The attorney general or district attorneys have exclusive authority to bring enforcement actions on behalf of the state. The law becomes effective January 1, 2023. For questions regarding Colorado House Bill 1099, please contact Steve Metz.
On March 22, 2022, Senate File 2372 passed the Senate and moved to the House for consideration. The bill would make numerous sales and use tax changes generally effective January 1, 2023. Under current law, Iowa imposes sales and use tax on software as a service. The bill would replace the term “software as a service” with “cloud computing” (undefined) and add web hosting, digital automated services and scooter rentals to the state’s list of enumerated taxable transactions. These newly taxable items are not subject to tax if sold to a commercial enterprise for use exclusively by the commercial enterprise. The definition of “commercial enterprise” would be amended to specifically include public utilities, but “professionals and occupations” would be removed from the definition of a commercial enterprise. As such, sales of cloud computing, web hosting and digital automated services to professionals and occupations would be taxable. The current sales/use tax exemption that applies to the sale or rental of computers or computer peripherals used in processing or storage of date or information by an insurance company, financial institution, or commercial enterprise would be eliminated effective January 1, 2024. New exemptions would be created for purchases of diapers and feminine hygiene products. Finally, Senate File 2372 would expand the sales tax exemption for items and services used by a manufacturer to produce marketable food products for human consumption to also include an exemption for a manufacturer of food ingredients. The change would be effective upon enactment and would apply retroactively to January 1, 2019. Due to the retroactive applicability, refund claims would be required to be filed prior to October 1, 2022, and total refund claims cannot exceed $100,000 for any calendar year.
With respect to corporate income tax changes, the bill would conform Iowa to the federal treatment of NOLs by limiting NOLs to 80 percent of taxable income and allowing an indefinite NOL carryforward period. This change would apply to losses arising for taxable years beginning after December 31, 2022. Finally, the bill would incrementally reduce Iowa’s current bank franchise tax rate of 5.0 percent of net income over five tax years and would also reduce the Insurance Premiums Tax rate. Please stay tuned to TWIST for future updates on Senate File 2372.
The Missouri Department of Revenue recently ruled that the sale of “digital” wine club memberships was subject to sales and use tax. The taxpayer, a wine and liquor retailer, offered various memberships to its customers. The memberships generally entitled members to receive wine, liquor, discounts on bottles and cases, admission to special events, free tastings, and food discounts. One of the membership options was a “Digital Club” membership. In exchange for a monthly fee, individuals joining the Digital Club had access to a library of electronic materials on wine, cooking, reviews, travel tips, special offers, business and personal development resources, and discounts from the taxpayer’s affiliate partners. If an individual joined one of the other clubs, access to the Digital Club was free. The Department noted that the monthly Digital Club fee charge included sales at retail, as well as access to the taxpayer’s digital material. Because the charge for the Digital Club included both taxable and non-taxable items without separating them, the Department concluded that the taxpayer’s digital memberships were subject to Missouri state and local sales tax. Please contact John Griesedieck with questions on this Missouri ruling.
The New Jersey Division of Taxation recently issued TAM-2015-1(R) addressing the state’s treatment of transactions involving convertible virtual currency. For Corporation Business Tax and Gross Income Tax purposes, New Jersey fully conforms to the federal tax treatment of virtual currency, as detailed in certain IRS guidance documents outlined in the TAM. Companies that sell virtual currency to customers in New Jersey are reminded that Public Law 86-272 protection does not apply because virtual currency is intangible property.
As intangible property, sales and use tax does not apply to the purchase of virtual currency. However, if a person uses convertible virtual currency to pay for taxable goods or services, New Jersey sales and use tax will be applied to the sale of the goods or services. Any seller and/or retailer of taxable goods or services that accepts convertible virtual currency as payment must determine the fair market value of the currency in U.S. dollars as of the date of payment and charge the purchaser Sales Tax on the underlying transaction. All retailers that accept virtual currency must record the transactions in their books and records converted to U.S. dollars. At least currently, all sales tax payments must be made to the state in U.S. dollars. Please stay tuned to TWIST for more virtual currency developments.
Under the Tax Cuts and Jobs Act, taxpayers are required to capitalize Section 174 expenses (generally, R&D) over 5 or 15 years beginning with the 2022 tax year. Tennessee Senate Bill 2397, signed into law on March 24, 2022, adopts IRC section 174 as it applied and existed immediately before the enactment of the Tax Cuts and Jobs Act. This change applies in determining net earnings or net losses for all tax years beginning on or after January 1, 2022. Please contact Taylor Sorrells with questions on this recent law change.