TWIST - This Week in State Tax

Welcome to TWIST for the week of November 14, 2022, featuring Sarah McGahan from the KPMG Washington National Tax state and local tax practice.

The first development today is the Georgia Tax Tribunal recently concluding that a ride sharing company was required to collect sales tax on a “safe rides fee or booking fee” that was imposed on certain trips facilitated through the company’s app. The separately stated fee was charged to a rider and paid over to the company directly to recover the costs of improving the safety of the company’s platform. Although the taxpayer argued that the fee was to recover nontaxable services, the Tribunal concluded that the fee was part of the “sales price” upon which Georgia sales and use tax is imposed.

Here at TWIST, we are tracking state developments around Non-Fungible Tokens or NFTs. The Wisconsin Department of Revenue is the latest jurisdiction to release guidance, albeit not comprehensive guidance, on the taxability of NFTs.  The October 2022 Wisconsin Tax Bulletin explains that the sale or purchase of a non-fungible token may be taxable if the underlying product, good, or service is taxable in the state.

Finally, on Election Day, voters in Colorado and Massachusetts showed their support for certain income tax related ballot measures. In Colorado, voters approved a measure that reduces the state’s current 4.55 percent corporate and personal income tax rate to 4.40 percent retroactive to tax years commencing on or after January 1, 2022. Another Colorado measure that was approved, Proposition FF, raises additional taxes to support school meal programs by limiting certain individual income tax deductions. In Massachusetts, voters approved a controversial constitutional amendment that increases the state’s flat individual income tax rate from 5 percent to 9 percent on income above $1 million. The tax rate increase is effective for taxable years beginning on or after January 1, 2023. The additional revenue generated will be used for quality public education and for the repair and maintenance of roads, bridges and public transportation.

Georgia: Safe Rider Fee Subject to Sales Tax

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The Georgia Tax Tribunal recently addressed whether a ride sharing company was required to collect sales tax on a “safe rides fee or booking fee” that was imposed on certain trips facilitated through the company’s app. The separately stated flat fee was charged to a rider and paid over to the company directly to recover the costs of improving the safety of the company’s platform by conducting driver background checks, developing safety features in the app, and other efforts. The issue before the Tribunal was whether the fee was included in the Georgia sales tax base. Under Georgia law, sales tax is imposed on the “sales price” of goods and services. The definition of “sales price” is broad and generally means the total amount for which property or services are sold without any deduction for expenses. The company asserted that under a departmental regulation governing taxicabs, it was only required to collect sales tax on fares related to transportation. In addition, in the company’s view, the safety or booking fee was a distinct and identifiable charge to recover costs of certain non-taxable services and was therefore not part of the sales price of a ride.  The Tribunal rejected the company’s assertions, noting that Georgia’s definition of sales price was broad and captured fees related to non-taxable services that was part of the total consideration paid for a ride service. Further, none of the specific exclusions from the definition of sales price captured the costs the company was recovering. The issue of whether the safety or booking fee was part of the sales tax base stemmed from an earlier dispute in which the Tribunal determined that the company was considered a taxicab headquarters operator required to register as a dealer for sales tax purposes. Please contact Ben Cella with questions on Uber Technologies, Inc. v. Crittenden.

Wisconsin: Guidance Issued on Taxability of NFTs

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The Wisconsin Department of Revenue is the latest jurisdiction to release guidance on the taxability of non-fungible tokens (NFTs).  The October 2022 Wisconsin Tax Bulletin explains that the sale or purchase of a non-fungible token may be taxable if the underlying product, good, or service is taxable in the state. Three examples provided are the sale or purchase of an NFT that entitles the purchaser to download music or movies, to gain admission to a sporting event, or to acquire a tangible piece of artwork. All three examples are subject to tax as the sale of a specified digital good, admission, or item of tangible personal property, respectively.  Please stay tuned to TWIST for more NFT updates.

Multistate: Income Tax Ballot Measures in Massachusetts and Colorado Approved by Voters

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On November 8, 2022, voters in Colorado and Massachusetts showed their support for certain income tax-related ballot measures. In Colorado, voters approved a measure that reduces the state’s income tax rate applicable to individuals and corporations. Specifically, Proposition 121 reduces the current 4.55 percent corporate and personal income tax rate to 4.40 percent, retroactive to tax years commencing on or after January 1, 2022. Under current law, individual itemized and standard deductions are limited for Colorado purposes for individuals with taxable income of $400,000 or more. The limit is $12,000 for taxpayers filing single returns and $16,000 for taxpayers filing joint returns. Another Colorado measure that was approved, Proposition FF, raises additional taxes to support school meal programs by reducing to $300,000 or more the income threshold under which the limits apply.

In Massachusetts, voters approved a controversial constitutional amendment (Question One) that increases the flat individual income tax rate from 5 percent to 9 percent on income above $1 million. The rate increase is effective for taxable years beginning on or after January 1, 2023. The additional revenue generated will be used for quality public education and for the repair and maintenance of roads, bridges, and public transportation. Under the Massachusetts Constitution, all income must be taxed at a unform rate, hence the need for voters to approve the amendment.

The tax rate increase applies to individual owners of pass-through entities, including S Corporations that are already subject to various entity level taxes. Massachusetts requires S corporations to pay the non-income measure of the corporate excise tax on either taxable tangible personal property or on net worth, as well as the income measure of the corporate excise on any income that is taxable for the S Corporation federally. In addition, S corporations with at least $6 million, but less than $9 million, in gross receipts are required to pay a tax on income at a rate of 2 percent, and S corporations with $9 million or more in gross receipts are required to pay a tax on income at a rate of 3 percent.

California voters were not inclined to increase income taxes, as Proposition 30 was defeated. This measure would have imposed an additional 1.75 percent tax on annual personal income in excess of $2 million for each taxable year beginning on or after January 1, 2023.  Please stay tuned to TWIST for additional income tax rate changes.