TWIST - This Week in State Tax

Welcome to TWIST for the week of August 21, 2023, featuring Sarah McGahan from the KPMG Washington National Tax state and local tax practice.

It’s been a relatively slow week from a state tax development standpoint. Today we are covering a sales and use tax ruling in Tennessee and a change to Pennsylvania’s VDA program that applies to corporate income taxpayers.

In a recent tax update, the Pennsylvania Department of Revenue announced that it has revised the lookback period for corporate income taxpayers participating in the state’s Voluntary Disclosure Agreement or VDA program. The lookback period for corporation taxes will now be three years plus the current year, which is consistent with the lookback period that applies to other tax types. Under the prior eligibility requirements, the lookback period was five years plus the current year. This change will apply to VDAs entered into on August 1, 2023 or later.

In Tennessee, Department of Revenue ruled that a taxpayer’s staff augmentation and payment processing services were not subject to sales and use tax. The Department first concluded that the fees charged to customers were not subject to Tennessee sales and use tax because neither staff augmentation nor payment processing is a specifically enumerated taxable service in Tennessee. However, customers accessed the taxpayer’s services through an app, which could be considered as the taxable sale of computer software. The app provided customers with some functions that could be considered the use of computer software. Thus, in the Department’s view the taxpayer’s fees consisted of both taxable and non-taxable items. Applying the true object test, the Department concluded that connecting businesses and workers for the purpose of arranging short term employment was the true object of these transactions and therefore the services were not taxable.