TWIST - This Week in State Tax

Florida: Customized Digital Video and Bar Prep Services Subject to Communications Services Tax

The Florida Department of Revenue recently issued two Technical Assistance Advisements concluding that certain types of services were subject to the state’s Communications Services Tax.

In Technical Assistance Advisement- TAA # 23A19-001, the taxpayer offered customers the ability to customize messages pre-recorded by talent, such as entertainers, musicians, athletes, or other social media personalities. The messages were viewed, downloaded, or streamed through the taxpayer’s website or mobile application using the customer’s own internet access; they were not transmitted to the public or other customers. The taxpayer collected payment for the messages and transmitted most of the payment to the individual who recorded the message.  The taxpayer’s position was that it was providing a personal/information service and not a taxable video service because the messages were customized. Further, customers were not paying for and did not receive access to digital content such as movies, television shows, and sporting or news events. The taxpayer also asserted that if it was required to collect communications services tax, it should be required to do so on only the amount it retained and not the portion of the cost paid over to the talent.  The Department of Revenue disagreed, concluding that the taxpayer’s charges were subject to communications services tax on the full amount of the sales price collected from the customer. In the Department’s view, the services involved the “transmission of video, audio, or other programming service to a purchaser,” and they were included in the definition of taxable video services. Consistent with other rulings, the Department noted its position that if a service was a taxable video service, it could not also be an information service.  Therefore, the taxpayer’s offerings that included audio or video were “video services” subject to the communications services tax.

In Technical Assistance Advisement- TAA# 23A-009, the taxpayer provided bar exam preparation services that were delivered through the taxpayer’s web-based learning platform. In addition to outlines and practice bar exams and essays, students had access to pre-recorded lectures that could be viewed on-demand from the taxpayer’s website or app.  One issue presented in the TAA for the Department’s consideration was whether the provision of on-demand video lectures subjected the entire price of tuition to communications services tax. In the Department’s view, the taxpayer was providing digital video services because its online courses “included the transmission of video programming services to a purchaser and the purchaser’s interaction, if any, required for the selection or use the programming service.” The Department concluded that when the taxpayer received consideration from students to access its online courses, which included video services subject to communications services tax, the taxpayer was engaged in the sale of communications services. As such, communications services tax should be charged on all tuition received from sales to customers with a Florida service address. Please contact Amanda Ribeiro with questions.

Multistate: Real Estate Transfer Tax Increases on the Horizon?

Governor Maura Healey of Massachusetts recently unveiled an estimated $4 billion plan to invest in affordable housing. One component of the proposal, called the Affordable Homes Act, would allow municipalities to impose local option real estate transfer fees of 0.5 percent to 2 percent on the portion of sales of real estate over $1 million, or over the county median home sales price, whichever is greater. These fees would be paid by the seller upon the transfer of a real property interest between buyer and seller. The Act sets forth various types of transfers that would be exempt from municipal transfer fees.  The revenue raised from the fees would be required to be used for affordable housing purposes.  The legislation would need to be approved by the lawmakers, and then adopted by the governing body of the adopting municipality.

Massachusetts is not the only jurisdiction considering increasing taxes or fees on higher value real estate. In Chicago, a proposal is pending that would revise the City’s transfer tax. Currently, the transfer tax is generally 0.75 percent of a property’s sales price. Under the Bring Chicago Home proposal, any sales up to $1 million would be taxed at 0.6 percent, and sales between $1 million and 1.5 million would be taxed at 2.0 percent on the amount over $1 million. Sales greater than $1.5 million would be taxed at 3.0 percent on the amount over $1.5 million. The additional revenue generated from the proposed transfer tax would be allocated to the fight against homelessness. This measure would need to be approved by the City Council and then by Chicago voters (March 2024), before finally being adopted as an ordinance by the Council.  Please stay tuned to TWIST for updates on these measures.

New Mexico: New Draft Regulations Address Taxation of Digital Advertising

On October 5, the New Mexico Department of Taxation and Revenue submitted proposed regulations regarding the taxation of digital advertising services under the Gross Receipts and Compensating Tax Act. The regulations were initially proposed last year, but the Department withdrew them to incorporate comments submitted by the business community. The Department has maintained that the proposed regulations only clarify existing law.

The updated proposed rules specify that the receipts of a provider of a digital platform that displays digital advertising services, whose digital platform may be accessed or viewed within New Mexico, from the sale of advertising services to advertisers within and without New Mexico are subject to the gross receipts tax. The updated proposed rules also remove an explicit declaration that the imposition of New Mexico’s gross receipts tax on digital advertising receipts does not impose an unconstitutional burden on interstate commerce. Finally, the proposed rules provide an updated example which illustrates that a digital advertising service provider’s reporting location is based on the location of the service provider. Under the previous version of the rules, the reporting location was based on the location of the service provider’s server hosting the digital platform from which the advertising is accessed.

A public hearing will be held on the proposed rule changes on Thursday, November 9, 2023. For questions regarding the proposed regulations, please contact Carolyn Owens.