SALT Blog - SALT Blawg

Recently the New Jersey Division of Taxation ("Division") proposed amendments to a corporate business tax rule relating to foreign businesses' responsibilities to file and pay New Jersey's Corporation Business Tax ("CBT"). The proposed amendments are an attempt to clarify changes wrought by the Business Tax Reform Act ("Act"). Enacted July 2, 2002, the Act made numerous amendments to the CBT. Those amendments explicitly established that foreign corporations must pay CBT "for the privilege of deriving receipts from sources within this State, or for the privilege of engaging in contacts within this State."

The Texas Comptroller recently ruled in Hearing No. 100,984 that where an out-of-state seller authorizes Texas retailers to provide warranty service, such authorization constitutes sufficient nexus for sales and use tax purposes in Texas.

Over the last two weeks, the dispute between Amazon, the online retailer, and the Comptroller of Public Accounts for the State of Texas has reached new heights. On Friday, February 11, 2011, Amazon advised its employees by letter that it would be closing the distribution facility in Irving, Texas, (which is owned by a subsidiary company), that it would relocate its facility and existing employees outside Texas, and would cancel expansion plans that would have created 1,000 new jobs. This latest move by Amazon follows the $269 million tax bill that Texas issued to Amazon in October 2010 for failing to collect sales tax on sales into Texas and Amazon's lawsuit filed to force the Comptroller to explain the factual and legal basis for the tax bill. Amazon is appealing the tax bill though the administrative appeal process available in Texas.

During January, the Securities & Exchange Commission ("SEC") fined Hudson Highland Group, Inc. ("Hudson") – a staffing company – for failing to implement the requisite internal controls to correctly collect and remit approximately $3.9 million in sales taxes.

A California Court of Appeals recently tackled the question of whether sales tax should be imposed upon a telecommunication company's license for software used to operate its telephone switch hardware.  The court held that the software license was exempt from sales and use tax because the license constituted the transfer of patent and copyright interests.

In response to the Texas Comptroller’s deficiency assessment of $269 million for uncollected sales and use tax, Amazon retaliated by filing suit in Travis district court for the production of “[i]nformation related to the audit and the assessment.” As of January 19, 2011, the Texas Comptroller had not been served and thus had no comment.

Other Texas retailers have complained to the Texas Comptroller of the unfair advantage given to Internet retailers such as Amazon who have not been collecting Texas sales and use tax.

The Washington legislature recently authorized the state’s first ever tax amnesty program.  As with many states that have enacted amnesty programs, Washington is facing significant budget challenges.  The amnesty program is anticipated to help combat those fiscal difficulties by generating approximately $24.4 million in revenue for the state and $3.9 million for local governments, while giving businesses a break from penalties and interest associated with back taxes.

Washington’s temporary amnesty program waives the penalties and interest associated with certain taxes and is slated to begin February 1, 2011 and end April 18, 2011.  The program applies to the following taxes: state business-and-occupation tax, public utility tax, state and local sales and use taxes – including general retail sales and use taxes, rental car taxes, King County food and beverage tax, sales and use tax on motor vehicle sales/leases, lodging taxes and brokered natural gas use tax.  Additionally, taxpayers can apply for amnesty for any unpaid invoice from the Washington Department of Revenue (“Department”) that lists penalties and interest due for tax periods before February 1, 2011 for any of the aforementioned taxes included in the program, including Department audit assessment invoices.  Notably, application under the program waives a taxpayer’s right to seek a refund or challenge the amount of taxes paid under the program.

Pennsylvania Governor Ed Rendell recently signed the Construction Workplace Misclassification Act (Act 72 of 2010, previously House Bill 400).  The new law holds employers in the construction industry criminally liable for the misclassification of employees as independent contractors.  The legislation goes into effect on February 11, 2011.  On that date, Pennsylvania will join sixteen (16) other states that have enacted similar legislation seeking to eliminate the misclassification of employees, including its neighboring states of Delaware, New Jersey, New York and Maryland.

Pennsylvania estimated that approximately nine (9) percent of the state’s workforce is misclassified as independent contractors.  Of that percentage, a quarter of the misclassified workers are in the construction industry.  By classifying workers as independent contractors instead of employees, employers can avoid paying unemployment compensation and workers’ compensation taxes, and may gain an unfair advantage in contract bids.

In an opinion filed December 30, 2010, the Supreme Court of Iowa has upheld a lower court decision imposing income tax on a franchisor (KFC), a Delaware corporation with its principal place of business in Louisville, Kentucky.  KFC had no physical presence within the state of Iowa, but licensed its system to related entities and independent franchisees.  KFC owned no restaurant properties in Iowa and had no employees in Iowa.

On December 15, 2010, the Texas Third Court of Appeals heard oral argument on an appeal by Roark Amusement & Vending, L.P. in response to a lower court's decision upholding the Texas Comptroller's action imposing sales and use tax on the purchase by Roark for toys placed in a claw machine. Roark argued the sales and use tax sale-for-resale exemption applied as the toys in the claw machine were used in the performance of a taxable service. It argued that coin-operated amusement services should be subject "to the integral transfer sales and use tax exemption found in the 'sale for resale' tax exemption statute." Roark alternatively argued that 34 Tex. Admin. Code § 3.301(b) is invalid to the extent it excludes Roark's transaction from the sale-for-resale exemption, as the Comptroller improperly limited the Legislature's exemption.