2016 3rd Quarter State and Local Tax Newsletter

This newsletter is designed to quickly update you on the major state and local tax developments that you need to be aware of.

While taxpayers cannot afford to ignore state and local taxes, we recognize the time constraints our clients are under. As such, we have organized this newsletter so that it quickly provides you with: (1) the state and type of tax, (2) the type of taxpayer affected, (3) the nature of the affect, and (4) a summary of the update.

If you have any questions on any of the content or suggestions on the format of this newsletter, please email us at Stephen.Bradshaw@btcpa.net or call (678) 302-1479. 

1. Arkansas Requires Service Provider to Use Income Sourcing Method Contrary to Statute [Arkansas: Business Income Tax]

  • Who does this affect?
    Service providers located outside of Arkansas but with Arkansas customers.
  • Why does this matter?
    These businesses may owe additional Arkansas tax.

Summary: An administrative law judge denied a company's refund claim which was filed based on the company's use of the cost of performance (COP) methodology to source revenues away from Arkansas. The ALJ denied use of the COP method and required market-based sourcing instead, which had the effect of increasing the company's Arkansas taxable income. Arkansas' adoption of section 18 of the Uniform Division of Income for Tax Purposes Act grants the Department authority to require taxpayers to utilize alternative apportionment in cases when the statutory method yields an unfair result.  In this case, the Department required to taxpayer to utilize market-based sourcing as the cost-of-performance method would have omitted three out of four revenue streams of the company.

Source: Redacted Decision, Docket Nos.16-267, 16-268, 16-269 (Ark. Dep't of Fin. & Admin, June 21, 2016

2. Businesses Selling Into Louisiana Must Notify Customers of Use Tax Liability
[Louisiana: Business Sales Tax]

  • Who does this affect? 
    Retailers with more than $50,000 of remote sales to Louisiana customers.
  • Why does this matter? 
    These businesses will have additional reporting requirements. 

Summary: House Bill 1121 takes effect in July 1, 2017 and will require certain out-of-state remote retailers with more than $50,000 of sales to Louisiana customer to notify the purchasers of potential Louisiana use tax obligation.  This reporting requirement applies even though a remote seller may not have any physical presence in the state. (e.g., internet seller). The law requires out-of-state sellers to: (1) send Annual notices to certain Louisiana purchasers regarding the amount paid by the purchaser, and (2) file an annual notice with the Louisiana Department of Revenue.

3. Software-as-a-Service Providers Do Not Need to Charge Michigan Customers Sales Tax [Michigan: Business Sales Tax]

  • Who does this affect?
    Software-as-a-service providers with Michigan customers.
  • Why does this matter?
    These businesses should stop collecting sales tax on sales to Michigan customers.  

Summary: The Michigan Department of Treasury issued guidance stating that Michigan law does not subject software-as-a-service receipts to sales tax. The guidance reiterates that Michigan still imposes sales and use tax on certain prewritten computer software. However, there is no specific sales tax implications on the sale or use of software as a service or other electronically delivered software products. 

4. Delivery Charges in Missouri Are Now Subject to Sales Tax 
[Missouri: Business Sales Tax]

  • Who does this affect?
    Taxpayers making deliveries into Missouri.  
  • Why does this matter?
    These businesses are now required to charge sales tax on deliveries. 

Summary: Certain delivery charges are now taxable based on the ruling of a 2015 Missouri Supreme Court. The Department stated that “if parties intend delivery to be part of the sale of the tangible personal property, the delivery charge is subject to sales tax even when the delivery charge is separately stated.” Some factors to determine whether delivery is intended to be part of a sale include:

  • When title passes from the seller to the purchaser;
  • Whether the delivery charges are separately stated;
  • Who controls the cost and means of delivery;
  • Who assumes the risk of loss during delivery; and
  • Whether the seller derives financial benefit from the delivery. 

5. Nevada Issues Regulations Explaining its New Gross Receipts Tax
[Nevada: Business Gross-Receipts Tax]

  • Who does this affect?
    Taxpayers with revenue from Nevada customers.
  • Why does this matter?
    These businesses have a new reporting requirement. 

Summary: The Department of Taxation adopted regulations which provide guidance on the new Nevada Commerce Tax which is a tax that applies to companies with more than $4,000,000 of Nevada gross receipts. However, businesses with less than $4,000,000 of receipts but with Nevada nexus are required to file a $0 tax due report in order to avoid penalties.

6. New Tennessee Law Requires Service Providers To Change Income Sourcing Methodology [Tennessee: Business Income Tax]

  • Who does this affect?
    Service providers with Tennessee customers or who perform services from within Tennessee.
  • Why does this matter?
    These businesses must adhere to new rules for calculating the Tennessee Excise Tax. 

Summary: Tennessee issued guidance to help taxpayers determine how to source service revenues under the new “market sourcing” rules which are effective for tax years beginning on or after July 1, 2016.The Administrative Rule attempts to establish uniform rules for:

  • Determining whether and to what extent the market for a sale of services is in Tennessee;
  • Reasonably approximating the state of assignment where such state cannot be determined; and
  • Excluding the sale where the state of assignment cannot be reasonably 

7. New Texas Ruling May Provide Refund Opportunity for Businesses Involved with Real Property [Texas:Business Gross-Receipts Tax]]

  • Who does this affect?
    Businesses with Texas operations who are engaged in real property construction, remodeling, design or repair work.
  • Why does this matter?
    These businesses may have a potential refund opportunity. 

Summary: Texas released a memorandum announcing a new policy which allows for certain revenue which is received and then paid out to “other entities” (i.e., subcontractors) to be excluded from taxable revenues for Texas Franchise tax purposes. Previously, the exclusion was only allowed if the flow-through funds were mandated by contract to be distributed to the subcontractors. Under the revised policy, however, a payment qualifies for the exclusion if the taxable entity has a contract with its customer providing that a subcontractor may be used and requiring payment to the subcontractor, or by a written contract between the taxable entity and the subcontractor where the payment is based on the funds paid to the taxable entity by the taxable entity's customers.