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State & Local Tax Update - 6/18/12

Posted 12:00 PM by

Arizona Court Rules City Taxes Apply to Software License : A corporation that transferred possession of, but not title to, computer software was engaged in "sales" transactions rather than "licensing for use" for purposes of the city of Phoenix sales tax, even though a city legislative regulation classified the transaction as "licensing for use" since both title and possession were not transferred. The city ordinance merely required that either title or possession be transferred for a transaction to qualify as "sales." Since the legislative rule was in conflict with the city ordinance, it was, therefore, not controlling. Further, big box retailers' transactions involving software transfers of possession were classified as sales so that the taxpayer's transactions must be equally be treated as sales by the city. (City of Phoenix v. Actuate Corp., Ariz. Superior Court (Maricopa County), Dkt. No. TX 2010-000518, 02/22/2012. )

Illinois Updates Reciprocal Rate Chart on Vehicle Sales: The Illinois Department of Revenue has updated its "Reciprocal/Non-Reciprocal Vehicle Tax Rate Chart." Nonresidents may not claim the "out-of-state" buyer exemption on purchases of motor vehicles or trailers that will be titled in a state that does not give Illinois residents an "out-of-state" buyer exemption on their purchases in that state of motor vehicles or trailers that will be titled in Illinois. ST-58 lists each state and shows whether or not tax must be collected, and if so, the rate used to compute the tax. The chart is effective July 2012.

Massachusetts Rules Electronic Newsletters Subject to Sales Tax : The Massachusetts Department of Revenue ruled that sales of a company's electronic newsletter offering to MA customers are subject to MA sales and use tax because the object of the transaction is the sale of a license to use the company's proprietary software. The transfer of a license or right to use software on a server hosted by the taxpayer or a third party is taxable as a sale of software under MA sales and use tax laws. In this case, the company provides newsletter publishing services to its customers. While the company's offering involves the performance of some nontaxable services, such as bulk emailing, tracking newsletters, and compiling reports for customers in some cases, it combines these services with a license or right to access and use of company's software on a remote server with the customer performing most of these tasks themselves. The object of the customers' purchase of the offering is to obtain a license or right to use software on the company's server for the purpose of creating a business newsletter that will be distributed to the customer's subscribers, and the provision of any personal or professional services, which varies depending on the customer, is incidental. See Letter Ruling 12-6 for details.

New York Rules Newsletter Taxable As Information Service : An Administrative Law Judge has held that the taxpayer, a publisher of electronic newsletters geared to the needs of engineering, scientific, technical and industrial professionals, did not provide a nontaxable information service that was personal and individual in nature. The Administrative Law Judge found that the primary purpose and true aim of the taxpayer's newsletter service was to furnish information to a group of readers and that this function was not merely incidental to some other service, thus he determined that the taxpayer's service was a taxable information service under New York Tax Law § 1105(c)(1). The Administrative Law Judge concluded that the taxpayer's newsletter did not escape taxation under New York Tax Law § 1105(c)(1) as "the furnishing of information which is personal or individual in nature," because the fact that the group or segment to which the information was furnished was smaller than the general public or the entire field of engineers or scientists did not convert the taxpayer's service into a personal or individual information service. The Administrative Law Judge further noted that the taxpayer's service was not akin to a consulting service, as its subscribers did not request a particular piece of information nor is its information presented in response to a particular problem discrete to the newsletter reader. Because the taxpayer's information service was not personal or individual in nature, the Administrative Law Judge ruled that it was not removed from the realm of a taxable information service. (In the Matter of the Petition of GlobalSpec, Inc., NYS Division of Tax Appeals, ALJ, 823435, 05/10/2012.)

Texas Issues Decision On Freight Forwarder Sales : An out-of-state company with a warehouse in Texas that provided transportation logistics services for customers in Texas was not a transportation company but a freight forwarder, and receipts from its freight forwarding activities were services performed in Texas and should be apportioned to Texas. Under Texas statutes, the gross receipts of a taxable entity from its business done in Texas include the taxable entity's receipts from each service performed in Texas. A special apportionment formula for transportation companies is provided under Texas rules. Although no definition of a transportation company is provided in the franchise tax rules or the statutes, the Comptroller has issued rulings distinguishing between entities that directly transport goods or passengers and those that provide transportation logistics services. The taxpayer did not directly transport goods, but rather arranged for the shipment of goods by unrelated third parties. See Hearing Number 105,484 for details.

West Virginia Court Rules No Nexus Related to Trademarks : The West Virginia Supreme Court of Appeals has affirmed a trial court decision that a foreign licensor with neither physical presence nor substantial economic presence in-state had no nexus with West Virginia, so that the state's imposition of its corporation net income tax and franchise tax on the licensor's royalties earned from the nationwide licensing of food industry trademarks and trade-names would be invalid because the tax assessments satisfied neither the "purposeful direction" test under the Due Process Clause nor the "significant economic presence" test under the Commerce Clause. For additional information, see ConAgra.

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