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New York State & Local Tax Update: March 2016

Posted 4:00 AM by

NY SALT Update

New York Denies Refund for Erroneously Paid Sales Tax

An automobile dealership was not entitled to a refund for sales tax collected — on extended warranties sold in Connecticut — that was erroneously remitted to New York state. The taxpayer subsequently paid sales tax to the state of Connecticut on the same sales, at a rate of approximately 6%. The taxpayer maintains that it “in essence” refunded the 6% sales tax that was paid to New York state to its customers and then recharged the customers 6% sales tax that was then remitted to Connecticut.

However, because the taxpayer never actually reimbursed its customers for the tax collected from customers and submitted to New York State, the Division of Taxation may not issue a refund to the taxpayer. Pursuant to New York Tax Law § 1139(a), the taxpayer must repay its customers before it is entitled to a refund.  See In the Matter of the Petition of Stamford Subaru, LLC for more information. 

New York Issues Advisory Opinion on Taxability of Computer Security Services

An out-of-state taxpayer providing cloud-based professional services to block malware, botnets, phishing and other threats to its New York customer’s computer security was selling taxable protective services under New York Tax Law § 1105(c)(8). See TSB-A-15(47)S for more information. 

New York Issues Guidance for S Corporations

The New York State Department of Taxation and Finance has issued TSB-M-15(7)C, (6) I to discuss how changes made to the corporate franchise tax apportionment rules impact both the computation of the apportionment factor by a New York S corporation and the determination of New York source income by nonresident and part-year resident shareholders of New York S corporations, for S corporation tax years beginning on or after Jan. 1, 2015.

There are reminders in the memorandum that for tax years beginning on or after Jan. 1, 2015, there has been a change from cost-of-performance sourcing to market-based sourcing, and there will no longer be an investment allocation percentage used to allocate investment income.

New York Issues Guidance on Software Used in Manufacturing

The Department of Taxation and Finance has issued an advisory opinion on whether a taxpayer's sale of software (that enables manufacturing companies to track and control production and costs through every stage of a production process) is exempt from sales tax. The Department found that the software does not meet the requirements for an exemption for production because it is not used directly and predominantly in the production process, as the software does not directly interact with the item being produced.

Also, the software does not qualify for the research and development exemption because the software neither advances science or technology, nor develops new products and activities of that nature, to qualify for the exemption. See TSB-A-15(44)S for more information.  

About the Author
Donna Niesen is a partner in Katz, Sapper & Miller’s State and Local Tax Group. Donna helps keep clients up-to-date on the multitude of tax rules and requirements in all 50 states. She guides them in the right direction as they address the complex issues that emerge on both the state and local levels. Connect with her on LinkedIn.

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