(This article was originally published by Law360.)
California’s A.B. 2731 seeks to accomplish what the federal Tax Cuts and Jobs Act did not, namely, to close the carried interest “loophole.” Currently making its way through state assembly committees, AB 2731 would impose an additional 17 percent tax on interest income derived from investment management services on taxpayers subject to California’s personal income tax law.
On April 20, Carley Roberts presents “State Tax Tribunals – Perspectives from Both Sides of the Bench” during Council on State Taxation’s 2018 Income Tax Conference.
On April 13, Pillsbury senior counsel Richard Nielsen presents “Sales Taxation of Digital Commerce in the United States” during the the “Digital Economy in the Crosshairs” panel session at the American Bar Association’s 18th Annual Tax Planning Strategies U.S. and Europe Conference.
(Note this originally appeared in March 26, 2018, edition of State Tax Notes)
Nearly every state that imposes a corporate income tax includes a sales factor in its apportionment formula. Generally, the sales factor in computed by comparing a taxpayer’s “in-state” sales to its total sales. Determining in-state sales of tangible personal property is a straightforward concept—good shipped to a customer’s location are included as in-state sales only in the state of the customer’s location. It is more complicated to determine an in-state sale regarding the provision of multistate services or licenses of intangibles. Historically, states looked to a taxpayer’s costs of performing the service of licensing the intangible. Some states have become critical of this cost-of-performance method and replaced it with a market-based method of computing in-state sales.
Initiative 17-0055 seeks to put two significant changes to California’s property tax system before voters in November—(1) the elimination of Proposition 13 protection for commercial and industrial properties in favor of reassessment at least every three years and (2) the addition of a tangible personal property tax exemption of $500,000 for all taxpayers and a full tangible personal property tax exemption for taxpayers with less than 50 California employees. Proponents of the Initiative claim these revisions are needed to raise funding to support California schools.
There will be competing commercial rent tax measures on San Francisco’s June 2018 ballot. The “Housing for All” measure would impose a new 1.7% tax on commercial rents in San Francisco, effective January 1, 2019. The “Universal Childcare for San Francisco Families” measure would impose a new 3.5% tax on commercial rents (1% on rents from warehouses) in San Francisco (also operative January 1, 2019). Both measures specify that only one measure can be adopted, and that if both measures secure sufficient votes for passage, the measure with the most votes will prevail. If either of these measures were to be adopted it would be in addition to San Francisco’s existing 0.3% gross receipts tax on rentals.
(This article originally was published by Law360 on October 10, 2017.)
States historically have had one major impediment to their ability to collect sales tax—the decision in Quill Corporation v. North Dakota to uphold a physical presence test standard for determining nexus.[1] Since the Quill decision, states have applied various approaches to limit or even eliminate Quill’s physical presence nexus standard. These approaches included lobbying Congress to provide federal legislation that would redefine nexus, enacting state “click-through” nexus statutes, and taking aggressive audit positions that limit the applicability of physical presence nexus.
The majority of states impose a form of a corporate income tax. However, currently five states—Delaware, Ohio, Nevada, Texas and Washington—impose a broad-based, statewide corporate gross receipts tax. The most recent addition to that list is Nevada, which in its 2015 Legislative Session enacted a new Commerce Tax that is imposed on gross revenue. More recently, there have been and are, at the time of writing, ongoing efforts in Oregon to enact a corporate gross receipts tax, either as a separate tax or as an alternative tax to the existing Oregon corporate income/excise tax. Even more recently, both West Virginia and Louisiana have considered a gross receipts tax.
(The remainder of this article can be access in the July 2017 edition of the Journal of Multistate Taxation and Incentives.)
As consumer products become more high tech, the line between computers and traditional devices has blurred. Even basic products, such as toothbrushes, alarm clocks, doorbells, smartphones, cameras, home security systems, printers and copiers now include technical software that enables new functionality options for the device. As a general principle, tangible personal property, but not intangibles or services, is subject to California Sales and Use Tax. Software “embedded” into a product has value distinct from the value of the rest of the device and that distinct (intangible) value is not subject to sales tax. On the heels of two recent taxpayer victories in the California Court of Appeal relating to taxation of software, this article discusses current developments on how to treat such embedded software for California sales (and use) tax purposes.
(The remainder of this article can be accessed in the January 2017 edition of the Journal of Multistate Taxation and Incentives.)
(This article originally was published in Vol. 25, No. 4 of the California Lawyers Association’s California Tax Lawyer.)
Section 995 and 995.2 of the California Revenue & Taxation Code exempt all software except for basic operational programs from property taxation. Basic input output systems, known as BIOS, draw the line between the taxable and nontaxable. BIOS, which by definition is necessary to the operation of the computer, handles primitive functions such as turning the computer on and off. BIOS is taxable. Everything else, such as operating systems like Windows, is not taxable. (Property Tax Rule 152; Cardinal health 301 Inc. v. County of Orange (2008) 167 Cal.Appl.4th 219.) Often, computers or other electronic devices are sold with nontaxable software (i.e., non-basic operating systems or application software) preloaded onto the device. When there is no separate sales price for the nontaxable software, it is termed “bundled” or “embedded” software. Embedded software is not taxable. Id.
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