Articles Posted in States

Posted
by , , and
TAKEAWAYS
  • The California Supreme Court’s Ardmore decision concludes counties and cities are permitted to impose transfer tax on entity transfers that result in R&TC §§ 64(c) or 64(d) changes in ownership.
  • Litigation over how to implement this taxation is a certainty.

In 926 North Ardmore Avenue LLC v. County of Los Angeles,1 the California Supreme Court concluded that, subject to certain limitations, California’s Documentary Transfer Tax Act (the California DTTA), applicable to direct sales of real estate, is also applicable to transfers of entity interests in entities holding real estate if those transfers result in a Proposition 13 “change in ownership” under Revenue and Taxation Code (R&TC) sections 64(c) or (d). In its 6-1 decision, the California Supreme Court reasoned that Proposition 13’s property tax “change in ownership rules are designed to identify precisely the types of indirect real property transfers that the Transfer Tax Act [(California DTTA)] is designed to tax.”2

Continue Reading ›

Posted
by , and

(This article originally was published by Law360 on July 7, 2016.)

Rarely does a subject as mundane as a documentary transfer tax become worthy of its own article. However, the June 29, 2017, decision of the California Supreme Court in 926 North Ardmore Avenue LLC v. County of Los Angeles (Ardmore)[1] is a worthy exception. Affirming the Court of Appeal, the California Supreme Court held in Ardmore that California’s documentary transfer tax may be imposed by localities on transfers of interests in legal entities holding title to real property when three criteria are met: (1) the legal entity interest transfer is memorialized in writing; (2) the transfer is made for consideration; and (3) the transfer constitutes a “change of ownership” in the legal entity within the meaning of “change of ownership” for property tax reassessment purposes as set forth in Cal. Rev. & Tax. Code[2] § 64, subds. (c) or (d).[3] Under the Ardmore holding, it is irrelevant whether the written instrument at issue memorializing the legal entity interest transfer is recorded or directly references the real property.[4] Moving forward, every transaction involving a transfer of an interest in a legal entity holding title to real property in California is going to require thorough investigation and due diligence concerning the possible triggering of Ardmore documentary transfer tax imposition.

Posted
by and

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.)

Posted
by and

On April 6, the Third District California Court of Appeal decided Morning Star Packing Company v. California Air Resources Board, a case that challenged California’s cap-and-trade auction process as an unconstitutional tax because it was not enacted by two-thirds majorities in both chambers of the State Legislature, as required for new taxes by the California Constitution (propositions 13 and 26). The appeal pursued by Morning Star Packing Company against State Air Resources Board et al. was consolidated with a separate suit filed by the California Chamber of Commerce and by intervener National Association of Manufacturers. That decision is important not only to the future of the auction process, but also as to the key question of what is a tax as opposed to a fee or, in this case, as opposed to a “something else.”

Continue Reading ›

Posted
by

On January 30, 2017, the California Legislature Assembly Committee on Revenue and Taxation held an informational hearing on “Life after Lucent: Administering California’s Technology Transfer Agreement Law.” The California State Board of Equalization (SBE) and the Board’s staff are currently wrestling with the meaning of the Technology Transfer Act (TTA) provisions in sections 6011 and 6012 of the Revenue and Taxation Code in connection with implementation of the California Court of Appeal decision in Lucent Technologies v. Board of Equalization, 241 Cal. App. 4th 19 (2015). The January 30 hearing demonstrates that the Legislature is now apparently interested in this issue.

To learn more, please contact the author.

Posted
by , and

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.)

Posted
by

(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.

Continue Reading ›

Posted
by and

(This article originally was published by Law360 on March 17, 2016.)

A New York state Division of Tax Appeals administrative law judge issued three determinations addressing the tax implications for unauthorized insurance companies, both life and nonlife.[1] Significant uncertainty has surrounded New York state’s taxation of unauthorized insurance companies since New York state amended its insurance tax provisions (Article 33) in 2003. The Department of Taxation and Finance even issued a technical memorandum in 2012 reversing its prior position on unauthorized life insurance company taxation. These ALJ determinations provide much needed clarity, although questions still remain.

Continue Reading ›

Posted
by and

In Part I of this series, we shared our experience and insight regarding New York sales tax audits involving online services. We described our strategy of: (1) providing a highly technical description of how a service operates and what users can and cannot do; (2) emphasizing the role of employees or external data points, such as proprietary databases or communication links with third parties; and (3) comparing the primary purpose of the service to a more traditional (nontaxable) service.

Continue Reading ›

Posted
by

The Multistate Tax Commission’s (MTC) Annual Conference and Committee Meetings are being held on July 27-30, 2015, in Spokane, Washington. On Tuesday, July 28, 2015, at approximately 1:00 pm PDT (exact time subject to change), an MTC working group will present this model market-based sourcing regulation working draft to the MTC’s Uniformity Committee. Many on the working group consider the working draft to be close to the regulation’s final form.

To learn more, please contact the author.