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California

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Continuing the unpleasant theme of aggressive state tax proposals, a bill has surfaced in the New York Assembly (following a companion bill that was introduced in the New York Senate last Spring) that seeks to impose a five percent tax on the “gross income . . . [from] every corporation that derives income from the data individuals of this state share with such corporations.” The new data tax is being proposed for inclusion in Section…

In an era of ever-expanding state tax bases, there are two new legislative proposals in Maryland (SB 2) and Nebraska (LB 989) that seek to either extend a current tax base (in the case of Nebraska, the sales tax base) or create a new tax (in the case of Maryland) to capture digital advertising revenues. The Maryland tax also signals a continued trend toward nuanced gross-receipts-type taxes. If a tax targeting digital advertising services sounds familiar, that is because the Ohio Department of Taxation attempted to extend the Ohio sales tax to digital advertising services in 2016 (though this extension was rejected by the Ohio Legislature’s enactment of an exemption from the sales tax for digital advertising services later that same year).

Baker McKenzie attended the U.S. Supreme Court’s oral arguments yesterday in South Dakota v. Wayfair, Docket No. 17-494.  At issue in the case is whether the Court should abrogate the physical presence nexus standard that it first articulated in National Bellas Hess v. Dep’t of Revenue, 386 U.S. 753 (1967), and later affirmed in Quill Corp. v. North Dakota, 504 U.S. 298 (1992).  The Court’s decision could have a profound impact on sales and use tax nexus in the United States by altering the limitations currently imposed on a state’s ability to require out-of-state retailers to collect such tax.

ExxonMobil Oil Corporation, Hess Corporation, and Shell Oil Company (collectively, the “Oil Companies”) were recently dealt another blow in their ongoing transfer pricing dispute with the District of Columbia Office of Tax and Revenue (“OTR”).  The Oil Companies are among several taxpayers that have been fighting the validity of the transfer pricing methodology employed by Chainbridge Software LLC (“Chainbridge”), the OTR’s third-party transfer pricing consultant.  Just last year, the Oil Companies unsuccessfully sought to estop the OTR from relitigating the validity of the controversial Chainbridge methodology in light of the OAH’s holding in Microsoft Corp. v. Office of Tax and Revenue (2012) that the Chainbridge methodology was arbitrary, capricious and unreasonable (for prior coverage, see DC Office of Tax and Revenue Set to Relitigate Chainbridge Methodology in Oil Company Cases).  In a January 26, 2018 Order, Office of Administrative Hearings (“OAH”) Administrative Law Judge Bernard H. Weberman denied the Oil Companies’ motion for summary judgment, holding that they failed to establish that the transfer pricing method employed by Chainbridge was arbitrary, capricious and unreasonable as a matter of law. Hess Corp., et. al. v. D.C. Office of Tax & Revenue, Case Nos. 2012-OTR-00027, 2011-OTR-00047, 2011-OTR-00049 (Jan. 26, 2018).