The Arizona Department of Revenue (“Department”) recently made public Letter Ruling 16-011 (“Ruling”), which concluded that a taxpayer’s gross income from electronic transaction processing services that involved the use of software was not taxable for Arizona transaction privilege tax (“TPT”) purposes. The Department opined that the electronic transaction processing services were not taxable as a rental of tangible personal property because the taxpayer’s customers did not have the “exclusive control” over the software required for a taxable rental. This Ruling is significant because the Department, like revenue departments in several other states (including New York), has historically concluded that online services involving the remote access or use of software were subject to the TPT as a rental of tangible personal property, without analyzing the degree of control the customer had over the software.
After years of litigation, injunctions, and a U.S. Supreme Court decision, the controversy between Data & Marketing Association (“DMA”) (formerly Direct Marketing Association) and the State of Colorado has come to a conclusion. On February 22, 2017, DMA and the Colorado Department of Revenue (the “Department”) entered into an agreement (the “Settlement Agreement”) resolving the dispute in Direct Mktg. Ass’n v. Colo. Dep’t of Revenue, Colo. Dist. Ct., No. 13-CV-34855, which involved a challenge to the Colorado use tax reporting requirements enacted in 2010. (The Settlement Agreement is available at http://thedma.org/wp-content/uploads/DMA-Colorado-Executed-Settlement-Agreement.pdf.) Under the Settlement Agreement, the Department agrees that compliance with those use tax reporting requirements will not be required until July 1, 2017 and agrees to waive any and all penalties for non-collecting retailers who failed to comply with the use tax reporting requirements prior to July 1, 2017. So on July 1, 2017, a new day of use tax notification and reporting enforcement will dawn in Colorado – and it would not be surprising if other states follow suit.
In TracFone Wireless, Inc. v. Director of Revenue, SC95785 (Mo. 2017), the Missouri Supreme Court recently held that an out-of-state seller of telecommunications services from Florida to customers in Missouri was not entitled to Missouri’s sales tax exemption for transactions made “in commerce” between Missouri and any other U.S. state. In reaching its conclusion, the Court looked to the “true object” of the transactions to deem them purely local telecommunications service transactions, even though the seller was located outside of and the sales took place outside of Missouri.
Governor Andrew Cuomo’s 2017-2018 New York State Executive Budget Bill (“FY 2018 Budget Bill”), proposes several tax-related changes, including changes to various tax credits, the real estate transfer tax, and the state sales and use tax. This post summarizes the FY 2018 Budget Bill’s key sales and use tax proposals, which are similar to proposals made in the Governor’s 2015-2016 New York State Executive Budget Bill (“FY 2016 Budget Bill”).