California’s long-anticipated market-based sourcing “guidance” is finally out. Legal Ruling No. 2022-01 provides the Franchise Tax Board’s take on how to find the market in certain business-to-business sales. Though the guidance emphasizes that a seller should look to where its direct customer receives the benefit of sales of services, it keeps with current market-based sourcing trends amongst states and directs taxpayers to source such receipts based on the location of the taxpayer’s customer’s customer. The…
The Indiana Tax Court recently ruled in favor of The University of Phoenix, Inc. (“University of Phoenix”) on an important issue of first impression involving the sourcing of service revenue for purposes of computing Indiana’s corporate income tax apportionment factor. The University of Phoenix, Inc. v. Indiana Dep’t of State Revenue, Cause No. 49T10-1411-TA-00065 (Ind. Tax Ct. 2017). Baker & McKenzie LLP represented the University of Phoenix in the case. The Tax Court held that in sourcing service revenue, Indiana law requires a taxpayer activity/cost-based analysis and rejected the market/customer-based analysis historically advanced by the Indiana Department of State Revenue (“Department”).
The Florida Department of Revenue (the “Department”) recently published Technical Assistance Advisement No. 17C1-004 (decided Apr. 17, 2017, published Aug. 25, 2017) (the “TAA”), which addresses how receipts from “other sales” are sourced under Florida’s apportionment regulation (i.e., Florida Administrative Code Regulation (“Regulation”) 12C-1.0155(2)(l)). Despite the cost-of-performance (“COP”) language explicitly stated in Florida’s Regulation 12C-1.0155(2)(l), the Department applied a market-based sourcing approach, concluding that the receipts from certain services should be sourced to Florida when the taxpayer’s customers are physically located in the state. While Technical Assistance Advisements have no precedential value, the TAA showcases Florida’s propensity to use market-based sourcing for receipts from “other sales,” which appears to be in contrast to the COP directive under Florida Regulation 12C-1.0155(2)(l).
Less than a year after a similar minimum tax proposal was soundly defeated at the polls, a gross receipts minimum tax measure is again being proposed by way of voter initiative in Oregon. A draft ballot title for Initiative Petition 2018-027 (“IP 27”) was received by the Oregon Secretary of State Elections Division from the Attorney General on July 13, 2017 for the November 6, 2018 general election. While the specifics of IP 27 are yet to be revealed, the summary provided in the draft ballot indicates that it is in ways even more aggressive than the one rejected by voters last November (“Measure 97”). Although the fate of this latest tax proposal is still very much in question, companies doing business in Oregon should take notice of the continued interest in gross receipts taxes (another proposal, H.B. 2830, which would have imposed a tax similar to Ohio’s Commercial Activity Tax, was narrowly defeated in the state legislature earlier this year), especially in light of the state’s recent move to market-based sourcing.