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Washington DOR Responds to the LendingTree Decision: Benefit of the Service May Still Occur at the Customer’s Customer Location

By 4 Mins Read

On July 21, the Washington Department of Revenue (“DOR”) issued its analysis of the Court of Appeals’ decision from March 30, 2020, in LendingTree, LLC v. Dep’t of Revenue, no. 80637-8-I (Wash. App. Ct. Mar. 30, 2020).  As set forth in the analysis, from the DOR’s perspective, the LendingTree court followed the existing Washington Business and Occupation tax (“B&O”) attribution rules and guidance and did not create a new interpretive legal framework.[1]  Although the DOR lost the case, and the court held that LendingTree’s receipts could not be sourced based where its customers’ customers were located, the DOR’s response suggests that they are factually distinguishing the case and will continue to attribute receipts to the customer’s customer location if that is where it determines the benefit of the services occurs.

To Market We Go Again: Pennsylvania Commonwealth Court Defers to Department, Disregards Law Change, and Holds that Cost of Performance Sourcing was Always Market

By , and 11 Mins Read

On Friday, July 24, 2020, the Commonwealth Court of Pennsylvania issued its decision and order on the Pennsylvania Department of Revenue’s motion to intervene in the highly-anticipated case of Synthes USA HQ, Inc. v. Commonwealth of Pennsylvania, No. 108 F.R. 2016.  The Synthes case is noteworthy not only because the Commonwealth Court addresses, for the first time, the Department of Revenue’s hotly debated interpretation of the state’s former “costs of performance” statute, but also because…

Texas Court Delivers a Sirius Change to Sourcing Methodology for Services

By and 3 Mins Read

The Texas Court of Appeals recently issued a decision that applied market-based sourcing for services, despite the state’s statute that requires the sourcing of receipts to the location where the service is performed.  In Hegar v. Sirius XM Radio Inc., No. 03-18-00573-CV (Tex. App. Austin, 2020), the court narrowly defined the scope of “performance” as the final act that gets the service to the customer, thereby ignoring all of the costs that went into the performance and production of the service up to that point.  Such an application produces a result that equates to market-based sourcing.

Indiana Tax Court Rejects Department’s Long-Standing Market-Based Application of Indiana’s Costs of Performance Sourcing Statute

By and 4 Mins Read

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”). 

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