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.
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 New York State Department of Taxation and Finance (“Department”) has been releasing draft regulations to implement the extensive corporate franchise (income) tax reform that is generally effective for tax years beginning on or after January 1, 2015. Prior coverage can be found here. Recently, the Department issued new draft apportionment regulations on certain statutory categories of receipts, including receipts from sales of tangible personal property, rents and royalties, qualified financial instruments, loans, reverse repurchase agreements and securities borrowing agreements, commodities, marked to market net gains, other financial instruments, credit card and similar activities, credit card processors, services to investment companies, railroad, trucking and omnibus businesses, and advertising.
On November 8, 2016, Oregon voters will vote to approve or reject Measure 97 (formerly, Initiative Proposal 28) that would implement a new 2.5 percent gross receipts tax on certain C corporations doing business in Oregon. If approved by voters, this new tax would be effective for tax years beginning on or after January 1, 2017.