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Since our previous blog post, several more states have provided tax relief by extending filing and payment deadlines in response to the COVID-19 (“coronavirus”) outbreak.  However, numerous state tax departments are also canceling in-person customer service, which could make it more difficult for taxpayers to receive timely answers to their filing questions.  We are also seeing the continued impact of COVID-19 on state and local tax litigation as more state courts and administrative tribunals adjourn hearing dates or move to conduct certain proceedings remotely.

Numerous state and local jurisdictions have responded to the COVID-19 (“coronavirus”) outbreak by providing relief to taxpayers, primarily through extended filing and payment deadlines. We expect that many more jurisdictions will issue guidance in the coming weeks, particularly because the federal government recently announced its 90-day income tax payment extension plan.

The World Health Organization has officially declared the coronavirus outbreak to be a pandemic. In addition to the cost on human life, the rapid spread of COVID-19 has left a trail of economic damage affecting business revenues. COVID-19 has caused complete or partial shutdown of factories, supply chain disruptions, and labor shortages, and has impacted demand in certain industries. This impact will also be felt by U.S. state, and local governments.

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.