Maryland’s High Court Hands the State a Big Win in its Digital Ad Tax Dispute, More Challenges to Follow

Posted in Digital Tax, E-Commerce, Maryland, Sales Tax

Last fall, when a Maryland County Circuit Court held that the Maryland Digital Ad Tax violated the dormant commerce clause, the supremacy clause, the Internet Tax Freedom Act, and the First Amendment of the U.S. Constitution, most of the tax world anticipated that the Maryland Comptroller would promptly appeal the ruling, which it did.  The State argued that the Circuit Court’s decision must be reversed because the plaintiffs had not properly exhausted their administrative resources prior to bringing the lawsuit, as required under state law. 

On May 9, 2023, the Maryland Supreme Court, in a per curiam opinion, handed the State of Maryland a major victory, only days after hearing oral arguments.  The Maryland Supreme Court held that the Circuit Court did not have jurisdiction in the first place because the plaintiffs did not exhaust their administrative remedies, and vacated the lower court’s October 2022 ruling.  In a somewhat unusual move, the Court rendered its decision in summary form and indicated that an opinion explaining its reasoning would be forthcoming, so there will be more to unpack in the future.  But in the short term, what does this procedural decision mean for the Digital Ad Tax and SALT law more broadly?    

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What’s Next For Maryland’s Digital Advertising Tax?

Posted in Digital Tax, Maryland, Sales Tax

Maryland’s controversial Digital Advertising Gross Revenues Tax (the “Digital Ad Tax”) recently shot back to the top of the headlines when Maryland Circuit Court Judge, Alison Asti, ruled from the bench that the tax is unconstitutional and violates the federal Internet Tax Freedom Act (“ITFA”). Judge Asti ruled in favor of Verizon and Comcast that the Digital Ad Tax violates the ITFA, the First Amendment and the Commerce Clause due to its selective taxation, and the fact that it is not content neutral.

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Illinois DOR Proposes to Change Income Tax Liability for Businesses that Make Sales to Foreign Countries

Posted in Illinois, Income Tax

The Illinois Department of Revenue (“IDOR” or “Department”) recently issued a Notice of Proposed Amendment to amend its Regulation (86 Ill. Admin. Code § 100.3200) governing the “throwback” and “throwout” apportionment provisions (the “Amendments”). 46 Ill. Reg. ___ (Apr. 15, 2022), at 5856. If adopted, the Amendments would change the Illinois income tax burden imposed on a business by altering the business’ apportionment with respect to sales made into certain foreign countries. Continue Reading

Sirius XM Prevails in Texas Supreme Court on Sourcing of Receipts from Satellite Signal

Posted in Texas

In a recently issued taxpayer-favorable opinion, the Texas Supreme Court overturned the court of appeals’ decision holding that the state’s performance-based sourcing statute for service receipts essentially looks to customer location.  The Court, relying on the statute’s plain language, then affirmed the taxpayer’s methodology, which sourced its receipts to the location where the taxpayer’s performance occurred.  Sirius XM Radio, Inc. v. Comptroller, no. 20-0462 (Tex. Mar. 25, 2022) (“Sirius Op.”). Continue Reading

Texas Supreme Court Rejects Texas Comptroller’s “Receipt-Producing, End-Product” Act Test for Sourcing Receipts from Services

Posted in Texas

On March 25, the Texas Supreme Court issued a highly-anticipated decision concerning the proper test to source receipts from services for purposes of Texas franchise tax. By statute, receipts from a “service performed in this state” must be sourced to Texas, as the first step in calculating the amount of franchise tax owed by a service provider. See Tex. Tax Code § 171.103(a)(2).

The primary issue before the Court was whether Sirius XM’s receipts from Texas subscribers were receipts from a “service performed in this state.” Sirius XM contended they were not; the Comptroller disagreed and took the position that all subscription receipts from subscribers in Texas must be sourced to Texas. Continue Reading

Louisiana Launches Unique State Transfer Pricing Initiative

Posted in Indiana, Louisiana, North Carolina, Transfer Pricing

Joining Indiana and North Carolina, Louisiana last week became the third state to offer an alternative to the burdensome and expensive process of enduring a state transfer pricing audit.

The Louisiana Department of Revenue announced a short-term voluntary initiative (the “Louisiana Transfer Pricing Managed Audit Program”) for taxpayers to come forward to resolve intercompany state transfer pricing issues. The program is open from November 1, 2021 through April 30, 2022 and, according to the Department’s Revenue Information Bulletin announcing the program, is “aimed at proactively and efficiently resolving intercompany transfer pricing issues.” Continue Reading

Updated: Maryland’s Latest Attempt to Fix its Digital Ad Tax May Lead to More Litigation

Posted in Maryland

Shortly after the Maryland passed the country’s first “Digital Advertising Gross Revenues Tax”, H.B. 732, the Maryland Senate went to work attempting to fix a few known glitches in the law. Senate Bill 787, which passed the Maryland General Assembly on April 12, 2021, is now headed to the Governor’s desk for signature. If the Governor does not act within 30 days (from April 12th), the bill will automatically become law. Continue Reading

Lights! Camera! Action! Shuttered Venue Operators Grants (SVOG) Takes Center Stage on April 8

Posted in Federal Tax

On April 8, The Small Business Administration (SBA) finally opens its Shuttered Venue Operators Grant (SVOG) program, which was established by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, as part of the the Consolidated Appropriations Act, signed into law on December 27, 2020, and as amended by the American Rescue Plan Act on March 11, 2021.

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Word Play: The Curious Case of Economic Nexus Legislation in Florida

Posted in Florida

In June 2018, the United States Supreme Court in Wayfair held that the physical presence of the taxpayer was no longer a prerequisite for imposition of a sales tax. In so doing, the Court blessed the concept of “economic nexus” for sales tax purposes. Since that landmark decision, many states seized the opportunity to raise sales tax revenue by enacting economic nexus laws. At this moment, forty-four states have economic nexus laws in place. Of the six states without such laws, four – Delaware, Montana, New Hampshire, and Oregon – do not impose a statewide sales tax.[1] The remaining two states – Florida and Missouri – have long-been holdouts. Recently, Florida economic nexus legislation has gained substantial momentum. So, why now? What has changed? Continue Reading

What Will Come of Maryland’s Unique and Controversial Digital Advertising Tax?

Posted in E-Commerce, Maryland

On February 12, 2021, overriding the Governor’s veto, Maryland enacted a first-of-its-kind tax “Digital Advertising Gross Revenues Tax” that has already sent shockwaves through the industry. As widely anticipated, within one week of the enactment four trade associations representing industry leaders filed suit in Maryland federal court to attempt to overturn the tax. Continue Reading