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14 Posts authored by: Laura LeeLun

According to Columbus Business First, the Ohio Department of Medicaid is reviewing the application of state sales and use taxes to premiums received by Medicaid managed care organizations (MCOs) in light of a federal regulatory memo calling the practice into question. The state uses the tax revenue to obtain additional federal Medicaid matching funds, and increases the per-member monthly (capitation) payments to the plans in order to hold the MCOs harmless.

 

The July 25, 2014 memo from the Centers for Medicare and Medicaid Services states that amendments made in the Deficit Reduction Act of 2005 (DRA) terminated states’ ability to tax only Medicaid MCOs. The memo explains that "taxing a subset of health care services or providers at the same rate as a statewide sales tax, for example, does not result in equal treatment if the tax is applied specifically to a subset of health care services or providers (such as Medicaid MCOs), since the providers or users of those health care services are being treated differently than others who are not within the specified universe."

 

It remains unclear how other states imposing similar health care-related taxes on Medicaid MCOs will respond. In May, 2014, the Inspector General of the Department of Health and Human Services concluded that Pennsylvania’s gross receipts tax on Medicaid MCOs was impermissible for purposes of Medicaid funding. However, Michigan reinstated its use tax on Medicaid MCOs effective retroactive to April 1, 2014.

On its blog, Airbnb announced that it will begin collecting occupancy taxes on behalf of its San Francisco hosts on October 1, 2014. For reservations booked on or after October 1, Airbnb receipts will show a new line item for the 14% city-imposed transient occupancy tax. The tax applies to rentals of less than 30 days.

 

According to Airbnb, the collection of taxes was instigated by the local community. "Our community members in San Francisco have told us they want to pay their fair share and the overwhelming majority have asked us to help. In the past, it's been difficult for individual hosts to pay taxes that were designed for traditional hotels that operate year around."

 

On July 1, 2014, Airbnb started collecting hotel taxes totaling 11.5% on short-term Portland rentals. It remains uncertain, however, if Airbnb will reach similar agreements with other cities. In New York, concerned with tax evasion and the operation of illegal hotels, Attorney General Eric Schneiderman's office issued a subpoena against Airbnb, seeking information and records on Airbnb hosts.

Several marijuana activists and business owners have filed a lawsuit (No Over Taxation v. Hickenlooper) in the Denver District Court, seeking a permanent injunction against the collection of Colorado’s marijuana taxes and a refund of those taxes. In addition to the 2.9% state sales tax, Colorado imposes a 10% sales tax on marijuana retail transactions and a 15% excise tax on the wholesale sale of marijuana from a cultivation facility to a retail store or infused manufacturer. As the manufacture and distribution of marijuana remains in violation of the Federal Controlled Substances Act, the complaint claims that the marijuana taxes require persons subject to those taxes to incriminate themselves as “committing multiple violations of federal law, including but not limited to, participating in, aiding and abetting in, or conspiring to commit a ‘continuing criminal enterprise’ and ‘money laundering.’” As such, the plaintiffs assert that the marijuana taxes violate the Self-Incrimination and Double Jeopardy protections contained in the Fifth Amendment of the U.S. Constitution and Article II §18 of the Colorado Constitution, respectively.


The complaint further contends that the state’s marijuana regulatory scheme violates federal law and is therefore preempted under the U.S. Constitution’s Supremacy Clause. Defendants Governor Hickenlooper and Denver Mayor Hancock are themselves alleged to be “federal criminal actors” who have laundered illegal drug proceeds and conspired with J.P. Morgan Chase Bank in depositing such funds and violating federal law. The lawsuit also asserts that the marijuana taxes are excessive, as Amendment 64 to the Colorado Constitution forbid any regulation that would make the operation of a marijuana enterprise “unreasonably impracticable.”


Colorado voters approved Amendment 64, legalizing recreational marijuana, in November 2012, and legal sales began January 1, 2014.

On October 16, 2013, the Washington State Liquor Control Board adopted rules to implement Initiative 502, approved by voters in November 2012, which legalized the sale of marijuana and authorized the imposition of excise taxes and license fees. The rules advise that a 30-day registration period will open for all license types on November 18, 2013. A three month state residency requirement is in place for all license applicants. The residency requirement also applies to all members of partnerships, employee cooperatives, associations, nonprofit corporations, corporations and limited liability companies applying for licenses. License applicants must submit a signed attestation that they are current on taxes owed to the Washington Department of Revenue as an individual or as part of any entity in which they have an ownership interest.

 

Initiative 502 creates three new licenses, for marijuana producers, processors, and retailers. The application fee for each license is $250, and the annual renewal fee is $1,000. An excise tax of 25% will be imposed on each licensed retail sale of marijuana/marijuana infused product. This tax constitutes part of the total retail price and is in addition to all state and local sales and use taxes. A 25% excise tax will also be imposed on each sale between a licensed producer and licensed processor, and on each sale between a licensed processor to a licensed retailer.

 

All licensees must submit monthly reports and payments to the board by the 20th day of the month for the previous month. The reports must be filed separately for each marijuana license held. All records must be maintained and available for review for a three-year period.

 

On August 29, 2013, U.S. Attorney General Eric Holder informed the governors of Washington and Colorado that the Department of Justice would permit the states to create a regime that would regulate the ballot initiatives that legalized the use of marijuana by adults.

As reported by the Arizona Capitol Times, Amazon.com has disclosed that it has agreed to begin collecting the 6.6% Arizona sales tax in 2013. Product sales will be subject to tax beginning February 1, and digital sales will be taxed beginning in July.

 

The agreement is part of a settlement of a dispute arising out of a $53 million bill the state submitted to Amazon in November 2011 for taxes and interest owed on sales from March 2006 to January 1, 2011. Amazon had contested liability despite operating four distribution centers in Arizona. In addition to agreeing to collect taxes in the future, the online retailer paid an undisclosed sum to settle the claim.

 

According to Amazon, it currently collects sales tax in eight states: California, Kansas, Kentucky, New York, North Dakota, Pennsylvania, Texas, and Washington. Collection of sales tax in New Jersey will commence July 1, 2013, and in Virginia on September 1, 2013. The retailer will also begin collecting tax in Indiana, Nevada, and Tennessee on January 1, 2014, and in South Carolina on January 1, 2016.

On June 7, 2012, a sales and use tax exemption was enacted for original or replacement computers, computer equipment, computer hardware and software purchases, and electricity and business property used at a data center. A "data center" is defined as a new or existing facility at a single South Carolina location (1) that provides infrastructure for hosting or data processing services; (2) where the following conditions are met: (a) a taxpayer invests at least $50 million in real or personal property or both over five years, or (b) one or more taxpayers invests a minimum aggregate capital investment of at least $75 million in real or personal property or both over five years; (3) that is certified by the Department of Commerce; (4) where a taxpayer creates at least 25 full-time jobs with an average cash compensation level of 150% of the per capita income of the state or of the county in which the facility is located, whichever is lower; and (5) where the jobs are maintained for three consecutive years after the facility is certified.

 

If a taxpayer fails to meet the capital investment and job creation requirements a the end of the five year period, the Department of Revenue may assess any state or local sales or use tax due on items purchased. Also, if a taxpayer meets these requirements but subsequently fails to maintain the number of full time jobs at the required compensation levels, the exemption for computer equipment, computer hardware, and software purchases will be suspended until the jobs requirements are met. The electricity exemption will be limited to a percentage of the sales price, calculated by dividing the number of qualifying jobs by twenty-five.

 

The exemption is only available to data centers certified prior to January 1, 2032.

On May 30, 2012, the Superior Court of King County, in League of Education Voters v. Washington, has found the Washington statute requiring that legislation seeking to increase taxes be passed by two-thirds of both houses to be unconstitutional. The supermajority requirement was originally approved by voters via Initiative Measure 601 in 1993 and was subsequently re-enacted by three separate ballot measures, the most recent being I-1053 in 2011. The court found that there was an actual dispute underlying the declaratory judgment action because the House was unable to pass SHB 2078 in 2011 with a simple majority. SHB 2078 would have funded class size reductions by narrowing the tax deductions for large banks and other financial institutions.

 

The court held that the proper method of imposing a supermajority requirement is to amend the Washington Constitution as opposed to pursuing the initiative process. Art II, §22, of the Washington Constitution expressly provides that no bill may become law without a majority vote. The plain language of Art II, §22, reflects that the Legislature does not have the authority to impose a more strict voting requirement. Furthermore, the Constitution contains 16 provisions with supermajority vote requirements, and, therefore, it can be presumed that the absence of such supermajority language in Art II, §22, was intentional. The framers' concern with special interests and the potential impact of a strong legislative lobby also indicates that the majority requirement contained in Art II, §22, was not intended as a minimum threshold that would allow a minority of legislators to thwart the will of the majority.

 

The court also determined that the mandatory referendum requirement contained in RCW 43.135.034 is unconstitutional. The statute provides that tax increases that exceed the state expenditure limit must be submitted to the voters for approval. However, Art. II, §1, requires that before legislative action may be subject to a referendum, a petition be circulated and signed by 4% of the votes cast for the office of governor in the last election. In addition, by requiring that such tax increases be sent to voters, the mandate infringes upon future legislatures' plenary power to enact legislation under Art. II, §1. The proper method of imposing a mandatory referendum requirement is to amend the Washington Constitution.

Michigan Governor Rick Snyder has sent a letter to the leadership of the U.S. Senate urging the passage of the Marketplace Fairness Act (S. 1832) in order to collect sales tax from online and other remote retailers. According to Snyder, allowing remote retailers to avoid paying sales and use taxes "provides them an unfair competitive advantage and threatens the viability of retailers throughout our communities…." The letter goes on to say that Michigan expects to experience a loss of about $872 million in revenue due to online and mail order purchases during fiscal years 2012 and 2013. Currently, Michigan taxpayers are required to report and remit use tax on remote sales on either their individual purchase use tax returns or income tax returns, but rarely do so.

 

Online retailer, Amazon, collects sales tax in four states in which it has distribution facilities, and in New York, due to the enactment of its click-through nexus law. In the absence of federal legislation on the issue, Amazon has reached agreements with seven other states (Texas, Nevada, Tennessee, Indiana, Virginia, California, and South Carolina) to begin the collection of sales tax by a specified future date. In Texas, for instance, Amazon will begin collecting sales tax on July 1, 2012.

The South Carolina House and Senate have passed different versions of a bill that would exempt from sales and use taxes purchases of electricity, computer equipment, hardware, and software by a data center. In order to be eligible for exemption, a qualifying taxpayer would need to invest at least $50 million in real or personal property over a five year period and create at least 25 full-time jobs which would be maintained for three consecutive years. If more than one taxpayer seeks exemption for a data center, an aggregate capital investment of at least $75 million in real or personal property over a five year period would be required.

 

If a taxpayer fails to meet the hiring and investment conditions at the end of the five year period, the Department of Revenue would assess the state and local sales and use taxes due on purchased items. The exemption would be available only to those data centers certified by the Department of Commerce prior to January 1, 2032.

 

As passed by the Senate on March 27, 2012, the exemption would have applied to data centers first placed in service after July 1, 2012. On May 1, 2012, the House amended the bill to include companies already in South Carolina that meet the specified criteria. If the Senate gives final approval, the bill goes to Governor Haley for signature or veto.

New York Attorney General Eric T. Schneiderman has filed a lawsuit against Sprint Nextel Corp., Sprint Spectrum L.P., Nextel of New York, Inc., and Nextel Partners of Upstate New York, Inc. (collectively "Sprint") alleging that Sprint knowingly underpaid state and local sales taxes on flat-rate access charges for wireless calling plans in an amount exceeding $100 million. The complaint, filed April 19, 2012 in the New York state supreme court, alleges that as of July 2005, Sprint has avoided its sales tax obligations on approximately 25% of its receipts for flat-rate calling plans.

 

New York has imposed sales taxes on fixed monthly charges for wireless voice services since August 2002. Such charges are taxable regardless of whether the calls are intrastate, interstate, or international in nature. The complaint asserts that Sprint categorized part of its fixed monthly charges as charges for interstate calls charged on a per-minute basis. Such charges, unlike fixed monthly charges, are not taxable in New York.

 

The lawsuit was filed pursuant to the New York False Claims Act, which is the only such Act in the nation that expressly includes tax fraud within its scope. The Act permits triple damages in addition to penalties and attorneys' fees. If found liable, Sprint could receive a judgment in excess of $300 million.

 

This lawsuit is the result of a whistleblower, or "qui tam" action filed March 2011. After an investigation was conducted by the Taxpayer Protection Bureau and the Department of Taxation and Finance, the Attorney General opted to file suit, effectively superseding the whistleblower action.

  A concurrent resolution (HCR 2043 ) has been introduced in the Arizona House of Representatives that proposes to amend the state constitution by requiring a supermajority vote from electors to approve a new tax. The resolution mandates that two-thirds of qualified voters approve any initiative, referendum, or proposed constitutional amendment that provides for the following:

 


-a new tax;


-an increase to an existing tax rate;


-the reduction or elimination of an existing tax deduction, exemption, exclusion, or credit; or


-the establishment of a special taxing district.


 


The resolution would make the two-thirds requirement retroactive to November 5, 2002. However, as reported by the East Valley Tribune, Representative David Stevens has indicated an intent to remove the retroactivity language when the resolution moves to the full House for consideration.

 


  If approved, the resolution would be submitted to voters at the November 2012 general election. Arizona already requires a two-thirds vote of each house of the legislature to enact a net increase in state tax revenue.

 

As reported by the

Las Vegas Sun, the Nevada Tax Commission has ruled that casinos must pay sales tax on complimentary meals extended to players and employees. The 6-1 decision rejected an appeal by Boyd Gaming Corp. and its 12 casinos in Clark County. The commission decided that sales tax should be based on the retail price of the meal.



The Department of Taxation argued that money need not change hands in order for there to be a sale. It contended that "consideration" was present as the casino patrons had to gamble in order to qualify for the complimentary meals, and the employee meals were bargained for as union contracts often include provisions for free meals.


 


In the 2008 Sparks Nugget case, the Nevada Supreme Court ruled that the department could not impose use tax on complimentary meals; however, it noted that sales tax may be imposed if consideration for such meals could be properly demonstrated.

 


 


 

 

 

New Jersey Gov. Chris Christie has signed legislation (S.B. 1988 ) phasing out the state's 6% tax on cosmetic medical procedures (the "Botox tax"). The tax will be reduced to 4% on July 1, 2012, 2% on July 1, 2013, and will be eliminated altogether for procedures performed on and after July 1, 2014.


 

According to the Assembly Appropriations Committee , the tax generated $10.8 million in the last fiscal year. However, since its enactment in 2004, it has been found to have placed an administrative burden on the medical offices tasked with collecting the tax and the state agencies responsible for its enforcement. Examples of taxable cosmetic procedures include cosmetic surgery, hair transplants, cosmetic injections, chemical peels, and laser hair removal.


Currently, New Jersey and Connecticut are the only states in the Northeast that impose a tax on cosmetic procedures.

 

  The Washington Department of Revenue has ruled that an out-of-state mail order retailer had substantial nexus with the state for purposes of retail sales tax and business and occupation tax based on the activities of its in-state affiliate. The mail order retailer had no employees or inventory in Washington. However, its in-state affiliate, which operated under the same business name, sold gift cards that could be redeemed via mail order, online, or at the retail store. When a gift card was redeemed, the sale was recorded in the financial records of the appropriate subsidiary. Therefore, by selling the gift cards, the affiliate was actually facilitating sales on behalf of the mail order retailer.


 


Furthermore, the affiliate distributed the mail order retailer's catalogs and assisted its customers with returns by contacting customer service to request free shipping labels. The department concluded that these activities were significantly associated with the ability of the mail order retailer to establish or maintain a market for sales in <!<st1:State>><!<st1:place>>Washington<!</st1:place>><!</st1:State>>.

 


Click the link below to view the ruling.


 


 WA_Tax_Determination_No._10-0057.pdf

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