Multi-state sales tax

Published on: November 24, 2015

Class Action Takes on Pizza Delivery Fee in Florida

Few understand or even bring up sales tax issues when they order pizza. The next time you order pizza, take a look at the receipt and see if the pizza shop charges you for the delivery. Taking it a step further, what happens if you purchase an item and pay for shipping charges? Is tax due on just the item, or is it also due on the delivery charge as well? The answer depends largely on whether the delivery charge is separately stated and if it is optional. This issue will be in center stage for a recent class action filed in Broward County against Pizza Hut.

Lauren Minniti, the class representative, purchased a pizza from Pizza Hut and had it delivered. Pizza Hut allegedly charged her tax based on the charge for the pizza and for the separately stated delivery fee instead of tax on the pizza alone. Was this correct?
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Published on: November 19, 2015

Micjo – Florida’s Defining Moment in Florida OTP Tax History

By Jerry Donnini, Esq.

February 1, 2012 was a day in tobacco tax litigation that should go down as one of the greatest victories in tobacco tax history. On appeal from the Florida Department of Business and Professional Regulation (“DBPR”), Judge Black for the District Court of Appeal of Florida – Second District (“DCA”) stated that the term “wholesale sales price” is based only on the manufacturer’s price of the tobacco product and not the domestic distributor’s invoice price. This seemingly simple statement has now become the source of very successful tobacco tax distributor litigation in Florida and throughout the country. Micjo, Inc. v. DBPR has set the tone for all future tobacco tax litigation.

In a case of first impression, the DCA was called upon to interpret the phrase “wholesale sales price” within the Florida statutes on Other Tobacco Products (“OTP”). See section 210.25(13), Florida Statutes (2009). The facts of the case were far from complicated as Micjo was a tobacco tax distributor that imported and distributed hookah tobacco. Since Micjo was a Florida distributor, it was subject to Florida’s OTP tax. Micjo received its tobacco from domestic distributors and only paid taxes on the actual unit price of the tobacco and not the total invoice price. This is particularly relevant and ultimately the crux of the entire case, because the total invoice price would have included, among other things, federal excise tax and shipping costs. As such, an audit conducted by DBPR concluded that Micjo underpaid Florida OTP by roughly $48,000. Micjo then requested a formal administrative hearing on the calculation of tax.

Not so shockingly, DBPR concluded in its own hearing that it was correct in its audit result. The recommended order stated that “the [wholesale sales price] includes delivery charges and the federal excise taxes. It is all components on the invoice that make up the cost to get the product to the purchaser[;] therefore, all components are subject to be taxed.” Clearly, a different result would have cost DBPR potentially millions of dollars in future tax revenue, so why would it have concluded any other result. After having its exceptions to the recommended order be denied, Micjo filed an appeal for the record books.

Published on: August 26, 2015

Colorado – Blunt Wraps are Not Tobacco Products

By Jerry Donnini, Esq.

In December 2006, the Colorado Department of Revenue (“DOR”), on its own volition, unilaterally decided to increase their revenue stream by taxing more tobacco products. Taxpayers were given an FYI Notice stating that all products containing any amount of tobacco would be considered “tobacco products” within the meaning of the statute. When that was challenged in Creager Mercantile Company, Inc. v. Colorado Department of Revenue, the DOR issued a final determination that blunt wraps sold by Creager were “tobacco products” within the meaning of the statute despite not having any authority from the legislature to make such a determination. The taxpayer decided to fight back.
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Published on: March 31, 2015

What’s the True Object of the Transaction? Portable Toilets Case Finds Its Way to LA Supreme Court

By Jerry Donnini, Esq.

It never ceases to amaze me, the wide variety of companies that state agencies attempt to extort money from. I mean, how could a portable toilet company possibly have a sales tax problem? Most states impose a sales tax on the sale or rental of tangible personal property, but do not tax services. From the perspective of a toilet industry, if a venue rents a toilet, it is clearly a rental of tangible personal property subject to tax. If the same venue pays a fee to clean the toilets, then it sounds like a nontaxable service. But what happens when the venue rents the toilet and purchases the cleaning service along with it? In this part tangible personal property rental, part service transaction (known to the sales and use tax attorney as a “mixed transaction”), is only part of the transaction taxable or is the entire charge subject to sales tax? Many states take the incredibly helpful “it depends” approach, and look to an even more helpful “object of the transaction” test. In reality, it truly seems like state agencies and courts reach a conclusion first and fill in the reasons later.
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Published on: March 4, 2015

SCOTUS PARTIALLY RULES ON CSX CASE – REMANDS CASE FOR 3rd TIME

By Jerry Donnini, Esq.

The Supreme Court of the United States (“SCOTUS”) has had its hands full with tax cases this year. Although largely unpopular and unexciting for the general public, SCOTUS find tax cases even less appealing. In fact, since 1992 in Quill, SCOTUS has not heard a case dealing with sales tax nexus. Despite its unpopularity, the nexus issue is an important one since the advent of the Internet. However, every statistic has its anomaly. From a state tax perspective, SCOTUS issued two opinions in 2 days, which is impossible. The first case, the DMAcase came down yesterday, March 3, 2015, ruling that a taxpayer could embark on a constitutional challenge to a state tax in federal court. Even more riveting, SCOTUS ruled today, March 4, 2015, in theCSX case.

By way of brief background, federal law prohibits states from imposing taxes that “discriminate against rail carriers.” With that in mind, Alabama decided to impose a 4% tax on diesel fuel purchases made by a rail carrier and exempt similar purchases made by other competitors, namely motor and water carriers. However, motor carriers pay 19 cents per gallon of fuel tax on diesel purchases and water carriers don’t pay tax on diesel fuel purchases. Is this the type of discrimination the feds were talking about? Does anyone really care?
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Published on: March 3, 2015

Taxpayer Wins In United States Supreme Court in DMA Case

By Jerry Donnini, Esq.

Direct Marketing Association has continued its fight for consumer privacy with Colorado. In September, 2014, I wrote about how DMA has taken its challenge up to the Supreme Court of the United States. DMA filed its opening DMA Brief.pdfin the Supreme Court of the United States on September 9, 2014 and argued that the case should be allowed to be heard in federal court. A summary can be found DMA Summary.pdf. The Supreme Court heard the case in its recent term and announced its opinion on March 3, 2015. From a state and local tax perspective, the case has broad and interesting constitutional issues.

At its heart, Colorado thought it would effective to enact a law that affected “non-collecting retailer.” In Colorado’s eyes, if a company made sales in Colorado over $100,000, then it was subject to a host of regulation, including: provide notices to Colorado purchasers, send annual purchase summaries to the customers and send the report to Colorado. This all had to be done despite the fact the company had no nexus, or connection, with Colorado. DMA, agroup of businesses and organizations that markets products using advertisements, thought this was incredibly onerous and unfair, so it challenged the Colorado law in federal court. At trial, the DMA convinced the trial court that this law was impermissible because it convinced a judge that the law discriminated against, and placed an undue burden on interstate commerce.
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Published on: February 10, 2015

Click Through Nexus – Michigan Latest to Enact Click-Through Nexus

By Jerry Donnini, Esq.

Although nexus sounds like a terrible disease, it is just a fancy word meaning a connection or link. If a company has enough of a connection or link to a state, then the state can impose its power of the company. With nexus, a state can impose its laws on the business including sales tax laws. From a sales tax perspective it can require the business to charge, collect, and remit state taxes such as sales tax. In 1992, Quill v. North Dakota was decided, which announced that having a physical presence in a state was sufficient nexus to require a company to follow a state’s state and local tax laws. In other words if your business has an office, a warehouse, some inventory, or a person (employee and yes, an independent contractor) then it likely has nexus under the physical presence test in Quill.

For life in the 1990’s this was big news to businesses who engaged in innovative marketing. Businesses that were on the cutting edge that sent things like mail order catalogs and floppy disks to solicit customers were being harassed by states alleging they had nexus. Today, with the internet as the backbone to the modern economy, states are trying the same tactics by creating laws to get more companies under its rule.

In 2008, New York led the innovative charge for click through nexus legislation. Also known as the “Amazon law,” due to its perceived targeting of Amazon, New York created a law that if a New York residents website generated over a certain number of sales in a 12 month period for a particular company, then there was a presumption that such company had nexus in New York. Amazon and Overstock took exception with this law, but ultimately lost at New York’s highest court. Unfortunately, the Supreme Court of the United States declined to hear the case.
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Published on: November 21, 2013

Amazing Amazon Opens Another Californian Facility

By Jerry Donnini, Esq.

Amazon has implemented an interesting sales and use tax strategy over the past few years. The battle between the online juggernaut can be best exemplified in California. In 2011, California attempted to force Amazon to collect California sales and use tax. Amazon called California’s ultimatum by threatening to pull any ties with California which would cost thousands of jobs. On second thought, California agreed to not force Amazon to collect sales and use tax until September 2012 in exchange for a promise by Amazon to open numerous distribution facilities, which would increase job opportunities in the state.

Putting personal feelings and constitutional implications aside, the move makes sense from both sides. California has the highest statewide sales tax rate of about 7.5%, and many localities have an additional .91%. However, in a time of recession, what can be more valuable to a state’s economy than thousands of jobs? Opponents of the settlement will remind us that it is not fair to have special rules for online retail giants like Amazon.

Despite what anyone thinks of the agreement, it was announced that Amazon opened yet another distribution center in Moreno Valley at the end of October, 2013. The fourth Californian facility encompasses some 1.2 million square feet. In addition, the facility will house an estimated 1,000 full time workers. This facility brings Amazon-related jobs to about 2,400 in California. In total, Amazon pledged to spend in the neighborhood of $500 million and create 10,000 jobs by 2015.

Published on: November 8, 2013

Colorado Enacts Pot Tax

By Jerry Donnini, Esq.

Colorado clearly does not stick to the trends. Whether it is legalizing marijuana or attempting to get Northern Colorado to become the 51st state, Colorado has been all over the news during the past year. Recently, the state had on its ballot an interesting tax that stayed in line with Colorado’s unusual politics. Specifically, on November 5, 2013, Colorado voters passed the pot tax.

On its face, the tax appears to operate similar to somewhat steep excise tax. It appears that recreational marijuana sales will be subject to a 25% tax which goes into effect on January 1, 2014. Of the 25%, 15% will be allocated to public school construction projects and 10% will go to funding enforcement regulation on the retail pot sales. This excise tax, which is similar to tobacco and cigarette taxes, is in addition to 2.9% sales tax at the retail level. Colorado estimates that the tax will generate some $35 million in year one and $67 million in year two. In total, pot users will pay an estimated $230-$250 per ounce of weed in Colorado.

Interestingly, the tax is not as steep as Washington’s efforts to impose hefty tax on the newly legalized drug. Washington imposes a 25% tax on every sale in the retail chain and it estimates the tax will raise about $2 billion in Washington in the first five years.

Published on: October 4, 2013

States Offer Amnesty In Attempt to Collect Tax

By Jerry Donnini, Esq.

Each year, many states announce amnesty programs in an effort to incentivize taxpayers to pay state tax. Most programs, in one form or another, offer partial or full interest and penalty abatements if taxpayers pay back taxes owed. While the programs seem like a win for states in theory, as a state and local tax attorney, I can promise that such programs lead to problems. Auditors in the various states are told to close down improperly completed audits in an effort to get taxpayers in the amnesty program. This, in turn, leads to poorly conducted audits that must be protested and litigated. In short, state and local tax professionals in those states should be licking their chops for the bombardment of work that will likely ensue.

The most recent states to implement a version of an amnesty program are Arkansas, Connecticut, and Louisiana.

Arkansas’ amnesty program applies to franchise taxes and runs from September 1st through December 31st, 2013. In order to participate, taxpayers must submit all reports and forms and pay the computed tax to the state. If a taxpayer meets the requirement of the deal, then Arkansas will waive all interest and penalties for delinquent taxpayers.