State and Local Tax Roundup Retail and Consumer Industry

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State and Local Tax
Roundup
Retail and Consumer
Industry
August 2015
Highlights
What are the state and local tax
issues and potential
opportunities facing retail and
consumer businesses?

California vendor allowances

Oregon initiative would remove
minimum tax cap

Status on qui tam litigation

Illinois – Retailer bad debt
deduction for private label
credit cards

Texas film exhibition is tangible
property

Indiana – Electricity purchases
exempt

Ohio’s on-line municipal tax
reporting system

Certain retailers ineligible for
LA EZ

Minnesota –Bad debt refund
denied

Missouri – No use tax on paper
for catalogs

Tennessee’s retail
accountability program

Illinois – Retailers cannot pay
customer’s sales tax

Remote Transactions Parity Act
introduced
Insights exploring state and
local tax issues affecting
retailers
California audits rejecting vendor allowance
sales factor inclusion
As provided in our February 2015 Roundup, the California Franchise Tax Board
(FTB) issued public guidance on its website providing: (1) when taxpayers may
include vendor allowances in their sales factor and (2) the documents that the FTB
may require to support such vendor allowance treatment.
In our experience, FTB auditors have been applying this guidance to
income/franchise tax audits of retailers. The majority of FTB audits we have seen
have disallowed inclusion of vendor allowance and advertising cooperative receipts
in the sales factor. Denying inclusion of the receipts is generally based on either
the outlined requirements not being satisfied or a lack of documentation.
Recently, there have been audit discussions with FTB auditors regarding allowing
certain categories of vendor allowance receipts to be included in the sales factor but
also including a portion of these receipts in the California sales factor numerator,
based on the percentage of stores located in California. While this analysis needs to
be performed on a case by case basis, it is a step in the right direction that the FTB
auditors agree that certain categories of vendor allowances are gross receipts to be
included in the sales factor.
The next step will be the challenge of these audits at the protest and appeal levels.
We will continue to keep you informed of developments on this issue.
In the meantime, if you have had vendor allowances denied at audit or would like
to connect in more detail about our experience and perspective with respect to this
issue, please feel free to contact us.
State and Local Tax Roundup
Oregon – 2016 ballot
initiative
Status on
qui tam litigation
On July 9, 2015, the Oregon
Supreme Court certified Initiative
Petition 22 for the 2016 ballot.
Federal/California
Current law provides that
Oregon’s minimum tax is
calculated on Oregon sales, with a
cap of $100,000 for corporations
with Oregon sales of $100 million
or more.
Initiative 22 would remove the
$100,000 cap and provide that
taxpayers with Oregon sales
exceeding $25 million would be
subject to a minimum tax of
$30,001 plus 2.5% of sales above
$25 million.
For example, a taxpayer with $50
million of Oregon sourced sales is
currently subject to a $30,000
minimum tax. Under the
Initiative, the taxpayer’s minimum
tax would be approximately
$655,000.
If approved, the changes would be
applicable to tax years beginning
on or after January 1, 2017.
On May 8, 2015, plaintiffs filed a
class action complaint against
Costco Wholesale Corp. in the
United States District Court for
the Northern District of California.
The complaint alleges that the
wholesale retailer breached
contracts with customers and owes
tax refunds for improperly
overcharging sales tax for
customers using coupons to make
discounted purchases. [Brooks v.
Costco Wholesale Corp. No. 3:15CV-02098-MEJ (N.D. Cal).]
Federal/Illinois
On January 28, 2015, plaintiffs
filed a class action suit in the
United States District Court for
the Northern District of Illinois
alleging the company overcharged
sales tax on purchases made with
coupons.
Plaintiffs pled three counts: (1)
Illinois Consumer Fraud Act
violations, (2) common law fraud,
and (3) unjust enrichment.
On June 15, 2015, the court
granted the company's motion to
dismiss the plaintiffs' unjust
enrichment claims. However, the
court allowed the other two claims
to move forward. According to an
August 20, 2015, docket entry in
the case, the parties reached a
‘settlement in principle.’ [Wong v.
Whole Foods Market Group Inc.,
No. 1:15-CV-00848 (N.D.IL July
15, 2015)]
On February 26, 2015, a class
action complaint was filed in
federal court against New
Albertson’s, Inc. the operator of
the Jewel-Osco grocery chain. The
complaint alleges that the
company failed to deduct
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manufacturers’ coupons from the
tax base on which sales tax was
calculated. [Wong v. New
Albertson’s Inc. d/b/a Jewel-Osco,
no. 1:15-cv-01732 (N.D. IL)]
A class action suit in federal
district court was closed on July
27, 2015, when the parties reached
a final settlement. The litigation
alleged that a retailer
overcollected Illinois sales tax on
items purchased with coupons.
[Wong v. Target Corp., U.S. Dist.
Ct., N.D. IL, No. 1:15-CV-01985
(Complaint Filed March 2015]
Federal/Ohio
The parties in a case at the US
District Court for the Northern
District of Ohio alleging that WalMart Stores Inc. is miscalculating
sales taxes when giving customers
refunds on returned merchandise
reached a preliminary settlement
on April 30, 2015. In July 2015,
the plaintiffs filed a motion asking
the judge to approve the
settlement. [Brandewie v. WalMart Stores, Inc., No. 1:14-CV00965 (N.D. Ohio)]
Florida
On March 17, 2015, a class action
lawsuit was filed against BJ’s
Wholesale Club, Inc. in a Florida
circuit court alleging that BJ’s
collects sales tax on the full price
of items on sale, instead of
applying the discount and then
collecting sales tax on the
discounted amount. [Bugliaro v.
BJ’s Wholesale Club]
State and Local Tax Roundup
Illinois – Retailer
bad debt deduction
for private label
credit cards
Indiana – Electricity
used by restaurants
exempt from sales
and use tax
Certain retailers and
restaurants
ineligible for EZ
benefits in Louisiana
Signed into law on July 31, 2015,
S.B. 507 provides that a retailer
may generally claim a bad debt
deduction with respect to the
payment of taxes on purchases
made through a private-label
credit card if: (1) the account or
receivable has been charged off as
bad debt on the lender’s books and
records on or after January 1,
2016; (2) the account or receivable
has been claimed as a federal
income tax deduction under IRC
Section 166; and (3) a deduction
was not previously claimed and a
refund was not previously allowed
on that portion of the account or
receivable. Click here for our
Insight.
The Indiana Tax Court held that
electricity used by a restaurant
operator to power food
preservation equipment qualified
for the sales tax consumption
exemption because the company
was engaged in production, had an
integrated production process,
and the electricity was essential
and integral to the integrated
production process. [Aztec
Partners LLC v. Indiana
Department of Revenue, Ind. Tax
Court No. 49T10-1210-SC-00067
(6/23/15)]
Louisiana’s enterprise zone
program allows a business to enter
into a contract with the Board of
Commerce and Industry to receive
income tax credits or sales and use
tax rebates if the taxpayer satisfies
certain job creation requirements.
Current law limits eligibility for
retail businesses with a North
American Industry Classification
(NAIC) code of 44 or 45 (Retail
Trade) and more than 100
employees nationwide to grocery
stores and pharmacies located in
an enterprise zone.
Texas Court of
Appeals holding that
film exhibition
involves tangible
personal property
could have broad
franchise and sales
tax implications
On April 30, 2015, the Texas Third
Court of Appeals determined that
American Multi-Cinema, Inc.
could include its exhibition costs
in its Texas cost of goods sold
deduction. In making this
determination, the court
concluded that exhibited films
represent tangible personal
property, rather than intangible
property or a service, because
films are 'perceptible to the
senses.'
Click here for our Insight.
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Ohio offers
simplified online
municipal tax
reporting
Retailers may be overburdened
with filing dozens of local income
tax returns in the Ohio
municipalities.
With compliance deadlines in
these Ohio municipalities just
around the corner, retailers may
find it timesaving to leverage
Ohio’s online system for filing
municipal business income tax
returns, estimated payments, and
extension requests.
More information on the system
can be found at
http://business.ohio.gov/efiling/tr
ansactions/muni/
Effective for contracts entered into
on or after July 1, 2015, H.B. 635
provides that retail businesses
with an NAIC code of 44, 45, or
722 (Food Services and Drinking
Places) are ineligible for EZ
program benefits. However, if the
related advance notification form
was filed before July 1, 2015, then
benefits are available provided the
related claim for benefits is filed
on or after July 1, 2016.
Click here for our Insight into the
Louisiana law.
Minnesota – No bad
debt refunds for
credit card
companies
Credit card companies could not
claim a refund for bad debts on
behalf of retailers because the
companies were not ‘taxpayers’
since they neither collected nor
remitted sales tax. [Citibank v.
Commissioner of Revenue, Minn.
Tax Ct., Dkt. No. 8488-R,
06/04/2015)]
State and Local Tax Roundup
Missouri – No use
tax on paper
purchased to print
catalogs
The Commission ruled that Office
Depot did not have a Missouri use
tax liability on paper it purchased
and supplied to a printer to print
its catalogs outside Missouri and
ship to Missouri customers.
The Commission said the Office
Depot facts aligned with the May
Dept. Stores Missouri Supreme
Court decision. In May Dept.
Stores, the Missouri Supreme
Court reasoned that the taxpayer
never engaged in the “storage, use
or consumption” of the catalogs in
Missouri and, therefore, never
sought “to exercise any of the
privileges which give rise to the
[use] tax.”
[Office Depot, Inc. v. Director of
Revenue, Mo. Adm. Hearing
Comm’n, No. 12-2190 RS
(4/30/15)]
Tennessee DOR
provides guidance
on expanded retail
accountability
program
The Tennessee Department of
Revenue has provided guidance
regarding legislation that expands
the retail accountability program,
which tracks wholesaler reports of
some purchases against a retailer's
sales tax returns.
The guidance explains that,
effective October 1, 2015, anyone
that (1) makes resale sales of
$12,000 or more a year and (2)
sells certain items to retailers that
sell beer or tobacco must
electronically file a report with the
Department for such sales. [Retail
Accountability Program: Changes
and Guidance, Tennessee
Department of Revenue]
Illinois – Retailers
cannot advertise
that they will pay
sales tax on
customer purchases
On June 25, 2015, the Illinois
Department of Revenue released a
general information letter
explaining that it is a violation of
state tax laws for a company to pay
the sales tax on behalf of its
customers. [Illinois General
Information Letter No. ST 150042 GIL (6/25/15)]
Remote
Transactions Parity
Act introduced
On June 15, 2015 US
Representative Chaffetz (R-UT)
introduced the federal Remote
Transactions Parity Act of 2015, a
bill that would authorize both
Streamlined Sales and Use Tax
Agreement member states and
non-Streamlined states that
comply with certain minimum
simplification requirements to
require remote sellers to collect
and remit sales and use tax.
Click here for our Insight.
Let's talk
For a deeper discussion, please
contact:
Barbra Bukovac
National Tax Leader—Retail
and Consumer Industry
+1 (312) 298-2563
[email protected]
Barbara Coulter
State and Local Tax—Retail
and Consumer Industry
+1 (678) 419-1697
[email protected]
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