This Week in State Tax

Governor Gavin Newsom recently signed Assembly Bill 2854 into law. The new law requires localities that have entered into agreements to rebate a portion of local sales and use tax revenues to a retailer to annually file certain information about the agreements with the Department of Tax and Fee Administration (Department). Recall, a portion (1.0 percent) of the local sales and use tax in California is sourced on an origin basis to the location of the seller.  Over time, local governments have entered agreements with some major retailers to rebate a portion of that tax to encourage them to locate facilities in the jurisdiction. The information required to be reported under the new law includes, among other things, the names of parties, the amount of rebated revenues received by each party for the current and preceding fiscal year, and the percentage of the tax used to determine the rebates received. The information is also to be posted on the locality’s website as well as by the Department. The first report is due April 30, 2025. For further information, please contact Jim Kuhl. An earlier TWIST on AB 2854 is available here.

The Nevada Tax Commission recently adopted revised regulations governing the state’s voluntary disclosure agreement (VDA) program for nonfilers. The revised regulation broadens the applicability of the program to include the modified business tax, the tax imposed on gold and silver mining businesses, taxes imposed on transportation network companies and passenger carriers, and taxes imposed on peer-to-peer car sharing programs. In addition, the revisions transfer administration of the VDA program fully to the Department of Taxation (Department).

The existing regulation provides that if the Tax Commission determines that a taxpayer has made a “good faith effort” to comply with the VDA program requirements, penalties and interest are waived, provided the tax due is paid. The revised regulation eliminates the “good faith effort” clause, instead conditioning the penalties and interest waiver on full compliance with the requirements of the program. Procedurally, a non-filing taxpayer must now file an application for participation with the Department. If the Department determines that it has not initiated an investigation or audit of the taxpayer prior to the date of the application, the taxpayer is accepted into the program. Within 90 days of acceptance, the taxpayer must file any required registrations and delinquent returns as well as pay the estimated tax owed, subject to an eight-year look-back period. The Department, in its discretion, may grant a 90-day extension to comply in event of disaster (natural or otherwise), death or hospitalization of the taxpayer or its representative, or other similar, unforeseeable situation beyond the control of the taxpayer.

If the Department determines that the taxpayer did not meet the requirements of the program, it is to assess any additional tax determined to be owed, as well as penalty and interest. The taxpayer may file a petition disputing the determination by the Department, and a determination on the petition will be made by the Tax Commission. A taxpayer that participates in the VDA program does not waive other appeal rights. Please contact Eric Gee with questions about LCB File No. R152-22.

The New York State Department of Taxation and Finance (Department) released an advisory opinion regarding whether a taxpayer’s receipts from operating an online platform used for trading currencies on foreign exchange markets was subject to sales and use tax. The taxpayer’s customers included traders, asset managers, corporate treasurers, market makers, and brokers. The taxpayer charged its customers a variety of fees, including: an annual license fee to access the system; a monthly support charge for customer support and training services; several transaction charges to allow users to offer quotes to other users and execute trades; and miscellaneous other charges which covered secure ID tokens to access the system, system enhancements and upgrades, and preparation of monthly user reports.

In its analysis, the Department explained that New York imposes sales tax on receipts from retail sales of tangible personal property, which include prewritten software regardless of the medium by which the software is conveyed to a purchaser. A sale also includes a “right to use” the software. The Department found that the taxpayer’s license fees, transaction charges, and other charges constituted the sale of prewritten software because the charges represented rights to use the software. The secure ID tokens represented tangible personal property which were subject to tax. The taxpayer’s support charges for customer support and training were exempt from sales tax if reasonable and separately stated.

Finally, the taxpayer’s charges for providing monthly user reports were considered an information service and were exempt from sales tax if the information was personal or individual in nature and not substantially incorporated in reports furnished to others. The taxpayer’s monthly reports included the user’s own statistics, but also provided benchmarking data comparing the user’s performance to others. The Department stated that if the benchmarking data in these reports is not sufficiently anonymized or constitutes more than a de minimis part of the service, the entire charge would be subject to tax. For questions regarding TSB-A-24(9)S and the taxability of software and related charges in New York, please contact Judy Cheng.

The New York State Department of Taxation and Finance (Department) released an advisory opinion analyzing a taxpayer’s charges for an online portal for the preparation, submission, and review of paperless applications for residential real property transactions. The portal facilitated collaboration among geographically dispersed parties, allowing them to log in, download, sign, and upload documents. The taxpayer’s subscription agreement allowed customers to register buildings, create customized application packages, and manage applications through a unique login page. The subscription also included the taxpayer’s initial technical support and consulting services for customers, as well as the processing of application fees. The taxpayer also offered optional services, such as form creation, custom programming, data entry, and training for separately stated additional fees.

The Department explained that the taxpayer’s subscription charges for using the portal were taxable sales of prewritten software because the taxpayer granted customers constructive possession of the software allowing them to use, control, or direct its use, create and review applications, and direct potential applicants to the portal for submitting application packages. Regarding the taxpayer’s optional services for creating or modifying forms, the Department explained that this service was exempt only to the extent that the modifications were created to the specifications of a specific customer and for that customer’s use only, provided that the charges are separately stated and reasonable in relation to the overall charge. Similarly, the taxpayer’s optional custom programming services and modifications of existing software were exempt if performed at the request of a specific customer and for that customer’s only use, again provided the charges are separately stated and reasonable. Finally, the Department explained that optional data entry services and training services are not enumerated in law as services subject to tax, provided the charges for them are separately stated and reasonable. For questions TSB-A-24(8)S and the taxability of software and software-related charges in New York, please contact Judy Cheng.