This Week in State Tax

The Florida Legislature recently passed House Bill 7031, a state tax package that includes the repeal of two state taxes, the creation and extension of sales tax holidays, and various other tax exemptions and credits.  Some of the more significant changes include:

• Repeal of Commercial Rent Tax: Effective October 1, 2025, the rental of real property for business and commercial purposes in Florida will no longer be subject to the 2 percent state sales tax or applicable local sales tax.
• Aviation Fuel Tax Repeal: Effective January 1, 2026, the aviation fuel tax will be repealed.
• Delay of Tax on Natural Gas Fuel: The bill delays the imposition of the sales tax on sales of natural gas fuel until January 1, 2030.
• Permanent Back-to-School Sales Tax Holiday: The bill makes the Back-to-School Sales Tax Holiday a permanent fixture, extending it to cover the entire month of August each year.
• Permanent Exemptions for Essential Items: Items such as batteries, smoke detectors, fire extinguishers, certain portable generators, bicycle helmets, sunscreen, and admissions to Florida State Parks will now be permanently exempt from sales tax, instead of being included in various sales tax holidays.
• New Hunting, Fishing & Camping Sales Tax Holiday: A new sales tax holiday has been introduced, running from September 8 to December 31, 2025, allowing residents to purchase hunting, fishing, and camping equipment exempt from the sales tax during this period.
• Gold Silver & Platinum Bullion Exemption: All sales of gold, silver, and platinum bullion are exempt from tax, regardless of sales price.
• Data Center Sales Tax Extension: Data center sales tax exemption certificates can now be issued up to June 30, 2037. The megawatts (MW) requirement for qualification has been increased to 100 MW.

The tax package is now with Gov. Ron DeSantis for signature. The state fiscal year starts on July 1, 2025. For any questions, please reach out to Benjamin Cella  or Amanda Ribeiro.

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The Maryland Comptroller recently released Technical Bulletin No. 56, which provides guidance regarding the 3 percent tax on certain data and information technology services taking effect on July 1, 2025. [See April 24, 2025 TWIST for further information.] The guidance answers several questions beyond what services are taxable, including the treatment of software-as-a-Service (SaaS), timing matters, the use of MPU certificates. 

Taxable Services – The new law defines the services that are newly taxable by reference to a business’s primary NAICS code. The guidance clarifies that the codes are to be used to define the services subject to the tax. If a business provides a service that meets the definition described in an enumerated code, the service will be subject to the new 3 percent tax, even if that is not the business’s primary activity. The bulletin also provides a list of services that are subject to the 3 percent tax.

Treatment of SaaS – SaaS is considered both a digital product and a taxable software publishing service. The definition of digital product, however, excludes computer software and SaaS for use in an enterprise computer system. Thus, if SaaS is purchased for use in an enterprise computer system, it will generally be subject to the 3 percent rate. However, if purchased for individual use, it will be treated as a digital product and will be taxed at the 6 percent rate.  The exemption for software and SaaS that is customized or configured as required by the buyer is repealed on July 1, 2025.

Timing Matters – For subscriptions, installment sales, and credit sales, the timing of payments before and after the law takes effect is important. For subscriptions, each payment is considered a separate sale for tax purposes, meaning that payments received after July 1 are taxable regardless of when the subscription period began.  For installment sales and credit sales, the date of execution of the contract generally controls the taxability of a payment.  Contracts entered into before July 1, 2025, are generally not subject to the tax, unless there is a change order, or additional services are purchased. If a contract is automatically renewed after July 1, that renewal will be subject to tax. The guidance provides several examples to clarify the general rule.

MPU Certificates – The law authorizes the use of a Multiple Points of Use (MPU) certificate if a buyer knows, at the time of purchase, that a digital code, digital product, taxable data service, taxable information technology service, or taxable software publishing service will be used concurrently by the buyer both inside and outside Maryland, or if it will be resold in its original form to a member of an affiliated group or a related pass-through entity of which the buyer is a member. If the buyer presents the vendor with a MPU certificate, the seller is relieved of the obligation to collect tax, and the tax obligation shifts to the buyer. The bulletin discusses the requirements of the MPU and provides guidance around what is considered a “reasonable method of apportionment” for allocating use among states in which the product or service is used. For information or questions, please contact Jeremy Jester.

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The Ohio Supreme Court ruled that a taxpayer could not exclude reimbursements received from clients from its gross receipts for purposes of the Commercial Activity Tax (CAT). The CAT is imposed on taxable gross receipts of a person doing business in Ohio. An exclusion applies to amounts “received or acquired by an agent on behalf of another in excess of the agent’s commission, fee, or other renumeration.” The taxpayer, a food services company, operated under two different types of contracts—“profit-and-loss contracts” under which the taxpayer contracted with an event organizer to sell food at the event, with the taxpayer maintaining ownership of the food and bearing the risk of profit or loss on the sales, and “management-fee contracts”, under which the taxpayer sold food on behalf of the organizer and was reimbursed for the costs it incurred in purchasing the food along with its contracted fee. After including all amounts received under both types of contracts on its original CAT returns, the taxpayer filed amended returns excluding reimbursements under its management-fee contracts. The resulting refund was denied at the administrative and Board of Tax Appeals levels, and the taxpayer appealed.

Before the supreme court, the taxpayer first argued that, because it was acting as its client’s agent when it purchased the food, the subsequent reimbursements should qualify for the statutory exclusion. The supreme court rejected this argument. First, it determined that the taxpayer was not an agent of its customers as that word is defined under statute. The statute defines “agent” to include a “person retaining only a commission from a transaction with the other proceeds from the transaction being remitted to another person.” Because the taxpayer paid vendors using its own money before receiving a reimbursement from its client, it was not passing the proceeds of the reimbursement over to another person. In reaching this conclusion, the court repudiated its previous ruling in Willoughby Hills, which reached beyond the text of the statute to define “agent” as “a person authorized by another person to act on its behalf to undertake a transaction for the other.” The court here ruled that this description could not supersede the statutory definition, and the taxpayer did not meet the terms of the statute. Further, even if the taxpayer was an agent, the reimbursements were not excludable because they were not “received or acquired … on behalf of another.” The court concluded on this point by determining that various administrative documents cited by the taxpayer did not disturb these definitions.

As an alternative to its agency-based arguments, the taxpayer also argued that reimbursements did not qualify as gross receipts because they did not “contribute to the production of gross income.” The CAT statute provides that “‘gross receipts’ means the total amount realized by a person … that contributes to the production of gross income of the person.” However, the supreme court noted that the statute explicitly includes within this definition “[a]mounts realized from the taxpayer’s performance of services for another.” Because the reimbursements were from the performance of contractual services, they fell within the statutory definition.

The dissent, which would have held for the taxpayer, disputed the majority’s interpretations of the statutory definition of “agent” and the scope of the statutory exclusion.

Although unfavorable to the taxpayer in this case, the court’s reinterpretation of the agency exclusion statute may create opportunities for some taxpayers. By distancing itself from the strict requirements of common law agency imposed by cases like Willoughby Hills and Cincinnati Golf Management, the Court appears to have broadened the availability of the agency exclusion to a degree. This may create an occasion for some taxpayers to revisit prior discussions regarding the applicability of the agency exclusion to their situation. Contact Dave Perry with questions about Aramark Co. v. Harris.

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The Philadelphia City Council recently approved its fiscal year 2026 budget, and with it, has passed two bills to make changes to the city’s Business Income and Receipts Tax (BIRT) and its Wage and Net Profits Tax. Both bills have been signed by the Mayor. The BIRT is imposed on both total receipts (based on a millage rate) and net income (at a percentage rate). The budget bill will gradually reduce both rates, phasing out the receipts portion entirely in 2038 and reducing the net profits rate from 5.81 percent in 2024 to 2.8 percent by 2038. The bill also eliminates an existing exclusion covering the first $100,000 of taxable receipts received by a taxpayer for tax years after 2024. The budget bills will also annually reduce the tax rate applicable to the Wage and Net Profits Tax, to rates of 2.20 percent (for resident taxpayers), and 3.39 percent (for nonresident taxpayers) by July 1, 2029. The “wages” component of the tax is imposed on wages, salaries and commissions earned by residents of the city and nonresidents on such income when earned in the city. The “net profits” component is applicable to “businesses, professions or activities” conducted by residents of Philadelphia and to those same activities when conducted in the city by nonresidents. Contact Mark Achord with questions about Bill No. 250199 or Bill No. 250195.

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