TWIST - This Week in State Tax

California: FTB Seeks Rehearing in Dispute Addressing Dividend Inclusion

The Franchise Tax Board has recently petitioned the California Office of Tax Appeals (OTA) for rehearing in Matter of Appeal of Microsoft Corporation, a case addressing whether foreign dividends deducted from a taxpayer’s income should be included fully in the sales factor. The request for rehearing follows the OTA’s issuance of an Opinion that reversed the FTB’s denial of the taxpayer’s $93 million refund. The opinion has not yet been released to the public. The substantive issue in Microsoft is what portion of a qualifying dividend paid by a qualified foreign subsidiary and received by a California water’s-edge group member is reflected in the sales factor. Specifically, is the entire dividend amount included in the sales factor or just the amount remaining after applying the 75 percent dividends received deduction allowed under Cal. Rev. & Tax Cd. § 24411? On its original return, Microsoft included in its sales factor denominator only the 25 percent of the dividend amount. Subsequently, Microsoft filed an amended return including the full amount of dividends in the sales factor; this resulted in a refund.  The dividends at issue were paid following the taxpayer’s payment of the one-time transition tax under IRC section 965.

Without a written opinion, the OTA’s rationale for reversing the refund denial must be gleaned from the FTB’s petition for rehearing. The FTB asserts in the petition that the Opinion is contrary to California law in that it disregards the legislature’s intent that the sales factor includes only sales that relate to apportionable income included in the tax base. In the FTB’s view, the OTA also erred when it concluded that the dividends were not excluded from the sales factor under an exclusion for receipts from a substantial, occasional sale of a fixed asset or other property held in the regular course of the taxpayer's trade or business. Further, the OTA erred when it concluded that the FTB did not meet its burden of proving by clear and convincing evidence that the standard apportionment formula did not fairly represent the extent of Microsoft’s activities in California. The FTB also asserts that there were irregularities in the appeal proceedings that prevented fair consideration of the appeal, including the denial of a request for additional briefings and interruptions during the opening arguments. In addition, the FTB alleges the taxpayer provided unsubstantiated (and erroneous) evidence regarding the amount of dividends repatriated in the years after the year on appeal, which was relied on by the OTA when it concluded that the occasional sale exclusion did not apply.  Please contact Oksana Jaffe with questions.

Florida: Proposed Bill Would Adopt Sales Tax Holiday for Purchases Made with Cryptocurrency

Florida Senate Bill 352, which was filed ahead of the 2024 legislative session, would adopt a never-seen-before type of sales tax holiday even for Florida, which has its share of unusual sales tax holidays. Specifically, between June 1, 2025 and July 31, 2025, Florida sales tax would not be due on the retail sale of tangible personal property or services if the sale was paid for using virtual currency and the purchase was made at certain enumerated establishments. The specified establishments are retail service stations selling fuel, certain food service establishments, grocery stores, convenience stores, cosmetology salons, barbershops or spas, and bars and nightclubs. If enacted, the bill authorizes the Department of Revenue to adopt emergency rules to implement the bill. Please stay tuned to TWIST for updates on this and other sales tax bills.

Louisiana: Peer-to-Peer Car Sharing Platform’s Obligations Outlined

The Louisiana Department of Revenue recently issued Revenue Ruling 23-001, which addresses the tax collection and remittance requirements for vehicle lease or rental transactions facilitated through peer-to-peer vehicle sharing platforms. Legislation enacted in 2020 expanded the definition of a “dealer” required to collect state and local sales tax to include anyone who operates, maintains, or facilitates a peer-to-peer vehicle sharing program and collects some portion of the amount paid under a vehicle sharing program agreement. Another section of Louisiana law excludes any person who offers or facilitates the furnishing of rental cars by rental car companies from the definition of a marketplace facilitator.

The taxpayer at issue was in the business of operating, maintaining, and facilitating an online platform that connected vehicle owners with drivers who wanted to lease or rent vehicles on a short-term basis for use in Louisiana. The Department ruled that through its operation, maintenance, and facilitation of a peer-to-peer vehicle sharing program, the taxpayer at issue met the definition of a dealer. Due to its collection of a portion of the amount paid under the vehicle sharing program agreements, the taxpayer would be required to collect and remit sales tax on transactions facilitated on its vehicle sharing platform. The taxpayer would also be responsible for collecting and remitting the separate automobile rental tax that would be due on taxable rentals made through the platform. The ruling then addressed the taxpayer’s reporting and remittance requirements.  The state sales tax and the automobile rental tax (state and local portions) would be remitted electronically to the Louisiana Department of Revenue. Local sales taxes would be required to be remitted to the appropriate local sales tax collector, presumably because “these businesses are statutorily excluded from the definition of marketplace facilitator and are ineligible to file or remit to the Louisiana Sales and Use Tax Commission for Remote Sellers.”  Please contact Randy Serpas with questions.