EisnerAmper Blog

by Michael Mincieli
 
The New York Department of Taxation and Finance has issued a tax bulletin advising operators of internet data centers in New York state about property and services related to the data center which may be exempt from sales tax. New York Sales Tax Bulletin No. TB-ST-405, 03/02/2012, states that certain property and services purchases for use by an operator of a New York data center are exempt from sales tax.
 
An operator of an internet data center is a person who:

• operates a data center specifically designed and constructed as a high security environment for the location of servers and similar equipment that hosts internet web sites; and
• provides constant uninterrupted internet access to customers' web pages and continuous management of internet traffic for customers' web sites.

Note that those primarily engaged in the retail sale of their own internet access services (i.e., ISPs) do not qualify.
 
If a person/entity qualifies as “an operator of an internet data center,” such person/entity does not have to pay sales tax on the purchase or use of machinery, equipment, and certain other tangible personal property. Exempt property must be a) placed or installed in the internet data center for use there, and b) required for and directly related to providing internet web site services for sale.
 
Thus, data center operates can now purchase, tax free, computer hardware, servers, routers, software, storage racks, and any property “necessary to maintain the appropriate climate-controlled environment” such as air-conditioning equipment, power generators, raised flooring, etc. The exemption also includes property related to building systems that are designed for an internet data center.  Thus, interior fiber optic and copper cables, fire suppression equipment, and protective barriers are also exempt.
 
Further, the following services, when provided directly to or in relation to exempt Internet data center property, are exempt from sales tax: installing, maintaining, servicing, and repairing qualified tangible personal property; maintaining, servicing, and repairing qualified real property; and protective and detective services. When services are performed on property some of which is taxable and some of which is exempt, the services may be allocated and, if separately stated, the services performed on the data center will also be exempt.
 
Note that, many more taxpayers are consumers of web hosting services than are vendors of these services.   Businesses should be aware that as “web hosting” is not an enumerated taxable service, internet data centers do not have to charge sales tax to their customers.  Sales tax refunds may be available if a business has been paying sales tax to its web hosting service. 
Operators of Internet data centers should be sure to educate themselves on the New York State sales tax rules.  As most computer equipment vendors will likely be unaware of this exemption, there stands to be significant savings with proper tax treatment.

By Michael Mincieli 

As we’ve touched on in this space before, New York has reduced the Metropolitan Commuter Transportation Mobility Tax (MCTMT, also known as the "MTA payroll tax").
 
Effective December 9, 2011, MTA payroll tax was reduced to the following:

However, beginning April 1, 2012, the MTA payroll tax minimum thresholds are also increased. The MTA tax is now completely eliminated for self-employed persons with annual net earnings of $50,000 or less and for businesses whose quarterly payroll expense is $312,500 or less. (The rate is 0.34% of the net earnings from self-employment of individuals that are attributable to the MCTD, if the earnings exceed $50,000 for the tax year.)
 
As a reminder, the MCTMT tax applies to employers and self-employed individuals who meet the minimum thresholds that are engaged in business in New York City or in Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk or Westchester counties.

By Michael Mincieli 

California is starting to catch on to this whole internet thing.
 
The California State Board of Equalization (SBE) has revised Publication 109, “Internet Sales,” to state that the sales of electronic data products such as software, data, digital books (eBooks), mobile applications, and digital images are not taxable when transmitted to customers over the Internet or “by modem.” Note that such sales remain taxable when the sale is accompanied by a physical storage medium or product such as a CD-ROM.
 
According to California, an eBook is an electronic version of a traditional print book that can be read by using a tablet computer or an eBook reader. A mobile application, also known as a “mobile app,” is computer software designed for use on a smartphone or tablet computer. The transfer of a downloadable file such as an eBook or an “app” without purchasing any physical storage medium is not a taxable transaction.
 
As a reminder, in California, sales of software programs which are downloaded without any tangible property exchanging hands are not subject to sales tax.  However, if you also provide your customers with a backup copy on a CD-ROM, the entire transaction is taxable.

By Michael Mincieli and Roger Mierzwa 

As mentioned in a previous blog post , California has altered its Franchise Tax effective 2011.  One of the major changes concerns the California Apportionment formula. Specifically, California has enacted an irrevocable annual single sales factor election.

As follow up to this post, we were asked to present a couple of illustrations of whether to elect a single sales factor or not:

Assume a manufacturing company with its main operations outside of California but with an office, warehouse and employees in California.  Total taxable income is $10,000,000 and California apportionment factors are:  Sales 20.0%; Payroll 5.0%; and Property 15.0%.

Now assume that the company’s main plant is in California with same total taxable income.  California factors are now: Sales 20.0%; Payroll 80.0%; and Property 70.0%.

If you are running a loss, the presumed election in each illustration would be reversed.

By Michael Mincieli

New York has released New York Special Tax Department Notice No. N-12-3, 03/01/2012, relating to the reporting of sales tax charged on certain services within New York City.
 
Specifically, starting with the March-May 2012 quarter (and the return due June 20, 2012), sales tax returns will now report certain services performed in New York City on the main sales tax return (quarterly ST-100 or ST-810, annual ST-101). This reporting change affects the following services performed within New York City:

1. interior cleaning and maintenance services (regardless of the length of the contract);
2. protective and detective services and 
3. interior decorating and design services.

Previously, these services were reported on Part 3 of Schedule N, “Taxes on Selected Sales and Services in New York City Only” (quarterly ST-100.5, ST-810.5, annual ST-101.5). Going forward, they will be reported on the main sales tax return (quarterly ST-100 or ST-810, annual ST-101).
 
The Tax Department Notice states the exact line on which the services are reported. Note that the actual sales tax rates on these services remain the same (3.375% for interior decorating and design services, 8.875% for the other two).

By Michael Mincieli 

A New Jersey appeals court has upheld the state's right to impose corporate taxes on out-of-state companies that use New Jersey-based telecommuters.

In the case of Telebright Corp. Inc. (Telebright Corp. v. Director, N.J. Super. Ct., App. Div., Dkt. No. A-5096-09T2, 03/02/2012), the New Jersey Superior Court, Appellate Division, upheld a Tax Court ruling that a foreign corporation that regularly and consistently permitted one of its employees to telecommute full-time from her New Jersey residence was doing business in New Jersey. As such, the foreign corporation was subject to the corporate income tax in New Jersey, and required to file corporate income tax returns in the state.

The employee who telecommuted was employed in developing and writing software from a laptop computer. This software, developed from the employee’s home in New Jersey, was then uploaded to a repository on the company's computer server in another state. New Jersey imposed the tax because the employee performed work for the company on a full-time basis in New Jersey. The Court ruled that taxing a business based on its employing one full-time employee in the state did not violate the Due Process Clause. Further, the tax did not violate the Commerce Clause's physical presence requirements because given the employee worked for the company in her home office.

Going forward, taxpayers should be aware that a company with a single employee working within New Jersey, regardless of whether the company has any other property or operations in the state, may be subject to income tax.  As New Jersey is currently phasing in a single-factor sales-factor apportionment formula, a company with large New Jersey sales and only one telecommuting employee may be stuck with an unexpectedly large tax bill.

By: Michael  Mincieli 

Just in time for non-extended filers, the New Jersey Division of Taxation announced a new service that allows taxpayers to check the status of their New Jersey income tax refund online.  The refund status service can tell you if and when your refund was mailed and when you should receive it. Taxpayers will need the social security number that was listed first on their return and the amount of the refund requested. 

If you filed your return electronically and requested direct deposit for your refund, the system can tell you the date it was deposited into your bank account. If you filed a paper return, information on the status of your refund will not be available for at least 6-8 weeks from the time the return was mailed.   

You can also perform an online search to determine if a refund check was returned to New Jersey by the U.S. Postal Service because of an invalid mailing address. Note that this service is only available 12 weeks after you filed a paper return, or 4 weeks if you filed your return electronically.