Weekly Round-Up: Navigating New York’s ‘Cloudy’ Sourcing Rules


New York State's tax law and regulations concerning receipts sourcing were drafted during the mercantile economy and have not been updated to address the technology changes now prevalent in our Internet economy, David Schmutter , Keith Eisenstein and Sam Cohen, all with Ernst & Young LLP's Indirect, State and Local Tax Services practice, explain in this week’s issue of the Weekly State Tax Report.

New York tax law does not specifically provide rules on how receipts from electronic transactions should be treated for allocation purposes, the authors say. Accordingly, one can argue that such receipts should be treated as receipts from services (i.e., SaaS). However, even if such receipts are deemed “other business receipts,” based upon the Siemenscase [In the Matter of Siemens Corporation v. New York Tax App. Trib., 657 N.Y.S. 2d 592 (1997)], arguably such receipts are “earned” based upon where the activities occur related to the taxpayer's activities, not where a customer accesses his or her computer. Further, taxpayers may allocate such receipts based upon their customer's billing address, the authors explain.

The state's policy under its advisory opinions is not binding, nor precedent, but is merely the state's interpretation without tax law foundation, the authors state. The “cloudy” rules in this area may be lifted and clarified through enactment of legislation, updated regulations or case law. In the meantime, there are a number of reasonable positions available to taxpayers for consideration, depending upon their specific facts and circumstances, according to the authors.

  Check out the complete article by Schmutter , Eisenstein and Cohen here , which looks at how business receipts may be allocated for New York corporate franchise tax purposes using a case study involving a hypothetical business.

In other developments…

Morrison & Foerster LLP issues its January 2014 issue of New York Tax Insights , which includes an article on the top ten New York tax highlights of 2013.

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Michigan affiliated groups may elect to file combined returns , according to new alert by PwC

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Tax Foundation Honors six individuals with awards for Outstanding Achievement in State Tax Reform

Compiled by Priya D. Nair
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