The Glamorous Life Of A SALT Professional

Most weekday mornings before the hustle and bustle of the day begins, I sit down with my coffee and scroll through the myriad of daily sales tax updates that are sitting in my inbox. I know what you are all thinking: being a SALT professional sounds so glamorous. After sorting my way through the minutiae of decisions addressing penalty abatement requests, denying refund claims with far too little documentation (a subject for a future blog), and claims that software coding is manufacturing (yet another topic for the future), my attention has recently been drawn to a line of recent cases like Clark’s attention when he first laid eyes on the Griswold family Christmas tree. Courts are telling the departments of taxation to consider the true object test when making sales tax determinations.

Now for my get off my lawn moment.

Back In My Day …

For years, back before this whole internet thing took off, services were performed in person, tax returns were delivered on paper and software had to be bought at the local retailer where you would tear open the box and, depending on your age, insert the floppy disk, diskette or CD and wait for that bad boy to load. Taxing these transactions was pretty straightforward, or at least easier than today. It was either tangible personal property or qualified as an enumerated taxable service. Fast forward to today, you can, among other things, deposit your checks remotely (my kids have no idea the struggles I went through as a child trying to wait patiently between the velvet ropes at the bank on a Saturday morning so my mom could deposit checks) and even complete all of your CPE remotely.

Anyway, where was I? Oh yes, the true object test …

Clear As Mud

Once many of these seemingly benign, non-taxable transactions were moved to the cloud, some states (I won’t name names) got a grand idea that they became magically taxable information services, SaaS, telecommunications they called it. States point to the long-winded statutory definitions and cling to individual phrases as opposed to the entire law and proclaim these services are “clearly” taxable (I was once told by a professor in law school that if you have to use the word “clearly” in persuasive writing, your position was probably not as clear as you think). And so taxpayers grudgingly complied. Suddenly, we were told that the true object of purchasing a CPE course to watch at our convenience instead of a live in-person seminar was simply the access and not the state licensure requirement.

However, there appears to be an emerging trend in a number of states where taxpayers have become tired of paying sales tax on efficiency. Simply put, you shouldn’t have to pay tax on something that was previously exempt simply because it’s readily available through a cloud-based service. And, it looks like, the courts may agree with this position. At the very least, courts are urging states to reconsider their willful blindness when they are presented with an argument that a taxpayer’s purpose for purchasing something is the underlying service and not the delivery vessel. Instead, they need to consider the underlying benefit of the service. That is to say, the true object.

Revealing The Truth

If this blog could be boiled down to one point, it is this:  if you are purchasing an item with potentially significant tax consequences, take a moment to step back and consider the true object of what is being purchased. It may change the taxability of the transaction, and state tax departments may be forced to agree with you.

If you have questions, contact a member of our state and local tax team. You can also check out our state and local tax services page for more information.

By Jeffrey Monsman, JD, director, state and local tax services


Check out other thoughts and opinions from the SALT department:

Automation, AI, Machine Learning, and All Those Other Accounting Tech Buzz Words

50 States, 50 Rules, Countless Deadlines

It’s Not A Tax Problem, It’s A Value Problem

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