NEW TAX LEGISLATION ENACTED AT END OF LEGISLATIVE SESSION

On June 24, 2019, New York Governor Cuomo signed into law tax legislation that: (i) allows the exclusion of 95% of a corporation’s gross global intangible lowtaxed income (GILTI) from its New York State corporate income tax base, effective for taxable years beginning after 2018 (Part I); and (ii) increases the threshold for businesses with no physical presence in New York State to register as sales tax vendors, and to collect and remit sales tax, from more than $300,000 in sales of tangible personal property delivered in the State (in the immediately preceding four sales tax quarters) to more than $500,000 in such sales. The increased sales tax threshold also applies to the new marketplace provider sales tax collection provisions. (Part J.) S. 6615. 

FEDERAL APPELLATE COURT UPHOLDS DISMISSAL OF CLAIMED CLASS ACTION FOR SALES TAX OVERCHARGES

The U.S. Court of Appeals, Second Circuit, has affirmed the dismissal of a putative class action brought in federal court against Costco for alleged sales tax overcharges involving purchases made using manufacturers’ coupons. Guterman v. Costco Wholesale Corp., No. 18-3184 (2d Cir., June 12, 2019). The Second Circuit held that the law and precedent was clear that Tax Law § 1139 – which provides that a taxpayer may seek a refund from the Tax Department of sales tax that has been “erroneously, illegally or unconstitutionally” charged or collected–was the exclusive remedy for such claims, and there was no dispute that the plaintiff never filed an application under § 1139 for his claims against Costco.

EXCLUSION FROM SALES TAX FOR ADMISSION CHARGES TO PARTICIPATORY SPORTING ACTIVITIES HELD INAPPLICABLE TO NYC SALES TAX

An Administrative Law Judge upheld the denial of sales tax refund claims made by the operator of indoor cycling class studios, holding that the claimed sales tax exclusion for charges for admission to facilities for participatory sporting activities does not apply to the New York City special sales tax on charges for “health salons, gymnasiums ... and similar establishments.” Matter of SoulCycle, Inc., DTA Nos. 827698 & 827699 (N.Y.S. Div. of Tax App., May 23, 2019). The ALJ held that the exclusion, which does apply for New York State sales tax purposes but was specifically eliminated when the New York City sales tax law was amended in 2008, does not apply to the separate New York City special sales tax under Administrative Code § 11-2002.

U.S. SUPREME COURT REVIEW REQUESTED OF NEW YORK’S DENIAL OF TAX CREDITS

New York State nondomiciliary individuals who were denied credits against their New York personal income taxes for taxes paid to another state on intangible investment income have asked the U.S. Supreme Court to take the cases and rule that New York’s approach violates the dormant Commerce Clause. In petitions filed on June 24, 2019, the taxpayers asked the Court to review the New York Court of Appeals’ dismissal of their respective appeals, both of which contended that it was unconstitutional for New York to deny a credit for taxes paid to Connecticut on the same income. Edelman v. N.Y.S. Dep’t of Taxation & Fin., No. 18-1570 (U.S., petition for cert. filed June 24, 2019); Chamberlain v. N.Y.S. Dep’t of Taxation & Fin., No. 18-1569 (U.S., petition for cert. filed June 24, 2019). As discussed in the May 2019 issue of New York Tax Insights, the Court of Appeals declined to review the two Appellate Division decisions, finding that “no substantial constitutional question [was] directly involved.” The taxpayers are arguing that “subjecting taxpayers domiciled in other States who travel frequently to and maintain homes in New York to double taxation of intangible income” discriminates against interstate commerce and is “plainly inconsistent” with the Supreme Court’s decision in Comptroller of the Treasury v. Wynne, 135 S. Ct. 1787 (2015).