State and Local Business Tax Insights and Updates

Texas

Website “Blueprint” Service Ruled Exempt from Texas Sales Tax

The Comptroller’s Tax Policy Division recently issued a private letter ruling on various services related to website design (blueprinting), website development, marketing consulting and advertising.

A taxpayer sought a private letter ruling regarding the taxability of various services related to website design, website development, marketing consulting, and advertising.

The taxpayer's website design service involves creating a website blueprint, which serves as the strategic plan for a customer's site. This service includes goal setting, site mapping, usability consulting, and planning for website architecture but does not involve actual website development. This service can be provided independently or as part of a comprehensive website design and development package.

The taxpayer's website development services encompass the creation of both template-based and custom websites. This includes planning the website layout, designing web pages, and launching the completed website.

In Texas, services related to designing and planning a website, without actual creation, are not subject to sales and use tax. Therefore, the Comptroller’s office has determined that the stand-alone website blueprinting service is not taxable.

Conversely, website development services, which involve data processing activities such as data compilation, storage, and manipulation, are taxable. The Comptroller's office ruled that these services are subject to tax.

The taxpayer also offers various marketing consulting and advertising services. The consulting includes implementation and training related to a third-party customer relationship management platform. According to the Comptroller's office, these consulting services are not taxable.

The advertising services provided include project management, strategy and consulting, campaign planning, media placement, marketing performance reporting, copywriting, keyword research, visual element design, finished art production, and training for automating marketing tasks. These services are billed on a retainer basis with a lump-sum charge.

The Comptroller’s office has determined that the taxpayer can provide both taxable and nontaxable items under its lump-sum retainer charge. The taxpayer is not required to itemize taxable and nontaxable services separately on invoices or include tax on the invoices for retainer services. Instead, invoices should indicate that tax is included for any taxable items provided. The taxpayer must collect and remit tax on taxable items included in the retainer services and maintain accurate records documenting the tax collected.

Utility Studies May No Longer be Required for Chemical Plants and Refineries

On July 12, the Comptroller’s Tax Policy Division released a memorandum regarding utility studies for chemical plants and petrochemical refineries in Texas. Given the state's limited exemption for electricity and natural gas, utility studies have generally been necessary to determine if purchases of these utilities qualify for the manufacturer's exemption.

Under Texas Tax Code Section 151.317, while the sale of natural gas and electricity is typically subject to Texas sales tax as tangible personal property, there is an exemption for electricity and natural gas used to power exempt manufacturing equipment. To qualify for this exemption, utility meters are usually analyzed to measure the amount of electricity and natural gas used for exempt purposes. If more than 50 percent of the usage from a meter is for exempt purposes, the entire amount of electricity or natural gas from that meter is considered exempt from sales and use tax.

The new memorandum instructs auditors to exercise discretion when deciding if a utility study is necessary. This represents a shift from previous Comptroller policy, which required utility studies for even clearly exempt meters by local audit offices.

Missouri

Senate Bill 872 Enacted to Create a Sales Tax Exemption for Utilities and Expansion of Broadband Grant Deduction for State Income Tax

On July 9, the Missouri Governor signed Senate Bill 872 into law. This legislation provides a sales tax exemption for utilities, equipment, and materials used in generating or transmitting electricity. Public utility companies benefiting from this exemption are required to submit a statement to Missouri’s Public Service Commission detailing the savings achieved from the exemption. They must also explain how these savings will affect the utility’s rates and how they will be passed on to the public through adjusted utility rates.

Additionally, Senate Bill 872 extends the state's broadband grant deduction. Previously, a 100% deduction was available for grant money received to improve broadband access in underserved areas. Under SB 872, this deduction now applies to both state and local grants issued for the same purpose.

Senate Bill 1388 Creates Sales Tax Exemption for Nuclear Facilities

On July 8, the Missouri Governor signed a law that grants a sales tax exemption for nuclear facilities. This legislation provides both state and local sales tax exemptions on the purchase of tangible personal property, building materials, equipment, fixtures, manufactured goods, machinery, and parts used in the construction of a nuclear security enterprise. The exemption is valid until August 28, 2034, and takes effect on August 28, 2024.

St. Louis City Earnings Tax Refund Opportunity for Remote Workers

The City of St. Louis has reached a settlement in the case of Boles, et al. v. City of St. Louis, et al. regarding the taxation of remote work under the Earnings Tax.

The lawsuit, initiated in early 2021 by Mark Boles and five other plaintiffs, challenged the city’s taxation of remote workers who, while residing outside the City of St. Louis, were employed by city-based companies. On May 28, the Missouri Court of Appeals ruled that the City of St. Louis’ Earnings Tax Ordinance does not apply to remote work earnings of non-residents.

The refund application window for 2023 will remain open until April 15, 2025. Approved refunds will be processed in the order they are received, with completion expected by the end of 2024. As of now, approximately 2,100 taxpayers have filed for refunds related to their remote earnings for 2020-2022.

Requests for refunds filed after October 1, 2024, will be subject to standard deadlines and statutes of limitations.

Michigan

Court of Appeals Affirms Decision on Use Tax for Direct Mail Advertisements

On June 20, the Michigan Court of Appeals upheld the lower court’s ruling that a company is liable for Michigan use tax on direct mail advertisements. These advertisements were printed out of state but distributed to Michigan residents. The court's decision was based on the following findings:

• The company maintained sufficient control over the advertisements in Michigan to constitute taxable use.
• The company is headquartered in Michigan, and the relevant work by its employees was conducted there.
• Despite the printing and initial mailing occurring out of state, the company exercised control by approving final proofs, providing recipient data, and holding the mail permit in Michigan.

As a result, the court affirmed the lower court's decision that the level of control exerted by the company over the advertisements in Michigan justified the imposition of the use tax.

New York

Sales Tax Exemption for Residential Energy Storage Systems

On May 30, The New York Department of Taxation and Finance issued a Technical Memorandum on sales and use tax exemption for residential energy storage systems equipment. The memo provides that: 1) effective June 1, 2024, through May 31, 2026, receipts from retail sales of residential energy storage systems equipment and the service of installing these systems are exempt from sales and use taxes; 2) receipts from the sale of electricity generated by energy storage system equipment are exempt from sales tax under certain conditions; and 3) persons other than contractors who purchase residential energy storage systems equipment must submit Form ST-121 to the seller to claim this exemption.

Ohio

Ohio Department of Taxation Proposes Rule on Adult Use Cannabis Tax

On June 25, the Ohio Department of Taxation proposed new rules regarding the tax on adult use cannabis. The proposed rules include several key measures:

• The tax commissioner will establish a separate adult use cannabis tax account for each dispensary licensed by the Department of Commerce.
• Individuals operating an adult use dispensary without a valid license will be responsible for any taxes, interest, and penalties.
• The rules will mandate electronic filing and payment of taxes.
• Procedures will be established for refunds on adult use cannabis taxes that were paid illegally or in error.
• Additional procedures related to cannabis use tax will also be outlined.

Louisiana

Sales and Use Tax Rebate for Louisiana Data Centers

House Bill No. 827, effective June 19, 2024, introduces a sales and use tax rebate for eligible data centers. Starting July 1, 2024, data centers that qualify can receive rebates on taxes paid for communications service equipment and data center equipment purchased in Louisiana.

Eligibility is determined by the State’s Department of Economic Development. To qualify, data center operators must submit a sworn statement confirming that their project will create at least 50 new permanent jobs in Louisiana and involve a minimum of $200 million in new capital investment between July 1, 2024, and July 1, 2029.

The rebate is initially granted for a 20-year period, but the Department of Economic Development may extend it for an additional 10 years.