26th Annual Tuesday & Wednesday, January 24‐25, 2017 Hya� Regency Columbus, Columbus, Ohio Workshop E Ohio Tax Advanced: Sales & Gross Receipt Taxes on Technology Tuesday, January 24, 2017 1:45 p.m. to 2:45 p.m.
Biographical Information Edward J. ("Ted") Bernert, Partner, Baker & Hostetler LLP 65 E. State Street, Suite 2100, Columbus, Ohio 43215 ebernert@bakerlaw.com 614.462.2687 Fax 614.228.1541 Edward J. (“Ted”) Bernert concentrates his practice in the area of state and local taxes with a particular emphasis on the major Ohio taxes affecting businesses and business owners–sales and use, financial institution, personal income, commercial activity and real property taxes. He represents national companies concerning Ohio tax matters related to compliance, planning and tax legislation. Mr. Bernert regularly deals with various tax department officials upon audit or administrative appeals. He has an active tax litigation practice before the Ohio Board of Tax Appeals and upon appeal to the courts, including the Supreme Court of Ohio. Mr. Bernert is a member of the Executive Committee of the American Bar Association’s State and Local Tax Committee and is a past chair of the Ohio State Bar Association Taxation Committee and the State and Local Tax Section of the Columbus Bar Association. Mr. Bernert was appointed by the Governor to the Ohio Business Gateway Steering Committee to address the continued development of an electronic link for filing taxes and other matters affecting business. He also serves as a member of The Ohio Chamber of Commerce Taxation Committee. Mr. Bernert is an adjunct professor of state and local taxes at the Capital University Law and Graduate Center and served as Chief Editor of Ohio Tax Review, formerly published by the Center. He currently serves as the co-editor of the Guidebook to Ohio Taxes, published by Commerce Clearing House. He has repeatedly been named an “Ohio Super Lawyer” in the area of Taxation and holds an AV rating by Martindale-Hubbell. Todd A. Whittaker, Program Chair, Information Technology, Franklin University 201 S. Grant Ave, Columbus, OH 43215 Todd.whittaker@franklin.edu 614.947.6110 Todd Whittaker currently serves as the Information Technology and Information Security Program Chair at Franklin University. He has more than 22 years’ experience in computer related fields and has previously held positions as an associate professor at DeVry University, software engineer at Battelle Memorial Institute, and UNIX systems administrator at the University of Akron. He has extensive knowledge of object-oriented programming languages, design patterns, development processes, systems administration, and technology education. When not writing about himself in the third person, he enjoys spending time with his wife and children, and teaching in a small home group Bible study. Anthony C. Ott , Director, State & Local Tax, GBQ Partners LLC 230 West Street, Suite 700, Columbus, Ohio 43215 aott@gbq.com 614.947.5311 Fax: 614.947.5511 Anthony has over 16 years of experience in the state and local tax field. He leads GBQ’s Indirect Tax Service Line and is uniquely positioned to assist GBQ’s clients with state & local tax issues, having spent time in both tax consulting and internal corporate roles. He has served clients in the manufacturing, distribution, technology, healthcare, financial and service industries. Prior to joining GBQ, Anthony was with a Fortune 25 company where he held several roles, including Director, Transactional & Property Taxes. In this role, Anthony led the sales/use/property tax function and was responsible for, among numerous other duties, handling non-income tax audits and the related loss contingencies under FAS 5/ASC 450. Anthony also spent 5 years in the state & local tax practice at a Big 4 firm, serving both public and private companies in the Columbus, Ohio and Portland, Oregon markets. Anthony received his Bachelor of Arts in Accounting from Ohio Wesleyan University. He is a CPA in Ohio and is a member of the Ohio Society of CPA’s and the AICPA.
WORKSHOP E Sales & Gross Receipts Taxes on Technology Ted Bernert Todd Whittaker BakerHostetler LLP Franklin University ebernert@bakerlaw.com todd.whittaker@franklin.edu (614) 462‐2687 (614) 947‐6110 Anthony Ott GBQ Partners, LLC aott@gbq.com (614) 947‐5311 1
Current Developments in Taxation of Software and Related Services Factors in Determining Taxability • Delivery methods • Tangible media • Downloaded • Accessed remotely (Hosted) 2
Current Developments in Taxation of Software and Related Services Factors in Determining Taxability (Cont.) • Treatment as: • Tangible personal property • Lease of tangible personal property – City of Chicago • Constructive possession – New York 3
Current Developments in Taxation of Software and Related Services Factors in Determining Taxability (Cont.) • Treatment as: • Digital goods • Taxable service: • Information service • Automatic data processing • Telecommunication • Security • Computer services for system software • Exempt service 4
Current Developments in Taxation of Software and Related Services Gaining Clarity? • Legislative Changes • Tennessee – Software accessed remotely meets definition of “use of computer software” • Application/interpretation of prior law • Ohio ADP and EIS 5
Current Developments in Taxation of Software and Related Services Gaining Clarity? (Cont.) • Case law • Michigan – Auto‐Owners Insurance Company v. Department of Treasury • Clarification through administrative pronouncements • Minnesota ‐ Fact Sheet #134 • Washington Tax Topics: Taxability of Information Technology (IT) Products and Services • Streamlined states must publish taxability matrix 6
Current Developments in Taxation of Software and Related Services Multiple Points of Use • Many states allow – Examples: CO, MA, MN, OH, WA • Focus area in Ohio • What qualifies? • Hosted software vs. locally loaded version • Services 7
Current Developments in Taxation of Software and Related Services Services Remaining Exempt • Information of personal or individual nature (not widely available) – Customized report • Technology transfer agreement • California – Lucent Technologies, Inc. v. Board of Equalization 8
Current Developments in Taxation of Software and Related Services Services Remaining Exempt (Cont.) • Web site development and design • Application development • Custom software for specific user • Integration changes when separately stated 9
Current Developments in Taxation of Software and Related Services Taxability of the “Software Lifecycle” – Factors to Consider • Requirement gathering and design services • Implementation services • Testing Services • Cutover/Deployment 10
Current Developments in Taxation of Software and Related Services Tax Department/IT Team Cooperation • Early involvement in project (involve Tax team in requisition process) to determine sales tax ramifications • Clear description of what is being purchased and why • Delineation of services to be provided as part of project (by vendor) 11
Current Developments in Taxation of Software and Related Services Tax Department/IT Team Cooperation • Ability to review and suggest changes to contractual provisions and invoice language • Location of users (applicability of Multiple Points of Use) • Access to Vendor Tax Department for detailed discussions 12
Dayton Physicians, LLC v. Testa Overview • Dayton Physicians, LLC v. Testa, Court of Appeals of Ohio , 26881 , 08/12/2016 • Result‐ Court of Appeals affirmed BTA decision that medical transcription services are taxable as automatic data processing services 13
Dayton Physicians, LLC v. Testa • Definition of ADP ‐ Ohio Admin. Code 5703‐9‐46(A)(1) • (a) Processing others' data, including all activities incident to processing of data such as keypunching, keystroke verification, rearranging, or sorting of previously documented data for the purpose of data entry or automatic processing, changing the medium on which data is stored, and preparing business documents such as reports, checks, or bills, whether these activities are done by one person or several persons; or • (b) Providing access by any means to computer equipment for the purpose of processing data 14
Dayton Physicians, LLC v. Testa Dayton Physicians’ Position • Requires Interpretation, understanding of specialty, flag discrepancies • Service performed by a human in comparison to software • Customers more satisfied with results from human service provider 15
Dayton Physicians, LLC v. Testa Tax Commissioner’s Position • Transcription does not meet definition of professional services • Lack of professional certification • No specialized training required • No regulatory authority oversees profession 16
Dayton Physicians, LLC v. Testa Tax Commissioner’s Position (Cont.) • Transcription does not meet definition of personal services • “…any intellectual or manual act involving a recognized skill performed by a person who is specifically engaged by the purchaser to perform the act." • Sole objective of creating verbatim record of physicians’ dictation. Doctor’s responsibility to fill in gaps/discrepancies. • No cognitive skills or analytical thought. Transcriptionist does not study, alter, interpret, analyze or adjust. 17
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