27th Annual Tuesday & Wednesday, January 23‐24, 2018 Hya� Regency Columbus, Columbus, Ohio Workshop U Ohio Tax Advanced: The Taxation of Technology Tuesday, January 23, 2018 4:15 p.m. to 5:15 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 20 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, indirect tax compliancy, related audits and transactional planning. 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 U Taxation of 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 Technology Overall Themes • Administrative pronouncements • Expanding nexus – apps, cookies and networks • Traditionally exempt services under attack • Continued focus on access, use, control or possession of remotely accessed software • Treatment as Telecommunications • Preloaded software bundled with tangible personal property 2
Current Developments in Taxation of Technology Gaining Clarity? • Pennsylvania • Sales and Use Tax Ruling No. SUT‐17‐001 • “Support” to canned software is subject to tax • “Support” includes providing advice or guidance, help desk or call center support • Far reaching interpretation may also impact certain consulting services • Ruling published, then retracted amid complaints, revised and republished 3
Current Developments in Taxation of Technology Gaining Clarity? • Colorado • General Information Letter No. GIL‐17‐012, 07/28/2017 • Listing of services provided by taxpayer and related taxability • Software delivered electronically is not tangible personal property ‐ Exempt • SaaS/Hosting – Exempt 4
Current Developments in Taxation of Technology Gaining Clarity? • Arizona • Taxpayer Information Ruling No. LR16‐011, 09/23/2016 (released March 2017) • Taxpayer’s subscription billing and recurring payment processing services not subject to tax • Fees are based on transactions processed • Determination that taxpayer not selling/renting tangible personal property (software) • Commentary: Use of software to provide service and access by customer to software did not taint transaction 5
Current Developments in Taxation of Technology Gaining Clarity? • Arizona • Taxpayer Information Ruling No. LR16‐012, 12/05/2016 • Software company not liable for use tax on code written by third‐party developers • Taxpayer pays to have code created but code remains property of third party developers on their servers • No taxable sale because no tangible personal property is transferred 6
Current Developments in Taxation of Technology Gaining Clarity? • Tennessee • Revenue Ruling No. 17‐17, 10/31/2017 – Interpretation of Tenn. Code Ann. § 67‐6‐231(a)(2) • “Access and use of computer software” • Charges for access to on‐line webinars – Self Study – Taxable – Instructor Lead – Exempt • Key consideration is user interaction with software 7
Current Developments in Taxation of Technology Gaining Clarity? • Tennessee (Cont.) • Additional interpretation of Ruling No. 17‐17 • Access to dating website is taxable – User enters profile and contacts others through site • Access to on‐line newsletters or on‐line lists are exempt – Presumably, user does not “interact” with the software 8
Current Developments in Taxation of Technology Gaining Clarity? • Indiana • Revenue Ruling No. ST 15‐07, 03/07/2017 • “Software Interfaces” determined exempt • Taxpayer engaged third party to develop, and operate remotely, interfaces between Taxpayer’s other remotely accessed software • No control and possession of software provided to taxpayer • Interface software is never transferred to the customer • Vendor is providing an exempt service 9
Current Developments in Taxation of Technology Gaining Clarity? • Indiana • Revenue Ruling No. ST 15‐08, 03/07/2017 • Mobile text messaging service determined to be taxable telecommunication service • Cloud based software service (SaaS) allowing receipt and auto reply to text messages from third parties • Department ruled that service meets the definition of Telecommunications: – “Electronic transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals to a point, or between or among points.” 10
Current Developments in Taxation of Technology Gaining Clarity? • Indiana (Cont.) • What is the true object of the service? – Transmission/routing of information between points; or – A remotely accessed software tool that allows for the receipt of messages in a consolidated manner and for a custom or automatic reply • How is this software different than email applications? 11
Current Developments in Taxation of Technology Gaining Clarity? • Texas • Private Letter Ruling No. 151250584 • Taxpayer’s cloud based software texting service determined to be taxable data processing services • Very similar facts to Indiana ruling • Texas classified service as SaaS • Highlights use of available statutes to tax the same service in two different manners – Telecommunication – Data processing 12
Current Developments in Taxation of Technology Gaining Clarity? • Utah • Private Letter Ruling No. ST 16‐004, 03/31/2017 • Taxpayer sells remote cloud storage and virtual computing environment – Infrastructure as a Service • Taxpayer’s servers are outside Utah • Essence of transaction is use of Taxpayer’s computer hardware • Because hardware is outside Utah, transaction is sitused elsewhere • Commentary: Normal receipt of benefit analysis for IaaS is moot because it was determined Taxpayer was not providing a service 13
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