Doeren Mayhew’s state and local tax (SALT) advisors share the most impactful SALT news from across the country to keep you and your business in the know. Take a look at this past month’s most important topics:

State Franchise Tax


Market-Based Sourcing Rules

California originally approved market-based sourcing rules for sales of services and intangibles in 2011. However, there are still several areas requiring clarity from the Franchise Tax Board (FTB). On Sept. 9, 2021, the FTB voted to approve the start of the formal rulemaking process for the amendments to the state’s market-based sourcing rules for sales of services and intangibles. The proposed amendments aimed to provide more guidance on determining the location where the service is received, or where the intangible property is used.

Single-Sales-Factor Apportionment

A lawsuit filed by One Technologies, LLC, a Texas company, seeks to overturn California’s mandatory single-sales-factor apportionment requirement. The suit is scheduled for Superior Court Hearing on Nov. 10, 2021. The lawsuit argues that Proposition, which included mandatory single-sales-factor apportionment, the creation of a fund to pay for clean energy projects and a special tax break for qualifying cable companies, was unlawfully passed.

The complaint argued using the constitution’s single-subject rule to question the initiative of Proposition 39. They contended that the tax break for cable companies did not align with the purpose of raising revenue for the clean energy fund, and if the initiative of the law is to create a tax reform package for California franchise tax, the creation of the clean energy fund is not germane to this purpose.


On Sept. 3, 2021, the Texas Supreme Court granted the company’s petition for review in Sirius XM Radio Inc. v. Hegar. Sirius XM is asking the court to reverse the appellate court’s decision that companies must source receipts based on where the “receipt-producing end-product act” of decrypting the radio signal occurred, “which can reasonably be presumed to be where the Sirius XM customer” resides.

Sales and Use Tax


The Indiana Department of Revenue released an updated bulletin explaining the tax treatment of drop shipments, which is “the sale of goods by a seller who delivers the goods directly to the purchaser’s customer.” The bulletin clarified that purchasers are required to collect Indiana sales tax, not use tax. It also provided detailed information regarding its economic nexus. If a purchaser is a remote seller but has gross revenue that exceeds $100,000 in the current or preceding calendar year, or has 200 or more separate transactions selling tangible, intangible goods or services to Indiana, the purchaser will need to register and collect Indiana sales tax.


After the hearing in City of Round Rock v. Hegar on Aug. 30, 2021, the Texas Comptroller has suspended Rule 3.334, which will assign sales tax based on the destination, not the origin, of the sale. The agreement “prohibits the state from sourcing the sales tax revenue from online purchases to the buyer’s location instead of the seller’s place of business, pending a final hearing.”

West Virginia

The West Virginia State Tax Department issued new guidance clarifying that streaming services are subject to sales and use tax in the state. Digital products are exempt from sales tax in West Virginia. The department distinguished streaming services from the sale of digital products by explaining “a digital product is a discrete identifiable item,” while consumers only bought access to entertainment content, not rights to any digital product when they are using the streaming services. The guidance did not address the effective date, but it is possible the department might issue sales and use tax assessments for previous filing periods. Additionally, remote streaming service providers should apply economic nexus in determining whether they need to collect any sales and use tax in West Virginia.

Economic Nexus Impact Resulting from Wayfair Decision

Income Tax

Since the South Dakota v. Wayfair, Inc. decision, only four states (Hawaii, Massachusetts, Pennsylvania and Texas) have established a bright-line sales amount for determining economic nexus for income or franchise tax purposes.

Local Taxes

Many localities created new local taxes using economic nexus provisions, such as Chicago’s personal property lease tax.

Registration Issues

A business will need to register with the taxing authority before it can collect sales tax. However, not all states have updated their online systems to keep up with the changes resulting from the Wayfair ruling. In most states, a business is not required to register with a Secretary of State’s office if it does not have a presence in that state. However, because of the new economic nexus rule, those remote businesses might now need to register for sales tax, and many states are not providing clear instructions on this issue.

Additionally, many states have not updated their systems to accept non-U.S. tax filers. After the Wayfair decision, foreign-based remote sellers are no longer protected by the physical presence safe harbor, and they will need to comply with the new economic nexus rule.

Cost of Compliance

Due to the complexities of varying taxability rules among the states, businesses will need to spend about $20,000 to hundreds of thousands of dollars every year to license and employ software that can automate sales tax. Also, there are many different treatments regarding the taxability of goods among the states. Businesses might be overwhelmed with determining which sale is exempt and which exemption certificate is acceptable for specific sales.

State Digital Tax

New Jersey

New Jersey’s 2022 Fiscal Year Appropriations Bill requires the New Jersey Division of Taxation (DOT) to study the relationship between tax laws and the digital economy. It requires the DOT to submit the report no later than March 31, 2022.


Massachusetts’ House Bill 2928 addresses the proposal of taxing digital advertisements, and it requires the special commission to submit the report before Feb. 15, 2022.

Miscellaneous State Developments

Washington’s Payroll Expense Tax

The Superior Court of Washington held that Seattle’s new payroll expense tax is constitutionally permissible (Greater Seattle Chamber of Commerce v. City of Seattle). On July 6, 2020, Seattle passed a payroll expense tax based on the aggregate payroll expense, and businesses are prohibited from passing this tax on to employees in the form of wage deductions.

New Jersey’s Wholesale Activity

The New Jersey Tax Court ruled that in-state activities of an out-of-state wholesale produce distributor were protected under P.L. 86-272 (Procacci Brothers Sales Corp. v. Division of Taxation). The delivery and return of the produce before produce acceptance were considered “ancillary to solicitation of sales,” and thus protected under P.L. 86-272. However, if the taxpayer’s own trucks were sent into the state to pick up returned produce, the taxpayer will be subject to corporation business tax.

New Jersey’s NOL Carryforwards

The New Jersey Tax Court held that a taxpayer’s net operating losses (NOLs) generated during years beyond the statute of limitations could not be eliminated (R.O.P. Aviation Inc. v. Division of Taxation, Dkt.) The court held that the Division is not permitted to audit closed years to reduce an NOL carryforward.

Indiana’s Sourcing

The Indiana Tax Court ruled that a pharmacy benefit management company should source its receipt under Indiana’s costs of performance rules applicable to services, rejecting the Indiana Department of State Revenue’s position that the receipt should be sourced as sales of tangible personal property (Express Scripts Inc. v. Indiana Department of State Revenue). The court stated the taxpayer’s clients pay for the provision of services, and the taxpayer does not purchase any drugs for resale or possess any drugs.

New Hampshire’s Newly Enacted Tax Legislation

New Hampshire issued a 2021 Legislative Session in Review, including:

  • The exclusion of Paycheck Protection Plan (PPP) loan forgiveness from business taxable income
  • The modifications of business profits tax return requirements
  • The conformity in the business tax filing due dates of New Hampshire nonprofits with Internal Revenue Service (IRS) filing dates
  • The expansion of the property tax relief program for qualifying residential property in a designated residential property revitalization zone
  • The waiver of specified registration, licensing and taxation requirements for out-of-state businesses and employees that are temporarily performing disaster or emergency-related work in New Hampshire during a declared state of emergency

If you have questions about how these new updates could affect your company’s state and local tax liability, contact Doeren Mayhew’s dedicated state and local tax advisors today.