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Digital Tax Pact With Europe May Complicate Maryland’s Ad Tax

Oct. 22, 2021, 6:53 PM

This week in state tax news: New wrinkles emerged in the federal lawsuit challenging Maryland’s digital advertising tax, Pandora Papers-named states felt some pressure from the European Parliament, and the Illinois Supreme Court tossed a county tax on guns and ammunition.

The hottest state tax lawsuit in the country got hotter this week after the federal judge overseeing big tech’s challenge to Maryland’s digital advertising tax withdrew from the case. The abrupt change in oversight could lead to delays and create some running room for an international tax hot potato to complicate an already complicated legal battle, legal scholars said.

U.S. District Court Judge Deborah K. Chasanow Tuesday pulled out of a lawsuit brought by four trade groups challenging Maryland’s first-in-the-nation Digital Advertising Gross Revenues Tax. The next day, Judge Lydia Kay Griggsby was assigned to the case.

Chasanow’s decision, citing potential for conflicts of interest, was surprising but also “proper,” said Young Ran (Christine) Kim, a professor at the University of Utah College of Law. The transition to a new judge could lead to further delays in the case as the Jan. 1, 2022 effective date for the tax bears down on tech companies, Kim said.

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Another possibly sticky issue emerged as U.S. and European negotiators reached an agreement Thursday to end a trade battle over digital services taxes in Austria, France, Italy, Spain and the U.K. The deal includes commitments from the European nations to rescind their digital services taxes when a global pact on corporate taxation becomes effective. Those negotiations and any resulting tax treaty language will likely turn up in the tech companies’ briefs in the Maryland case, said Andrew Appleby, an associate professor of tax law at Stetson University College of Law.

“From a legal perspective there is this ‘one-voice principle’ which argues these particular taxes could undercut the federal government’s ability to speak with one voice,” he said.

Lawyers, Guns, Money

IRS: The Internal Revenue Service on Thursday announced guidance updating the determination letter process for limited liability companies to receive tax exemptions as Section 501(c)(3) nonprofits. The process will solicit feedback on possible conflicts with state laws affecting their eligibility. Read More: IRS Issues LLC Tax Exemption Guidance, Seeks State Law Feedback

Tax Havens: Following the release of the Pandora Papers, the European Union could get tough on the U.S. with respect to states seen as tax havens. European Parliament adopted a resolution objecting to laws in Alaska, Delaware, Nevada, South Dakota, and Wyoming turning them into “hubs of financial and corporate secrecy.” More: Pandora Papers Expose U.S., UK Tax Transparency Flaws, EU Says

SALT: House Ways and Means Committee Chair Richard Neal said addressing the $10,000 state and local tax deduction cap imposed in the 2017 tax overhaul is still on the table. “Yes, it has to be,” Neal said Wednesday. More: SALT Cap Changes Still in Play as Democrats Trim Biden Plan

Guns: Cook County’s tax on guns and ammunition violates the Illinois constitution, the state’s Supreme Court ruled Thursday, reversing an appellate court ruling. More: Gun, Ammo Tax in Cook County Struck Down by Illinois High Court

Property Taxes: The New Hampshire Supreme Court agreed that a supermarket that pays property tax for the site it leases properly asked for a tax abatement and established at trial that the abatement should be granted. More: Shaw’s Supermarkets Wins New Hampshire Property Tax Relief Case

Strip Clubs: Small Business Administration rules barring strip clubs from receiving government-backed pandemic relief loans are unconstitutional, over 30 businesses told the U.S. Court of Appeals for the Seventh Circuit Monday. More: Strip Clubs Fighting for Access to Government-Backed PPP Loans

Work From Home: New York City sales-tax revenue will likely dip $111 million annually as a result of people working from home, City Comptroller Scott Stringer said in a report released Tuesday. More: NYC to See Modest Sales-Tax Hit From Remote Work, Stringer Says

Tax Fraud: Fanatics Inc. will pay New York more than $1.5 million in damages and penalties to resolve a whistleblower complaint alleging the sports memorabilia seller undercollected sales taxes from online sales for at least three years. More: Fanatics Pays $1.5 Million to New York for Sales Tax Violations

To contact the reporter on this story: Michael J. Bologna in Chicago at mbologna@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergindustry.com; Yuri Nagano at ynagano@bloombergtax.com

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