New Hampshire Does Not Tax Internet Access

Reaffirming its state’s anti-tax DNA, the New Hampshire legislature confirmed what some state tax practitioners have been arguing all along: the New Hampshire communications services tax does not apply to Internet access charges. (New Hampshire does not have a sales tax.) On June 21, 2012, the Legislature enacted a statute, 2011 NH 1418, that bars imposition of the communications services tax on “Internet access” charges. The statute also prohibits the New Hampshire Department of Revenue from enforcing any existing assessments of communications services tax on charges for Internet access and requires the prompt withdrawal of any pending assessments. Even though the effective date of the legislation is the date of its enactment, June 21, 2012, the law prohibits the Department from issuing any “additional” assessments with respect to Internet access charges. The statute does not limit the prohibition to Internet access services provided after June 21, 2012, so a fair reading of the statute is that any future assessments for Internet access charges, regardless of when the services were provided, are precluded.

The new law defines the term Internet access in the same way as that term is defined in Section 1105(5) of the Internet Tax Freedom Act (“ITFA”), codified as a note to 47 U.S.C. § 151. The law should apply not only to services provided by Internet Service Providers (“ISPs”) but to services purchased by such ISPs in order to provide Internet access.

Prior to the June 21, 2012 legislation, the New Hampshire Department of Revenue had taken the position that the Communications Services Tax applied to Internet access charges, and that such tax was not prohibited by the ITFA. See New Hampshire Department Technical Information Release, TIR 2008-006, September 15, 2008. In that TIR, the Department took the position that it is grandfathered under the ITFA.

Is the EU About to Break the Internet?

In a move that has the potential to do severe damage to the e commerce user experience, some E.U. countries are beginning to implement the E.U. privacy directive on internet cookies (small information files which websites use to remember customers and preferences). In principle, the so-called “Cookie Directive” requires that website users receive explanations of the particular cookies used by a website (except those which are “strictly necessary”) and then actively choose to accept them before the cookies can be automatically stored on the user’s computer. Businesses fear that their retail websites will frighten customers with pop-up boxes of legal language and strange file names. In addition, should users choose not to permit the use of cookies, their browsing and shopping experience stands to be severely compromised, impacting merchant performance.

The UK appears to be in the vanguard of jurisdictions charging ahead with implementation of an aggressive version of the directive. In the May 26, 2012 revisions to Regulation 6 of its Privacy and Electronic Communications Regulations 2003 (“PECR”) and the latest guidance from its Information Commissioner’s Office, the burden is on websites to include:

• An information page providing a general explanation of what cookies are, the file names of the cookies in use on the website and explanations of each cookie’s function;
• A sufficiently prominent link to that page from its homepage; and
• A pop-up box, gateway window, or header/footer bar by which a user must choose to “accept” the cookies from that website after having the option to read the information page.

Some Preliminary Thoughts On The New Maine Board Of Tax Appeals

The Maine Legislature recently voted to create a new, three-member Maine Board of Tax Appeals (MBTA).   The MBTA replaces the Independent Appeals Office that the legislature devised in 2011, which had yet to take effect, and will serve as an independent entity within the Department of Administrative and Financial Regulation.  The MBTA is not part of (or supervised by) Maine’s revenue department (know as Maine Revenue Services (“MRS”)). 

The MBTA will spring into existence as of July 1, 2012.  Obviously, time is short for the MBTA to get up and running.  While the MBTA is intended as a business friendly measure to “provide taxpayers with a fair system of resolving controversies and to ensure due process,” it remains to be seen whether it will be a favorable option/forum for taxpayers.     

Here is how the tax appeals process will work under the new law creating the MBTA:

Is It Raining In Pennsylvania: Sales Tax on Cloud Computing Services?

I recently wrote a blog post on the new Vermont law on sales tax on cloud computing services, in which the state placed a moratorium on taxation of software as a service (“SaaS”). Pennsylvania, however, has decided to take a different approach to cloud computing. In Legal Letter Ruling No. SUT-12-001 (May 31, 2012), the Pennsylvania Department of Revenue announced a change in the existing law in Pennsylvania. In particular, the Department’s new approach is that SaaS is taxable in Pennsylvania to the extent that the users of the services are located in Pennsylvania. The Department took the position that the charge for electronically accessing taxable software is taxable because computer software is tangible personal property, and the user “is exercising a license to use the software” within the meaning of 72 P.S. § 7201(o)(1). That section of the statute provides that the exercise or right or power incidental to the ownership of tangible personal property constitutes a taxable “use.”

But this recent ruling, and basis therefor, is inconsistent with the prior ruling of the Pennsylvania Department of Revenue, Legal Letter Ruling No. SUT-10-005, in which the Department held that access to software solely through the internet from a data center located outside of Pennsylvania is not taxable because there is not a taxable transfer in Pennsylvania. Nowhere does the Department of Revenue in its 2012 ruling explain the basis for its ruling that a taxable transfer of the tangible personal property has occurred in Pennsylvania, other than the reference to “recent case law and technological advances.” In the case the Department identifies, Dechart, LLP v. Commonwealth, 998 A.2d 575 (Pa. 2010), the court found that electronically transmitted software downloaded to a computer in Pennsylvania constitutes the sale of tangible personal property in Pennsylvania.

However, there is no tangible personal property that is present in Pennsylvania for software that is accessed remotely from a data center located outside of Pennsylvania. Thus, as I wrote in my article on cloud computing, Let the Sunshine In: The Age of Cloud Computing, State Tax Notes November 28, 2011, and as other states (such as Kansas, Utah and Arizona) have ruled, SaaS should not be taxable in Pennsylvania because the tangible personal property is not transferred in Pennsylvania.