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President Barack Obama has signed federal legislation extending the Internet Tax Freedom Act (ITFA) through December 11, 2014 as part of the joint resolution which made continuing appropriations for fiscal year 2015. The ITFA was previously set to expire on November 1, 2014. The ITFA bars state and local governments from imposing multiple or discriminatory taxes on electronic commerce and taxes on Internet access.


For an update to this news item, see Internet Tax Freedom Act Extended Until October 1, 2015, Permanent Extension Introduced.


(P.L. 113-164 (H.J. Res. 124), 113th Congress, 2nd Session, Laws 2014)


The Michigan Court of Appeals has reversed a lower court’s decision and found that Thomson Reuters is not liable for use tax on sales of its Checkpoint online research service to Michigan customers. The transaction at issue is primarily the provision of a service and not the transfer of tangible personal property. The Court noted that customers were not seeking computer software but rather the “expert knowledge of Checkpoint’s content creators in synthesizing, compiling, and organizing the materials...” The Court disagreed with the lower court’s reasoning that the service was taxable because prior versions of the product provided in print and on computer disks were taxable. The Court held that any transfer of tangible personal property was “incidental to service” under the test established by the Michigan Supreme Court in 1994 in Catalina Marketing. (Thomson Reuters (Tax & Accounting) Inc. v. Department of Treasury, No. 313825 (Mich. Ct. App.  May 13, 2014))


Michigan has enacted legislation effective June 11, 2014, and retroactive to April 1, 2014, stating that medical services provided by Medicaid managed care organizations are subject to Michigan use tax. Per the legislation, "medical services" means medical services provided only to Medicaid beneficiaries enrolled under Title XIX of the Social Security Act. (Act 161 (S.B. 893), Laws 2014, effective June 11, 2014, and retroactive April 1, 2014)


The Streamlined Sales and Use Tax (SST) Governing Board has  issued a best practices matrix which provides answers to whether the state follows the best practices set forth in the SST Agreement regarding deal-of-the-day vouchers. All SST Member states are to complete and publish their position on the best practices.  The matrix outlines if the “best practiceas approved by the Streamlined Sales Tax Governing Board (SSTGB) for each of the products, procedures, services, or transactions identified in the chartis followed by the specific state. The following best practice descriptions are listed in the matrix along with whether the state follows the best practice:


1.       The member state administers the difference between the value of a voucher allowed by the seller and the amount the purchaser paid for the voucher as a discount that is not included in the sales price (i.e., same treatment as a seller’s in-store coupon), provided the seller is not reimbursed by a third party, in money or otherwise, for some or all of that difference.

2.       The member state provides that when the discount on a voucher will be fully reimbursed by a third party the seller is to use the face value of the voucher (i.e., same as the treatment of a manufacturer's coupon) and not the price paid by the purchaser as the measure (sales price) that is subject to tax.

3.       The member state provides that costs and expenses of the seller are not deductible from the sales price and are included in the measure (sales price) that is subject to tax. Further, reductions in the amount of consideration received by the seller from the third party that issued, marketed, or distributed the vouchers, such as advertising or marketing expenses, are costs or expenses of the seller.


Unless otherwise listed below, the SST member states have published the Best Practices Matrix and follow the three best practices listed above.


The following SST member states have issued the matrix but don’t follow some or all of the best practices listed above as of April 2014: Georgia, Kansas, Nebraska, New Jersey, and Ohio.


The following SST member states have not yet issued the matrix as of April 2014: Tennessee, Utah, Vermont, and Wyoming.  Copies of the matrix can be found on each specific state information page on the SST Web page at


Michigan has held that a taxpayer’s purchases of cloud computing services are not subject to use tax because transactions involving remote access to a third-party provider’s technology infrastructure are properly characterized as nontaxable services and not the sale of prewritten software. The taxpayer hired third parties to provide services, including web-conferencing, web-hosting, payment processing, and online legal research, and information. The court found that these transactions did not qualify as the sale of prewritten software because the providers did not surrender possession and control of the software to the taxpayer. In addition, when the relevant statute was amended in 2004 to add "prewritten software ... delivered by any means" as tangible personal property, the legislature likely did not contemplate the nature of cloud computing transactions because remote access to a third party’s technological infrastructure was not commonly in use at the time by consumers. Even if prewritten software was delivered to the taxpayer, the requisite "use" of the software was not made by the taxpayer.  Per the Use Tax Act, the taxpayer must "exercise a right or power over the property incident to ownership...." The taxpayer had no such control over the software, hence use tax should not be applied. The only evidence of control on the taxpayer’s part involved the ability to control outcomes by inputting data. Finally, even if prewritten software was delivered to and used by the taxpayer, the use was merely incidental to the services rendered by the third-party providers and would not subject the overall transactions to use tax. The taxpayer sought out services, not software, in these transactions. The third-party providers were in the business of providing services as opposed to selling or licensing software. Additionally, the value of the software was incidental to the services accompanying it. This decision exempts Software as a Service (SaaS) when executed by a services agreement. If this type of agreement were a software license agreement instead, it would appear to be taxable. This case may be appealed in the future. (Auto-owners Insurance Company v. Department of Treasury, State of Michigan Court of Claims, March 20, 2014)



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