{"id":12874,"date":"2024-01-24T19:32:38","date_gmt":"2024-01-24T19:32:38","guid":{"rendered":"https:\/\/taxops.com\/?p=12874"},"modified":"2024-01-24T19:33:03","modified_gmt":"2024-01-24T19:33:03","slug":"the-impact-of-massachusetts-court-cases-on-state-and-local-tax-policies-with-richard-jones","status":"publish","type":"post","link":"https:\/\/taxops.com\/the-impact-of-massachusetts-court-cases-on-state-and-local-tax-policies-with-richard-jones\/","title":{"rendered":"The Impact of Massachusetts Court Cases on State and Local Tax Policies with Richard Jones"},"content":{"rendered":"<p>[et_pb_section fb_built=&#8221;1&#8243; _builder_version=&#8221;4.17.4&#8243; _module_preset=&#8221;default&#8221; background_color=&#8221;#003254&#8243; custom_padding=&#8221;7px||5px|||&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_row column_structure=&#8221;3_5,2_5&#8243; make_equal=&#8221;on&#8221; custom_padding_last_edited=&#8221;on|desktop&#8221; padding_top_bottom_link_1=&#8221;false&#8221; 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_module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<div style=\"width: 100%; height: 200px; margin-bottom: 20px; border-radius: 6px; overflow: hidden;\"><iframe class=\"lazyload\" style=\"width: 100%; height: 200px;\" frameborder=\"no\" scrolling=\"no\" allow=\"clipboard-write\" seamless data-src=\"https:\/\/player.captivate.fm\/episode\/6a458e62-e31d-49f4-ba39-835c165121bb\"><\/iframe><\/div>\n<p>[\/et_pb_code][\/et_pb_column][et_pb_column type=&#8221;2_5&#8243; _builder_version=&#8221;4.16&#8243; background_color=&#8221;#A0CD46&#8243; custom_padding=&#8221;8vw|5%||5%&#8221; custom_padding_tablet=&#8221;8vw|10%||10%||true&#8221; custom_padding_phone=&#8221;&#8221; custom_padding_last_edited=&#8221;on|tablet&#8221; global_colors_info=&#8221;{}&#8221; padding_tablet=&#8221;8vw|10%||10%||true&#8221; padding_last_edited=&#8221;on|tablet&#8221; custom_padding__hover=&#8221;|||&#8221; padding_phone=&#8221;8vw|10%||10%||true&#8221;][et_pb_text _builder_version=&#8221;4.17.4&#8243; 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background_color_gradient_stops__hover=&#8221;#2b87da 0%|#29c4a9 100%&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.16&#8243; custom_padding=&#8221;|||&#8221; global_colors_info=&#8221;{}&#8221; custom_padding__hover=&#8221;|||&#8221;][et_pb_text _builder_version=&#8221;4.16&#8243; text_font=&#8221;||||||||&#8221; header_font=&#8221;||||||||&#8221; header_2_font=&#8221;Lato|700|||||||&#8221; header_2_text_color=&#8221;#003254&#8243; header_2_font_size=&#8221;52px&#8221; header_2_line_height=&#8221;1.2em&#8221; background_layout=&#8221;dark&#8221; header_2_font_size_tablet=&#8221;&#8221; header_2_font_size_phone=&#8221;36px&#8221; header_2_font_size_last_edited=&#8221;on|phone&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<h2><strong>What You Will Discover:<\/strong><\/h2>\n<p>[\/et_pb_text][et_pb_divider color=&#8221;#A0CD46&#8243; divider_weight=&#8221;5px&#8221; _builder_version=&#8221;4.16&#8243; max_width=&#8221;120px&#8221; locked=&#8221;off&#8221; 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Richard dives into two significant Massachusetts court cases: Oracle USA Inc. and US Auto Holdings. In the Oracle case, the Massachusetts Supreme Judicial Court upheld the ability to apportion sales tax for software sales and clarified the parameters of the Commissioner of Revenue&#8217;s authority. In the US Auto Holdings case, the court struck down the concept of &#8220;cookie nexus&#8221; and denied the state&#8217;s ability to retroactively apply the Wayfair decision. 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header_2_font_size=&#8221;52px&#8221; header_2_line_height=&#8221;1.2em&#8221; background_layout=&#8221;dark&#8221; header_2_font_size_tablet=&#8221;&#8221; header_2_font_size_phone=&#8221;36px&#8221; header_2_font_size_last_edited=&#8221;on|phone&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<h2><strong>Topics Discussed in this Episode:<\/strong><\/h2>\n<p>[\/et_pb_text][et_pb_divider color=&#8221;#A0CD46&#8243; divider_weight=&#8221;5px&#8221; _builder_version=&#8221;4.16&#8243; max_width=&#8221;120px&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221;][\/et_pb_divider][et_pb_text _builder_version=&#8221;4.17.4&#8243; _module_preset=&#8221;default&#8221; ul_text_color=&#8221;#003254&#8243; ul_font_size=&#8221;16px&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<ul>\n<li>Apportioning sales tax for software sales is a reasonable approach and should be considered in other states.<\/li>\n<li>The concept of &#8220;cookie nexus&#8221; is not valid, as physical presence requires something tangible.<\/li>\n<li>The Massachusetts Supreme Judicial Court&#8217;s decision in US Auto Holdings prevents the retroactive application of the Wayfair decision.<\/li>\n<\/ul>\n<p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=&#8221;4.16&#8243; 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locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<h2><strong>Quotables:<\/strong><\/h2>\n<p>[\/et_pb_text][et_pb_divider color=&#8221;#A0CD46&#8243; divider_weight=&#8221;5px&#8221; _builder_version=&#8221;4.16&#8243; max_width=&#8221;120px&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221;][\/et_pb_divider][et_pb_text _builder_version=&#8221;4.17.4&#8243; _module_preset=&#8221;default&#8221; ul_text_color=&#8221;#003254&#8243; ul_font_size=&#8221;16px&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<ul>\n<li>\n<ul>\n<li>\u201cMany states, like Massachusetts, have changed the definition of tangible personal property to say things that are tangible personal property plus software. We&#8217;re just calling it a fiction. Fine. Okay. But what happens then is that now you have something that can be used simultaneously and exists simultaneously in many different states at the exact same time.That doesn&#8217;t happen with the widget. So you have a new question.\u201d -Richard Jones [09:57]<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li>\u201cAfter the oracle decision, the floodgates opened for everyone filing abatement claims that didn&#8217;t think they could before. And we&#8217;ve seen shifting sands in terms of the degree in which the department will be satisfied with the apportionment. I can&#8217;t say I am happy with the way the sands have been shifting. 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header_2_font_size_last_edited=&#8221;on|phone&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<h2>Transcript<\/h2>\n<p>[\/et_pb_text][et_pb_divider color=&#8221;#A0CD46&#8243; divider_weight=&#8221;5px&#8221; _builder_version=&#8221;4.16&#8243; max_width=&#8221;120px&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221;][\/et_pb_divider][et_pb_text _builder_version=&#8221;4.17.4&#8243; text_text_color=&#8221;#000000&#8243; text_font_size=&#8221;15px&#8221; text_line_height=&#8221;2em&#8221; link_font=&#8221;||||||||&#8221; link_text_color=&#8221;#fe4943&#8243; background_layout=&#8221;dark&#8221; max_width=&#8221;800px&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<div id=\"fbxt-wrap\" >\r\n\t<div id=\"fbxt-wrap--inner\" class=\"fbxt-extra-class\">\r\n\t\t<div class=\"fbxt-header\">\r\n\t\t\t<div class=\"fbxt-header--logo\">\r\n\t\t\t\t<svg width=\"24\" height=\"25\" viewBox=\"0 0 24 25\" fill=\"none\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\">\n<circle opacity=\"0.05\" cx=\"11.6406\" cy=\"12.3918\" r=\"11.6406\" fill=\"#C60808\"\/>\n<path fill-rule=\"evenodd\" clip-rule=\"evenodd\" d=\"M16.6445 10.2899H6.63672V9.04663H16.6445V10.2899Z\"\/>\n<path fill-rule=\"evenodd\" clip-rule=\"evenodd\" d=\"M16.6445 13.3421H6.63672V12.0989H16.6445V13.3421Z\"\/>\n<path fill-rule=\"evenodd\" clip-rule=\"evenodd\" d=\"M12.7025 16.395H6.63672V15.1518H12.7025V16.395Z\"\/>\n<\/svg>\n\r\n\t\t\t\t<span class=\"fbxt-header-text\">Transcript<\/span>\r\n\t\t\t<\/div>\r\n\t\t\t<div class=\"fbxt-header--nav\">\r\n\t\t\t\t<a\r\n\t\t\t\t\tclass=\"fbxt-header--nav-item fbxt-nav-email\"\r\n\t\t\t\t\thref=\"#\"\r\n\t\t\t\t\tstyle=\"display:none\"\r\n\t\t\t\t>\r\n\t\t\t\t\t<svg width=\"16\" height=\"12\" viewBox=\"0 0 16 12\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\">\n<path d=\"M14.5 0H1.5C0.65625 0 0 0.6875 0 1.5V10.5C0 11.3438 0.65625 12 1.5 12H14.5C15.3125 12 16 11.3438 16 10.5V1.5C16 0.6875 15.3125 0 14.5 0ZM14.5 1.5V2.78125C13.7812 3.375 12.6562 4.25 10.2812 6.125C9.75 6.53125 8.71875 7.53125 8 7.5C7.25 7.53125 6.21875 6.53125 5.6875 6.125C3.3125 4.25 2.1875 3.375 1.5 2.78125V1.5H14.5ZM1.5 10.5V4.71875C2.1875 5.28125 3.21875 6.09375 4.75 7.3125C5.4375 7.84375 6.65625 9.03125 8 9C9.3125 9.03125 10.5 7.84375 11.2188 7.3125C12.75 6.09375 13.7812 5.28125 14.5 4.71875V10.5H1.5Z\" \/>\n<\/svg>\n\r\n\t\t\t\t\t<span class=\"fbxt-nav-text\">Email<\/span>\r\n\t\t\t\t<\/a>\r\n\t\t\t\t<a\r\n\t\t\t\t\tclass=\"fbxt-header--nav-item fbxt-nav-download\"\r\n\t\t\t\t\thref=\"#\"\r\n\t\t\t\t>\r\n\t\t\t\t\t<svg width=\"18\" height=\"16\" viewBox=\"0 0 18 16\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\">\n<path d=\"M16.5 9H13.5938L15.0625 7.5625C16 6.625 15.3125 5 14 5H12V1.5C12 0.6875 11.3125 0 10.5 0H7.5C6.65625 0 6 0.6875 6 1.5V5H4C2.65625 5 1.96875 6.625 2.9375 7.5625L4.375 9H1.5C0.65625 9 0 9.6875 0 10.5V14.5C0 15.3438 0.65625 16 1.5 16H16.5C17.3125 16 18 15.3438 18 14.5V10.5C18 9.6875 17.3125 9 16.5 9ZM4 6.5H7.5V1.5H10.5V6.5H14L9 11.5L4 6.5ZM16.5 14.5H1.5V10.5H5.875L7.9375 12.5625C8.5 13.1562 9.46875 13.1562 10.0312 12.5625L12.0938 10.5H16.5V14.5ZM13.75 12.5C13.75 12.9375 14.0625 13.25 14.5 13.25C14.9062 13.25 15.25 12.9375 15.25 12.5C15.25 12.0938 14.9062 11.75 14.5 11.75C14.0625 11.75 13.75 12.0938 13.75 12.5Z\" \/>\n<\/svg>\n\r\n\t\t\t\t\t<span class=\"fbxt-nav-text\">Download<\/span>\r\n\t\t\t\t<\/a>\r\n\t\t\t\t<a\r\n\t\t\t\t\tclass=\"fbxt-header--nav-item fbxt-nav-new_tab\"\r\n\t\t\t\t\thref=\"#\"\r\n\t\t\t\t>\r\n\t\t\t\t\t<svg width=\"14\" height=\"14\" viewBox=\"0 0 14 14\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\">\n<path d=\"M12.5 0H1.5C0.65625 0 0 0.6875 0 1.5V12.5C0 13.3438 0.65625 14 1.5 14H12.5C13.3125 14 14 13.3438 14 12.5V1.5C14 0.6875 13.3125 0 12.5 0ZM12.3125 12.5H1.6875C1.5625 12.5 1.5 12.4375 1.5 12.3125V1.6875C1.5 1.59375 1.5625 1.5 1.6875 1.5H12.3125C12.4062 1.5 12.5 1.59375 12.5 1.6875V12.3125C12.5 12.4375 12.4062 12.5 12.3125 12.5ZM10.625 3L6.375 3.03125C6.15625 3.03125 6 3.1875 6 3.40625V4.25C6 4.46875 6.15625 4.65625 6.375 4.625L8.1875 4.5625L3.09375 9.65625C2.9375 9.8125 2.9375 10.0312 3.09375 10.1875L3.8125 10.9062C3.96875 11.0625 4.1875 11.0625 4.34375 10.9062L9.4375 5.8125L9.375 7.625C9.34375 7.84375 9.53125 8 9.75 8H10.5938C10.8125 8 10.9688 7.84375 10.9688 7.625L11 3.375C11 3.1875 10.8125 3 10.625 3Z\" \/>\n<\/svg>\n\r\n\t\t\t\t\t<span class=\"fbxt-nav-text\">New Tab<\/span>\r\n\t\t\t\t<\/a>\r\n\t\t\t<\/div>\r\n\t\t<\/div>\r\n\r\n\t\t<div class=\"fbxt-content\">\r\n\t\t\t<div class=\"fbxt-content--inner\">\r\n\t\t\t\t<p><b>0:00:02 Meredith Smith:<\/b> Welcome to SALTovation. The SALTovation show is a podcast series featuring the leading voices in salt, where we talk about the issues and strategies to help you make sense of state and local tax. Today we want to welcome Richard Jones to our show. Rich is an attorney at Sullivan Worcester in Boston, where he\u2019s been specializing in state and local tax for more than two decades. His work includes helping taxpayers prevail in key decisions in Massachusetts, so much so that he was recognized as a law 360 mvp for some of the cases we\u2019ll talk about today.<\/p>\n<p><b>0:00:34 Meredith Smith:<\/b> Thanks, Rich, for being with us today. We really appreciate your time.<\/p>\n<p><b>0:00:38 Richard Jones:<\/b> Pleasure to be here. I\u2019m a fan of this podcast.<\/p>\n<p><b>0:00:43 Meredith Smith:<\/b> All right. And for those, Alex Korsian, the member of our SALTovation team, will be with us today. So it\u2019ll be me and Alex talking with Rich, and we\u2019re really looking forward to talking some cases. So, rich, state and local tax, we\u2019ve seen and kind of had experiences talking with other people does not usually get a lot of play in law school or just kind of higher education. How did you land in state and local tax and kind of what motivates you as a tax?<\/p>\n<p><b>0:01:20 Richard Jones:<\/b> You know, before I even got into state and local tax, there was just tax generally was not the path I thought I was headed on. A lot of my colleagues in our tax department here at Sullivan and Worcester really kind of tax people, and they knew it early on, but I was kind of the more common breed in law school. I think I was headed towards a career as a trial attorney that wasn\u2019t involving tax. I probably had kind of that normal aversion to it seemed foreign to me. There was a musical review that did a spin of the meatloaf song, and the name of the song they did was, I do anything for law, but I won\u2019t take tax.<\/p>\n<p><b>0:02:07 Richard Jones:<\/b> And it went on to talk about how terrified we were. And I took one class, and it was very interesting. But then I started working in New York City at a commercial litigation firm for three years, and I was looking to change jobs. And a friend of mine in Boston at Pricewaterhouse Coopers was doing state and local tax exclusively. And I was chatting with him. He started sending me articles that he was working on.<\/p>\n<p><b>0:02:35 Richard Jones:<\/b> And while it never occurred to me to look in that direction before, I was reading those articles and I said, this is like early onset of economic nexus principles. And I said, this is constitutional law. I mean, it\u2019s due process, commerce clause. It\u2019s kind of interesting. I didn\u2019t think anyone got to do that kind of thing. And he explained that it\u2019s not just academic, it is really part of the daily practice. And I read more, and then I ended up meeting the people he worked with and was coached a little bit.<\/p>\n<p><b>0:03:07 Richard Jones:<\/b> A fellow named Joe Donovan was the head of PwC\u2019s northeast practice, and I happened to say things that I knew he\u2019d be interested in. So he hired me, and I just shifted gears, and I kind of started from scratch, not knowing much about tax, let alone salt. But it was the salt that appealed to me first. And so I was really green, right? Someone would put up a structure like my first day with a corporation with a box and a triangle for yll.<\/p>\n<p><b>0:03:36 Meredith Smith:<\/b> You got triangles, you got rectangles, you got the triangle in a rectangle. And all of those mean different things and show up on a tax return differently.<\/p>\n<p><b>0:03:49 Richard Jones:<\/b> This was early on, so I knew I had to get up to speed fast, and fortunately, I really loved it. What motivates me is the second part is. So I went from PwC for three years, where I really got a lot of good technical training, worked with some great people, Joe Donovan, John Miroff, among others. And I came here to Sullivan and Worcester in 2003 where I could do the litigation. So it\u2019s a nice blend of doing those two things, but the things that motivates me, in a nutshell, I do love the issues. I like talking about them, whether it\u2019s economic nexus or extraterritorial values distortion.<\/p>\n<p><b>0:04:26 Richard Jones:<\/b> When is something subject to a sales tax? Can it be sourced? There is just a lot of gray areas and some aggressive state taxing authorities, maybe some aggressive taxpayers. But that combination makes for a lot of controversy and a lot of unsettled issues, and sometimes they\u2019re constitutional issues. So I like that. And the other thing I like probably is more in the nature of lawyering in any field, but just the opportunity to get a correct answer to maybe right a wrong. And that wrong might be not so much of an injustice, but an unfair interpretation of a statute. And sometimes it is an unjustice or an injustice. And so sometimes my pro bono cases have lingered with me as to some of the most gratifying things that I\u2019ve done.<\/p>\n<p><b>0:05:17 Richard Jones:<\/b> But that combination of just really interesting issues and the opportunity to maybe have an effect on policies that should be changed in the state of Massachusetts or elsewhere through litigation, that kind of thing, those are the things that motivate.<\/p>\n<p><b>0:05:34 Meredith Smith:<\/b> Oh, go ahead, Alex.<\/p>\n<p><b>0:05:36 Alex Korsian:<\/b> I was just going to say that it\u2019s funny listening to you mean. My experience coming up was a little different. I was never at a law firm I went into CPA land directly, but as a young wet behind your attorney, that\u2019s what drew me to it, was that the constitutional issues, the due process commerce clause, that\u2019s the stuff I salivate over still to this day, 20 years later. But I think salt draws a lot of attorneys and highly educated masters of tax and these individuals who typically are just a little more comfortable in that uncertainty. Right. Because we do have a lot of gray area in this field, and that gray area is what gives us the opportunity to correct some of those injustices. Right.<\/p>\n<p><b>0:06:27 Alex Korsian:<\/b> Sometimes there\u2019s just a lack of guidance and you have this opportunity to craft the solution or the resolution through. Know, when somebody thinks of a, you know, kind of like your experience at Pricewaterhouse, Cooper\u2019s or my career, you don\u2019t typically think of that. But there is that opportunity, and certainly on the law firm side, too.<\/p>\n<p><b>0:06:50 Richard Jones:<\/b> Yeah, no, it\u2019s a wonderful opportunity to kind of, and it\u2019s not maybe the most common blend. You\u2019ve had guests where you see people that really excel in both the tax technical expertise and the interest in litigating and fighting the fight. And those are two very different skill sets. I love doing both, and I\u2019m not the only one, but it\u2019s still not the common direction for people that are interested in tax issues.<\/p>\n<p><b>0:07:23 Richard Jones:<\/b> And so the courtroom stuff, it doesn\u2019t take a backseat. They\u2019re both equally important. One of my mentors, Bill Halmkin, who passed away a few years ago, but he was really one of the first lawyers doing state and local tax cases 20 years before I got involved. And he hired me here at Sullivan Worcester. But one of the things he would say is I rarely feel righteous indignation, but I often express it.<\/p>\n<p><b>0:07:53 Richard Jones:<\/b> I tend to feel it more than he does. I actually get into these cases. So I will feel it, especially as you develop your case and you realize maybe you have one where it\u2019s really all right and maybe the department\u2019s policies change and so forth. But I always like that point of view.<\/p>\n<p><b>0:08:11 Meredith Smith:<\/b> Well, kind of. With that, let\u2019s maybe start because it seems like Massachusetts, you may have been busy, Massachusetts was busy talking tax, pushing some things out there. So maybe let\u2019s start with Oracle USA Inc.\u00a0What was the issue there, and how does it kind of potentially speak to a broader trend? And I think while we\u2019re going to talk specifically about Massachusetts court cases, want to then kind of think about, as we talk through them, some of the national impacts of those. But for now, let\u2019s start with Oracle.<\/p>\n<p><b>0:08:45 Richard Jones:<\/b> Sure. Yeah. Happy to. Oracle is one of. There\u2019s about seven cases that are pretty, I think, important in Massachusetts, but Oracle is one of four over the last two plus years that were decided at the state\u2019s highest court and affected important tax policy, the supreme judicial court. And that\u2019s unusual to have four cases on state tax policy get to that level. So Oracle was a case involving the sale of software by, it was Oracle and Microsoft to a company that was headquartered in Massachusetts but had employees.<\/p>\n<p><b>0:09:25 Richard Jones:<\/b> So, you know, this is just one of the many questions that arise and are not entirely settled on issues involving tax and technology. When we have a sales tax, generally, traditionally, it\u2019s always on tangible personal property. Sourcing isn\u2019t that hard. You have an item, a widget, and the sales tax is due to the state where the thing is sold. If it\u2019s in the store, if it\u2019s delivered to a customer, we know it, and it\u2019s one place.<\/p>\n<p><b>0:09:57 Richard Jones:<\/b> But software to make software taxable, even though it\u2019s not tangible. Many states, like Massachusetts, have changed the definition of tangible personal property to say things that are tangible personal property plus software. We\u2019re just calling it a fiction. Fine. Okay. But what happens then is that now you have something that can be used simultaneously and exists simultaneously in many different states at the exact same time.<\/p>\n<p><b>0:10:26 Richard Jones:<\/b> That doesn\u2019t happen with the widget. So you have a new question. The Massachusetts legislature had some foresight around 2005 when they changed the definition to include software for tax tangible personal property. And they said the commissioner can also make rules about how to apportion the tax. So got a company based in Massachusetts when Oracle or Microsoft or a software vendor bills them. And these are very big bills. When large companies buy these software products, the sales tax is just 100% to Massachusetts, because that\u2019s where the bill to address is.<\/p>\n<p><b>0:11:05 Richard Jones:<\/b> And what should happen is it should be taxed to the state to the extent the thing sold, the software is actually used in Massachusetts. And a good way to do that is apportionate based on the users or the customers located in Massachusetts. So if the buyer has 50% of its workforce in Massachusetts and 50% everywhere else, that\u2019s actually 50%. Okay. So two things that are important in this case that I think are influential elsewhere is just the notion that sales tax in these situations should be apportioned. That\u2019s the right answer. But that\u2019s also a very unusual concept, because the idea of apportionment is really only thought about in the terms of an income tax and never the sales tax. And I think that thinking has to change.<\/p>\n<p><b>0:11:57 Richard Jones:<\/b> And so this SJC upheld the ability to apportion sales tax based on where it\u2019s going to be used only to the extent of use in Massachusetts. And a good way to do that was based on employees. The real controversy in the case came up because Massachusetts said, I put a lot of restrictions on this ability, and they said, we will not let you apportion. We won\u2019t ever let you seek an abatement to apportion it correctly.<\/p>\n<p><b>0:12:25 Richard Jones:<\/b> If you didn\u2019t apportion and give us some multi points of use certificate and MPU exemptions, if you don\u2019t do that at the time of the sale or by the time the initial return is due, you lose your right to apportion. And so our argument was that\u2019s taking away a statutory right, and not only to apportion, but also to abate your taxes. If you have overreported it by statute, you have three years from the filing date to do so. The apportionment issue is important, but the second issue is that the court came down hard on the Department of Revenue for its argument, which was that we can restrict your rights. The legislature gave conferred on us, the Department of Revenue, the right to decide whether to let taxpayers apportion. And we have decided, and so we can make any restrictions we want.<\/p>\n<p><b>0:13:23 Richard Jones:<\/b> That was incorrect, and this is part of our argument. That\u2019s not what the legislature conferred. The statutory language is a little confusing, but it could never do that, because while the Department of Revenue has the power to implement tax policy consistent with the statute, it cannot make tax policy and it can\u2019t be conferred the right to make tax policy. What was the right to make tax policy in this case? It was whether the question of whether sales tax can be apportioned or not, that cannot be the department of Emily\u2019s job. We went into the Massachusetts constitution to hammer that out. But what that does in Massachusetts, but elsewhere, is the language is strong enough that it\u2019s an important reminder of the authorities of state taxing revenue agencies.<\/p>\n<p><b>0:14:12 Richard Jones:<\/b> So there were multiple incidents or examples where their authority seems to be unchecked in terms of interpreting the statute being inconsistent or saying that we have the right to decide these things. So I think it was important that way. It\u2019s important guidance on apportioning sales tax for software sales, and secondly, on the ability or the parameters of the commissioner of revenues authority.<\/p>\n<p><b>0:14:42 Alex Korsian:<\/b> Well, congratulations on that win. That\u2019s huge. So Massachusetts has an MPU. Minnesota, where I sit, has an MPU as well. And the Department of Revenue here has issued guidance identical to what you referenced, where a MPU has to be claimed at the time of sale. To my knowledge, I don\u2019t believe that has been litigated here yet, but this oracle case certainly gives me a little hope that maybe if it was litigated here in Minnesota, it would maybe land the same way.<\/p>\n<p><b>0:15:17 Richard Jones:<\/b> I hope so. You know what the problem with that rule is? The MPU, all that is, is an exemption certificate. What are exemption certificates? They are not statutory final orders. They are shiftings of burdens of proof. If you have an MPU, the Department of Revenue that\u2019s submitted will assume that things were properly apportioned or things were properly exempt, and they could still look at it, they could still flip it. But they\u2019re going to give you the benefit of the doubt more often than not.<\/p>\n<p><b>0:15:52 Richard Jones:<\/b> If you don\u2019t have an MPU or you don\u2019t have an exemption certificate, all right, you have to show them that you\u2019re exempt or you\u2019re entitled to a portion, but it shouldn\u2019t foreclose your ability to do that because all it is is shifting a burden of proof. The other thing that\u2019s unusual about that, what I can respect is that if the MPU does two things, the MPU also transfers the obligation to report the tax from the vendor to the customer.<\/p>\n<p><b>0:16:22 Richard Jones:<\/b> Now, if you were to say you can\u2019t do that shift, if it wasn\u2019t done by the time the initial tax return is filed, that\u2019s fair. That\u2019s not talking about whether the tax exempt or properly apportioned or not. It\u2019s about whose obligation it is. And you\u2019ve got to file something. And if the vendor doesn\u2019t file anything, it better have an MPU so that I get. But it can\u2019t take away your right to apportion. I\u2019d love to see it litigated in Minnesota and hopefully come up with the same.<\/p>\n<p><b>0:16:52 Alex Korsian:<\/b> You know, the whole concept of MPU is fascinating with, with the select few states that do have this burden shifting process through a certificate. Typically, I think this answer is a little bit clearer, but there\u2019s a host of other states that don\u2019t have a formal certificate. Right. But if you read the standard sourcing provisions that are based on use language, as you alluded to before, the argument could be made that you could still apportion there.<\/p>\n<p><b>0:17:28 Alex Korsian:<\/b> Right. They just don\u2019t have this MPU mechanism to document it. So the right to apportion, and I use those terms habitually, that\u2019s an income tax term. But that ability to apportion the sales tax should still exist. Again, it just, does it shift the burden? Likely not right, without that cert, and the mechanics of all that becomes incredibly complex. So it\u2019s a very interesting mechanism to think through and to work through both legally, conceptually, academically, but also practically.<\/p>\n<p><b>0:18:09 Richard Jones:<\/b> I completely agree. And you know what? I love the question, what if a state has a normal sales tax, normal use tax, because we\u2019re really talking about a use tax here, and no language whatsoever about apportioning or right to apportionment, at least in Massachusetts, we could glob on to some language that seemed to suggest it, even if it was unclear. But what if a state doesn\u2019t say, you have a right to apportion sales on software, you still have a use tax statute, and what do you need for a use tax will apply. You need to have a sale.<\/p>\n<p><b>0:18:39 Richard Jones:<\/b> It needs to be actually used. And I think in most states, that has to be intended to be used in the state purchased for use, those three things. But the middle one was it actually used. You really can\u2019t impose a tax on something if it wasn\u2019t used there. And so even if you don\u2019t have specific apportionment statutes, I think there\u2019s a good argument that 100% tax just because the headquarters of the company is there isn\u2019t, correct. Because it\u2019s not reflective of use. And you have to think differently when you have nontangible property that is subject to a sales tax.<\/p>\n<p><b>0:19:21 Richard Jones:<\/b> And then you have these really interesting questions. How do you portion? If we can get to that point, states should make that easy enough based on headcount, based on other things. But I\u2019d love to see that issue come up in states that don\u2019t have anything about apportionment. Just.<\/p>\n<p><b>0:19:44 Alex Korsian:<\/b> Yeah, and that\u2019s a great point about the required documentation, because even if you can get comfortable statutorily in one of those states, then you have to ask yourself, all right, well, how do I paper this? You know, and to use New York as an example, and I don\u2019t remember the level of guidance that was issued. It was a number of years ago. I want to say maybe it was some sort of, maybe it was an ALJ, but there was some specific guidance on the kind of documentation that would be acceptable in New York because New York doesn\u2019t have a certificate nor a burden shifting provision. Right. But you can still claim the MPU.<\/p>\n<p><b>0:20:19 Alex Korsian:<\/b> It just doesn\u2019t shift the, you know, the scenario that we\u2019re talking about. But they were very specific, the ALJ. And again, forgive me if I\u2019m misquoting the level of authority. But it was very specific that there had to be headcount percentages listed out by jurisdiction. So it wouldn\u2019t have been enough to just have the New York percentage listed. They wanted it to tie out to 100. Right. They needed everything listed. So what level of documentation is enough in each one of these states is just.<\/p>\n<p><b>0:20:52 Alex Korsian:<\/b> We have no idea. Right.<\/p>\n<p><b>0:20:53 Richard Jones:<\/b> Right.<\/p>\n<p><b>0:20:53 Alex Korsian:<\/b> So if you even get there, how do you cover yourself? How do you protect your.<\/p>\n<p><b>0:21:01 Richard Jones:<\/b> You know, after the oracle decision, the floodgates opened for everyone filing abatement claims that didn\u2019t think they could before. And we\u2019ve seen shifting sands in terms of the degree in which the department will be satisfied with the apportionment. I can\u2019t say I am happy with the way the sands have been shifting. Sometimes you can find out exactly what percentage of your employee headcount use the software and where they are because the software has a technology and sometimes you can\u2019t.<\/p>\n<p><b>0:21:37 Richard Jones:<\/b> But you know, what\u2019s more important than who actually used it under the law? Who was it purchased for? If it was purchased for anybody in the company to use and ended up being used by a smaller portion, because we know not everybody needs it, but we don\u2019t know who\u2019s going to need it and who uses it from one year or one month to the next could change. So you don\u2019t buy the same number of licenses as employees. You have 30,000 employees. You buy 30,000 licenses, you don\u2019t need that many. But then you might have the department saying, well, I can\u2019t let you apportion based on headcount. I need to know who exactly who used it. That\u2019s something we\u2019re dealing with, which I don\u2019t think is reasonable when the question really has to be who was it purchased for?<\/p>\n<p><b>0:22:25 Richard Jones:<\/b> Now, if it was purchased and really only useful to one department within the company, then you don\u2019t use worldwide population. You probably use the population of that department wherever they sit. That makes sense. But companies shouldn\u2019t have to be forced to litigate to prove their apportionment when we don\u2019t have an exact headcount because the software tracking doesn\u2019t do that well.<\/p>\n<p><b>0:22:48 Meredith Smith:<\/b> And something we\u2019ve seen generally in audits, that auditors are amenable. Right. When you\u2019re kind of on the hook for proving it\u2019s mostly shipped or billed to. Right. Where\u2019d you send your bill? And that\u2019s where we\u2019re talking. Right. But what we have to be cautious of and what we warn our clients on of all right. Well, if you\u2019re going to use an MPU argument for sourcing out, you also have the contrary of those build tos that are out but could have users in. So it\u2019s like you can\u2019t just use that language to go out.<\/p>\n<p><b>0:23:28 Meredith Smith:<\/b> When do you really want to open up Oracle for. Right. They have an office in Colorado, California. Right. Just kind of picking on them from a company. Let\u2019s say they have users in Massachusetts, but a bill to Colorado, like you just got to be careful. Right. Who are your customers and does the outward. Right potentially or where you didn\u2019t send that bill potentially have a presence in that state that you\u2019re not charging on or you don\u2019t have a certificate for that, you could be kind of brought into your pool.<\/p>\n<p><b>0:24:00 Alex Korsian:<\/b> It\u2019s not a one way street.<\/p>\n<p><b>0:24:01 Richard Jones:<\/b> No.\u00a0That sounds like a compliance or audit nightmare or headache or difficult but not unfair. Right.<\/p>\n<p><b>0:24:11 Meredith Smith:<\/b> Right.<\/p>\n<p><b>0:24:12 Richard Jones:<\/b> It just depends on every state\u2019s law. Right. But what they can\u2019t. So that seems right. But what doesn\u2019t seem right is the department saying to you, I know you want to apportion and I have your apportionment numbers, but for the percentage of apportionment that will go to another state like New York or something, show me you paid tax to New York. No, I don\u2019t have to do that because that\u2019s not part of the law. And New York\u2019s law is going to be different than Massachusetts and every state\u2019s law is different and that\u2019s not part of the equation.<\/p>\n<p><b>0:24:50 Richard Jones:<\/b> So I get your point, Merida. I can see a state saying, well, you do owe tax to the extent you have users here, but the bill to address or the headquarters of the company was somewhere else. But that\u2019s where I draw the line. And I\u2019ve seen that question asked and I don\u2019t see it asked as often now. Maybe they\u2019ve moved past it, that question. Show us if you want a portion, show us you paid tax to the other states for the reasons I said.<\/p>\n<p><b>0:25:20 Richard Jones:<\/b> We don\u2019t know that taxes do in the other states. Maybe it is, maybe it isn\u2019t, but it doesn\u2019t change what the tax is in Massachusetts.<\/p>\n<p><b>0:25:28 Meredith Smith:<\/b> Right.<\/p>\n<p><b>0:25:30 Alex Korsian:<\/b> Again, kind of jumping a little bit to a different tax type and a different scenario, but we see the same question being asked for 86 to 72 public cloud, 86 to 72 issues. Well, or right to apportion issues, kind of using the terminology I said before, prove that you are taxable elsewhere, prove that you paid the tax. And not all states have that statutory requirement.<\/p>\n<p><b>0:25:56 Richard Jones:<\/b> Right. I can see it coming up in a credits question, right? You\u2019re taxing me. But I already paid tax somewhere else. Every state allows a credit. If they want to tax a use of something in the state, but sales tax or use tax been paid elsewhere, then you have to show it. But it shouldn\u2019t affect apportionment questions. By their very nature, apportionment is different than a credit system.<\/p>\n<p><b>0:26:22 Meredith Smith:<\/b> So then, kind of sticking with some kind of sales tax cases, us auto holdings kind of struck down cookie nexus and kind of denied the state the ability to retroactively apply Wayfair. Why was this significant, and what can we expect from mean?<\/p>\n<p><b>0:26:44 Richard Jones:<\/b> It\u2019s a great case. It put, like, the final stake in the heart of this concept of cookienexis. Right. Which is, here\u2019s how Massachusetts has applied it. And this is pre wavefair. Massachusetts said, and it wasn\u2019t able to tax Internet vendors that had no physical presence in Massachusetts, and it put out a regulation. There\u2019s some history to it, but I\u2019ll cut to what they did in 2017. And they said, all you Internet vendors that aren\u2019t present here in Massachusetts, but you have a sufficient amount of sales here, we\u2019re all going to subject you to a sales and use tax collection obligation. You have nexus here. You have nexus here. Why?<\/p>\n<p><b>0:27:26 Richard Jones:<\/b> Just because invariably, you have physical presence here. And you have physical presence here because your customers are using your websites. And when they do or when they download your app, there are cookies. And those cookies from your website are stored on the Massachusetts customer or user\u2019s devices, their computers or their phones. And that\u2019s enough physical presence to satisfy quill. There was another theory, you know, right off the bat, that struck me as, and many as outrageous. And the Department of Revenue didn\u2019t call it cookienexis, but everyone else did.<\/p>\n<p><b>0:28:06 Richard Jones:<\/b> They didn\u2019t love that term. But I think it finally, you know, Wayfair comes out. But then the question in us auto is, pre Wayfair, the cookienexis regulation still made this taxable, and is that permissible or not? And I\u2019m so grateful for this supreme judicial court. We\u2019re happy with the Oracle case I wasn\u2019t involved with, but they just took a reasoned, thoughtful approach, and so did the appellate tax board in that case. That was the trial level four.<\/p>\n<p><b>0:28:39 Richard Jones:<\/b> And finally, declaring that just because you, the Department of Revenue, say that\u2019s physical presence, it isn\u2019t. One of the questions at oral argument from one of the justices is why is it that you say that that constitutes sufficient physical presence to create a taxable nexus with the state. You\u2019re saying it\u2019s the electrons, really? And that kind of question, it wasn\u2019t much of an answer to that. But physical presence means something physical. I mean, I have a lot of problems, obviously.<\/p>\n<p><b>0:29:11 Richard Jones:<\/b> I have cookies, tangible personal property in the state, like your inventory in the state that creates nexus in quail, a handful of floppy disks. That wasn\u2019t enough. But you could at least hold those floppy disks. You could see them, you could feel them, you could weigh them. Internet cookies, you could have a billion of them, and you still can\u2019t see them. You can\u2019t hold them. They don\u2019t weigh anything.<\/p>\n<p><b>0:29:33 Richard Jones:<\/b> They\u2019re not know. It was just important because the concept had been kicking around in Massachusetts and other states. It was important for them to put an end to the idea that that is physical presence under Quill. The court said it\u2019s not. And then the department, Massachusetts also argued that, okay, even if you don\u2019t like this cookie nexus theory and this cooking x\u2019s reg, we have Wayfair and Wayfair. We could apply Wayfair retroactively.<\/p>\n<p><b>0:30:04 Richard Jones:<\/b> And there was some reason to think that in that Wayfair, the Supreme Court said physical. They didn\u2019t just say physical presence. Was it in 2018. They didn\u2019t just say, physical presence isn\u2019t going to be the standard anymore. They said it was never right to be a standard for Nexus. And so people got worried about it being applied retroactively. What happened in this case was, it looks like the Supreme Court denied the ability for anyone to apply Wayfair retroactively. That\u2019s not exactly what happened. What they said is, we really don\u2019t have to get into that.<\/p>\n<p><b>0:30:42 Richard Jones:<\/b> They didn\u2019t say it explicitly, but that\u2019s what they did. They looked at the regulation Massachusetts wanted to apply. Prior to Wayfair, the only authority Massachusetts could use to claim nexus was this regulation. And this regulation was founded. The cookie nexus regulation was based on Quill. It said, we are applying a quill physical presence standard. And because the cookies aren\u2019t physical presence, that\u2019s the end of the story.<\/p>\n<p><b>0:31:13 Richard Jones:<\/b> You, Massachusetts, your statutes, your rules, your laws didn\u2019t permit you to assert Nexus on Wayfair\u2019s principles, even if constitutionally it might have been permissible. So we don\u2019t have to go there. But I think the idea of electrons or Internet cookies being considered physical, it has applications in other areas of state tax, not just nexus, but how to categorize things for sourcing and other principles. You know, another thing, these cookies, the reason under dear watch theory that they would be physical presence in Massachusetts or wherever the customer has his device or computer is because the vendor, the software, the website company owns property located in the state. The cookie that presumes that the Internet vendor owns those cookies and is storing them here.<\/p>\n<p><b>0:32:13 Richard Jones:<\/b> But it doesn\u2019t. If it did, could I delete the cookie? Could I have any control over the cookies around my device? I can\u2019t destroy someone else\u2019s property if it doesn\u2019t belong to me. But it does. It does belong. Those cookies were not property of the website. That didn\u2019t come up. But I could never get past that part of it. Of course, it\u2019s not physical. If it is physical, it\u2019s not substantial enough and it\u2019s not even the property of the website company. So all of those things kind of just offended common sense. And I\u2019m just pleased that the court came down the way they did. And hopefully that\u2019s the end of the concept of cookienexis.<\/p>\n<p><b>0:32:55 Meredith Smith:<\/b> Well, we\u2019ll just take those cookies and kind of apply them now to 86 272 and their nonsense of what\u2019s happening in the kind of expansion of the technology side of 86 272, which is a whole other conversation and a whole other bunch of nonsense, and we can come back in what, a year or two and talk about the cases that are going to evolve out of 86 272 and all of that.<\/p>\n<p><b>0:33:21 Richard Jones:<\/b> Yeah, great example where folks might look to the US audit decision as they think about that issue. But yeah, it\u2019s still a head stretch. At least we have that decision in California. For now.<\/p>\n<p><b>0:33:37 Meredith Smith:<\/b> This podcast is for educational purposes only and is not intended, nor should it be relied upon as legal, tax, accounting or investment meant. Advice should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.<\/p>\n\r\n\t\t\t<\/div>\r\n\t\t\t<div class=\"fbxt-content--footer\">\r\n\t\t\t\t<a href=\"#\">\r\n\t\t\t\t\t<svg width=\"9\" height=\"11\" viewBox=\"0 0 9 11\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\">\n<path d=\"M0.5625 0.25C0.234375 0.25 0 0.507812 0 0.8125V1.375C0 1.70312 0.234375 1.9375 0.5625 1.9375H8.4375C8.74219 1.9375 9 1.70312 9 1.375V0.8125C9 0.507812 8.74219 0.25 8.4375 0.25H0.5625ZM2.10938 6.83594L3.65625 5.28906V10.1875C3.65625 10.5156 3.89062 10.75 4.21875 10.75H4.78125C5.08594 10.75 5.34375 10.5156 5.34375 10.1875V5.28906L6.86719 6.83594C7.10156 7.04688 7.45312 7.04688 7.66406 6.83594L8.0625 6.4375C8.27344 6.22656 8.27344 5.85156 8.0625 5.64062L4.89844 2.47656C4.66406 2.24219 4.3125 2.24219 4.10156 2.47656L0.914062 5.64062C0.703125 5.85156 0.703125 6.22656 0.914062 6.4375L1.3125 6.83594C1.52344 7.04688 1.89844 7.04688 2.10938 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Worcester in Boston, specializing in state and local tax for over two decades. Richard dives into two significant Massachusetts court cases: Oracle USA Inc. and US Auto Holdings. In the Oracle case, the Massachusetts Supreme Judicial Court upheld the ability to apportion sales tax for software sales and clarified the parameters of the Commissioner of Revenue&#8217;s authority. In the US Auto Holdings case, the court struck down the concept of &#8220;cookie nexus&#8221; and denied the state&#8217;s ability to retroactively apply the Wayfair decision. Listen this week as Richard provides insights into the implications of these cases and their potential impact on other states.<\/p>\n","protected":false},"author":3,"featured_media":12879,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"2880","spt_transcript":"<b>0:00:02 Meredith Smith:<\/b> Welcome to SALTovation. The SALTovation show is a podcast series featuring the leading voices in salt, where we talk about the issues and strategies to help you make sense of state and local tax. Today we want to welcome Richard Jones to our show. Rich is an attorney at Sullivan Worcester in Boston, where he\u2019s been specializing in state and local tax for more than two decades. His work includes helping taxpayers prevail in key decisions in Massachusetts, so much so that he was recognized as a law 360 mvp for some of the cases we\u2019ll talk about today.\r\n<p><b>0:00:34 Meredith Smith:<\/b> Thanks, Rich, for being with us today. We really appreciate your time.\r\n<p><b>0:00:38 Richard Jones:<\/b> Pleasure to be here. I\u2019m a fan of this podcast.\r\n<p><b>0:00:43 Meredith Smith:<\/b> All right. And for those, Alex Korsian, the member of our SALTovation team, will be with us today. So it\u2019ll be me and Alex talking with Rich, and we\u2019re really looking forward to talking some cases. So, rich, state and local tax, we\u2019ve seen and kind of had experiences talking with other people does not usually get a lot of play in law school or just kind of higher education. How did you land in state and local tax and kind of what motivates you as a tax?\r\n<p><b>0:01:20 Richard Jones:<\/b> You know, before I even got into state and local tax, there was just tax generally was not the path I thought I was headed on. A lot of my colleagues in our tax department here at Sullivan and Worcester really kind of tax people, and they knew it early on, but I was kind of the more common breed in law school. I think I was headed towards a career as a trial attorney that wasn\u2019t involving tax. I probably had kind of that normal aversion to it seemed foreign to me. There was a musical review that did a spin of the meatloaf song, and the name of the song they did was, I do anything for law, but I won\u2019t take tax.\r\n<p><b>0:02:07 Richard Jones:<\/b> And it went on to talk about how terrified we were. And I took one class, and it was very interesting. But then I started working in New York City at a commercial litigation firm for three years, and I was looking to change jobs. And a friend of mine in Boston at Pricewaterhouse Coopers was doing state and local tax exclusively. And I was chatting with him. He started sending me articles that he was working on.\r\n<p><b>0:02:35 Richard Jones:<\/b> And while it never occurred to me to look in that direction before, I was reading those articles and I said, this is like early onset of economic nexus principles. And I said, this is constitutional law. I mean, it\u2019s due process, commerce clause. It\u2019s kind of interesting. I didn\u2019t think anyone got to do that kind of thing. And he explained that it\u2019s not just academic, it is really part of the daily practice. And I read more, and then I ended up meeting the people he worked with and was coached a little bit.\r\n<p><b>0:03:07 Richard Jones:<\/b> A fellow named Joe Donovan was the head of PwC\u2019s northeast practice, and I happened to say things that I knew he\u2019d be interested in. So he hired me, and I just shifted gears, and I kind of started from scratch, not knowing much about tax, let alone salt. But it was the salt that appealed to me first. And so I was really green, right? Someone would put up a structure like my first day with a corporation with a box and a triangle for yll.\r\n<p><b>0:03:36 Meredith Smith:<\/b> You got triangles, you got rectangles, you got the triangle in a rectangle. And all of those mean different things and show up on a tax return differently.\r\n<p><b>0:03:49 Richard Jones:<\/b> This was early on, so I knew I had to get up to speed fast, and fortunately, I really loved it. What motivates me is the second part is. So I went from PwC for three years, where I really got a lot of good technical training, worked with some great people, Joe Donovan, John Miroff, among others. And I came here to Sullivan and Worcester in 2003 where I could do the litigation. So it\u2019s a nice blend of doing those two things, but the things that motivates me, in a nutshell, I do love the issues. I like talking about them, whether it\u2019s economic nexus or extraterritorial values distortion.\r\n<p><b>0:04:26 Richard Jones:<\/b> When is something subject to a sales tax? Can it be sourced? There is just a lot of gray areas and some aggressive state taxing authorities, maybe some aggressive taxpayers. But that combination makes for a lot of controversy and a lot of unsettled issues, and sometimes they\u2019re constitutional issues. So I like that. And the other thing I like probably is more in the nature of lawyering in any field, but just the opportunity to get a correct answer to maybe right a wrong. And that wrong might be not so much of an injustice, but an unfair interpretation of a statute. And sometimes it is an unjustice or an injustice. And so sometimes my pro bono cases have lingered with me as to some of the most gratifying things that I\u2019ve done.\r\n<p><b>0:05:17 Richard Jones:<\/b> But that combination of just really interesting issues and the opportunity to maybe have an effect on policies that should be changed in the state of Massachusetts or elsewhere through litigation, that kind of thing, those are the things that motivate.\r\n<p><b>0:05:34 Meredith Smith:<\/b> Oh, go ahead, Alex.\r\n<p><b>0:05:36 Alex Korsian:<\/b> I was just going to say that it\u2019s funny listening to you mean. My experience coming up was a little different. I was never at a law firm I went into CPA land directly, but as a young wet behind your attorney, that\u2019s what drew me to it, was that the constitutional issues, the due process commerce clause, that\u2019s the stuff I salivate over still to this day, 20 years later. But I think salt draws a lot of attorneys and highly educated masters of tax and these individuals who typically are just a little more comfortable in that uncertainty. Right. Because we do have a lot of gray area in this field, and that gray area is what gives us the opportunity to correct some of those injustices. Right.\r\n<p><b>0:06:27 Alex Korsian:<\/b> Sometimes there\u2019s just a lack of guidance and you have this opportunity to craft the solution or the resolution through. Know, when somebody thinks of a, you know, kind of like your experience at Pricewaterhouse, Cooper\u2019s or my career, you don\u2019t typically think of that. But there is that opportunity, and certainly on the law firm side, too.\r\n<p><b>0:06:50 Richard Jones:<\/b> Yeah, no, it\u2019s a wonderful opportunity to kind of, and it\u2019s not maybe the most common blend. You\u2019ve had guests where you see people that really excel in both the tax technical expertise and the interest in litigating and fighting the fight. And those are two very different skill sets. I love doing both, and I\u2019m not the only one, but it\u2019s still not the common direction for people that are interested in tax issues.\r\n<p><b>0:07:23 Richard Jones:<\/b> And so the courtroom stuff, it doesn\u2019t take a backseat. They\u2019re both equally important. One of my mentors, Bill Halmkin, who passed away a few years ago, but he was really one of the first lawyers doing state and local tax cases 20 years before I got involved. And he hired me here at Sullivan Worcester. But one of the things he would say is I rarely feel righteous indignation, but I often express it.\r\n<p><b>0:07:53 Richard Jones:<\/b> I tend to feel it more than he does. I actually get into these cases. So I will feel it, especially as you develop your case and you realize maybe you have one where it\u2019s really all right and maybe the department\u2019s policies change and so forth. But I always like that point of view.\r\n<p><b>0:08:11 Meredith Smith:<\/b> Well, kind of. With that, let\u2019s maybe start because it seems like Massachusetts, you may have been busy, Massachusetts was busy talking tax, pushing some things out there. So maybe let\u2019s start with Oracle USA Inc.\u00a0What was the issue there, and how does it kind of potentially speak to a broader trend? And I think while we\u2019re going to talk specifically about Massachusetts court cases, want to then kind of think about, as we talk through them, some of the national impacts of those. But for now, let\u2019s start with Oracle.\r\n<p><b>0:08:45 Richard Jones:<\/b> Sure. Yeah. Happy to. Oracle is one of. There\u2019s about seven cases that are pretty, I think, important in Massachusetts, but Oracle is one of four over the last two plus years that were decided at the state\u2019s highest court and affected important tax policy, the supreme judicial court. And that\u2019s unusual to have four cases on state tax policy get to that level. So Oracle was a case involving the sale of software by, it was Oracle and Microsoft to a company that was headquartered in Massachusetts but had employees.\r\n<p><b>0:09:25 Richard Jones:<\/b> So, you know, this is just one of the many questions that arise and are not entirely settled on issues involving tax and technology. When we have a sales tax, generally, traditionally, it\u2019s always on tangible personal property. Sourcing isn\u2019t that hard. You have an item, a widget, and the sales tax is due to the state where the thing is sold. If it\u2019s in the store, if it\u2019s delivered to a customer, we know it, and it\u2019s one place.\r\n<p><b>0:09:57 Richard Jones:<\/b> But software to make software taxable, even though it\u2019s not tangible. Many states, like Massachusetts, have changed the definition of tangible personal property to say things that are tangible personal property plus software. We\u2019re just calling it a fiction. Fine. Okay. But what happens then is that now you have something that can be used simultaneously and exists simultaneously in many different states at the exact same time.\r\n<p><b>0:10:26 Richard Jones:<\/b> That doesn\u2019t happen with the widget. So you have a new question. The Massachusetts legislature had some foresight around 2005 when they changed the definition to include software for tax tangible personal property. And they said the commissioner can also make rules about how to apportion the tax. So got a company based in Massachusetts when Oracle or Microsoft or a software vendor bills them. And these are very big bills. When large companies buy these software products, the sales tax is just 100% to Massachusetts, because that\u2019s where the bill to address is.\r\n<p><b>0:11:05 Richard Jones:<\/b> And what should happen is it should be taxed to the state to the extent the thing sold, the software is actually used in Massachusetts. And a good way to do that is apportionate based on the users or the customers located in Massachusetts. So if the buyer has 50% of its workforce in Massachusetts and 50% everywhere else, that\u2019s actually 50%. Okay. So two things that are important in this case that I think are influential elsewhere is just the notion that sales tax in these situations should be apportioned. That\u2019s the right answer. But that\u2019s also a very unusual concept, because the idea of apportionment is really only thought about in the terms of an income tax and never the sales tax. And I think that thinking has to change.\r\n<p><b>0:11:57 Richard Jones:<\/b> And so this SJC upheld the ability to apportion sales tax based on where it\u2019s going to be used only to the extent of use in Massachusetts. And a good way to do that was based on employees. The real controversy in the case came up because Massachusetts said, I put a lot of restrictions on this ability, and they said, we will not let you apportion. We won\u2019t ever let you seek an abatement to apportion it correctly.\r\n<p><b>0:12:25 Richard Jones:<\/b> If you didn\u2019t apportion and give us some multi points of use certificate and MPU exemptions, if you don\u2019t do that at the time of the sale or by the time the initial return is due, you lose your right to apportion. And so our argument was that\u2019s taking away a statutory right, and not only to apportion, but also to abate your taxes. If you have overreported it by statute, you have three years from the filing date to do so. The apportionment issue is important, but the second issue is that the court came down hard on the Department of Revenue for its argument, which was that we can restrict your rights. The legislature gave conferred on us, the Department of Revenue, the right to decide whether to let taxpayers apportion. And we have decided, and so we can make any restrictions we want.\r\n<p><b>0:13:23 Richard Jones:<\/b> That was incorrect, and this is part of our argument. That\u2019s not what the legislature conferred. The statutory language is a little confusing, but it could never do that, because while the Department of Revenue has the power to implement tax policy consistent with the statute, it cannot make tax policy and it can\u2019t be conferred the right to make tax policy. What was the right to make tax policy in this case? It was whether the question of whether sales tax can be apportioned or not, that cannot be the department of Emily\u2019s job. We went into the Massachusetts constitution to hammer that out. But what that does in Massachusetts, but elsewhere, is the language is strong enough that it\u2019s an important reminder of the authorities of state taxing revenue agencies.\r\n<p><b>0:14:12 Richard Jones:<\/b> So there were multiple incidents or examples where their authority seems to be unchecked in terms of interpreting the statute being inconsistent or saying that we have the right to decide these things. So I think it was important that way. It\u2019s important guidance on apportioning sales tax for software sales, and secondly, on the ability or the parameters of the commissioner of revenues authority.\r\n<p><b>0:14:42 Alex Korsian:<\/b> Well, congratulations on that win. That\u2019s huge. So Massachusetts has an MPU. Minnesota, where I sit, has an MPU as well. And the Department of Revenue here has issued guidance identical to what you referenced, where a MPU has to be claimed at the time of sale. To my knowledge, I don\u2019t believe that has been litigated here yet, but this oracle case certainly gives me a little hope that maybe if it was litigated here in Minnesota, it would maybe land the same way.\r\n<p><b>0:15:17 Richard Jones:<\/b> I hope so. You know what the problem with that rule is? The MPU, all that is, is an exemption certificate. What are exemption certificates? They are not statutory final orders. They are shiftings of burdens of proof. If you have an MPU, the Department of Revenue that\u2019s submitted will assume that things were properly apportioned or things were properly exempt, and they could still look at it, they could still flip it. But they\u2019re going to give you the benefit of the doubt more often than not.\r\n<p><b>0:15:52 Richard Jones:<\/b> If you don\u2019t have an MPU or you don\u2019t have an exemption certificate, all right, you have to show them that you\u2019re exempt or you\u2019re entitled to a portion, but it shouldn\u2019t foreclose your ability to do that because all it is is shifting a burden of proof. The other thing that\u2019s unusual about that, what I can respect is that if the MPU does two things, the MPU also transfers the obligation to report the tax from the vendor to the customer.\r\n<p><b>0:16:22 Richard Jones:<\/b> Now, if you were to say you can\u2019t do that shift, if it wasn\u2019t done by the time the initial tax return is filed, that\u2019s fair. That\u2019s not talking about whether the tax exempt or properly apportioned or not. It\u2019s about whose obligation it is. And you\u2019ve got to file something. And if the vendor doesn\u2019t file anything, it better have an MPU so that I get. But it can\u2019t take away your right to apportion. I\u2019d love to see it litigated in Minnesota and hopefully come up with the same.\r\n<p><b>0:16:52 Alex Korsian:<\/b> You know, the whole concept of MPU is fascinating with, with the select few states that do have this burden shifting process through a certificate. Typically, I think this answer is a little bit clearer, but there\u2019s a host of other states that don\u2019t have a formal certificate. Right. But if you read the standard sourcing provisions that are based on use language, as you alluded to before, the argument could be made that you could still apportion there.\r\n<p><b>0:17:28 Alex Korsian:<\/b> Right. They just don\u2019t have this MPU mechanism to document it. So the right to apportion, and I use those terms habitually, that\u2019s an income tax term. But that ability to apportion the sales tax should still exist. Again, it just, does it shift the burden? Likely not right, without that cert, and the mechanics of all that becomes incredibly complex. So it\u2019s a very interesting mechanism to think through and to work through both legally, conceptually, academically, but also practically.\r\n<p><b>0:18:09 Richard Jones:<\/b> I completely agree. And you know what? I love the question, what if a state has a normal sales tax, normal use tax, because we\u2019re really talking about a use tax here, and no language whatsoever about apportioning or right to apportionment, at least in Massachusetts, we could glob on to some language that seemed to suggest it, even if it was unclear. But what if a state doesn\u2019t say, you have a right to apportion sales on software, you still have a use tax statute, and what do you need for a use tax will apply. You need to have a sale.\r\n<p><b>0:18:39 Richard Jones:<\/b> It needs to be actually used. And I think in most states, that has to be intended to be used in the state purchased for use, those three things. But the middle one was it actually used. You really can\u2019t impose a tax on something if it wasn\u2019t used there. And so even if you don\u2019t have specific apportionment statutes, I think there\u2019s a good argument that 100% tax just because the headquarters of the company is there isn\u2019t, correct. Because it\u2019s not reflective of use. And you have to think differently when you have nontangible property that is subject to a sales tax.\r\n<p><b>0:19:21 Richard Jones:<\/b> And then you have these really interesting questions. How do you portion? If we can get to that point, states should make that easy enough based on headcount, based on other things. But I\u2019d love to see that issue come up in states that don\u2019t have anything about apportionment. Just.\r\n<p><b>0:19:44 Alex Korsian:<\/b> Yeah, and that\u2019s a great point about the required documentation, because even if you can get comfortable statutorily in one of those states, then you have to ask yourself, all right, well, how do I paper this? You know, and to use New York as an example, and I don\u2019t remember the level of guidance that was issued. It was a number of years ago. I want to say maybe it was some sort of, maybe it was an ALJ, but there was some specific guidance on the kind of documentation that would be acceptable in New York because New York doesn\u2019t have a certificate nor a burden shifting provision. Right. But you can still claim the MPU.\r\n<p><b>0:20:19 Alex Korsian:<\/b> It just doesn\u2019t shift the, you know, the scenario that we\u2019re talking about. But they were very specific, the ALJ. And again, forgive me if I\u2019m misquoting the level of authority. But it was very specific that there had to be headcount percentages listed out by jurisdiction. So it wouldn\u2019t have been enough to just have the New York percentage listed. They wanted it to tie out to 100. Right. They needed everything listed. So what level of documentation is enough in each one of these states is just.\r\n<p><b>0:20:52 Alex Korsian:<\/b> We have no idea. Right.\r\n<p><b>0:20:53 Richard Jones:<\/b> Right.\r\n<p><b>0:20:53 Alex Korsian:<\/b> So if you even get there, how do you cover yourself? How do you protect your.\r\n<p><b>0:21:01 Richard Jones:<\/b> You know, after the oracle decision, the floodgates opened for everyone filing abatement claims that didn\u2019t think they could before. And we\u2019ve seen shifting sands in terms of the degree in which the department will be satisfied with the apportionment. I can\u2019t say I am happy with the way the sands have been shifting. Sometimes you can find out exactly what percentage of your employee headcount use the software and where they are because the software has a technology and sometimes you can\u2019t.\r\n<p><b>0:21:37 Richard Jones:<\/b> But you know, what\u2019s more important than who actually used it under the law? Who was it purchased for? If it was purchased for anybody in the company to use and ended up being used by a smaller portion, because we know not everybody needs it, but we don\u2019t know who\u2019s going to need it and who uses it from one year or one month to the next could change. So you don\u2019t buy the same number of licenses as employees. You have 30,000 employees. You buy 30,000 licenses, you don\u2019t need that many. But then you might have the department saying, well, I can\u2019t let you apportion based on headcount. I need to know who exactly who used it. That\u2019s something we\u2019re dealing with, which I don\u2019t think is reasonable when the question really has to be who was it purchased for?\r\n<p><b>0:22:25 Richard Jones:<\/b> Now, if it was purchased and really only useful to one department within the company, then you don\u2019t use worldwide population. You probably use the population of that department wherever they sit. That makes sense. But companies shouldn\u2019t have to be forced to litigate to prove their apportionment when we don\u2019t have an exact headcount because the software tracking doesn\u2019t do that well.\r\n<p><b>0:22:48 Meredith Smith:<\/b> And something we\u2019ve seen generally in audits, that auditors are amenable. Right. When you\u2019re kind of on the hook for proving it\u2019s mostly shipped or billed to. Right. Where\u2019d you send your bill? And that\u2019s where we\u2019re talking. Right. But what we have to be cautious of and what we warn our clients on of all right. Well, if you\u2019re going to use an MPU argument for sourcing out, you also have the contrary of those build tos that are out but could have users in. So it\u2019s like you can\u2019t just use that language to go out.\r\n<p><b>0:23:28 Meredith Smith:<\/b> When do you really want to open up Oracle for. Right. They have an office in Colorado, California. Right. Just kind of picking on them from a company. Let\u2019s say they have users in Massachusetts, but a bill to Colorado, like you just got to be careful. Right. Who are your customers and does the outward. Right potentially or where you didn\u2019t send that bill potentially have a presence in that state that you\u2019re not charging on or you don\u2019t have a certificate for that, you could be kind of brought into your pool.\r\n<p><b>0:24:00 Alex Korsian:<\/b> It\u2019s not a one way street.\r\n<p><b>0:24:01 Richard Jones:<\/b> No.\u00a0That sounds like a compliance or audit nightmare or headache or difficult but not unfair. Right.\r\n<p><b>0:24:11 Meredith Smith:<\/b> Right.\r\n<p><b>0:24:12 Richard Jones:<\/b> It just depends on every state\u2019s law. Right. But what they can\u2019t. So that seems right. But what doesn\u2019t seem right is the department saying to you, I know you want to apportion and I have your apportionment numbers, but for the percentage of apportionment that will go to another state like New York or something, show me you paid tax to New York. No, I don\u2019t have to do that because that\u2019s not part of the law. And New York\u2019s law is going to be different than Massachusetts and every state\u2019s law is different and that\u2019s not part of the equation.\r\n<p><b>0:24:50 Richard Jones:<\/b> So I get your point, Merida. I can see a state saying, well, you do owe tax to the extent you have users here, but the bill to address or the headquarters of the company was somewhere else. But that\u2019s where I draw the line. And I\u2019ve seen that question asked and I don\u2019t see it asked as often now. Maybe they\u2019ve moved past it, that question. Show us if you want a portion, show us you paid tax to the other states for the reasons I said.\r\n<p><b>0:25:20 Richard Jones:<\/b> We don\u2019t know that taxes do in the other states. Maybe it is, maybe it isn\u2019t, but it doesn\u2019t change what the tax is in Massachusetts.\r\n<p><b>0:25:28 Meredith Smith:<\/b> Right.\r\n<p><b>0:25:30 Alex Korsian:<\/b> Again, kind of jumping a little bit to a different tax type and a different scenario, but we see the same question being asked for 86 to 72 public cloud, 86 to 72 issues. Well, or right to apportion issues, kind of using the terminology I said before, prove that you are taxable elsewhere, prove that you paid the tax. And not all states have that statutory requirement.\r\n<p><b>0:25:56 Richard Jones:<\/b> Right. I can see it coming up in a credits question, right? You\u2019re taxing me. But I already paid tax somewhere else. Every state allows a credit. If they want to tax a use of something in the state, but sales tax or use tax been paid elsewhere, then you have to show it. But it shouldn\u2019t affect apportionment questions. By their very nature, apportionment is different than a credit system.\r\n<p><b>0:26:22 Meredith Smith:<\/b> So then, kind of sticking with some kind of sales tax cases, us auto holdings kind of struck down cookie nexus and kind of denied the state the ability to retroactively apply Wayfair. Why was this significant, and what can we expect from mean?\r\n<p><b>0:26:44 Richard Jones:<\/b> It\u2019s a great case. It put, like, the final stake in the heart of this concept of cookienexis. Right. Which is, here\u2019s how Massachusetts has applied it. And this is pre wavefair. Massachusetts said, and it wasn\u2019t able to tax Internet vendors that had no physical presence in Massachusetts, and it put out a regulation. There\u2019s some history to it, but I\u2019ll cut to what they did in 2017. And they said, all you Internet vendors that aren\u2019t present here in Massachusetts, but you have a sufficient amount of sales here, we\u2019re all going to subject you to a sales and use tax collection obligation. You have nexus here. You have nexus here. Why?\r\n<p><b>0:27:26 Richard Jones:<\/b> Just because invariably, you have physical presence here. And you have physical presence here because your customers are using your websites. And when they do or when they download your app, there are cookies. And those cookies from your website are stored on the Massachusetts customer or user\u2019s devices, their computers or their phones. And that\u2019s enough physical presence to satisfy quill. There was another theory, you know, right off the bat, that struck me as, and many as outrageous. And the Department of Revenue didn\u2019t call it cookienexis, but everyone else did.\r\n<p><b>0:28:06 Richard Jones:<\/b> They didn\u2019t love that term. But I think it finally, you know, Wayfair comes out. But then the question in us auto is, pre Wayfair, the cookienexis regulation still made this taxable, and is that permissible or not? And I\u2019m so grateful for this supreme judicial court. We\u2019re happy with the Oracle case I wasn\u2019t involved with, but they just took a reasoned, thoughtful approach, and so did the appellate tax board in that case. That was the trial level four.\r\n<p><b>0:28:39 Richard Jones:<\/b> And finally, declaring that just because you, the Department of Revenue, say that\u2019s physical presence, it isn\u2019t. One of the questions at oral argument from one of the justices is why is it that you say that that constitutes sufficient physical presence to create a taxable nexus with the state. You\u2019re saying it\u2019s the electrons, really? And that kind of question, it wasn\u2019t much of an answer to that. But physical presence means something physical. I mean, I have a lot of problems, obviously.\r\n<p><b>0:29:11 Richard Jones:<\/b> I have cookies, tangible personal property in the state, like your inventory in the state that creates nexus in quail, a handful of floppy disks. That wasn\u2019t enough. But you could at least hold those floppy disks. You could see them, you could feel them, you could weigh them. Internet cookies, you could have a billion of them, and you still can\u2019t see them. You can\u2019t hold them. They don\u2019t weigh anything.\r\n<p><b>0:29:33 Richard Jones:<\/b> They\u2019re not know. It was just important because the concept had been kicking around in Massachusetts and other states. It was important for them to put an end to the idea that that is physical presence under Quill. The court said it\u2019s not. And then the department, Massachusetts also argued that, okay, even if you don\u2019t like this cookie nexus theory and this cooking x\u2019s reg, we have Wayfair and Wayfair. We could apply Wayfair retroactively.\r\n<p><b>0:30:04 Richard Jones:<\/b> And there was some reason to think that in that Wayfair, the Supreme Court said physical. They didn\u2019t just say physical presence. Was it in 2018. They didn\u2019t just say, physical presence isn\u2019t going to be the standard anymore. They said it was never right to be a standard for Nexus. And so people got worried about it being applied retroactively. What happened in this case was, it looks like the Supreme Court denied the ability for anyone to apply Wayfair retroactively. That\u2019s not exactly what happened. What they said is, we really don\u2019t have to get into that.\r\n<p><b>0:30:42 Richard Jones:<\/b> They didn\u2019t say it explicitly, but that\u2019s what they did. They looked at the regulation Massachusetts wanted to apply. Prior to Wayfair, the only authority Massachusetts could use to claim nexus was this regulation. And this regulation was founded. The cookie nexus regulation was based on Quill. It said, we are applying a quill physical presence standard. And because the cookies aren\u2019t physical presence, that\u2019s the end of the story.\r\n<p><b>0:31:13 Richard Jones:<\/b> You, Massachusetts, your statutes, your rules, your laws didn\u2019t permit you to assert Nexus on Wayfair\u2019s principles, even if constitutionally it might have been permissible. So we don\u2019t have to go there. But I think the idea of electrons or Internet cookies being considered physical, it has applications in other areas of state tax, not just nexus, but how to categorize things for sourcing and other principles. You know, another thing, these cookies, the reason under dear watch theory that they would be physical presence in Massachusetts or wherever the customer has his device or computer is because the vendor, the software, the website company owns property located in the state. The cookie that presumes that the Internet vendor owns those cookies and is storing them here.\r\n<p><b>0:32:13 Richard Jones:<\/b> But it doesn\u2019t. If it did, could I delete the cookie? Could I have any control over the cookies around my device? I can\u2019t destroy someone else\u2019s property if it doesn\u2019t belong to me. But it does. It does belong. Those cookies were not property of the website. That didn\u2019t come up. But I could never get past that part of it. Of course, it\u2019s not physical. If it is physical, it\u2019s not substantial enough and it\u2019s not even the property of the website company. So all of those things kind of just offended common sense. And I\u2019m just pleased that the court came down the way they did. And hopefully that\u2019s the end of the concept of cookienexis.\r\n<p><b>0:32:55 Meredith Smith:<\/b> Well, we\u2019ll just take those cookies and kind of apply them now to 86 272 and their nonsense of what\u2019s happening in the kind of expansion of the technology side of 86 272, which is a whole other conversation and a whole other bunch of nonsense, and we can come back in what, a year or two and talk about the cases that are going to evolve out of 86 272 and all of that.\r\n<p><b>0:33:21 Richard Jones:<\/b> Yeah, great example where folks might look to the US audit decision as they think about that issue. But yeah, it\u2019s still a head stretch. At least we have that decision in California. For now.\r\n<p><b>0:33:37 Meredith Smith:<\/b> This podcast is for educational purposes only and is not intended, nor should it be relied upon as legal, tax, accounting or investment meant. 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