This article was originally published on May 7, 2012, in State Tax Notes, as part of Alston & Bird’s regular column “Audit & Beyond.” See 64 State Tax Notes 379 (May 7, 2012).
When people hear or read about U.S. companies engaging in outsourcing transactions, their immediate reaction is negative because they envision those U.S. companies moving jobs overseas, most notably to India. Indeed, in 2004, during his presidential campaign, U.S. Sen. John Kerry, D-Mass., referred to companies that outsource as “Benedict Arnold” companies. Technically, Kerry is concerned about companies that engage in offshoring, but not all outsourcing involves offshoring. However, the public and media often — and incorrectly — use the terms “outsourcing” and “offshoring” interchangeably. Regardless of the effect on U.S. jobs, there can be no debate about the explosive growth in outsourcing, particularly information technology (IT) outsourcing, both offshore and onshore. This growth, coupled with the expansion by states of their sales and use tax bases, particularly in the area of computer and related technology services, has created significant complexity surrounding the sales and use tax consequences of IT outsourcing transactions. As practitioners (whether in law firms, accounting firms, or in-house), we must understand the intricacies of these transactions as well as the multistate sales and use tax issues in order to help our client or company (that is, the outsourcing customer) survive the sales and use tax minefield typically associated with these transactions. This advisory serves as a primer on the sales and use tax questions most often encountered in IT outsourcing transactions from the perspective of the customer (the vendor is generally more familiar with the tax questions because it has engaged in these transactions repeatedly). The first section provides an introduction to outsourcing and explains why we care about sales and use tax questions. The second section examines several of the more common sales and use tax questions that arise from IT outsourcing transactions. Finally, the third section provides some practical guidance, particularly regarding sales and use tax questions in the main outsourcing agreement, typically called the master services agreement (MSA).
June 12, 2012
Advisories
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In its landmark ruling in Leegin Creative Leather Products, Inc. v. PSKS, Inc., the U.S. Supreme Court overturned almost a century of federal antitrust jurisprudence by holding that resale price maintenance agreements are not illegal per se, but are subject to the balancing test of the rule of reason. While Leegin provided clarity at the federal level, approximately five years later, state law remains an evolving patchwork of differing standards. Indeed, two decisions in May by courts in Kansas and New York reached virtually opposite results under their respective laws. The Kansas Supreme Court adopted a strict reading of its antitrust law to find that resale price maintenance agreements are illegal per se, while the appellate division of the New York Supreme Court determined that nothing in its statutory law made such agreements illegal. For companies with distribution channels spanning multiple states, these rulings, discussed in this advisory, highlight the importance of staying attuned to the always-changing landscape of state distribution law to avoid unintended violations that could lead to state enforcement actions or civil litigation.
June 8, 2012
Advisories
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In this case with far-reaching and favorable implications for California employers, the California Court of Appeal for the Second Appellate District upheld an underlying trial court’s decision to compel individual arbitration pursuant to an employment agreement that contains class and representative action waivers. Iskanian v. CLS Transportation Los Angeles, LLC (June 4, 2012) (B235158). Despite the waiver clauses, the plaintiff had sought to bring his claims as an individual, as a putative class representative and in a representative capacity under the California Private Attorney General Act (PAGA). In upholding the decision, the appellate court specifically held that the U.S. Supreme Court’s decision in AT&T Mobility LLC. v. Concepcion (2011) 131 S. Ct 1740 is binding authority with respect to the enforceability of the employment agreement at issue and reiterated the Concepcion holding that “requiring the availability of class wide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.”
June 7, 2012
Advisories
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“Has the Due Process Clause Gotten Its Groove Back?" State Tax Notes, Vol. 64, Number 10, June 4, 2012.
June 4, 2012
Publications
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“Has the Due Process Clause Gotten Its Groove Back?” State Tax Notes, June 4, 2012.
June 4, 2012
Publications
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“New Agency Guidance on Required Contraceptive Coverage under Group Health Plans,” The Self Insurer, June 2012.
June 2012
Publications
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June 1, 2012
Publications
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"Implications of the CFPB's First Annual Report Regarding the Fair Debt Collection Practices Act," The Banking Law Journal, June 2012.
June 2012
Publications
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“The Supreme Court Decision on the Affordable Care Act - The Immediate Implications for Group Health Plans,” ECFC Flex Reporter, June 2012.
June 2012
Publications
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“Practice Tip: Spoliation and the 'Bad Faith' Requirement,” LJN’s Product Liability & Strategy, June 2012.
June 2012
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This advisory discusses the two most recent decisions of the Supreme Court involving federal taxes, which illustrate how a conservative approach to statutory interpretation tends to prevail, but only with great effort, and changing constituencies.
June 1, 2012
Advisories
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“IRS Notice 2012-40 Provides Clarification With Regard to Health Care Reform’s $2,500 Cap for Health FSA Salary Reductions,” ECFC Flex Reporter, June 2012.
June 2012
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“Running an End-Around on Customs – Revisiting the Use of Declaratory Judgment as an Alternative to ITC proceedings,” IPLaw360, June 2012.
June 2012
Publications
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“Constitutional or Not: ACA Crates Turbulent Times for Account-based Plans,” CDHC Solutions, May/June 2012.
May/June 2012
Publications
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During the week of March 26, 2012, the Supreme Court heard an unprecedented three days of oral argument on the question of the constitutionality of the Patient Protection and Affordable Care Act, Public Law 111-148, as amended by the Health Care and Education Reconciliation Act, Public Law 111-152 (the “Affordable Care Act,” or ACA). The Court is expected to issue its decision in June.
Alston & Bird’s April 4, 2012, Health Care Advisory focused on oral argument before the Supreme Court on the primary issues presently being considered by the Supreme Court in the cases. In this advisory, we focus on some of the implications and issues that may arise as a result of the Supreme Court’s ruling and address such implications and issues arising from several potential outcomes of the cases before the Supreme Court.
May 30, 2012
Advisories
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This advisory discusses how the Fifth Circuit has joined the Ninth and Tenth Circuits in holding that simple negligence is the standard of liability for misdemeanor violations of the Clean Water Act (CWA). This lower standard of simple negligence could amount to no more than a plant manager’s switch of the wrong valve. Such a switch, if it causes a discharge of pollutants from a point source into waters of the United States, is subject to criminal prosecution—a fine of up to $25,000 per day of violation and imprisonment up to one year.
May 29, 2012
Advisories
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The Federal Energy Regulatory Commission (FERC) recently issued Order No. 1000-A, an order on rehearing and clarification of its landmark Order No. 1000, which established new requirements for transmission planning and cost allocation. Although FERC rejected all legal challenges to Order No. 1000 and left all of its primary directives in place, Order No. 1000-A clarifies a number of matters. Notably, FERC clarifies that federal rights of first refusal need not be eliminated for transmission upgrades whose costs are allocated entirely to the service territory or footprint of the constructing public utility. FERC also clarified the steps a transmission provider must take when arguing that FERC must first satisfy the burden of proof required by the Mobile-Sierra line of cases before eliminating a federal right of first refusal. This advisory provides information on other important clarifications.
May 25, 2012
Advisories
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