Tax Report Archive 

Since March 2015, the Tax Report is now a part of IPT Insider

Income Tax and Credits & Incentives Report Archive 


February 2015: Stephen Marshall. Solar Power: Shedding Light on the Property Tax Incentives. Synopsis: The use of solar energy by both residents and businesses in the U.S. has increased significantly in recent years. One likely reason is that a majority of states now offer some type of tax incentive, with one of the more recent trends being property tax incentives for solar energy systems.  This article examines the various different approaches to property tax incentives that are being taken by the states and by some local taxing authorities. It also discusses how these incentives are making solar energy a more realistic and affordable option.

January 2015: Matthew P. Shaw, CPA. Availability of the Ohio R&D Credit for Application Against the Commercial Activity Tax. Synopsis: Although Ohio’s R&D tax credit originally applied to the Corporate Franchise Tax, the credit also applies to the currently-applicable Commercial Activity Tax.  This article focuses on the current application of the credit, including the process for computing the amount of the credit and the time and manner in which the credit is claimed.

January 2015: Jennifer A. Zimmerman, Esq. and JoAnna Fu Simek, CPA, MST. State Tax Developments for Pass-Through Entities: Withholding Requirements for Non-Resident Entity Owners. Synopsis: This is the second in a series of articles that will address some of the many challenging state and local tax issues faced by pass-through entities, including tiered groups of such entities.  This article, which focuses on income-tax withholding requirements for non-resident entity owners, discusses the compliance environment once nexus has been established. It offers insights into the challenges of complying with state laws and tips for tax planning.

December 2014: Alison E. Helland, Esq. Transferability of Wisconsin Economic Development Tax Credits Creates New Opportunities for Taxpayers. Synopsis: In a departure from its prior policy regarding credits and incentives, Wisconsin earlier this year enacted an enhancement to its existing Economic Development Tax Credit program that will permit transfers of the credits under certain circumstances.  This article provides an overview of Wisconsin’s Economic Development Tax Credit program, and then analyzes the policy behind and the conditions governing the newly enacted transferability provisions.

November 2014:Jennifer A. Zimmerman, Esq. & JoAnna Fu Simek, CPA. State Tax Developments for Pass-Through Entities: Nexus Over Nonresident Owners. Synopsis: This is the first in a series of articles that will address some of the many challenging state and local tax issues faced by pass-through entities, including tiered groups of such entities. This article, which focuses on income-tax nexus over nonresident owners, discusses the constitutional nexus requirements and how they relate to different types of ownership interests. The article also highlights a number of the theories that states have advanced for asserting nexus over these interests and points out the flaws and weaknesses in these arguments.

November 2014: Karen T. Syrylo, CPA. The Future of Interstate Commerce Taxation:  The United States Supreme Court and the Wynne Case. Synopsis: On November 12th, the U.S. Supreme Court will hear oral argument in the closely-watched case of Maryland Comptroller of the Treasury v. Wynne, in which the Court’s decision potentially could have a significant impact on dormant Commerce Clause analysis in state tax cases. This article summarizes the arguments that have been made by the parties and the Solicitor General, and traces the history of the dispute through the Maryland courts. The article also discusses the estimated fiscal impact to the state and the legislature’s reaction to positions being taken by taxpayers in refund claims and on returns in light of the Maryland Court of Appeals’ holding in favor of the taxpayer. Finally, the author comments on possible effects and remaining unanswered questions depending on how the Court rules.

November 2014: Jeffrey T. Bennett, Esq.; Michael A. Grim, Esq.; Mark A. Loyd, Esq.; Matthew M. Price, Esq. More Flexible Indiana Property Tax Abatements Strengthen Indiana’s Stable of Economic Development Incentives. Synopsis: This article highlights the new flexibility in Indiana Property Tax Abatements, effective July 1, 2015.  It also puts them into context with the other tax-related economic development incentives in Indiana’s economic development toolbox.

October 2014: Carolyn W. Schott, Esq. IPT’s Amicus Brief to the Tennessee Supreme Court Supporting the Application for Permission to Appeal in Vodafone Americas Holdings, Inc. v. Roberts. Synopsis: On September 9, 2014, IPT filed a brief in the Tennessee Supreme Court as amicus curiae in support of the taxpayers’ Application for Permission to Appeal in Vodafone Americas Holdings, Inc. v. Roberts.  In Vodafone, the Tennessee Court of Appeals, in a 2-1 decision, upheld the Revenue Commissioner’s issuance of a variance under Tennessee’s codification of UDITPA Section 18 to require the taxpayer to apportion its income using market-based sourcing in lieu of the statutorily-prescribed cost of performance method. The brief was authored and IPT is represented in the case by Carolyn Schott of Sherrard & Roe, PLC. Reprinted as an article in this issue are the substantive portions of the brief, which argues that the Court should grant review in Vodafone because, if the Court of Appeals decision is allowed to stand, taxpayers will be unable to rely on the Tennessee statutes as written and because any change in the state’s apportionment policy should be made by the state legislature after careful consideration rather than by the tax administrator or the courts.

October 2014:  Minah C. Hall, Esq. & Jennifer Carroll, Esq. Class 7c: The Newest Property Tax Incentive in Cook County. Synopsis: In a rare move, the Cook County, Illinois, government recently added a new, streamlined and less restrictive property tax incentive intended to encourage development and revitalization of properties before blight occurs.  This article discusses the key provisions of the new “Class 7c” incentive and highlights how it differs from and improves upon the existing property tax incentives available in the county.

September 2014: Mark E. Holcomb, Esq. What’s Up with Florida’s Sourcing of Receipts from Services? Synopsis: The cost of performance method of sourcing receipts from services has faced substantial criticism over the past several years on various grounds. Many states have amended their statutes in favor of market-based sourcing, and in some instances tax administrators have invoked their discretionary authority to require market-based sourcing of services on the ground that the cost of performance method does not fairly represent the taxpayer’s business activity in the state. This article discusses how the Florida Department of Revenue has been applying market-based sourcing to services through its flawed interpretation of the state’s cost of performance rule, and it debunks the various theories put forth by the Department as support for its interpretation. The author posits that while a contrary interpretation based on the plain language of the rule should prevail under Florida law, the many private rulings reflecting the Department’s interpretation would nevertheless provide support for taxpayers that desire to apply market-based sourcing to receipts from services.

September 2014: Doug Sigel, Esq. & Olga Goldberg, Esq. Update on Texas Margin Tax: Decisions Affecting the Cost of Goods Sold Deduction. Synopsis: Since the inception of the Texas margin tax in 2008, some of the most controversial issues have involved the application and scope of the cost of goods sold, or “COGS,” deduction.  This article examines two recent trial court decisions that exhibit a more expansive view of the COGS deduction and which appear to represent a more general trend of the lower courts to afford less deference to Comptroller interpretations that go beyond the plain statutory language.  The authors also point out how one of these cases can be seen as further eroding Texas’s “pay-to-play” rule, and they highlight a recent policy announcement providing taxpayer’s with a choice of how to treat flow-through payments to subcontractors.

September 2014: Alice M. Nolen, Esq.Recent Trends in State Film Production Incentives. Synopsis: While the number of states offering some type of film production incentive has increased substantially over the last decade, the last several years have seen some states expand their programs and others curtail them. This article highlights state legislative trends in this highly competitive area of state credits and incentives.  Also discussed are recent developments, specific to film production incentives, in selected states.

August 2014: Evan B. Rice, Esq. New Markets Tax Credits: Program Update & Review of Recent Allocations to CDEs. Synopsis: In a previous article published in the July 2013 issue of the Tax Report, the author described the reauthorization of the NMTC program pursuant to the American Taxpayer Relief Act of 2012 and discussed the essential, normative aspects of NMTC-based financial transactions that make the NMTC program a powerful economic development tool which provides incentives to businesses and developers in order to catalyze investments in low-income communities in circumstances in which those investments might not otherwise occur.  After briefly revisiting some fundamentals and nomenclature of the NMTC program, this companion update article reviews the informational highlights and details from the announcement on June 5, 2014, by the CDFI Fund regarding the most recent allocations of NMTCs to CDEs around the country. These 2014 allocations reveal important, and in some cases changing, programmatic priorities for the CDFI Fund and create new, timely opportunities for tax professionals and their clients.

August 2014: Michael D. Sontag, Esq. & Stephen J. Jasper, Esq. Inching Towards Objective Fairness: Tennessee Changes the Informal Conference Process to Make Challenging Assessments Fairer and Easier for Taxpayers. Synopsis: The Tennessee General Assembly recently enacted legislation that significantly changes the informal conference process applicable to disputed assessments. While not as ambitious as the previously proposed independent tax tribunal, this compromise legislation adds clarity to the deadline for filing litigation and is intended in other ways to improve the fairness and efficiency of the informal dispute resolution process. In this article, the authors discuss the major changes effected by the new law and point out some of its potential shortcomings and some remaining areas of confusion.

August 2014: Ray Langenberg, Esq. Playing Without Paying In Texas. Synopsis: Sadly there are still a number of states in which taxpayers must “pay to play,” i.e., they must pay a disputed tax before they are allowed to contest the application of the tax in court. Although Texas is generally considered to fall into the pay-to-play category, this article examines two recent cases that may provide ways around the rule in certain circumstances. In addition, because of similar “open courts” provisions in other state constitutions, at least one of the remedies may also be available in other states as well.

August 2014: Mark F. Sommer, Esq.; Jennifer Y. Barber, Esq.; Daniel G. Mudd, Esq. Kentucky Court of Appeals Awards Substantial Refunds After Determining Taxpayer’s Removal of Non-Kentucky Subsidiaries from Its Consolidated Returns was Justified Under Applicable Nexus Statute. Synopsis: After much anticipation by the Tax Bar, the Kentucky Court of Appeals decided to kick-off the Fourth of July weekend in grand fashion by determining that Kentucky’s nexus statute prevails over its elective consolidated return statute and awarding AT&T significant refunds resulting from the removal of all of its non-Kentucky subsidiaries from its consolidated return. This article traces the history of the case, discusses the Court of Appeals’ analysis, and highlights how it differs from that of lower court decision it affirmed.

July 2014: Aaron M. Young, Esq. & Gordon Yu, Esq. New York Court Strikes Down Retroactive Tax as Due Process Violation. Synopsis: This article reviews a recent decision by a New York appeals court in which the court struck down the retroactive application of a tax law amendment on the ground that applying it to a transaction occurring four years prior to enactment would constitute a due process violation.  In doing so, the court rejected the assertion of both the taxing authority and the dissent that the amendment was the correction of an error.  The court also held that the taxpayers did not receive a “windfall” by following the law, and it reaffirmed the principle that the need to raise revenue is not a compelling justification as a public purpose for retroactive application.

June 2014: Sarah H. Beard, Esq. Conflicting Schemes for Apportionment of Service Businesses. Synopsis: While a number of states have recently adopted market-based souring for receipts from the sale of services and the Multistate Tax Commission is currently considering such an amendment to the Multistate Tax Compact, there is little, if any, uniformity among the various approaches. Through the use of hypothetical but realistic examples of three different multi-state service businesses operating in the New England states, this article illustrates a number of important points about the effects of inconsistent apportionment schemes, including the substantial risk of a business being taxed on more than 100% of its income.  The examples also highlight the impact of combining market-based sourcing with different apportionment formulas, as well as the importance of fallback rules in the assignment of receipts.

June 2014: David Hickey. European Incentive Aid – New Rules Coming this Summer. Synopsis: The manner in which in incentive aid is provided in European Union countries, and the guidelines governing eligibility for such aid, are significantly different from the state and local credit and incentive programs in the U.S. This article provides a brief overview of how the European Union financial aid program works, and then highlights a number of important new rules that will take effect on July 1st and how these rules will impact businesses contemplating investment in Europe.

May 2014: Stephen J. Blazick, Esq. & Alexandra E. Sampson, Esq. Gore Decided: Unitary Nexus Rejected! Economic Substance Test Clarified? Synopsis: Last year the authors reported on the Maryland Court of Special Appeals’ decision in Comptroller of the Treasury v. Gore Enterprise Holdings, Inc. and Future Value, Inc., which essentially held that nexus to tax could be asserted over on an out-of-state based on the entity’s being part of a unitary business with a presence in Maryland. In this article, the authors discuss the Maryland Court of Appeals’ recent decision on appeal of the case, in which the court clarified that the unitary business principle cannot be used as a basis to assert nexus over an out-of-state entity, but nevertheless held that Maryland had authority to tax the entities at issue on the ground that they lacked economic substance as businesses apart from their Maryland parent.

April 2014: Jeffery L. Morris, CPA, MBT, CMI. California Competes Credit: Gold Rush Redux? Synopsis: Last year, California significantly revamped its business incentive landscape, terminating its enterprise zone credit program and enacting two new programs. This article focuses on the new California Competes Credit program, which is California’s first negotiable tax incentive program and which becomes effective in 2014. Based on the law and the recently issued emergency draft regulations, the article discusses and comments on all aspects of the program, including the somewhat unusual process for evaluating applications.

March 2014: Michael E. Caryl, Esq. and Catherine A. Wilkes Delligatti, Esq. West Virginia's Statutory Nexus Presumption: A Safe Harbor for Financial Service Providers Despite MBNA or Even Physical Presence? Synopsis: One reading of the thresholds in West Virginia’s statutory nexus presumptions for absent financial organizations, particularly in light of the exceptions limiting the measure of those thresholds, is that they actually constitute safe harbors from nexus. Thus, even in the state whose Court gave us expanded economic nexus in MBNA, taxpayers falling below those thresholds may enjoy defenses to findings of either economic nexus or even, in some cases, nexus based on physical presence. This article analyzes the statutory language and discusses the bases supporting this construction of the nexus thresholds.

March 2014: Dan Breen, CPA, Esq. The Grow New Jersey Incentive Program: An Economic Development “Game-Changer” for New Jersey? Synopsis: New Jersey recently revamped its entire incentive system, collapsing five programs into two. This article focuses on the Grow New Jersey Assistance Program, which is designed to attract and retain jobs in New Jersey. In addition to discussing the eligibility requirements, calculation of available credits, and applicable limitations, the author compares this program to comparable incentives available in neighboring states and points out some of the criticisms that have been leveled at the program.

March 2014: Doug Sigel, Esq. and Olga Goldberg, Esq. District Court Rules Texas Taxpayers Cannot Elect to Use Three-Factor MTC Apportionment in lieu of Texas’s Single-Factor Apportionment. Synopsis: In a very closely watched case, a Texas District Court recently held that a taxpayer was not entitled to elect to use the Multistate Tax Compact’s optional three-factor apportionment formula but rather was required to use the single-sales-factor formula prescribed by Texas law for purposes of the state’s franchise, or margin, tax.  Although the court did not provide the reasons for this decision, this article examines the arguments that were advanced by the parties, including as to the threshold issue of whether the Texas tax constitutes an income tax for purposes of the MTC election provision.

February 2014: John F. Fletcher, Esq. Equifax in Mississippi: What Are the Practical Implications for Taxpayers? Synopsis: The recent Equifax decision by the Mississippi Supreme Court has resulted in a great deal of uncertainty for Mississippi taxpayers on a number of levels. This article summarizes the proceedings in Equifax and discusses how the decision will have adverse effects not only in the income tax apportionment area, but other substantive tax areas in which the Department of Revenue has discretionary authority, and in taxpayer appeals generally. The article also previews legislation that was recently introduced in the Mississippi legislature, which if enacted would ameliorate some of the harsh consequences of the Equifax decision.

January 2014: Karen Hensley-Chelstowska and Zachary Krochtengel. Trends in Credits and Incentives Policies and Programs. Synopsis: Global competition by governments to bring business interests and projects into their jurisdictions has led to increased reliance on credits and incentives and has driven governments to target C&I programs for different purposes, such as the goal of increasing foreign direct investment.  In discussing this trend, the authors identify and describe a number of different types of C&I programs that are being employed by both domestic and foreign governments, the objectives they are intended to achieve, and the circumstances under which they are most effective.

December 2013: Mary B. Hevener, Esq.; William H. Gorrod, Esq. Amendments to California Conformity with IRC § 409A. Synopsis: California recently enacted a reduction from 20% to 5% of the rate of additional income taxes imposed upon nonqualified deferred compensation that does not meet the requirements of section 409A of the Internal Revenue Code. Questions remain, however, regarding whether it is appropriate for California to impose this additional income tax in the first instance, and, for tax years prior to 2013, whether the 20% rate should be imposed at the state level. This article examines the issues associated with California’s attempt to incorporate section 409A concepts at the state level, and discusses how the resulting incongruities might be helpful in contesting audits affecting years both before and after enactment of the new legislation.

December 2013: James G. Busby, Jr., Esq., CPA. Summary of Significant 2013 Arizona Tax Legislation. Synopsis: This article highlights and summarizes the major provisions of tax legislation enacted in Arizona in 2013.  Among other things, there were a significant number of changes to the state’s Transaction Privilege Tax, some of which had been recommended by Governor Jan Brewer’s Transaction Privilege Tax Simplification Task Force. The legislation includes a variety of provisions designed to streamline aspects of tax administration and audits by limiting the role of Arizona municipalities in such activities. The legislative changes also include new exemptions and the expansion of some existing exemptions.

December 2013: Michael A. Grim, Esq.; Mark A. Loyd, Esq.; Jordan S. Green, Esq. Alternative Apportionment: When the Exception Becomes the Rule. Synopsis: This article explores a disturbing trend by state taxing authorities to invoke their discretion under provisions based on UDITPA Section 18 in order to require taxpayers to use alternative apportionment methods in situations that are neither unique nor unusual.  Against the constitutional requirement of fair and equitable apportionment, the authors discuss the cases that have established the rules for application of Section 18-type distortion relief provisions and the burden of proof when those provisions are invoked.  The article then highlights recent decisions and rulings that have allowed taxing authorities to use Section 18 provisions in ways that are inconsistent with the well accepted principles.

November 2013: Minah C. Hall, Esq. and Jennifer Carroll, Esq. Best Practices to Monetize your Incentives Package. Synopsis: While the many economic development and other incentives programs available can be extremely lucrative for companies that dedicate the resources to seek out, plan, and negotiate appropriate incentive packages, many companies do not fully realize the anticipated benefits because of weaknesses in their compliance, tracking, and/or monitoring procedures.  This article identifies many of the areas in which these breakdowns often occur and explains how they can be avoided.  The authors also offer a number of practical tips and practices that can be implemented by companies to help maximize the value their incentives efforts.

October 2013: Eric Hagenswold, Esq. Market-based Sourcing in Texas? Synopsis: In recent years, a significant number of states, through either legislation or regulation, have moved away from traditional costs-of-performance sourcing of receipts from sales of services and intangibles toward a market-based sourcing approach. In certain other states, however, taxing authorities have sometimes applied market-based sourcing either by invoking authority for equitable apportionment or through questionable interpretations of existing law and regulations. This article examines a recent decision by the Texas Comptroller that appears to be an example of the latter approach and which may signal intent by the Comptroller to apply market-based sourcing under other circumstances.

September 2013: Gregory A. Nowak, Esq., Michigan Litigation Raises Novel Questions Regarding Availability of MTC Election Synopsis: The Michigan Supreme Court recently announced that it will hear the taxpayer’s appeal in IBM v. Michigan State Department of Treasury, thus becoming the second state supreme court that will consider the Multistate Tax Compact election that allows taxpayers to choose to apportion their income under the standard UDITPA three-factor formula rather than use a state’s statutory formula. This article addresses the issues that will be considered in IBM and highlights important distinctions between this case and the Gillette case currently pending in the California Supreme Court. The article also discusses the issue of whether the Michigan MBT’s modified gross receipts tax base should be characterized as an income tax under the MTC and how the outcome of this issue in IBM could impact similar litigation pending in Texas.

September 2013: Clark R. Calhoun, Esq., A New Approach to Defining a “Reasonable” Alternative Apportionment Method Synopsis: To prove its entitlement to use an alternative apportionment method, the party asserting alternative apportionment must prove that the proposed alternative method is a “reasonable” approximation of the taxpayer’s activities and income in the state. This article explains why a reasonable alternative method should not simply be any apportionment method drawn from the universe of generally-acceptable apportionment methods, but posits that, instead, a proposed alternative method should be accepted as reasonable when the party asserting alternative apportionment is able to tie the proposed alternative method to the basis for deviating from the standard formula.

September 2013Jason Hickey, New Incentives Legislation in California, Missouri and New Jersey Includes Reforms to Attract Much-Needed Investment Synopsis: A number of states have been rethinking their approach to economic development incentives. The result appears to be a trend toward more flexible and user-friendly programs targeting particular businesses, which may be more effective in attracting capital investment. This article examines recent incentives legislation in California, Missouri, and New Jersey that exemplifies this trend.

August 2013: Mark A. Engel, Ohio Enacts Multiple Tax Changes in Budget Bill. Synopsis: On Sunday, June 30, Ohio Governor Kasich signed Amended Substitute House Bill 59, the budget bill for the 2014-2015 biennium.  While a few minor items were deleted from the bill through the exercise of his line item veto, significant tax changes remain in the bill.  This article examines the major tax provisions of this legislation, which touch virtually all of Ohio’s taxes.  The article also points out issues that remain to be addressed and comments on how the legislative changes affect Ohio tax policy.

August 2013: Arthur R. Rosen, Esq., Lindsay M. LaCava, Esq.,Determining Investment Capital in New York: ALJ Holds Taxpayer’s Motives for Acquiring and Its Use of Stock Is Irrelevant. Synopsis: New York maintains a tradition of encouraging corporations to locate their corporate headquarters in the state, and one of the ways in which it does so is by providing favorable tax treatment to certain investment income and capital.  Notwithstanding this clear legislative tax policy, there has been a recent attempt by the New York State Department of Taxation and Finance to narrow the scope of what constitutes investment capital and to classify the income as business income.  This article focuses on a recent decision by the New York Division of Tax Appeals, which rejected the Department’s argument that the taxpayer’s motive for acquiring and reason for holding stock in another corporation were relevant in determining whether the stock constituted investment capital.  The authors conclude that the rationale of this decision, which focuses on the nature of the capital at issue, should encourage other taxpayers to challenge audit determinations based on motive, intent, or how a capital interest is used.

July 2013: Evan B. Rice, Esq. New Markets Tax Credits: Program Update and Review of Fundamentals. Synopsis: In early 2013, Congress passed and the President signed the American Taxpayer Relief Act of 2012, which among other things reauthorized the federal New Markets Tax Credit (“NMTC”) program for two additional programmatic years and authorized an additional Seven Billion Dollars in NMTCs.  First enacted in 2000, the NMTC  program is a powerful economic development tool designed to provide incentives that catalyze investments in low-income communities.  This article examines the financial structures that have evolved to implement NMTCs, which are complex and impose limitations during the seven-year compliance period.  The article also discusses new trends in the NMTC environment that provide a backdrop for the effective use of the NMTC program by a wide array of developers and corporations, particularly in the context of real estate, development, or business expansion projects requiring additional equity to be feasible.  Finally, the article highlights some of the new programmatic objectives that will be implemented by the Treasury Department’s Community Development Financial Institutions Fund in connection with the recently authorized NMTCs.

May 2013: James P. Kratochvill, Esq. Washington Just Says “NO” to B&O Tax Surcharge. Synopsis: Whether vendors have the right to recover their cost of Washington’s Business & Occupation Tax from their customers through a separately itemized surcharge has been the subject of extensive litigation in both state and federal courts over the past few years.  Most recently, in a decision based largely on the Washington Supreme Court’s reassessment of its own prior decision, the U.S. Ninth Circuit Court of Appeals held that a telecommunications provider had violated Washington law by including on customer bills a surcharge to recover its cost of the tax.  This article traces the history of these cases and discusses why the state supreme court’s latest pronouncement was not only unexpected in light of its prior decision but incorrect from a policy standpoint.  The author also comments on how these decisions may impact taxpayers in other states subject to gross receipts taxes.

May 2013: Stephen J. Blazick, Esq. and Alexandra E. Sampson, Esq. W.L. Gore’s Impact on Pending Maryland Cases and Audits. Synopsis: This article covers the Maryland Court of Special Appeals’ decision in Comptroller of the Treasury v. Gore Enterprise Holdings, Inc. and Future Value, Inc., which held that patent royalties and interest income claimed as expenses in Maryland and paid to wholly-owned out-of-state subsidiaries are taxable as part of a unitary business.  The authors discuss the conflation of tax principles underlying the court’s decision and the potential impact on pending Maryland Tax Court cases and Comptroller audits.

May 2013: Jason Hickey. Incentive Legislation Outlook. Synopsis: This article provides a national recap of the state legislative activities related to business incentives and economic development.  Understanding the competitive economic climate, legislatures across the country continue to propose new legislation in order to compete in today’s tenuous economic environment.  With many states considering economic development legislation, this article summarizes pending legislation being considered at the beginning of 2013.

April 2013: Matthew K. Ormiston, Esq. and Doug Sigel, Esq. The Ever-Evolving Cost of Goods Sold Deduction in Texas. Synopsis: The changing face of the Texas economy has bred new and creative theories regarding the types of costs that can be included in a taxpayer’s cost of goods sold deduction for purposes of the Texas Franchise Tax. This article summarizes the arguments from some of the key cases currently on file, or set for trial or appeal.

April 2013: Mark E. Holcomb, Esq. Due Process Nexus Arguments Supported by Recent Florida Personal Jurisdiction Case. Synopsis: This article examines the role that due process principles traditionally used to determine whether a court has personal jurisdiction over a non-resident defendant can play in defining the limitations imposed by the due process clause in the state and local tax context. Using a recent Florida appellate decision as an example, the article demonstrates how non-tax cases holding that defendants lack the requisite “minimum contacts” to justify the exercise of a court’s personal jurisdiction can be used by a taxpayer to support a position that it does not have sufficient nexus under the due process clause to be subject to a state’s income tax or other business activity tax.

April 2013: Victoria Horton. Economic Development Incentive Packages: The Art of Implementation. Synopsis: In the area of economic development incentives, most of the emphasis is often placed on the technical details of the incentives and the negotiation of incentive packages. This article highlights the implementation process by identifying a number of key areas to be considered.  The article also explains the importance of continued flexibility in order to realize the maximum anticipated value of a negotiated incentive package.

March 2013: Jennifer A. Zimmerman, Esq. Illinois Amnesty - Is it Better to Be Safe Than Sorry? Synopsis: Although taxpayers participating in the Illinois amnesty program generally forego the right to claim tax refunds, the Department of Revenue’s Emergency Rules contain limited exceptions for taxpayers whose Illinois taxes are reduced as the result of a federal income tax audit. The Amnesty Act also provides that eligible participants who do not participate in the amnesty program will be subject to interest at 200% of the statutory rate. This article examines the effects of federal income tax examination changes on these aspects of the Illinois amnesty program by tracing the cases of three taxpayers under similar but not identical circumstances. Although the last word has not yet been spoken, these decisions suggest that taxpayers who played it safe may have a slight advantage over those who did not.

March 2013: Alice Nolen, Esq. Recent Trends in Renewable Energy Legislation. Synopsis: This article addresses the impact of the recent fiscal cliff federal legislation, signed into law in January 2013, specifically as it extends and enhances federal incentives for renewable energy. Also discussed are recent legislative trends, specific to renewable energy, in selected states.

February 2013Keith G. Landry, Esq. Microsoft Corp. v. Franchise Tax Board – The California Court of Appeal Holds that the Right to Copy Software is Intangible Property for Sales Factor Sourcing Purposes. Synopsis: This article analyzes the recent taxpayer victory in Microsoft Corp. v. Franchise Tax Board, in which the California Court of Appeal held that the right to reproduce software is an intangible property right for sales factor sourcing purposes.  The case is somewhat unusual for a state income tax case in that the court’s determination that the receipts were from sales of other than tangible personal property was based largely on sales tax principles. In discussing the various authorities considered by the court, the article also highlights the distinction between licenses of the right to use and licenses of only the right to reproduce intellectual property.

February 2013: Dan Breen, CPA, Esq. Pennsylvania Enacts Promoting Employment across Pennsylvania (PEP!) Program. Synopsis: The newly-enacted Promoting Employment across Pennsylvania (PEP!) program is a performance-based, quantifiable and realizable incentive intended to encourage employers to create high-paying, sustainable jobs inside Pennsylvania. Employers that qualify for the incentive will be able to keep a percentage of the state personal income tax withholding that they would otherwise have to remit to the state on behalf of their workers.

January 2013: Michael Locascio; Marcus Panasewicz; Jennifer S. Cohen, Esq. Reaping the Benefit: Overcoming the Burden of Tax Credit and Incentive Compliance and Administration. Synopsis: This article explores the effect of the inherent complexity in the tax credit and incentive compliance and administration process on the overall use of these programs by taxpayers. It is argued that this complexity substantially reduces the utilization and effect of tax credit and incentive programs, reducing their potential private and public value. The use of tailored technology solutions and appropriately trained personnel are recommended as potential solutions.

January 2013: Cass D. Vickers. It Depends Upon What the Meaning of the Word “In” Is. Panhandle Eastern Pipeline Co. v. Hamer. Synopsis: This article considers the taxpayer’s unsuccessful appellate argument that revenue miles are not “in” the state for apportionment purposes when neither the point of origin nor of termination is inside the state’s borders.  The court is dismissive about the enactment of legislation in post-audit years specifically including such flow-through miles in the numerator of the apportionment fraction.

November/December 2012: Cass D. Vickers, CMI, Esq. Mississippi Justice—Payment of Disputed Tax Does Not Satisfy Jurisdictional Requirement for Bond. Synopsis: This article discusses a decision of the Mississippi Supreme Court which illustrates the risks of failing to comply strictly with bond requirements which are jurisdictional prerequisites to the filing of actions challenging assessments, even when the tax agency does not object to a payment tendered “under protest.”

November/December 2012: Cass D. Vickers, CMI, Esq. The Confounding Nature of Electricity. Synopsis: An Oregon court concludes that the sale of electricity is to be sourced, for income tax apportionment purposes, as the sale of a service, on a cost of performance basis, and not as the sale of tangible personal property. The case is another in a line of decisions turning upon the court’s view as to the nature of electricity.

November/December 2012: Allea Newbold, CPA.  The Florida Incentive Program for Redevelopment of Brownfields. Synopsis: Florida has powerful incentive programs for the redevelopment of Brownfield areas. Brownfield areas are generally abandoned or underused industrial or commercial sites that are often contaminated or have the perception of contamination which makes its redevelopment a challenge.  Brownfield areas are often more costly to rehabilitate, in the form of additional environmental testing costs and potential remediation of the property. This article will address the incentives for the job creation in Brownfield areas and sites.

October 2012: Michael R. Press. “Mine” Your Own Business: Discover the Treasure of Discretionary Government Incentives. Synopsis: In the article entitled, “Mine Your Own Business: Discover the Treasure of Discretionary Government Incentives”, author, Mike Press describes the critical steps in maximizing the ROI from Government-sponsored Incentives that are offered as inducements to Capital Investment Projects. As companies prepare their Capital Budget for 2013, they are presented with an excellent opportunity to boost ROI by maximizing state and local incentives.  Based on decades of experience assisting Fortune 500 companies in securing such incentives, the author has found that there are three critical steps to success in maximizing capital-related discretionary business incentives. They are: 1) Gathering Relevant Data From Across the Business Units 2) Re-defining Projects to Fit the Government’s Definitions, and 3) Creating and Maintaining a Competitive Environment. All three steps must be executed during the planning process. So for those who intend to maximize incentives related to their 2013 capital plans, there is no time to lose.

October 2012: Mike Shaikh, Esq. Gillette Reinstated.  If Compact is Elected, LCUP Penalty Should Not Apply.Synopsis: This article discusses the appeals court decision upholding the right of  taxpayers to elect equally weighted 3-factor apportionment under the Multistate Compact, as against the double-weighted sales factor formula or sales-factor only apportionment. The implications, including composition of the sales factor and sourcing of receipts from services and intangibles, is discussed as are refund opportunities.

September 2012: Gregg D. Barton, Esq. The Liquidation Exception to the Functional Test of Business Income – Which Way Will Oregon’s Supreme Court Go? Synopsis: The author reports on two business/nonbusiness income cases to be argued before the Oregon Supreme Court this month. One is an asset sale and the other a Section 338(h)(10) deemed asset sale, one a complete and the other a partial liquidation. They raise the question whether the disposition of property used in the taxpayer’s business in a liquidation scenario is excepted from the functional test of business income.  The Tax Court applied pre-UDITPA law to conclude that the gains were subject to apportionment. It further concluded that even if UDITPA provisions governed, no liquidation exception would obtain. The Oregon Supreme Court will thus have an opportunity to indicate whether such a liquidation exception is to be read into the state’s laws and regulations.

August 2012: Joseph A. Vinatieri, Esq. Gillette: FTB Experiences Razor Burn As California Court of Appeal Approves Taxpayers’ Compact Elections. Synopsis: This article reports a recent decision, Gillette v. FTB, by the First District Court of Appeal in California upholding the taxpayer’s right to elect standard three-factor apportionment under the Multistate Tax Compact, to which California was then a party, as against a later statutory formula that double-weighted the sales factor. While the litigation was pending, the Governor and legislature took the steps to withdraw California from the Compact, in hopes of minimizing the revenue costs of a taxpayer victory—though the lawfulness of that measure may be challenged. The issue is ripe in a number of other Compact states which have since adopted apportionment formulas that depart from the Compact three-factor formula. An appeal of the Gillette ruling to the California Supreme Court is expected.

August 2012: Michael M. Giovannini, Esq. Giving Credit Where Due – An Analysis of Georgia’s Revised Research and Development Credit Provisions. Synopsis: Effective January 1, 2012, H.B. 868 allows a Georgia taxpayer to offset excess income tax credits for research and development expenses against its withholding tax liability. The question has arisen whether credits earned and carried forward from tax years prior to the 2012 amendment may be used to offset withholding in 2012 and beyond.  We believe that the best interpretation of H.B. 868 is that a taxpayer can use such credits to offset withholding.

July 2012: Michael E. Caryl, Esq. and Floyd M. “Kin” Sayre, III, Esq. Griffith v. ConAgra Brands: Due Process Line Found in the Shifting Sands of Economic Nexus. Synopsis: With its 2006 ruling in MBNA, the West Virginia Supreme Court added momentum to the trend of state court decisions holding that substantial economic presence was sufficient, under the Commerce Clause, to impose state income tax on physically-absent taxpayers. Now, in a case involving significantly different facts, that court has ruled that, without more, the mere fact, that a physically-absent intangible holding company realized indirect economic benefits from the in-state business activities of others, failed to satisfy even the minimum contacts/purposeful availment test under the Due Process Clause. Thus, there may be a point on the slippery slope of economic nexus below which taxation is constitutionally prohibited.

June 2012: Stephen P. Kranz, Esq. and Diann L. Smith, Esq. Transfer Pricing Methodology Invalidated by  D.C ALJ. Synopsis: Practitioners Steve Kranz and Diann Smith comment on the continued use of Chainbridge’s transfer pricing audit methodology, making practical suggestions on how taxpayers should respond to assessments based on a method that has now been invalidated by a court of first impression.  

June 2012: Paul Naumoff, Esq.; Dominick Brook, Esq. and Jessica Verhotz, Esq. Tax’s Role in Sustainability: Reducing the Cost of Going Green. Synopsis: Environmental sustainability is of growing importance to companies. Identifying relevant tax opportunities and issues, including incentives, credits, grants, and subsidies can help an organization fund its environmental sustainability initiatives and enhance its bottom line. Tax directors must work hand in hand with chief sustainability officers and other responsible for sustainability initiatives to understand the potential impacts at all levels of the organization.

May 2012: Margaret C. Wilson, CMI, Esq. The Beast of Burden (of Proof) for Discretionary Adjustments: Contrasting CarMax and Rent-A-Center. Synopsis: Even though most states imbue tax assessments with a presumption of validity, there are some circumstances when the burden of proof should be imposed on the taxing agency – and not the taxpayer.

May 2012: Gregory C. Burkart, Esq. and George H. Pretty, II, Esq.“Business Incentive Advisors & Site Selectors as Accidental Lobbyists: A Case for Monitoring Your Status”. Synopsis: In recent years some states started regulating an increasingly larger scope of interactions with the public sector, including the executive branch.  Concurrently, the scope of economic development deals has broadened. Could the professional activities of site selectors and incentive advisors be covered by the expanded lobbyist registration, reporting and activity restrictions? This article makes a case for professionals to monitor closely their status through the life cycle of a project.

May 2012: Lynn A. Gandhi, Esq., CPA. Michigan’s New Incentives – the Michigan Community Revitalization Program and Michigan Business Development Program. Synopsis: The landscape for Michigan incentives changed dramatically with the change to the Corporate Income Tax. Tax credits are no longer used to provide incentive assistance, instead, the new state programs offer a combination of grants, loans and financing to provide direct assistance for projects.

April 2012: Marilyn A. Wethekam, Esq. and Jennifer Zimmerman, Esq. Rare Taxpayer Victory in Illinois Amnesty Interest Case. Synopsis: This article describes an Illinois Appeals Court decision rejecting the Department’s attempt to apply the 200% amnesty penalty to amounts paid in connection with a federal audit adjustment after the amnesty period closed. The opinion concluded that such amounts did not fall within the Amnesty Act mandate to pay “all taxes due” because the liability was unknown at the time. A dissenting opinion contended that the phrase includes all taxes due as of the date fixed for filing the original return. That opinion would have dismissed Due Process objections to such a reading on the basis that the Amnesty Act permitted payment of estimated taxes and made provision for recovering any overpayment made in paying during the amnesty period on an estimated basis.

April 2012: Erica L. Horn, Esq., CPA. Kentucky’s Blue Ribbon Commission on Tax Reform Completes First Meeting. Synopsis: Kentucky’s Blue Ribbon Commission on Tax Reform has been holding hearings slated to conclude with a report and recommendations on Kentucky‘s tax structure by November 15, 2012. An economist at the first hearing characterized all provisions foregoing or limiting the reach of the state’s tax statutes as “tax expenditures,” thus lumping together exclusions, exemptions, deductions, credits, deferrals and preferential rates, among other measures. Under that view, tax expenditures substantially exceed tax receipts, implying ample opportunities for substantial, additional taxation. The economist further advised that gross receipts taxation of businesses would be preferable to taxation of corporate net profits.

March 2012: Cass D. Vickers, CMI, Esq. Estoppel, Statutory Interpretation, and Agency Deference Kansas Income Tax Credits Denied. Synopsis: The article examines an unpublished decision of the Court of Appeals of Kansas denying a business and jobs income tax credit to Ashland for machinery and equipment used in highway construction. At issue were estoppel, statutory interpretation and Due Process and Equal Protection claims. The most significant part of the decision is that dealing with the question of agency deference. The opinion builds on a recent line of authority to conclude that no judicial deference is to be given the tax agency’s interpretation of the statutes it administers. The Kansas rule is a welcome and sensible development which it is hoped other state courts will embrace.

March 2012: Betty McIntosh and Elisabeth Kulinski. Georgia’s Economic Development Initiatives (1994 to Present). Synopsis: This article will look at Georgia’s portfolio of business development incentives, enacted under the Business Expansion Support Act (or “BEST”) in 1994 and successively updated in 1998, 2001, and 2008-2009.  The article will also investigate the changes and updates proposed by a new piece of legislation currently in the Georgia General Assembly.

February 2012: Bruce P. Ely, Esq. and James E. Long, Jr., Esq. Alabama Corporate Taxpayers and CPAs Beware: House Bill Targets Unitary Combined Reporting, the Section 199 Deduction and Bonus Depreciation. Synopsis: Alabama corporate taxpayers beware - mandatory unitary combined reporting has been re-introduced in the 2012 regular session. The bill adopts the MTC’s definition of a unitary business, but leaves the majority of the return requirements up to the Department of Revenue.  In addition, the bill would also limit the Domestic Production Activities Deduction under IRC Section 199 to 3% and would limit any bonus depreciation deductions to 50% - retroactively, for all tax years beginning on or after January 1, 2012.

February 2012: Michelle E. DeLappe, Esq. and Norman J. Bruns, Esq. Washington Supreme Court Dodges the Question of Retroactively Applied Taxes…for Now. Synopsis: The authors describe a recent Washington Supreme Court decision denying a taxpayer a B&O manufacturing tax deduction based on the plain meaning of the statute—after the lower appellate court found that the statute’s plain meaning made the deduction available. The court pointedly avoided the lower court’s ruling that a retroactive amendment adopting the Department of Revenue’s position violated Due Process constraints. That leaves the favorable retroactivity jurisprudence in place, just in time for the court to be confronted with another case in which the state legislature has attempted to retroactively reverse, with 27-year backward-looking effect, a state supreme court ruling in another B&O tax matter. Synopsis: In an increasingly digital world, particularly with the advent of cloud computing, data management has become a hot topic for businesses with data intensive operations.  Tax incentives can play a key role in differentiating potential facility locations for data centers, and many states have established sales tax incentives specific to data centers.

February 2012: Christine Bustamante and Tony Boetto. Credits and Incentives Trends: More States Target Data Center Investments with Specific Sales Tax Programs. Synopsis: In an increasingly digital world, particularly with the advent of cloud computing, data management has become a hot topic for businesses with data intensive operations.  Tax incentives can play a key role in differentiating potential facility locations for data centers, and many states have established sales tax incentives specific to data centers.

January 2012: Ali Master, CPA. Tax Credits and Incentives Rise in Importance during the Slow Economic Recovery Key Findings from Ernst & Young’s 2011 Credits & Incentives (“C&I”) Survey. Synopsis: A recent survey conducted by Ernst & Young LLP of more than 600 U.S. corporate tax and finance executives shows that the use of tax and non-tax incentives is on the rise. The survey, which is the focus of the article, summarizes the key findings and provides valuable benchmarking data and insights around the use of incentives by companies as well as key trends and barriers.

December 2011: W. Robert Lay. So You are Familiar with Tradable Tax Credits; Now Learn More about the Most Common Credits and the Jurisdictions in which Credits are Available to Corporate Taxpayers. Synopsis: The article offers details on some transferable state (and federal) tax credits more commonly traded.  They include film, digital media, energy, new markets, low income housing and historic rehabilitation credits, among others. Specifics are catalogued, including whether the credit is single- or multi-year, whether it may be disproportionately allocated, what taxes it may be used against, length of compliance period and any applicable recapture provisions.

December 2011: Doug Sigel, Esq. Update on Constitutional Litigation Regarding the Texas Margin Tax. Synopsis: The Texas Supreme Court, in a much anticipated opinion, ruled on November 28, 2011 in Allcat Claims Services L.P. v Combs that the Texas margin tax does not violate the Bullock Amendment to the Texas Constitution requiring prior voter approval of any “tax on the net incomes of natural persons.”  This article discusses the Court’s reasoning in its opinion as well as the opinion’s implications for future legislative amendment of the Texas margin tax.  The article also contains a discussion of the separate challenge to the margin tax pending before the Texas Supreme Court in In Re Nestle USA, Inc. v. Combs on other constitutional grounds not addressed by the Court in Allcat.

November 2011: Richard Weiss. An Overview of Investment Tax Credits. Synopsis: Investment Tax Credits have been offered as an incentive for companies to invest in equipment and plants for almost 50 years. The state credits are quite diverse with regard to what property qualifies, how credits are calculated and claimed, which industries are eligible, when a taxpayer can use the credit if it does not have a tax liability, and other aspects of the credits. Keeping track of all of these factors to be able to take advantage of these investment credit programs is a significant challenge.

November 2011: William M. Backstrom, Jr., Esq. and Kathryn S. Friel, Esq. Foreign Corporations win the “Sprint;” Prepare for the Marathon in Louisiana Franchise Tax Dispute. Synopsis: The authors, who represented the taxpayer in the case reported, describe a Louisiana appellate court decision holding that mere ownership of an interest in a limited partnership does not subject that partner to the Louisiana Corporate Franchise Tax.  While the statute taxes corporations that own or use their capital in the state in a corporate capacity, the court noted that the corporations in question contributed capital to the partnership and that it was the partnership that owed and used that capital in Louisiana.  Consideration of the constitutional nexus questions was unnecessary, but the court indicated that several cases cited were not on point, one because it involved a corporation which used its own property in the state.

October 2011: Lynn A. Gandhi, Esq., CPA. Changes to Michigan Incentives – Out with the Old, in with the New. Synopsis: This article summarizes issues associated with credits and incentives being used under the Michigan Business Tax, being replaced by the new Corporate Income Tax, and the alternative calculations that must be made to determine whether to remain on the MBT.  It also describes proposed legislation that would put a new incentives regime in place.

October 2011: Michael L. Bernier. Considerations when Buying and Selling State Tax Credits. Synopsis: The number of state tax credits has risen dramatically over the past couple of years. While the growing number of credits introduces a number of tax planning opportunities including monetizing the tax credits, these opportunities also come with a number of tax and business issues that need to be considered. The article is designed to introduce the reader to some of the major business and tax concerns that arise when looking at transactions that involve state tax credits.

October 2011: Kimberley M. Reeder, Esq. and William H. Gorrod, Esq. Making Waves on the Left Coast: California’s Ever-Changing Sales Factor Rules. Synopsis: Over the course of the last three years, the California Legislature enacted a single sales factor election with market-based sourcing and a reversion to the Finnigan rule effective for tax years beginning on or after January 1, 2011.  The Franchise Tax Board currently is in the process of promulgating regulations applicable to certain of these amendments.  This article explores the details regarding the election to use single sales factor apportionment, the proposed cascading approach to market-based sourcing, and the statutory requirement for sourcing based on the Finnigan rule.

September 2011: Cass D. Vickers, CMI, Esq. The Throw-Out Rule Gets Sliced. Whirlpool Properties, Inc. v. Director, Division of Taxation. Synopsis: The New Jersey Supreme Court interprets the throw-out statute as permitting only the exclusion from the denominator of the sales fraction of those receipts assigned to jurisdictions which lack jurisdiction, under the U.S. Constitution or P.L. 86-272, to tax the taxpayer. Under its own economic nexus reading of the Constitution, taxpayers are “subject to tax” in every jurisdiction where they have customers or avail themselves of the market, so few sales would be thrown-out under this reading of the statute. Taxpayers should consider refunds for periods during which the throw-out rule was in effect.

September 2011: Mike Grella. Credits and Incentives: Timing is Everything… Some of the Time. Synopsis: Timing is frequently cited as a critical success factor in negotiating, claiming, and maintaining tax credits and incentives. This article will explore the various timing issues that can potentially impact the eligibility and value of tax credits and incentives, including shortened statutes of limitations for credits, opportunities to obtain retroactive “preapproval” for certain credits and incentives, the importance of filing tax credit and incentive applications on a timely basis, and advanced notice requirements that can convert nonrefundable tax credits into refundable tax credits.

August 2011: Michael E. Caryl, Esq. No Customers?  No Nexus?  No Problem? Synopsis: In the case of Griffith, etc. v. ConAgra Brands, Inc., the West Virginia Supreme Court of Appeals will consider whether a physically-absent intangible holding company (IHC), licensing trademarks and trade names to both related and unrelated national consumer product manufacturers, none of which had retail customers or facilities in West Virginia, may still be subject to income and franchise tax there.  The following article will discuss how, in seeking the reversal of a lower court ruling that the IHC was not taxable in the state, the West Virginia Department of Revenue has asserted that the IHC had substantial economic nexus with the state because its royalty income was measured by its licensees’ sales of products, bearing those trademarks and trade names, to their customers which, in turn, sold some of those products in West Virginia.

August 2011: Kendall L. Houghton, Esq. and Maryann H. Luongo, Esq. Outsourcing the Department’s Discretionary Authority to Make Transfer Pricing Adjustments: Arbitrary and Capricious. Synopsis: States have recently started to use third party contract auditors to conduct transfer pricing audits of taxpayers.  Such audits have resulted in large assessments made pursuant to the states’ “discretionary authority” (i.e., the right to adjust taxpayer’s income and other tax calculations to come up with a “fair” tax liability). This article discusses the use of third party contract auditors in the transfer pricing arena as well as some of the issues that arise during such audits.

July 2011: Doug Sigel, Esq. Recent Texas Supreme Court Case Involving Apportionment of Geophysical and Seismic Data. Synopsis: The Texas Supreme Court recently ruled in TGS-NOPEC Geophysical Combs that gross receipts from the licensing of seismic and geophysical data are receipts from the sale of an intangible asset and are sourced to the domicile of the payor and not to the place where the data was used. This article discusses the Court’s reasoning in the case as well as its implications for future cases involving similar issues.

June 2011: Cass D. Vickers, CMI, Esq. Synopsis: The article reviews some recent developments, including a Pennsylvania “business income” decision, the spreading use of contingent fee transfer pricing audits, the replacement of the Michigan Business Tax with a 6% corporate income tax, and a Tennessee decision treating motion picture films delivered on reels as tangible personal property for minimum franchise tax purposes.

May 2011: Cass D. Vickers, CMI, Esq.  Another Unsquare Corner - GMAC v. Director, Division of Taxation. Synopsis: The author critiques a New Jersey Supreme Court decision finding the New Jersey offset statute inapplicable and denying the taxpayer equitable recoupment.  In the midst of reporting a RAR adjustment to the state, resulting in additional CBT liability, the taxpayer discovered that it had mistakenly included certain dividends in its income for the year 2000. A refund claim was barred by the statute of limitations. The taxpayer filed an amended return offsetting the overpayment against the RAR-related deficiency. The court sustained an assessment for the RAR amount, refusing to allow credit for the overpayment. The court found the statute inapplicable (omitting reference to operative statutory language in doing so) and denied that equitable recoupment was available since the two items did not arise from a single transaction.

April 2011: Cass D. Vickers, CMI, Esq. IPT Files Amicus Curiae Brief Attacking Non-Rule Adoption of Market Sourcing in Mississippi. Synopsis: This article summarizes, and includes excerpts from, the amicus curiae brief filed on behalf of IPT in an appeal by Equifax, Inc. to the Mississippi Supreme Court.  The argument supported by IPT is that the adoption of market-based sourcing for apportioning the multistate income of out-of-state services providers should have been formally adopted as a “rule” pursuant to the state’s Administrative Procedures Act, and applied prospectively.

March 2011: Cass D. Vickers, CMI, Esq. Sundry Goings On From Here and There. Synopsis: This article briefly describes sundry state corporate income tax developments from a number of jurisdictions. Included are consideration of revenue-raising issues associated with the definition of “cost of goods sold” for Texas margin tax purposes, a notice from the California FTB declaring certain transactions with partnerships to be deemed abusive, invalidation of North Carolina penalties imposed in connection with forced combination, apportionment formula and nexus standard changes in New Jersey, tax rate changes in Illinois, and the expansion of market-based “other business receipts” sourcing in New York.

February 2011: Cass D. Vickers, CMI, Esq. Iowa Joins States Asserting Economic Nexus - KFC Corp. v. Iowa Department of Revenue. Synopsis: The Iowa Supreme Court has held that the Quill physical presence test is applicable only to sales and use taxation and that the use of tradenames, trademarks and other intangibles by franchisees in the state subjects the franchisor to corporate income taxation on the fees paid for the use of such intellectual properties.  The decision adds to a growing list of state judicial decisions rejecting the physical presence defense under the Commerce Clause for state income tax purposes, and does so in a factual setting not presented before. It effectively asserts economic nexus based purely on the receipt of income from an unrelated party in the taxing jurisdiction with which the taxpayer has contracted.

January 2011: Cass D. Vickers, CMI, Esq. Recap of Late 2010 Developments. Synopsis: This article recaps some of the developments from the last quarter of 2010, including the Asworth petition (does passive ownership of an interest in a partnership create income tax nexus?), Due Process and retroactive tax measures, General Mills (inclusion of hedging receipts in sales factor– distortion/alternative apportionment), economic substance litigation, and the constitutionality of throwout rules.

December 2010: Giles Sutton, Esq., Frank Schaefer, CPA, Art Burkard, CMI, Esq., Jamie C. Yesnowitz, Esq., and Chuck Jones, Esq., CPA. Connecticut Codifies Economic Nexus Standard and Issues Explanatory Guidance. Synopsis: In this article, the authors review guidance from the Connecticut Department of Revenue Services interpreting recently-enacted economic nexus standards applicable to the state’s income taxes. The guidance provides numerous examples of activities and investments that do, or do not, cause an entity to be subject to Connecticut tax.

November 2010: Robert S. Goldman, Esq. Market Sourcing for Intangibles and Services: Recent Developments at the Multistate Tax Commission and in the State of California. Synopsis: This article summarizes recent developments in California and at the Multistate Tax Commission with regard to the sourcing of receipts from services and intangibles in the sales factor. The procedural posture of measures enacted in California and under consideration at the MTC is described, and their texts are compared and contrasted. Their common dependence on abstractions and subjectivity is highlighted, along with the fact that recent drafting efforts to provide guidance as to their application do not eliminate these characteristics and are therefore of limited utility.

October 2010: Mark A. Loyd, Esq., CPA. Unitary—The Lazarus Principle in Kentucky. Synopsis: Unitary cases continue to be issued out of Kentucky even though the General Assembly legislatively banned the use of the unitary business concept over 15 years ago. Publishers Printing Co. and Subsidiaries v. Finance and Administration Cabinet, Order No. K-20589 (KBTA Jan. 20, 2010), appeal filed, No. 10-CI-260 (Franklin Cir. Ct. Feb. 17, 2010) is the most recent decision on this topic rendered by the Kentucky Board of Tax Appeals.  In Publishers Printing, a group of companies in the publishing business were held to not constitute a unitary group.

September 2010: Leah Robinson, Esq. and Margaret Wilson, CMI, Esq. The Shifting Landscape of the Work Product Doctrine. Synopsis: This article analyzes developments concerning work product doctrine protection for tax accrual work papers since Textron.  It considers the differing tests the courts have used in deciding whether the doctrine is applicable and makes recommendations for protecting papers prepared pursuant to the requirements of FIN 48.

August 2010: John M. Allan, Esq. and Gerald Chen. Potential State Tax Implications of IRS Announcement 2010-9. Synopsis: This article highlights some state tax implications of the recent IRS announcement requiring disclosure, on a schedule accompanying the Form 1120, of uncertain tax positions for which the taxpayer has set up a reserve.  

August 2010: David J. Shipley, Esq. New Jersey Appellate Division Finds New Jersey’s Throwout Rule Facially Constitutional in Whirlpool. Synopsis: The New Jersey appellate court has held that the statutory throwout rule is facially constitutional, identifying three scenarios in which it could operate lawfully. The opinion does not address the contention that the rule has extraterratorial reach because it sweeps in income properly assignable to another jurisdiction. As applied constitutional challenges are expected, an appeal of the ruling is possible.

July 2010: Cass D. Vickers, CMI, Esq. Where is Alternative Apportionment Headed? Reflections on Media General. Synopsis: The recent Media General decision from the South Carolina Supreme Court held that the Department of Revenue had the authority under the state’s Section 18 alternative apportionment statute to permit, or require, combined entity apportionment even though the state otherwise imposes tax on a separate entity basis. The taxpayer petitioned for that relief when the Department assessed intercompany royalties paid with respect to intangible properties against three entities that had not been filing South Carolina returns.  The court rejected the Department’s contention that it lacked the authority to permit or require a combined reporting apportionment. This, other decisions and recent MTC proposals to liberalize Section 18, suggest that greater variety in apportionment computations lies ahead. To the extent that new taxpayer options are implied, the same is true of the options available to state tax collectors.

June 2010: Cass D. Vickers, CMI, Esq. Trimming Back the Economic Substance Doctrine in Minnesota HMN Financial, Inc. v. C.I.R. Synopsis: The Minnesota Supreme Court has, in HMN Financial, Inc. v. C.I.R., rendered a decision saying the Commissioner is without statutory or common law authority to disregard business structures which comply with the applicable tax statutes based on the fact that the use of the structure in question was motivated solely by a desire to avoid taxes.  The ruling gives a restrictive reading to various statutory powers conferred upon the Commissioner that address the question of fairly reflecting a taxpayer’s income.  Further, the holding seems to make the economic substance/business purpose doctrine inapplicable to a structure (or transactions) that comply with the relevant tax statutes, at least if the structure or transactions are expressly permitted by the tax code.

May 2010: Mark F. Sommer, Esq.; Mark A. Loyd, Esq., CPA, and Jennifer Y. Barber, Esq. United States Supreme Court Denies Opportunity Presented in Recent State Tax Case Involving ERISA Preemption. Synopsis: In Monumental Life Ins. Co. v. Dep’t of Revenue, the United States Supreme Court declined the opportunity to address whether ERISA preempts state taxation of retirement/pension plan assets held in separate accounts and whether the state exempting, rather than excluding, shares of stock from the Kentucky intangibles capital stock ad valorem tax base and computation is in conflict with other opinions of the Court. Monumental attempted to take the Court back to the generations-old proposition that “a state cannot tax indirectly what it cannot tax directly.”

April 2010: Cass D. Vickers, CMI, Esq. The 338(h)(10) Election and S Corporations in Georgia - A Saga of Reversals. Synopsis: This article reviews a Georgia Supreme Court decision holding that a Section 338(h)(10) election made by a purchaser and the shareholders of a Subchapter S corporation (treated as a C corporation for Georgia income tax purposes) is to be disregarded as a matter of state law. The governing statute limits the applicability of federal elections in computing Georgia taxes to those instances in which the election is “made by the corporate taxpayer.” Since the Treasury Regulations call for shareholders, rather than the corporation, to make the election in connection with the sale of the stock of a Sub S corporation, the court held that the election had not been made “by” the taxpayer and that the gain from the Georgia tax would therefore be applied to the actual stock sale transaction and not the deemed asset sale on the basis of which federal income tax is calculated. The court suggests that “the Department may well be correct” in saying that the target corporation will not be allowed a step-up in the basis of its assets for subsequent Georgia income tax purposes, but says that even if a step-up is honored, it would not change its decision on the issue before the court. The basis adjustment issue will therefore need to be resolved apart from this judicial decision.

March 2010: Mark E. Holcomb, Esq. Oracle Debunks Uniformity Myth. Synopsis: In Oracle USA, Inc. v. Oregon Department of Revenue, the Oregon Tax Court recently held that a corporate taxpayer does not have a duty under UDITPA to uniformly report an item of income as ‘business’ or ‘nonbusiness’ among the states. This article reviews the basis for the court’s decision, as well as other arguments advanced by the states in support of uniformity.

February 2010: Cass D. Vickers, CMI, Esq. Economic Nexus in New Jersey Applied to Pre-Lanco Years, Praxair Technology, Inc. v. Director, Division of Taxation. Synopsis: This article considers the New Jersey Supreme Court decision in Praxair Technology, Inc. v. Director holding that corporations are subject to the CBT if they license intellectual properties for use in the state. The court ruled that such taxpayers were subject to tax on the basis of such economic nexus even for years preceding the 1996 amendment to the Division rule interpreting the “doing business” statute. That amendment gave such arrangements as an example of doing business. The statute was amended in 2002 to say that “doing business” for CBT purposes included “deriving receipts . . . and engaging in contacts within the state.” The court held that neither the rule amendment or the statutory amendment effected any change in the law.

January 2010: Mark F. Sommer, Esq. and Jennifer S. Smart, Esq. Court of Appeals Holds Non-resident Companies’ Passive Investments in Flow-through Entities Constitutes Tax Nexus. Synopsis: In this article, the authors discuss the ruling of the Kentucky Court of Appeals holding that a corporation without physical presence in the state was subject to corporation income tax by virtue of its ownership of interests in general and limited partnerships. Moreover, the distributive partnership income in question was held to be taxable to the recipient corporations based on a receipts-factor only  apportionment formula—rather than the standard three-factor formula.  The court rejected not just statutory arguments but Commerce and Due Process Clause objections as well. A motion for discretionary review was pending in the Kentucky Supreme Court at the time of publication.

December 2009: Audrey Kucia, Esq. Pass-Through Payments and the Washington Business and Occupation Tax. Synopsis: This article considers a Washington appellate court decision holding that certain receipts a taxpayer billed for on behalf of a third-party service provider and paid through by the taxpayer to that provider were not part of the taxpayer’s “gross income” for B&O tax purposes.  The effect of this reading of the statutory definition of “gross income” on an administrative rule (Rule 111) “exempting” certain pass-through payments only when stated conditions are met is unclear.

December 2009: Patricia Head Moskal, Esq. and Joseph W. Gibbs, Esq. Tennessee Court of Appeals Defines the Constitutional Limits on State’s Power to Assess Excise Tax on Income Earned Outside Its Borders. Synopsis: In a pair of recent decisions, the Tennessee Court of Appeals defined the limits of the State’s constitutional power to reach outside its borders and require apportionment of income earned by nondomiciliary corporations outside the taxing state.

December 2009: Pat Derdenger, Esq. and Benjamin Gardner, Esq. Arizona Court Holds that Public Law 86-272 Does Not Protect Partnership Distributions. Synopsis: The Arizona Court of Appeals follows the Finnigan rule and holds that Public Law 86-272 does not protect distributions from an out-of-state partnership to its corporate partners from Arizona income taxation even though the partnership itself had no nexus with Arizona other than solicitation of sales because its partners were members of a consolidated group that had nexus with Arizona. In so holding, the court required the consolidated group to include the partnership’s gross receipts from its sales into Arizona in the numerator of the group’s Arizona sales factor.

November 2009: Garland Allen, Esq. The California Commission: Pathway to the Future or Squandered  Opportunity? Synopsis: As reported extensively elsewhere, the California Commission on the 21st Century Economy-a 14-member bipartisan group appointed by Governor Schwarzenegger and legislative leaders in late 2008 delivered its long-awaited Final Report on September 29, 2009. But it's far from certain that its proposals will be enacted into law any time soon.

November 2009: Erica L. Horn, Esq., CPA and Jeffrey L. Mullins. Miller v. Johnson Controls, Inc. and the Dangers of Retroactive Tax Legislation. Synopsis: In Miller v. Johnson Controls, 1 Johnson Controls, Inc. and other corporate taxpayers (collectively, the "Taxpayers") challenged the constitutionality of legislative amendments made to Kentucky Revised Statutes ("KRS") §141.200 by House Bill ("HB") 541 passed by the 2000 Kentucky General Assembly. The Taxpayers maintain that the legislation eliminates, in an unconstitutional manner, refund claims led by them based on a 1994 decision of the same court in GTE and Subsidiaries v. Revenue Cabinet.

October 2009: James G. Busby, Jr., Esq., CPA. Summary of 2009 Arizona Income Tax Legislation. Synopsis: This document briefly summarizes recent Arizona income tax law changes. The bills addressed herein were approved by both houses of Arizona's Forty-Ninth Legislature in its First Regular Session and signed by Governor Brewer. All changes will be effective on September 30, 2009 unless otherwise specified.

October 2009: Cass D. Vickers, CMI, Esq. Bellsouth Advertising & Publishing Corp. v. Chumley Market Sourcing Service Receipts under Section 18. Synopsis: In this case, the court sustained a Commissioner-imposed "variance" from the regular apportionment formula applicable under Tennessee law for corporate franchise and excise tax purposes. Tennessee has adopted the Uniform Division of Income for Tax Purposes Act (UDITPA) and the Multistate Tax Commission regulations interpreting the act.

September 2009:  Cass D. Vickers, CMI, Esq. Too Much Tax Planning - Too Little Substance. Synopsis: A recent decision by the California State Board of Equalization, In the Matter of the Appeal of James A. Alyn and Lisa E. Alyn, 2009-SBE-001, Case No. 258065, May 27, 2009, reminds us again that tax planning has limits. The appellants are husband and wife and are referred to here as the "taxpayer." The case centered upon the Franchise Tax Board's disallowance of losses from "short sale" transactions, described below, that the taxpayer used to offset gains from the disposition of real estate.  

September 2009:  Cass D. Vickers, CMI, Esq. Update on Textron - Government Access to Tax Accrual Work Papers. Synopsis: In the February 2008 issue of the IPT Income Tax Report, Margaret Wilson reported on the decision of the U.S. District Court for the District of Rhode Island concerning IRS demands for tax accrual work papers believed to relate to listed transactions. United States v. Textron, Inc. and Subsidiaries, 507 F.Supp.2d 138  (D.R.I. 2007). The trial court had found that the tax accrual work papers were subject to the attorney-client privilege, but that the privilege had been waived by the disclosure of the papers to outside accountants. It further held that the work product privilege applied to the papers and that this privilege had not been waived. In a divided  en banc decision, the First Circuit Court of Appeals has now reversed that decision, sustaining the IRS summons demanding the papers in question.

August 2009:  Cass D. Vickers, CMI, Esq. Florida Appellate Court Overlooks Department Non-Compliance with Statutes and Rules Governing Refund Claims. Synopsis: Overturning a trial court decision in the taxpayer's favor, the Florida Second District Court of Appeals has sustained the Department's efforts to deny a corporate income tax refund despite the Department'sfailure to follow the governing statutes and its own rules.

August 2009:  Gregg D. Barton, Esq. Retained Loan Servicing Fees Held Deductible by Washington Supreme Court. Synopsis: In a six to two decision issued on June 18, 2009, the Washington Supreme Court reversed decisions of the  Court of Appeals and trial court, holding that retained servicing fees were "derived from interest" and deductible for business and occupation (B&O) tax purposes.

July 2009: Robert S. Goldman, CMI, Esq. Major Changes to the Florida Corporate Income Tax Averted (for now). Synopsis: In the recently concluded 2009 regular session of the Florida Legislature, two bills were introduced that would have substantially altered the framework of the State's corporate income tax (CIT). One of them would have converted Florida into a water's edge combined reporting state, and the other would have made other dramatic structural changes to the existing code. Neither bill passed, but the ideas embodied in them may resurface in the near future.

July 2009:  Charles B. Neely, Jr., Esq.; Nancy S. Rendleman, Esq.; Robert W. Shaw, Esq. Wal-Mart Stores East, Inc. v. Hinton-An Important Decision on Forced Combination in North Carolina. Synopsis: The North Carolina Court of Appeals has affirmed the decision of the superior court against Wal-Mart in the first forced combination case in North Carolina to receive appellate review on the merits of the case. The Court of Appeals based its decision on a novel interpretation of the forced combination statute that was neither briefed by the parties nor discussed at oral argument. The scope of the decision is unclear and raises significant questions regarding the scope of the authority of the Secretary of Revenue to require affiliated entities to combine their corporate income tax returns.

June 2009: Cass D. Vickers, CMI, Esq. Synopsis: The Uniform Law Commission Study Committee assigned to consider the revision of UDITPA met in Chicago on March 28, 2009 with three non-voting representatives in attendance.

June 2009: Janette M. Lohman, Esq., CMI, CPA. Supreme Court of Missouri Applies Traditional Test to Determine a Taxpayer’s Right to Apportion Income under Missouri’s Single Factor Apportionment Method: Jay Wolfe Imports, Inc. v. Director of Revenue. Synopsis: On May 5, 2009, the Supreme Court of Missouri unanimously upheld the Missouri Administrative Hearing Commissions decision denying a Kansas City, Missouri dealership’s right to apportion its income among Missouri and other states using Missouri’s single factor apportionment method.

May 2009: Cass D. Vickers, CMI, Esq. U.S. Supreme Court Denies Review in VFJ Case. Synopsis: On April 27, 2009 the U.S. Supreme Court denied certiorari in VFJ Ventures, Inc. v. Surtees, an Alabama Supreme Court decision reported at 2008 Ala. LEXIS 197.

May 2009: Cass D. Vickers, CMI, Esq. UDIPTA Revisited/An Update from Chicago. Synopsis: The reconstituted Study Committee of the Uniform Law Commission met in Chicago on March 28, 2009. The stated purpose of the meeting was to walk through a pared-down list of possible revisions to UDIPTA, with the objective of letting the committee decide whetehr it should once again become a drafting committee charged with crafting proposed revisions to the Act.

April 2009: Lynn A. Gandhi; Erica Horn. Refunds for Court-Resolved Issues and Retroactive Statutes. Synopsis: The challenges faced by SALT practitioners are growing as state revenues decrease and budget deficits increase. A review of recent case law, legislation, pending legislation and actions of tax authorities reveals two means of “protecting the fisc) – (1) a “never say die” approach to litigation and (2) implementation of statutes, regulations and agency informal guidance on a retroactive basis. After a brief examination of the projected economic conditions and the current political footing of the states, this outline focuses on the battle between states and taxpayer over refund claims, the use of retroactive statutes and regulatory actions and considerations for taxpayers on the edge of litigation.

March 2009: Cass D. Vickers, CMI, Esq.; Donald M. Griswold, Esq.; Sara A. Lima, Esq.: Body of IPT Amicus Brief in VFJ Ventures, Inc. Synopsis: This brief amicus curiae in support of Petitioner, VFJ Ventures, Inc., f/k/a VF Jeanswear, Inc. (“VFJ”), is filed on behalf of the Institute for Professionals in Taxation (“IPT”). IPT members represent some 387 corporations doing business in Alabama and states with add-back statutes that are similar to the Alabama statute at issue here.

February 2009: Mark A. Lloyd: Kentucky Bill Retroactively Eliminating Interest on Pending Refunds is Constitutionally Suspect. Synopsis: Kentucky House Bill 704 which, among other things, purports to retroactively eliminate interest on tax refunds was one of several bills delivered by the General Assembly to the Governor on April 16, 2008, one day after the 2008 legislative session ended.

January 2009: Cass D. Vickers, CMI, Esq.: Changes in Statutes and Regulations–The Importance of Timing: Praxair Technology, Inc. v. Director, Div. Of Taxation (N.J.). Enterprise Leasing Co. Of Phoenix v. Arizona Dept. Of Revenue. Synopsis.  This article discusses two intermediate appellate court decisions (neither final at the time of writing) that consider how the operation of a tax statute may be changed by subsequent state action—either through the promulgation of a rule by the taxing authority or through legislation intended retroactively to clarify the meaning of a pre-existing provision.  In the first, a Division rule (later codified) served to establish a lack of income tax nexus on the part of foreign corporations lacking physical presence in New Jersey, at least for periods prior to the adoption of the rule.   In the second case, a legislative “clarification” enacted six years after the fact was used to deny Arizona income tax credits for emissions control equipment against the taxpayer’s claim that doing so violated its rights to Due Process.

December 2008: Cass D. Vickers, CMI, Esq.: Kentucky Consolidated Return Requirements Held Unconstitutional As to Non-Nexus Subsidiaries AT&T Corporation v. Kentucky Department of Revenue. Synopsis: Kentucky Consolidated Return Requirements Held Unconstitutional As to Non-Nexus Subsidiaries. A Kentucky Circuit Court has ordered refunds for taxes with respect to non-nexus subsidiaries included on elective Kentucky consolidated returns. In doing so, the court effectively reads the applicable Kentucky statutes to require physical presence as a prerequisite to the state’s jurisdiction to impose corporate income tax.

November 2008: Chip Peters, LL.M.: State Income Tax Sourcing of 338(h)(10) Transactions. Synopsis: Stock sales for which elections are made under Section 338(h)(10) of the Internal Revenue Code are treated as deemed asset sales by the target corporation to “new” target, with a step-up in the basis of the assets, and the deemed liquidation of “old” target. This article examines cases in which the question has arisen whether the gain from such transactions is apportionable business income or allocable nonbusiness income—and if the latter, how the resulting allocation rules apply. Consideration is given to the sale of both C and S corporations.

October 2008: Cass D. Vickers, CMI, Esq.: Do States Want Uniform Corporate Income Taxes? An Interview with Hon. Bruce Johnson and Stephen Kranz, Esq. Synopsis: Do States Want Uniform Corporate Income Taxes? Cass Vickers, CMI, Esq. conducted an interview with the Honorable Bruce Johnson with the Utah State Tax Commission and Stephen Kranz, Esq. a state tax attorney with Sutherland in Washington DC.

September 2008: Duane Dobson, Lori Magee, Tom Morgan, Giles Sutton and Jamie C. Yesnowitz: Maryland’s Implementation of Corporate Disclosure. Synopsis: This article deals with another refund case, Ventas Finance I, LLC v. FTB, arising under a California LLC fee declared unconstitutional. The fee was found to be a tax and determined to violate the Commerce Clause because it was based on unapportioned income, making no effort to relate the levy to income fairly attributable to the state. This LLC measure has since been amended to permit apportionment. The appellate court ordered a partial refund based on the parties’ stipulation as to the apportionment factor which would have applied had the tax included an apportionment provision. The decision is concerned principally with the remedy issue, analyzing McKesson and a number of earlier California precedents.

August 2008: Cass D. Vickers, CMI, Esq.: RARs, Amended Returns and Statutes of Limitations Frontier Chevrolet v. Department of Revenue. Synopsis: This article derives from a decision of the Montana Supreme Court. It treats some of the intricacies of statutes of limitations for corporate income tax assessments when federal taxable income is the subject of a Revenue Agent’s Report. Federal level adjustments that increase reported income imply requirements for taxpayer notice to state departments of revenue—and the need for consulting the statute of limitations applicable to such after-the-fact developments. Compliance with the reporting/amended return requirements may not only avoid a tolling of the statute of limitations but otherwise curtail the taxpayer’s exposure.

July 2008: Kyle Sollie, Esq., David Gutowski, Esq., and Kenneth Levine, Esq.: Temporary Setback for Taxpayers on Throwout in New Jersey. Synopsis: In May, New Jersey's Division of Taxation won the first battle of what may be a long war on the infamous throwout rule. The article discusses the May 2008 decision of the New Jersey Tax Court in Pfizer, and discusses the implications and practical next steps for taxpayers.

July 2008: William R. Prugh, Esq.: Kansas Creates State Court of Tax Appeals. Synopsis: This article addresses the conversion of the Kansas Board of Tax Appeals into an administrative law court entitled the Kansas Court of Tax Appeals.  The membership and jurisdiction of the court are detailed, and various procedural matters are described.

June 2008: Cass D. Vickers, CMI, Esq.: The Business Activity Tax Simplification Act-Two Leading Authorities Comment, An Interview of Art Rosen and Shirley Sicilian. Synopsis: A principal lobbyist for the Business Activity Tax Simplification Act and the MTC’s General Counsel differ as to the need for and operation of a proposed federal law that would mandate a physical presence nexus standard for state and local income and other business activity taxes. This article features their comments in a lengthy interview and there is little on which the two agree---with the result that two perspectives are compellingly presented.

May 2008: Christopher R. Grissom, Esq., and James E. Long, Jr., Esq.: Alabama Intermediate Appellate Court Holds Asset Sales Were Properly Classified as Business Income Under the Transactional Test. Synopsis: In Kimberly-Clark Corp. & Kimberly-Clark Worldwide, Inc. v. State Department of Revenue, the Alabama Court of Civil Appeals unanimously held that the sale of a pulp/paper mill and related timberlands by the taxpayers was properly classified as apportionable business income under the so-called transactional test, as "earnings arising from transactions and activities in the regular course" of the corporations' businesses. The Court remanded the case to the Montgomery County Circuit Court to determine whether the gross receipts from the sales should be excluded from the taxpayers' respective sales factors pursuant to a Department regulation.

April 2008:  Cass D. Vickers, CMI, Esq.: SRLY Rules Invalidated for Failing to Follow Federal Exception. Synopsis: The Golden West decision from the First District Court of Appeals in Florida is analyzed.  In that case, the court held the state SRLY regulation at odds with the statutory scheme; the latter treated NOL carryovers for state purposes in the same way they are treated for federal income tax purposes.  Federal law excepts from the limitations rule carryovers from a separate return of a member of the same affiliated group, but the Florida regulation provided otherwise and so was stricken.  Decisions adhering to the federal SRLY exceptions in Alabama are also reviewed, as are the Georgia SRLY regulations.

February/March 2008: Margaret C. Wilson, Esq. Tax Accural Workpapers: Why State Departments of Revenue Aren’t–And Shouldn’t Be–Entitled to Them. Synopsis: This article looks at the U.S. Treasury's efforts to review the taxpayer's tax accrual workpapers and the District Court decision in United States v. Textron, Inc. (2007).  It considers the limitations of the attorney client and work product privileges and argues that FIN 48 and other accrual workpapers should be protected under a critical self-analysis privilege.

January 2008: Cass D. Vickers, CMI, Esq. Model State Administrative Tax Tribunal Act. Synopsis:This article considers the American Bar Association-approved Model Act.  The Act guarantees every taxpayer who receives a state tax assessment a de novo hearing of record, before paying the disputed tax, from a judge with tax expertise who is independent of the state’s tax agency.  The article reviews major provisions of the Act, including those dealing with the structure and independence of the tribunal, its jurisdiction, discovery and other matters pertinent to tribunal proceedings, and the role of the small claims division, among others.

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