The New York State Tax Appeals Tribunal held that an electricity generation company was a qualified New York manufacturer for purposes of calculating New York State franchise tax on a corporation’s capital base, even though the company did not qualify for purposes of the entire net income base.

During the period at issue, a New York taxpayer’s franchise tax was generally determined by taking the highest amount calculated under one of four alternative bases, including the entire net income and capital bases. For purposes of the capital base, a taxpayer was a “qualified New York manufacturer” only if it was a manufacturer, defined as a taxpayer “principally engaged in the production of goods by manufacturing, processing, assembling,” or certain other activities. The Division contended that the taxpayer was not a manufacturer because electricity generation is not a qualifying activity. However, the Tribunal pointed out that the statutory definition of a manufacturer for calculating the entire net income base expressly excluded activities related to “the generation and distribution of electricity” from the qualifying activities. But the statutory definition for the capital base contained no such language. As a result, the Tribunal held that “the clear and unambiguous language of the capital base paragraph leads to the conclusion that petitioner is a manufacturer.”

The Division also argued that, even if the taxpayer is a manufacturer, it cannot be a “qualified” New York manufacturer because its electricity-generating property is excluded under N.Y. Tax Law § 210(12)(b)(i)(A) (an Investment Tax Credit provision). Following statutory analysis, the Tribunal concluded that the Investment Tax Credit electricity exclusion does not impact that aspect of the qualified New York manufacturer definition. Thus, the Tribunal concluded that the taxpayer was a qualified New York manufacturer for purposes of the capital base and was subject to the $350,000 cap on tax calculated on the capital base.

In re TransCanada Facility USA, Inc., Dkt. No. 827332 (N.Y.S. Tax Appeals Trib. May 1, 2020).

The California Court of Appeal recently held that a taxpayer must pay a tax assessment before seeking a declaration that the regulation giving rise to the tax assessment is invalid. California taxpayers cannot challenge unpaid tax assessments under Article XIII, section 32 of the California Constitution (“Section 32”). Therefore, a taxpayer seeking to challenge an assessment must generally pay the tax first and then pursue a refund claim, which is known as the “pay first, litigate later,” or “pay up or shut up” rule.

Although Cal Gov. Code § 11350 (“Section 11350”) authorizes declaratory relief actions challenging the validity of regulations, the court held that Section 11350 did not supersede the “pay up or shut up” rule for three reasons:

  1. The plain language of Section 11350 did not exempt declaratory relief actions from Section 32’s prepayment requirement, and a state constitutional provision could not be “impliedly partially repealed” by statute;
  2.  The purpose underlying Section 11350 did not justify exempting declaratory relief otherwise subject to Section 32’s prepayment requirement because the refund procedures provided administrative and judicial forums for testing the validity of tax regulations; and,
  3. California Supreme Court precedent provides that Section 11350 is to be “strictly construed in tax cases and may not be used to prevent the state from collecting taxes or, by parity of reasoning, to compel the state to refund taxes.”

The taxpayer was an officer and shareholder in a corporation that allegedly continued to do business after its corporate status was suspended while failing to pay sales tax. The California Board of Equalization assessed the taxpayer for unpaid taxes and penalties pursuant to a regulation and policy of holding a suspended corporation’s officers and shareholders liable for its unpaid taxes. The taxpayer sought to challenge this policy and regulation as a “responsible officer” of a different closely-held corporation that could be subject to the policy and regulation in the future, and as a general California citizen interested in “having all branches of government act within the bounds of their constitutional authority.”

The court held that the taxpayer could not avoid the “pay up or shut up” rule by challenging an unpaid assessment via his declaratory relief claim under these alternative standing theories. This is because the net effect of the declaratory relief claim would be to absolve the taxpayer of liability for the disputed unpaid tax. Thus, resolving such claims would effectively prevent or enjoin the state from collecting the disputed tax, triggering the prepayment requirement of the state constitution.

California Department of Tax and Fee Administration et al., v. Superior Court, No. BC684614 (Cal. Ct. App. May 7, 2020)

On May 18, 2020, the California Assembly Revenue and Taxation Committee unanimously passed Assembly Bill 2660 (AB 2660) out of committee. AB 2660 would allow employers to file income taxes on behalf of their foreign workers, specifically providing for the optional filing of a group return by the employer for electing foreign workers who receive taxable income for services that are performed in California.

Existing law requires employers who pay wages to nonresident employees for services performed in California to deduct and withhold from those wages specified taxes and to make returns, reports, statements, and other documents related to the wages paid and withheld. The stated purpose of AB 2660 is to ease compliance standards for employers and foreign workers in circumstances where filing requirements may be difficult to meet when foreign workers have trouble obtaining taxpayer identification numbers.

The tax rates applicable to each nonresident electing to file in the group return would consist of the highest marginal rate provided by the Personal Income Tax Law plus an additional 1% for foreign workers with income in excess of $1 million. In most cases, deductions or credits will not be allowed; however, amounts withheld during any calendar year are permitted to be a credit against the tax for the taxable year. AB 2660 would become effective January 1, 2021 and remain in place until January 1, 2026.

The biggest proponent of AB 2660 is the California Lawyers Association Taxation Section, which sees the bill as a way to ease tax compliance for both employees and employers. Proponents believe this voluntary option is “commonsense”, easing tax burdens for employers and employees alike by eliminating a foreign employee’s current requirement to file tax returns individually, and making compliance for employers easier by eliminating the requirement for employers to provide an employee’s social security number or other identifying number on its withholding statement that is not available. The fiscal effect of the bill is estimated to generate $12 million in fiscal year (FY) 20-21, $27 million in FY 21-22, and $34 million in FY 22-23.

Some opponents believe this is just an attempt by California to shift the foreign worker’s filing obligation to the employer. Additionally, other employers are concerned about how the state reporting may affect federal reporting and about issues related to enforcement if it becomes law.

This is the first bill of its kind in the United States. AB 2660 passed by a vote of 11-0 before the Assembly’s Revenue and Taxation Committee, and now moves to the Assembly Appropriations Committee. It will need to receive a passing vote by the Assembly by June 19 to move to the Senate for debate this year.

The Commonwealth Court of Pennsylvania reversed the Board of Finance and Revenue’s (Board) order, in part, and determined that when a retailer’s receipt separately states the coupon presented and sufficiently identifies the item to which the coupon applies, a taxpayer is only liable for sales tax based on the price as reduced by the coupon and not the full price.

Two individual taxpayers requested refunds of sales tax a retailer collected on taxable items paid for, in part, using coupons. For each purchase, taxpayers presented coupons at the point of sale and the receipt from the sale separately reflected the value of the coupon and the reduced sales price after applying the coupon. However, the retailer collected sales tax based on the full purchase price, without a reduction of the price after application of the coupons.

Pennsylvania regulation provides that the use of coupons at the point of sale will establish a reduced purchase price if “both the [taxable] item and the coupon are described on the invoice or cash register tape.” 61 Pa. Code § 33.2(b)(2). Relying on this regulation, the Board denied taxpayers’ requests for refunds because the receipts provided by the retailer did not adequately describe the coupons and did not indicate to which item the coupon relates.

After agreeing that the regulation is consistent with the applicable statute, the court held that the Board erred in finding that the regulation requires the receipt to specify to which taxable item the coupon relates. Further, the court held that the regulation did not require the receipt to identify the nature of the coupon, whether a rebate or a store or manufacturer’s coupon. Instead, the court held that the receipt must simply present a description allowing one to discern that the coupon was accepted and applied toward the purchase of a taxable item.

Thus, the court found in favor of the taxpayer, and determined that sales tax is imposed on the reduced price, where the applicable receipt separately stated the value of the coupon and the receipt only included taxable items. In contrast, the court upheld the Board’s decision to deny taxpayer’s refund where the receipt consisted of both taxable and nontaxable items. The court found that where it could not be discerned from the receipt whether the coupon applied to a taxable or non-taxable item, the sales tax should be collected on the full purchase price. The retailer intervened in the case and argued on the side of the state.

Meyers v. Commonwealth of Pennsylvania, No. 275 F.R. 2016 (Commw. Ct. May 11, 2020).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This Week’s Question
Which president once handled state tax cases, securing favorable rulings for taxpayers involving property taxes and local gross receipts taxes?

E-mail your response to

The prize for the first response to today’s question is a $20 UBER Eats gift card.

Answers will be posted on Monday. Be sure to check back then!

During a series of remote committee hearings, the Kansas House Committee on Taxation discussed revisions and amendments to marketplace facilitator legislation. Kansas is currently one of the few states without a marketplace facilitator or remote seller law, and the only state that has a remote seller rule without any thresholds for application. As initially drafted, H.B. 2657, did not include the revenue or transaction thresholds used by other states. The committee amended the bill to include a $100,000 revenue threshold for remote sellers and marketplace facilitators. Kansas’s current remote seller rules were created by regulatory notice rather than by statute.

As a matter of legislative procedure, the amended language was added to a bill that has already passed the state senate, S.B. 266. If passed, the bill would become effective July 1, 2020. The Kansas legislature is convening for its final day of the session on Thursday, May 21.

By legislation, Illinois has required marketplace facilitators to collect and remit use tax since January 1, 2020. On May 8, the Illinois Department of Revenue published proposed regulation 150.804 clarifying the state’s marketplace facilitator legislation. Under the proposed regulations, a marketplace facilitator must certify to marketplace sellers that it assumes the rights and duties of a retailer for Illinois use tax purposes, must maintain records of its marketplace sellers, and must clearly indicate to sellers that it is listing goods on behalf of a clearly identified seller. The proposed regulations also provide detail and definitions regarding the $100,000 annual revenue or 200 annual transactions thresholds. Finally, the proposed regulation clarifies that the marketplace requirements apply only to use tax obligations and marketplace facilitators are not authorized to remit sales tax obligations (related to orders fulfilled from in-state inventory).

Learn how your company may benefit from special property tax relief provisions that may apply to disaster declarations concerning COVID-19 including:

  • How to file claims
  • The importance of statutes of limitations
  • Quantifying damages
  • Comparison with business interruption insurance claims


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Thank you to everyone who participated in last week’s trivia question!

Last Week’s Question:
In the early twentieth century, states commonly hired private tax collectors on a contingency-fee basis, and they were referred to as this prying animal.

The Answer:
Tax Ferret

Keep an eye out for our next trivia question on Wednesday!

On February 28, 2020, the Oregon Tax Court held that multiple airlines operating as a unitary business should aggregate not only transportation revenue but also other metrics, such as departure ratios, that are factored into the apportionment formula used by Oregon for airline taxpayers. Oregon regulations provide a modified single sales factor apportionment rule for airlines whereby the numerator of the sales factor includes, in part, the taxpayer’s total transportation revenue multiplied by its departure ratio. The Oregon Department of Revenue challenged the taxpayer’s amended returns which did not include a unitary affiliate’s departure ratio, i.e., the ratio of departures of aircraft in Oregon (weighted by cost and value of the aircraft) compared to total departures of aircraft similarly weighted, in the taxpayer’s sales factor. The taxpayer argued that each airline should be considered separately with regard to its departures within the state, citing to the fact that each airline has a separate license and operating certificate form the Federal Aviation Administration. The court disagreed, stating that the Plaintiff’s reading is contrary to the apportionment of business income of a unitary group filing a consolidated return in Oregon. The court held that because the base of income to be apportioned represents the business activity of the entire unitary group, then other metrics incorporated into the apportionment formula, such as the departure ratio, must also reflect the business activity of the entire group.

In addition to the court’s determination of the taxpayer’s unitary group question, the court also held that revenue generated by taxpayer for codeshare sales, i.e., sales made by taxpayer for seats on non-affiliated airline flights, are not considered “transportation revenue” and therefore not included in the taxpayer’s sales factor. Citing to the relationship between the flight data used in the departure ratio and the relationship between the departure ratio and transportation revenue, the court agreed with the taxpayer that such codeshare revenue is not “transportation revenue” because third party airlines, not the taxpayer, operate the flights underlying such sales and thus taxpayer does not receive the benefit of the third party’s flight data for such flights when calculating taxpayer’s departure ratio. Further, the court found that certain income from taxpayer’s rents, interest, and proceeds on the sales of aircraft constituted passive income that should be excluded from the sales factor.

Alaska Airlines, Inc. v. Oregon Department of Revenue, TC-MD 180065N (Oregon Tax Ct. 2020).