The North Carolina Supreme Court recently held that the presence in the state of a trust’s beneficiary is not sufficient to establish income tax nexus for the trust. In the Kimberly Rice Kaestner 1992 Family Trust case, the trust’s beneficiaries were residents of North Carolina. There were no other connections between the state and the trust. The court held that the trust did not have sufficient minimum connections with the state of North Carolina to satisfy the due process requirements of the US Constitution and the equivalent due process requirements of the Constitution of North Carolina. The court emphasized that a trust is a separate and distinct entity from its beneficiaries, and a trust’s connections with the state are what matters for determining whether the tax violates due process. The court reasoned that the beneficiaries’ residency in North Carolina cannot be viewed as the trust conducting purposeful activities in the state because the trust and its beneficiaries are separate legal entities. Kimberley Rice Kaestner 1992 Family Trust v. N.C. Dep’t of Revenue, No. 307PA15-2 (N.C., June 8, 2018).
In a last-minute deal to avert a government shutdown, New Jersey Governor Phil Murphy and the New Jersey Legislature cobbled together a budget with numerous amendments to New Jersey’s tax law.
Read our June 2018 posts on stateandlocaltax.com or read each article by clicking on the title. For the latest coverage and commentary on state and local tax developments delivered directly to your phone, download the latest version of the Eversheds Sutherland SALT Shaker app.
- SALT Pet of the Month: Duchie
Introducing Duchie, the family dog of Mark Swan, Vice President of Property Tax and Tax Counsel at Charter Communications.
- Giving Credit Where It Isn’t Due: Arkansas Office of Hearings and Appeals Treats Sales of Tax Credits as Business Income
On June 13, 2018, an Arkansas Administrative Law Judge concluded that a taxpayer’s proceeds from dispositions of tax credits were apportionable business income.
- New Jersey Legislature Passes Corporate Tax Increases, Still Negotiating with Governor
In the midst of a budget showdown between New Jersey’s Legislature and Governor Murphy, on June 25, 2018, the Legislature passed a replacement bill that seeks to raise revenue with a temporary Corporation Business Tax “surtax” on corporations meeting certain income thresholds and by limiting New Jersey’s dividend exclusion.
- New Jersey Court Holds That Taxpayer Not Entitled to Exception to State’s Interest Add-Back Requirement
In Kraft Foods Global, Inc. v. Director, Division of Taxation, 2018 WL 2247356 (May 17, 2018), the New Jersey Superior Court, Appellate Division, recently upheld a New Jersey Tax Court decision denying a taxpayer an exception to the state’s interest add-back requirement in determining the taxpayer’s corporate net income subject to New Jersey’s corporation business tax (CBT).
- New York Bill Introduced to Exempt GILTI
On June 11, 2018, Senate Bill 8991 was introduced by New York Senate Majority Leader John Flanagan. The Bill would decouple from the federal treatment of Global Intangible Low-Taxed Income (GILTI).
- South Dakota v. Wayfair – Insights and Analysis
On June 21, 2018, the US Supreme Court struck down the “physical presence rule” of Quill and National Bellas Hess which barred states from imposing sales tax collection requirements on certain out-of-state sellers.
- US Supreme Court Overrules Physical Presence Standard, Leaves Plenty of Questions
In a 5-4 decision, the US Supreme Court today overruled its landmark decisions in Quill Corp. v. North Dakota and National Bellas Hess, Inc. v. Department of Revenue of Illinois, disposing of the “physical presence” rule that has served as the bright-line standard for whether remote sellers are required to collect state sales taxes.
- The Sales Taxation of Virtual Currency
Bitcoin and other virtual currencies may be the most controversial financial assets on the market right now and are certainly the most discussed. In their article for Bloomberg BNA, Eversheds Sutherland attorneys Jonathan Feldman and Christopher Beaudro examine the state sales tax implications of selling virtual currency.
- State Tax Reform Roundtables
Eversheds Sutherland Partners Jeff Friedman, Todd Lard and Eric Tresh present on the Tax Executives Institute’s (TEI) State and Local Tax Committee’s series of State Tax Reform Roundtables. The series of calls will enable SALT professionals to stay abreast of state tax developments associated with the Tax Cuts and Jobs Act, to engage with subject-matter experts, and to hear from peers regarding their “boots on the ground” knowledge and experience.
Introducing Duchie, the family dog of Mark Swan, Vice President of Property Tax and Tax Counsel at Charter Communications. Mark, his wife Patty and their kids, Mack and Payton, are active members of the South Charlotte Dog Rescue Group, an organization that monitors kill shelters and strives to place animals with new families. Mark and his family foster many different dogs each year, and welcomed Duchie into their home after her adoptive family had returned her due to an allergy.
Though they were accustomed to welcoming many new dogs to their home, Duchie, a miniature pincher/huskie, quickly found a special place in their hearts. Formally adopted by Mark and his family in December, Duchie goes everywhere with them. She even went skiing with them this winter and enjoyed playing in and cooling off in the snow. She is loyal and kind and loves to go on off-leash hikes in the woods.
We are thrilled to feature Duchie’s story and celebrate her as our June Pet of the Month!
To submit YOUR pet to be featured, visit the Eversheds Sutherland SALT Shaker App, click the Pet of the Month in the drop-down, then click “Submit A Pet.”
In the midst of a budget showdown between New Jersey’s Legislature and Governor Murphy, on June 25, 2018, the Legislature passed a replacement bill that seeks to raise revenue with a temporary Corporation Business Tax “surtax” on corporations meeting certain income thresholds and by limiting New Jersey’s dividend exclusion. The Legislature also responded to the Tax Cuts and Jobs Act (TCJA) passed by the United States Congress late last year by decoupling from the IRC § 199A qualified business income deduction. However, the current version of the bill fails to address other TCJA provisions, such as the tax on global intangible low-taxed income and the foreign-derived intangible income deduction. With the Governor threatening to veto the bill, the Legislature and the Governor are expected to continue negotiations over the next few days as the end of June deadline for the budget approaches.
The Tax Executives Institute’s (TEI) State and Local Tax Committee is holding a series of State Tax Reform Roundtables to enable SALT professionals to stay abreast of state tax developments associated with the Tax Cuts and Jobs Act, to engage with subject-matter experts, and to hear from peers regarding their “boots on the ground” knowledge and experience.
This series of calls will create a platform for all members to learn, share and engage about issues of interest. Each call will highlight a particular topic and will provide a general update of state tax reform developments. Partners Jeff Friedman, Eric Tresh and Todd Lard will present on the roundtable calls, and details of their presentations are below.
IRC 965, BEAT, GILTI and FDII – Through the Lens of a SALT Professional + Recent Developments
June 21, 2018
Presenter: Jeff Friedman
Legislative Roundup – What are the States Doing + Recent Developments
July 19, 2018
Presenter: Eric Tresh
IRC Sec 118, Credits and Incentives – What To Do With All That “New Cash” + Recent Developments
August 9, 2018
Presenter: Todd Lard
On June 13, 2018, an Arkansas Administrative Law Judge concluded that a taxpayer’s proceeds from dispositions of tax credits were apportionable business income. In Arkansas, business income arises from either: (1) transactions and activity in the regular course of the taxpayer’s business (the transactional test); or (2) income from the acquisition, management and disposition of property that constitutes integral parts of the taxpayer’s regular business (the functional test). The ALJ followed the Commissioner’s interpretation of the term “integral” and concluded that the taxpayer’s sales of credits “contributed to and were identifiable with (i.e. ‘integral parts of’) the Taxpayer’s trade or business operations.” The taxpayer routinely sold tax credits and had previously lost an appeal on the same issue because its tax credit depositions generated the majority of its federal taxable income. The taxpayer argued that the years at issue in this appeal were different because tax credits no longer constituted the majority of the taxpayer’s federal taxable income. The ALJ rejected this argument, concluding that the proceeds from the dispositions of the credits were integral and business income under the functional test. Dkt. Nos. 18-232, 18-405, Ark. Dep’t of Fin. & Admin., Office of Hearings & Appeals (Jun. 13, 2018).
In a 5-4 decision, the US Supreme Court today overruled its landmark decisions in Quill Corp. v. North Dakota and National Bellas Hess, Inc. v. Department of Revenue of Illinois, disposing of the “physical presence” rule that has served as the bright-line standard for whether remote sellers are required to collect state sales taxes. Although the Court made clear its criticisms of the physical presence standard—referring to it as “arbitrary,” “artificial,” and a “judicially created tax shelter”—it was less clear in describing a new standard to replace it.
On June 21, 2018, the US Supreme Court struck down the “physical presence rule” of Quill and National Bellas Hess which barred states from imposing sales tax collection requirements on certain out-of-state sellers. This decision is expected to have a significant impact on online sales across the country.
The case, South Dakota v. Wayfair, is the first sales tax jurisdiction case heard by the US Supreme Court in 25 years.
The physical presence rule challenged in this case has long been criticized as giving out-of-state sellers an advantage. In its opinion, the Supreme Court held that over time, the physical presence rule became further removed from economic reality and resulted in significant revenue losses to the States. Additionally, the court held that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause.
Read the Wayfair Opinion
Read the full opinion in South Dakota v. Wayfair here. Additional insight and analysis will be added to this post throughout the week.
About the Case
- Title: South Dakota v. Wayfair, Inc., et al.
- Supreme Court Decision: No. 17–494.
- Decision Below: State v. Wayfair Inc., 901 N.W.2d 754 (2018) (PDF)
- Listen: Oral Argument Audio.
The Wayfair case re-examines the Supreme Court’s 1992 holding of Quill v. North Dakota, in which the court ruled that states could not require mail order retailers that lack a physical presence in the state to collect sales tax from their customers. The Quill decision protects Internet retailers that lack physical presence from being forced to collect tax on online sales.
Post-Wayfair Oral Argument Webcast
On April 18, 2018, the Tax Executives Institute (TEI) and Thomson Reuters hosted a two-hour webcast entitled “South Dakota v. Wayfair – Insights on the Oral Argument.” Eversheds Sutherland Partner Jeff Friedman was among the panelists who addressed the issues raised by Wayfair and provided commentary on the oral arguments.
Wayfair Case Background
In 1967, the US Supreme Court held that the Commerce Clause prohibits a state from requiring catalog retailers to collect sales taxes on sales unless the retailer has a physical presence there. Nat’l Bellas Hess v. Dep’t of Rev. of Ill., 386 U.S. 753 (1967).
In 1992, the US Supreme Court declined to overrule the physical presence requirement of Bellas Hess in a state sales tax case involving a mail-order catalog seller. Quill Corp. v. North Dakota, 504 U.S. 298 (1992). In Wayfair, South Dakota has brought a similar case against three online sellers – Wayfair Inc., Overstock.com, Inc., and Newegg Inc.
More: See the Supreme Court docket for complete case filings.
Photos from Oral Arguments
- Politico, A taxing case on the Supreme Court’s docket“.” Bernie Becker. (April, 17, 2018)
- Tax Notes, “South Dakota Slams Physical Presence Rule as ‘Unworkable and Indefensible.” Jad Chamseddine. (April 10, 2018) (Subscription.)
- Bloomberg, “South Dakota Rebuffs E-retailer Concerns in Last High Court Brief.” Ryan Prete. (April 9, 2018)
- Reuters, “U.S. Supreme Court takes up state online sales tax dispute.” Lawrence Hurley. (Jan. 12, 2018)
About Eversheds Sutherland SALT:
As state and local jurisdictions in the US evolve their tax systems and engage in increasingly sophisticated enforcement and litigation strategies, businesses need sound state and local tax (SALT) advice more than ever before. Eversheds Sutherland’s SALT practice is committed to delivering innovative solutions that meet the needs of your business. Read more.
The Eversheds Sutherland SALT Team is always excited to see what kind of pets our clients and friends have. Our team features a different pet at the end of every month, and we want to feature YOURS! Featured pets will receive a fun prize from the SALT Team.
To submit your pet to be featured, visit the Eversheds Sutherland SALT Shaker App, click “Pet of the Month” in the drop-down, then click “Submit A Pet.”