The California Board of Equalization (BOE) recently issued a decision holding that dividends received by an out-of-state corporate taxpayer were business income because the dividend payor played an integral and operational role in the taxpayer’s unitary business. The BOE also denied the taxpayer’s dividends received deduction (DRD) under Cal. Revenue & Tax Code (R&TC) § 24402. Appeal of Rio Doce Ltd., No. 402204 (Cal. Bd. of Eq. Nov. 17, 2010) (released Jan. 17, 2011).
Ever the trendsetter, California is hip to transparency and has posted proposed budget trailer bill language on the Department of Finance Web site, www.dof.ca.gov. The language confirms what taxpayers already knew: A target is on their backs as budget negotiations begin. The tax provisions specific to business taxpayers include a repeal of California’s Enterprise Zone Program and all related credit carryovers; mandatory single sales factor apportionment; mandatory market sourcing; tax shelter amnesty; and a financial institutions records match (FIRM) program. Other language includes a legislative constitutional amendment to extend current tax rates for five years. All of these proposals require a two-thirds legislative vote. However, the tax shelter amnesty and FIRM provisions could be enacted with a mere majority vote.
On January 26, 2011, the U.S. District Court for the District of Colorado granted the Direct Marketing Association’s (DMA) motion for a preliminary injunction preventing the Colorado Department of Revenue (Department) from enforcing its sales tax notice and reporting regime enacted in 2010 and set to become effective January 31, 2011. The Direct Mktg. Ass’n v. Roxy Huber, Civil Case No. 10-cv-01546-REB-CBS, Order Granting Motion for Preliminary Injunction (D. Colo. Jan. 26, 2011). The DMA’s amended complaint, which provided the basis for the injunction, alleged constitutional violations under the Commerce Clause, the First Amendment right to free speech of businesses and consumers, the right to privacy of Colorado residents, and the deprivation of the value of proprietary customer lists without due process or fair compensation. The preliminary injunction was premised only on the Commerce Clause claims and left open the consideration of the other claims in the amended complaint.
The court concluded that the DMA had demonstrated the four requirements to be granted a preliminary injunction:
- The plaintiff has a substantial likelihood of success on the merits;
- The plaintiff has an irreparable injury;
- The injury to the plaintiff outweighs the injury to the defendant; and
- The preliminary injunction is in the best interests of the public.
This month’s SALT Pet of the Month is none other than Murphy, one of a trio of dogs that occupy (some say run) the household of Craig and Laura Stroh. Craig is a loyal SALT Shaker reader and the senior manager of state income tax compliance for Emerson Electric Co. in Saint Louis.
Murphy is a 10-year-old basset hound/German shepherd mix. He possesses the long, low body of a basset, but his head and face quickly reveal the shepherd in him. Murphy is known as the resident “Mole Slayer” in the Strohs’ subdivision because his favorite pastime is to search for and catch moles in the Strohs’ yard—hence his unofficial motto: “Chicks Dig Me—Moles Fear Me.” Although most of Murphy’s catches take place above ground, he will not hesitate to get his paws dirty and do serious excavating if moles are underground. The damage done to the lawn by Murphy’s digging usu¬ally exceeds the damage done by the moles themselves.
When not on mole patrol, Murphy spends his day on the living room couch. Like most professional couch potatoes, Murphy is content to hold court there until dinnertime, when he eagerly joins the family in the kitchen at the first sound of food being prepared.
On January 31, 2011, the California Supreme Court issued its long-awaited decision in California Farm Bureau Federation, et al. v. State Water Resources Control Board, No. S150518 (Cal. Jan. 31, 2011), which addressed the constitutionality of an annual levy imposed by the State Water Resources Control Board. While the court concluded that the statute imposing the water rights levy imposed a fee (not a tax) and was constitutional on its face, the court remanded to the Court of Appeals to determine whether the regulation implementing the statute was unconstitutional on an as-applied basis.
On January 10, 2011, the New Jersey Division of Taxation (the Division) started the new year off with a bang by issuing a Technical Advisory Memorandum (TAM), TAM-6 (Jan. 10, 2011) regarding the Division’s Corporate Business Tax (CBT) nexus policy. The issuance of this TAM sent both overt and subliminal messages to foreign corporations, particularly financial institutions.
The Division advised that for privilege periods and taxable years beginning on or after January 1, 2002, amendments to the CBT made it clear that foreign corporations are subject to the CBT “for the privilege of deriving receipts from sources within this state, or for the privilege of engaging in contacts within this state.” N.J. Stat. Ann. § 54:10A-2. In addition, the Division adopted the holding of Tax Comm’r of W.Va. v. MBNA America Bank, N.A., 640 S.E.2d 226 (W.Va. 2006), cert. denied sub nom FIA Card Services, N.A. v. Tax Commissioner of W.Va., 127 S. Ct. 2997 (2007), as the constitutional standard by which New Jersey’s nexus statute would be measured. Based on this foundation, the Division set stated: “taxpayers performing services and domiciled outside the State that solicit business within the state or derive receipts from sources within the State must file a [CBT] return” (emphasis added). The Division expressly targeted this nexus policy at financial institutions by stating that “a [financial institution] that has its commercial domicile in another state [is] subject to tax in this State if during any year it obtains or solicits business or receives gross receipts from sources within this state.”