The Louisiana Court of Appeal, First Circuit held that a taxpayer was not entitled to a refund of franchise tax under an interpretation of the franchise tax law by the Department of Revenue that was struck down in Utelcom, Inc. v. Bridges, 2010-0654 (La. App. 1 Cir. 9/12/2011); 77 So. 3d 39. In Bannister, the court relied on La. R.S. 47:1621(F) finding that such section precluded the Department from issuing a refund because the tax was paid as a result of a “mistake of law arising from the misinterpretation by the secretary of the provisions of any law or of the rules and regulations promulgated thereunder.” Instead, the taxpayer could only seek to recover franchise tax paid under a mistaken interpretation of law by the Department by (1) paying the tax under protest (and filing a petition to recover the payment under protest), or (2) seeking recovery from the Louisiana Legislature under the claim against the state procedure. (Bannister Properties, Inc. v. State of Louisiana, Dkt. No. 2018-0030 (La. App. 1 Cir. 11/02/2018)).
The Missouri Department of Revenue, in a letter ruling, found that a taxpayer’s sales of exercise products were subject to state and local sales taxes because the transactions were not in commerce, since the orders were fulfilled and shipped to Missouri customers by a third-party warehouse in Missouri. The Department of Revenue also found that the taxpayer had substantial nexus with the state, through its use of a third-party warehouse in Missouri, to require it to collect state and local use tax for the sales of its products, fulfilled and shipped outside of the state directly to Missouri customers. (Missouri Director of Revenue, Letter Ruling No. 7972 (Aug. 23, 2018)).
The Massachusetts Appellate Tax Board disallowed a deduction for Indiana utility receipts tax (URT) paid by a natural gas distribution operator with operations in Indiana. The deduction for the URT was disallowed, for purposes of computing Massachusetts net income for corporate excise tax, because the URT is not a deductible “transaction tax.” The Board found that while the URT may have some characteristics of a transaction tax, on balance the URT is more akin to the types of income and franchise taxes that must be added back to net income under the Massachusetts statute. Bay State Gas Co. v. Comm’r of Revenue, Dkt. No. C332071 (Mass. App. Tax Bd. Oct. 23, 2018).
The State of New Mexico Administrative Hearings Office held that the New Mexico Taxation and Revenue Department could not remove the payroll factor from the apportionment factor calculation of a taxpayer in the credit card and personal lending business. The Hearings Office determined that “the party seeking to depart from the proscribed apportionment method,” which, in this case, was the Department, “bears the burden of proving by clear and convincing evidence that such departure is appropriate.” In this circumstance, the Department failed to prove that the taxpayer’s employees were not contributing significantly enough to the generation of the taxpayer’s income to warrant a full weighting of the payroll factor with the property and sales factors.
The South Carolina Administrative Law Court found that the taxpayer bank could not deduct net operating loss (NOL) carryforwards when computing its bank tax liability. The taxpayer argued that banks should be allowed to deduct NOLs regardless of whether it is paying under the income or the franchise tax, because of the state’s conformity with the Internal Revenue Code (IRC), which allows corporations to deduct NOLs. The Department of Revenue (DOR) argued that IRC conformity did not extend to banks, because under state law, corporate income tax is based on “taxable income,” and the bank tax is a franchise tax based on “entire net income.” The administrative law judge agreed with the DOR and concluded that the NOL carryforward deduction is only authorized when computing tax based on taxable income rather than entire net income. Synovus Bank v. Dep’t of Revenue, No. 17-ALJ-17-0418-CC (S.C. Admin. Law Ct. Oct. 22, 2018).
New York State Governor Andrew Cuomo released his Fiscal Year 2020 budget and accompanying legislation on January 15, 2019 (the Budget Bill). Among other things, the Budget Bill proposes statutory revisions to respond to the Tax Cut and Jobs Act of 2017 (TCJA) and to impose a sales tax collection obligation on “marketplace providers.”
The New York State Department of Taxation and Finance released guidance in the form of tax return instructions addressing how it will account for global intangible low-taxed income (referred to as GILTI) for apportionment purposes. These instructions allow a taxpayer to include its net GILTI amount (rather than the total receipts related to the generation of GILTI) in the denominator of its apportionment factor, but do not require a taxpayer to include any amount related to GILTI in its numerator.
On December 31, 2018, District of Columbia Mayor Muriel Bowser signed B22-1070, the Internet Sales Tax Emergency Amendment Act of 2018 (Emergency Act). As of January 1, 2019, the District of Columbia now subjects digital goods to the 6% sales tax rate and imposes Wayfair-style economic nexus sales tax collection requirements. As of April 1, 2019, the District also will require marketplace facilitators to collect sales tax on behalf of their marketplace sellers.
The District provides a variety of tax benefits to QHTCs, including sales and use tax and personal property tax exemptions, as well as a reduced corporation franchise tax rate. In order to qualify as a QHTC, a business must:
- Be an individual or entity organized for profit;
- Lease or own an office in the District;
- Have two or more qualified employees within the District;
- Derive at least 51% of its gross revenues earned in the District from certain high technology-type activities; and
- Be registered with the District Government as a business.
Previously, to obtain QHTC benefits each year, the Office of Tax and Revenue (OTR) required QHTCs to attach to their tax returns or claims for refund a QHTC-CERT form. The QHTC-CERT form is a certification that the taxpayer meets all of the conditions required of a QHTC.
On November 2, 2018, the Chief Counsel of the California Franchise Tax Board issued Chief Counsel Ruling No. 2018-01, determining: (1) that a taxpayer servicing mortgages was not a financial corporation for purposes of the corporation franchise tax; and (2) gains from interest rate hedging contracts are general income, not money or moneyed capital. Although the taxpayer earned origination income, interest income and net gains from sales of mortgages, its primary revenue was from servicing the mortgage loans.
Among other differences, California taxes financial corporations at a higher corporation franchise tax rate than general corporations.
First, the Chief Counsel determined that the taxpayer was not a financial corporation because it derives more than 50% of its total gross income from servicing mortgages. A financial corporation is a corporation that predominantly deals in money or moneyed capital in substantial competition with the business of national banks. While originating and selling mortgage loans constitutes dealing in moneyed capital, servicing loans does not. Rather, servicing loans generates income from a service activity. Because the taxpayer predominantly engaged in service activities instead of dealing in money or moneyed capital, it was not a financial corporation.
Second, the Chief Counsel determined that gains from interest rate hedging contracts are general income, not money or moneyed capital. The hedging contracts are not specifically listed as money or moneyed capital, nor are they similar to the listed examples. Thus, the hedging contracts would not qualify the taxpayer as a financial corporation.