Noteworthy Cases

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In direct contradiction to the recent MetLife case, a different division of the Illinois Appellate Court held that a taxpayer was subject to the double interest amnesty penalty on its increased state tax liability resulting from federal audit changes. Marriott Intern. Inc. v. Hamer, 2012 IL App (1st) 111406 (Ill. App. Ct., 1st Dist., 3rd Div. Aug. 22, 2012). The MetLife case held that such penalties did not apply under nearly identical facts. Met. Life Ins. Co. v. Illinois Dep’t of Revenue, 2012 IL App (1st) 110400, at *1 (Ill. App. Ct. 1st Dist., 1st Div. Mar. 5, 2012).

A 2003 Illinois amnesty program provided amnesty to taxpayers who paid “all taxes due” for eligible tax years by November 2003. A double interest penalty applied for those taxpayers that had a tax liability eligible for amnesty but failed to pay it. Two months after the amnesty period ended, the Internal Revenue Service began an audit of Marriott that ultimately resulted in a 2007 revenue agent report (RAR), increasing Marriott’s federal taxable income. Marriott timely reported the federal RAR changes to Illinois and paid the resulting tax liability.Continue Reading Illinois Double Whammy on Double Interest Penalty

The West Virginia Supreme Court of Appeals held that an out-of-state licensor of intangible property did not have nexus in West Virginia despite products bearing its intangible property being sold in the state. Griffith v. ConAgra Brands, Inc., Dkt. No. 10-AA-02 (W. Va. May 24, 2012). The decision is an important taxpayer victory, particularly for licensors of intangible property.

ConAgra Foods, Inc., a food products company, established and transferred to a wholly owned subsidiary, ConAgra Brands (CA Brands), numerous trademarks and trade names. CA Brands also acquired intangibles from unrelated third parties. CA Brands licensed the intangibles to related and unrelated parties in return for royalty payments. The licensed food products were manufactured by the licensees outside of West Virginia and were sold or distributed to wholesalers and retailers in several states, including West Virginia. CA Brands had no physical presence in West Virginia, and it did not control how the licensees distributed the products bearing the CA Brands’ intangibles.Continue Reading Efforts to Expand Economic Nexus Stall in West Virginia

This morning, the North Carolina Court of Appeals released its decision in Delhaize America, Inc. v. Lay, No. COA11-868 (N.C. Ct. App. 2012). Delhaize, formerly known as Food Lion, formed an intangible holding company as part of a restructuring in the late 1990s. The Secretary of the North Carolina Department of Revenue sought to combine Delhaize with its intangible holding company on the ground that combination was necessary to reflect Delhaize’s “true earnings,” which is a North Carolina statutory standard used to justify the application of forced combination. The Department assessed Delhaize approximately $20.6 million in tax, interest, and penalty, which Delhaize challenged primarily on procedural due process grounds.

The definition and application of “true earnings” has been a controversial issue. In Wal-Mart Stores East, Inc. v. Hinton, 676 S.E.2d 634 (N.C. Ct. App. 2009), the North Carolina Court of Appeals held that the Secretary of Revenue has discretionary authority to apply forced combination, and the court will not disturb the Secretary’s findings absent an abuse of discretion. Moreover, the Wal-Mart court defined “true earnings” to include income up to the limit found in the U.S. Constitution.Continue Reading Delhaized and Confused: North Carolina Court of Appeals Finds Forced Combination, Penalty

For the first time in 50 years, the California Supreme Court is revisiting the issue of the proper application of the property tax to intangible assets. In Elk Hills Power, LLC v. California State Board of Equalization, Case No. S194121, the court will address whether the California State Board of Equalization (the Board) may assess Elk Hills’ intangible Emission Reduction Credits (ERCs). In Elk Hills, the Board treated the ERCs as “necessary” to put a power plant to “beneficial or productive use” and thus taxable for property tax purposes. Because many businesses use intangible assets that are “necessary” to the conduct of their businesses (e.g., trademarks, trade names, franchises, licenses, customer relationships, patents, and copyrights), the case has attracted attention across a broad spectrum of the California business community.Continue Reading California Supreme Court Considers Case to Allow Property Tax on Intangible Assets

In the latest edition of A Pinch of SALT, Sutherland SALT’s Carley Roberts, Prentiss Willson and Maria Todorova discuss the California Franchise Tax Board’s recent chief counsel ruling stating that California’s alternative apportionment provisions do not apply to the combined group’s intrastate apportionment results.

Read “Intrastate Apportionment: Ripe for Equitable Relief?”…

In a somewhat troubling decision, an Illinois Appellate Court held that a taxpayer’s parent company and its subsidiaries engaged in two lines of business—consumer packaging manufacturing and filtration product manufacturing—were unitary and had to file a combined Illinois return. Clarcor, Inc. v. Hamer, 2012 WL 1719518 (Ill. App. 1st May 11, 2012). The taxpayer contended that there was a lack of unity between the entities because: (1) the subsidiary groups lacked horizontal integration as required by the Seventh Circuit’s holding in In re Envirodyne Industries, Inc., 354 F.3d 646 (2004), and (2) even if horizontal integration is not required, there was insufficient vertical integration between the parent and the subsidiary groups to support a unitary finding.Continue Reading A Pupu Platter of a Case: Packaging and Filtration Businesses Held Unitary