In this episode of the SALT Shaker Podcast, host and Associate Chris Lee is joined by Associate Justin Brown to discuss transfer pricing and how it affects state tax and in particular how states may use transfer pricing or other theories to make adjustments to sales tax. Recently, some jurisdictions have challenged sales tax on intercompany transactions by arguing that the sales price and amount of gross receipts should be increased. In their discussion, Chris and Justin reference an article by Eversheds Sutherland attorneys Tim Gustafson, Eric Tresh and Liz Cha from Tax Notes State, addressing California’s attempt to extend transfer pricing to sales tax.

Questions or comments? Email SALTonline@eversheds-sutherland.com.

 

 

 

 

 

 

 

 

 

 

 

Listen now: 

Subscribe for more:

  

A New York Administrative Law Judge recently determined that a married couple who purchased a home in Florida in 2013 with the intention of retiring in the state, but retained ties to New York, could not prove that they abandoned their New York domicile in 2014. In arriving at her conclusion the ALJ focused on the taxpayers’ retention of their historic New York home and the fact that they spent more time in New York than they did in Florida in 2014.

The taxpayers argued that they were no longer New York domiciliaries in 2014 because, among other things, (i) the Florida home they purchased was larger and more expensive than their historic New York home, (ii) they registered to vote and changed their drivers’ licenses to Florida, and (iii) they maintained a “near and dear” antique car collection in Florida.

The ALJ, however, determined that the taxpayers failed to prove by clear and convincing evidence that they gave up their New York domicile when they purchased their home in Florida.  Even though the taxpayers took actions aimed at establishing a Florida domicile, the ALJ concluded that the taxpayers failed to provide “credible evidence” establishing that their “general habit of life” reflected an abandonment of their New York domicile.

In New York, the person asserting a change in domicile—in this case, the taxpayers— bears the burden to prove by clear and convincing evidence that the purported change in domicile occurred. In this case the ALJ found that the taxpayers’ evidence “consisted primarily of unsworn statements made in correspondence,” which was insufficient to meet the taxpayers’ burden of proof.  Notably, the ALJ appeared troubled by the fact that the taxpayers’ claimed amount of time spent in New York in 2014 was different than the amount of time they appeared to have actually spent in New York based on cell phone and credit card records.

Matter of Boniface, DTA No. 829018 (N.Y.S. Div. Tax App., ALJ Det’n Apr. 29, 2021)

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 state is expected to become the final state to enact economic nexus requirements?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card.

Answers will be posted on Saturdays in our SALT Weekly Digest. Be sure to check back then!

The New Jersey Tax Court denied the Division of Taxation’s motion for reconsideration and again found that the Alternative Minimum Tax is preempted by P.L. 86-272. Previously, the New Jersey Tax Court granted summary judgment in favor of the taxpayer and held that the AMA, which was repealed for tax years beginning on or after January 1, 2018, is preempted by P.L. 86-272, a federal statute that bars states from imposing a net income tax on certain out-of-state sellers of tangible goods with specific limited contacts in a state. While the Division agreed the taxpayer was not subject to the Corporation Business Tax, it argued that P.L. 86-272 entities are subject to the AMA. In denying the Division’s motion for reconsideration, the court considered that under the AMA, P.L. 86-272 taxpayers pay the lesser of the CBT or the AMA. It stated that when the AMA is greater than the CBT, the AMA clearly operates as an end-run around P.L. 86-272. When the AMA is greater than the CBT, the AMA becomes a tax measured by net income because the taxpayer would be paying the CBT. However, even if the AMA is lower than the CBT, the court reasoned that Congress indicated that there shall be no net income tax, not merely a reduction that is collected in the form of the AMA: “[r]egardless of whether the amount assessed is above or below the CBT, the AMA is inextricably linked to the CBT.” The court concluded that the legislature cannot create a special gross receipts tax that only applies to P.L. 86-272 entities in an attempt to garner lost net income tax. It determined that “the presumption against preemption is overcome since the clear purpose of Congress in enacting P.L. 86-272 is effectively thwarted by the Legislature in enacting the AMA. As such, the AMA is subject to preemption.”

Stanislaus Food Products Co v. Div. Of Taxation, N.J. Tax. Ct. Dkt. No. 011050-2017 (Apr. 22, 2021)

The U.S. Solicitor General has filed its amicus brief in New Hampshire v. Massachusetts (here). The Solicitor General argues that the United States Supreme Court should not exercise its original jurisdiction and it should deny New Hampshire’s facial constitutional challenge of Massachusetts’ taxation of New Hampshire residents.

For background, on October 19, 2020 New Hampshire (on behalf of its residents) filed a motion for leave to file a bill of complaint with the U.S. Supreme Court that challenges the constitutionality of Massachusetts’s emergency regulation on telework during Covid-19, 830 CMR 62.5A.3. The Massachusetts emergency regulation imposes tax on wages earned by nonresidents who previously worked in Massachusetts, but commenced telework at their residence or other out-of-state location due to a “pandemic-related circumstance.” In effect, the Massachusetts emergency regulation resembles a “temporary” convenience of the employer test – similar to the one enforced by New York – that applies from March 10, 2020 until 90 days after the governor lifts the state’s Covid-19 emergency declaration. New Hampshire alleges several constitutional infirmities of the emergency regulation, including violations of the Commerce Clause and Due Process Clause. Massachusetts counters those violations in its opposition brief to the New Hampshire motion for leave. In addition to the substantive issues raised, Massachusetts alleges that New Hampshire does not have standing to sue on behalf of its residents and, therefore, the Court should not exercise its original jurisdiction that applies to suits between states.

On January 25, 2021, the Court asked the Acting Solicitor General to file a brief expressing the views of the United States. The Solicitor General summarizes its argument as follows:

The motion for leave to file a bill of complaint should be denied. This is not an appropriate case for the exercise of this Court’s original jurisdiction, which the Court has repeatedly stated should be exercised only “sparingly.” Mississippi v. Louisiana, 506 U.S. 73, 76 (1992) (citation omitted). New Hampshire does not invoke the types of interests that would warrant such an exercise, and the issues New Hampshire seeks to present can adequately be raised and litigated by New Hampshire residents who are subject to the Massachusetts income tax. In addition, the constitutional claims would more appropriately be considered on developed factual records concerning affected individuals and with the benefit of authoritative interpretations of the relevant tax provisions by Massachusetts courts.

Brief for the United States as Amicus Curiae, as Amicus Curiae, New Hampshire v. Massachusetts, No. 22O154, May 25, 2021.

As with any dispute between states, New Hampshire v. Massachusetts has generated interest among taxpayers and state governments alike. Of note, in addition to the Solicitor General’s brief, a number of amici curiae filed briefs in support of the respective parties, including a group of ten states in support of New Hampshire (the “Ohio Brief”) and a group of four states also in support of New Hampshire (the “New Jersey Brief”). Interestingly, the Ohio Brief focuses on original jurisdiction – arguing the Court must review disputes between states. In contrast, the New Jersey Brief addresses the substantive constitutional issues.

Eversheds Sutherland SALT will continue monitoring this important and interesting case.

On Friday, June 4, 2021 at 10:00 a.m. PST, the California Franchise Tax Board (“FTB”) will hold its sixth interested parties meeting (“IPM”) to discuss its latest proposed amendments to the market-based sourcing regulation, Cal. Code Regs., Title 18, Section 25136-2. At the IPM, FTB will discuss and solicit public input on the newly-proposed regulation language and will walk through FTB’s explanation of the new language. Additional information on the IPM, including how to dial-in, is available here.

Please see our previous posts here and here for background on FTB’s proposed amendments to the market-based sourcing regulation. We will provide additional coverage after the meeting.

 

On May 20, 2021, California AB 71 was approved by the Assembly Appropriations Committee. The bill will now head to an Assembly floor vote within the next two weeks.  Please see our previous post here for more information on AB 71’s proposed corporate tax increases, including the inclusion of GILTI and repatriation income of affiliated corporations in a California taxpayer’s gross income.

In this episode of the SALT Shaker Podcast policy series, Erica Kenney, West Coast Counsel of the Council On State Taxation (COST) and Jeff Newgard, Principal and Owner of Peak Policy, join host and Partner Nikki Dobay for a discussion of proposed legislation in Oregon and Colorado. Who knew they would be sharing tax haven “blacklist” stories? Both states still have a long way to go before sine die, but it is a good point in time for listeners to get a sense of where things are with respect to several proposals.

The podcast ends with a new feature — “surprise nontax question” — that host, Nikki Dobay, and her guests each answer!

The Eversheds Sutherland State and Local Tax team has been engaged in state tax policy work for years, tracking tax legislation, helping clients gauge the impact of various proposals, drafting talking points and rewriting legislation. This series, which is focused on state and local tax policy issues, is hosted by Partner Nikki Dobay, who has an extensive background in tax policy.

Questions or comments? Email SALTonline@eversheds-sutherland.com.

 

 

 

 

 

Listen now: 

Subscribe for more:

  

On May 18, Eversheds Sutherland SALT attorneys presented at the TEI Denver state and local tax seminar on a variety of state and local tax topics. PowerPoint slides for our presentations can be found below.

Presentations include:

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 state recently proposed legislation that would create a wage compensation tax?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card.

Answers will be posted on Saturdays in our SALT Weekly Digest. Be sure to check back then!