The Louisiana Supreme Court unanimously held that the Louisiana Tax Commission did not act in an arbitrary and capricious manner when it rejected a property tax assessor’s valuation for ad valorem taxes.  In 2012, D90 Energy, LLC purchased several wells.  For tax years 2013 through 2016, D90 Energy appealed assessments by a Jefferson Davis Parish assessor who refused to consider the purchase price of the wells when determining the fair market value – instead exclusively using valuation tables which account for the age, depth, type, and production of the wells.  Based on evidence and testimony presented to the Tax Commission by the taxpayer and applying a regulation which states that “[s]ales, properly documented, should be, considered by the assessor as fair market value,” the Tax Commission reduced the valuations.  On appeal to the state supreme court, the assessor argued he had “the exclusive right to determine fair market value” and that the Tax Commission may only review evidence already submitted to the assessor.  However, the Court determined that the Tax Commission is permitted to review new evidence submitted by taxpayers to the Tax Commission and that recent sales should be considered by the assessor when determining fair market value.  Accordingly, the Court found that “relying upon that express directive as a valuation standard cannot be arbitrary and capricious.”

D90 Energy LLC v. Jefferson Davis Parish Bd. of Review, No. 2020-C-00200 (La. Oct. 20, 2020).

The Mississippi Supreme Court ruled that an affiliated group of telecommunications companies properly computed the Broadband Investment Credit in determining their franchise and income tax liabilities.  The Broadband Credit may be used by a taxpayer to offset up to 50% of the taxpayer’s tax liabilities in a given year.  The taxpayers filed separate Mississippi franchise tax returns and a single combined corporate income tax return.  On their separate franchise tax returns, each taxpayer calculated its allowable Broadband Credit by applying the 50% credit cap to the affiliated group’s aggregate tax liability.  The Mississippi Department of Revenue contended that the 50% credit cap should be applied against each taxpayer’s separate taxable income included in the combined return.  Agreeing with the taxpayers, the Supreme Court concluded that for purposes of the 50% credit cap, each taxpayer’s “tax liability” is the “sum of the taxpayers’ separate franchise tax liability and the total combined income tax liability of the affiliated group.”  The court explained that filing a combined return made each member jointly and severally liable for the entire tax liability.

 

Miss. Dep’t of Revenue v. SBC Telecom, Inc., No. 2019-CA-00917-SCT (Miss. Aug. 13, 2020).

Effective July 1, 2020, Iowa law permits utility companies to utilize an inflow-outflow billing method for eligible distributed generation facilities. Under the inflow-outflow method, a generation customer is responsible for paying for the inflow kWh energy charge (sales to customer), while the amount of outflow kWh energy charge is credited to the customer (purchases from customer).

The Iowa Department of Revenue ruled that for sales tax purposes, inflow (sales to customers) and outflow (purchases from customers) of energy are considered a “trade-in” of energy for credit in dollars (outflow), rather than separate transactions.  As a result, the portion of the sales price credited to the customer is exempt from sales tax.  The Department explained that in determining the applicable sales tax, the taxpayer could either: (1) take into consideration prior months’ activity by offsetting the current month’s billing with credits accumulated from prior months; or (2) offset the current month energy inflows only by the current month energy outflows, which requires computing the sales tax on the difference when the inflow is greater than the outflow for the current month.  The Department also noted that the utility is not required to provide an exemption certificate to its customers when claiming the sales tax exemption.  In the Matter of MidAmerican Energy Company, No. 2020-300-2-0299 (Dec. Order July 10, 2020).

A recent letter ruling from the Tennessee Department of Revenue concludes that the ownership of mortgages backed by Tennessee property was insufficient to subject a foreign investment fund (“Fund”) to the state’s franchise and excise taxes.

Tennessee broadly applies its franchise and excise tax to the extent permitted by the U.S. and state constitutions.  A limited partnership is subject to franchise and excise taxes if it is doing business in Tennessee and has a substantial nexus with the state.  Further, Tennessee has a rebuttable presumption that a financial institution is doing business in Tennessee if the sum of its assets and the absolute value of its deposits attributable to Tennessee sources equals or exceeds $5 million.

There are a variety of exceptions to Tennessee’s broad statutory definition of “doing business in Tennessee” for financial institutions. Specifically, a financial institution is not considered to be “conducting the business of a financial institution” in Tennessee if:

  1. the only activity of the financial institution in Tennessee is holding an ownership interest in a loan, lease, note or other assets attributed to Tennessee, and,
  2. the payment obligations were solicited and entered into by a person that is independent and not acting on behalf of the owner.

The Fund was a limited partnership formed and domiciled outside of the U.S. The Fund’s general partner was also domiciled outside of the U.S. and did not have any presence in the country. The Fund’s only activity was receiving payments from the mortgages it owned, which qualified it as a “financial institution” for Tennessee purposes. The Fund’s mortgages were obtained through a third-party investment manager and the Fund’s only involvement in the mortgage procurement process was the closing, which took place outside of Tennessee. Additionally, the Fund’s sole connection with Tennessee was that occasionally some of the mortgages owned by the Fund were located in Tennessee and some of the borrowers could possibly also be located within the state.

The Department of Revenue determined that the Fund’s activities squarely fell within the statutory safe harbor whereby a financial institution is not considered to be “conducting the business of a financial institution” within the state. The Fund was therefore not subject to Tennessee franchise and excise taxes despite otherwise satisfying other elements of the state’s economic nexus test.

Tenn. Dept. Rev. Ruling No. 20-07 (Oct. 8, 2020).

Breen Schiller recently joined the SALT team as a partner based in the Chicago office and we reached out to her family to get the scoop on Marlin, their two-year old “double doodle.”

Breen’s kids remember exactly what inspired his name. “We named him after that fish movie…Finding Nemo! It is Nemo’s dad.”

When asked when and how Marlin joined the family. Breen’s son (Sullivan, 5), says, “We got him in the summer from people.”

Marlin is usually found playing tug-of-war, fetch or going on walks, but his favorite thing to do is scoop up table scraps thanks to Breen’s daughter Quinn, (7). After all, what better way to get rid of your gross veggies than to hand them off to the pup?

All cuteness aside, he still likes to stir up trouble! He absolutely loves to bark, and he sits by the front window to make sure every passing neighbor knows he is the dog in charge.

 

 

 

 

 

 

 

 

 

One of the biggest surprises up Marlin’s sleeve was his ability to change colors after going to the groomer. “When we dropped him off he was brown, and when we picked him up, he was white!” says daughter Avery (7). Thanks to this magic, Marlin is an adorable mix of both brown and white.

We are so excited to introduce Marlin to the SALT family as our October Pet of the Month!

A Louisiana court of appeals affirmed a trial court decision dismissing for lack of personal jurisdiction the Louisiana Department of Revenue’s (“Department”) petition to collect corporate and franchise taxes on over $3.6 million in royalties from nonresident television production company Jeopardy Productions Inc. (“Jeopardy”). Jeopardy earned royalties from Louisiana between 2011 and 2014 through agreements with CBS Television Distribution Group (“CBS”) to distribute the show to TV stations, and International Gaming Tech (“IGT”) to use its trademarks on gaming machines. During the tax years 2011-2014, Jeopardy earned a total of $3,622,595 in royalty income from licensing agreements attributed to Louisiana. The Department filed suit against Jeopardy to collect franchise and corporate taxes on that royalty income.  Jeopardy filed a declamatory exception raising the objection of lack of personal jurisdiction, arguing that it did not transact any business in Louisiana and that Jeopardy’s contacts through unrelated third parties in Louisiana do not rise to the level of minimum contacts required by due process of law.

Ultimately the court found that the nonresident Jeopardy did not have sufficient minimum contacts to satisfy the requirements for specific jurisdiction, and even less so for general jurisdiction. The appeals court affirmed that jurisdiction over Jeopardy was not justified because Jeopardy had zero contacts with Louisiana aside from the activities of unrelated third parties that contracted with CBS and IGT. Jeopardy had no control over where and with whom the licensees, CBS and IGT, choose to market and negotiate distribution of the game show and merchandise. Jeopardy made no intentional or direct contact with Louisiana. Furthermore, each licensing agreement specifically states that Jeopardy is not in a partnership, joint venture, or agency with CBS or IGT.  Relying on the Due Process clause,  the court found that the “random, fortuitous, and attenuated contacts” with Louisiana, initiated by the independent activities of third parties, were simply not sufficient to establish personal jurisdiction over Jeopardy in Louisiana. Moreover, because they found that there was no intentional or direct contact by Jeopardy, there is no reason for Jeopardy to have reasonably anticipated being brought into court in Louisiana.

Robinson v. Jeopardy Prods., Inc., 2020 BL 407045, 4-5 (La. App. 1st Cir. 2020)

On October 7, 2020, the Massachusetts Appeals Court held that a taxpayer’s deduction for payment of the Indiana utility receipts tax (“URT”) was permitted for Massachusetts corporate income tax purposes. The taxpayer who was engaged in natural gas distribution operations in Massachusetts and other states, claimed a deduction for the URT it paid to Indiana on its originally filed Massachusetts corporate income tax returns for the 2012 through 2014 tax years. Upon audit, the tax commissioner asserted that the URT could not be deducted because it was an “income tax” which is not permitted as a deduction under Mass. Gen. Laws ch. 63, § 30(4). Under Massachusetts law no deduction is permitted for “taxes on or measured by income, franchise taxes measured by net income, franchise taxes for the privilege of doing business and capital stock taxes imposed by any state.” Mass. Gen. Laws ch. 63, § 30(4)(iii). When the taxpayer protested the determination to the Massachusetts appellate tax board, the commissioner abandoned its argument that the URT is an income tax and instead argued that the URT is a franchise tax for the privilege of doing business and therefore not deductible under Massachusetts law. The appellate tax board ruled in favor of the commissioner, holding that the URT constituted a franchise tax and was therefore not deductible.

The appeals court reversed the decision of the appellate tax board, holding that the Indiana URT does not constitute a franchise tax imposed for the privilege of doing business in Indiana, finding instead that the URT is essentially a tax on retail sales. The Indiana URT is imposed on gross receipts received in consideration for the “retail sale of utility services for consumption.” Ind. Code § 6-2.3-1-4. Wholesale sales, occasional sales, and sales to the US government are not subject to the URT, and a deduction from gross receipts is permitted for depreciation on certain capital assets. The court found that although the Indiana URT has some unique aspects, such as the ability to deduct depreciation on certain capital expenses, the URT is in substance “fundamentally similar to transaction taxes on retail sales.” As a result, the appeals court held the Indiana URT is a deductible tax for corporate income tax purposes. Bay State Gas Co. v. Comm’r of Revenue, Dkt. No. 19-P-114 (Mass. App. Ct. Oct. 7, 2020)

On October 26, Oregon’s Department of Revenue (DOR) filed a Notice of Proposed Rulemaking for Oregon Administrative Rules 150-314-0465 (broadcaster sourcing) and 150-317-0510 (unitary common ownership threshold). The DOR’s stated need for the proposed amendments were to: (1) clarify that an interstate broadcaster must compute their audience/subscriber ratio using the DOR’s market-based sourcing rule, and (2) modify the common ownership and control percentage (from 80% to 50%) for affiliates in a unitary group.

Read the full Legal Alert here.

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 Florida retirement hot-spot recently repealed its local tourism development tax?

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

The prize for the first response to today’s question is a $20 UBER Eats gift card.

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

This is episode two of our two-part podcast series based upon our webcast addressing SALT Issues Related to Worker Classification and Teleworking. In this marketplace podcast, we discuss SALT issues that teleworking may create for marketplaces with various business models, and provide tips on how to best position your business for the new normal of permanent remote work.  In episode one we focused on ongoing worker classification disputes in California, as well as other states, and the SALT implications resulting from those disputes.

 

 

 Webcasts: 

 Click on this link if you would like to view the hour-long version of this webcast and access the accompanying PowerPoint presentation.