Eversheds Sutherland is pleased to announce the addition of Breen M. Schiller and Nikki E. Dobay to the firm’s Tax Practice Group as State and Local Tax (SALT) partners. Ms. Schiller will join the firm’s Chicago office and Ms. Dobay will join the firm’s Sacramento office in the next few weeks.

Ms. Schiller is joining the firm from Horwood Marcus & Berk in Chicago, where she had been the Chair of the SALT practice group. In addition to Ms. Schiller’s Illinois tax experience, she has consulted with clients on state and local tax issues across the country, including for several of Eversheds Sutherland’s existing clients. She regularly consults and represents some of the largest taxpayers in the US.





Ms. Dobay is joining from the Council On State Taxation (COST), where she had been senior tax counsel. Ms. Dobay joins former COST lawyers Jeff Friedman and Todd Lard, both of whom represented COST’s members on state tax matters before joining Eversheds Sutherland. She has extensive Oregon tax experience, including with the state’s newly imposed Commercial Activity Tax. Ms. Dobay also has represented clients on state tax policy matters across the US. Her legislative and regulatory experience will add to the firm’s considerable state tax policy practice.


“I am excited to welcome Breen and Nikki to the firm and our Tax Practice,” said Mark D. Wasserman, Co-CEO of Eversheds Sutherland. “Their outstanding reputations and experience will further elevate our SALT services and expand our capabilities in important geographic regions for our clients. We plan to continue to grow our tax practice and the firm overall through internal promotions and additional strategic lateral hiring.”


“We are fortunate to attract Breen and Nikki to our Tax Practice,” said Jeffrey A. Friedman, Partner and Chair of the firm’s Tax Practice Group. “Adding Breen and Nikki also reflects the firm’s focus on growing our Midwest and West Coast tax presence. Their skill sets and unique backgrounds are a natural fit for our group.”


Eversheds Sutherland’s Tax Practice is comprised of more than 100 attorneys representing many of the world’s largest corporations—including more than 35 of the Fortune 100—in every industry sector and in virtually every area of tax law, on the federal, international, state and local levels. By virtue of the size of its tax practice and its varied client base, Eversheds Sutherland is active in every area of taxation—from planning the most complex corporate tax transactions to representing taxpayers in administrative and judicial tax controversies.


About Eversheds Sutherland

As a global top 10 law practice, Eversheds Sutherland provides legal services to a global client base ranging from small and mid-sized businesses to the largest multinationals, acting for 75 of the Fortune 100, 68 of the FTSE 100 and 113 of the Fortune 200.


With more than 3,000 lawyers, Eversheds Sutherland operates in 68 offices in 32 jurisdictions across Africa, Asia, Europe, the Middle East and the United States. In addition, a network of more than 200 related law firms, including formalized alliances in Latin America, Asia Pacific and Africa, provide support around the globe.


Eversheds Sutherland provides the full range of legal services, including corporate and M&A; dispute resolution and litigation; energy and infrastructure; finance; human capital and labor law; intellectual property; real estate and construction; and tax.


Eversheds Sutherland is a global legal practice and comprises two separate legal entities: Eversheds Sutherland (International) LLP (headquartered in the UK) and Eversheds Sutherland (US) LLP (headquartered in the US), and their respective controlled, managed, affiliated and member firms. The use of the name Eversheds Sutherland is for description purposes only and does not imply that the member firms or their controlled, managed or affiliated entities are in a partnership or are part of a global LLP. For more information, visit eversheds-sutherland.com.


			
		


		

	


	
			
		

	

 		
 		
		
		


	 							
									
			
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 west-coast state has four primary taxing agencies?


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!


			
		


		

	


	

	

 		
 		
		
		


	 							
									
			
Arizona’s Supreme Court unanimously held that the city of Phoenix’s fee increase on ride-sharing trips at airports are not “transaction-based” fees and therefore constitutional. In 2016, Phoenix’s City Council had amended its City Code to require commercial ground transportation providers to pay a “trip fee” each time drivers picked up passengers from the Phoenix Sky Harbor International Airport. Arizona’s Attorney General challenged the fee under Article 9, section 25 of Arizona’s Constitution, which prohibits state and local governments from imposing or increasing taxes or other “transaction-based” fees on services. Arizona’s Supreme Court concluded that the trip fees were not based on the passenger’s payment of money, and apply whether or not a fare is paid, and are therefore not transaction-based fees. The court characterized the fees as payment to use airport property for commercial purposes.


State of Arizona v. City of Phoenix; No. CV-20-0019-SA


			
		


		

	


	

	

 		
 		
		
		


	 							
									
			
The Washington Supreme Court held that a business & occupation (“B&O”) tax deduction contained in RCW 82.04.4311 is limited to payments received from Washington and federal programs, but not payments received from other states’ medical programs. The B&O tax is a gross receipts tax imposed on nearly every type of enterprise, including for-profit and not-for-profit hospitals. The taxpayers are Washington hospitals that claimed that their receipt of payments from other states’ medical programs related to patients they treated in Washington State should qualify for the deduction. In deciding that the statutory deduction did not apply to payments from other states, the court relied on a statutory construction principle known as the “series-qualifier” rule and rejected the taxpayers’ application of the “last antecedent” rule. While acknowledging that these principles would produce different results, the Court held – in a footnote – that the statute “unambiguously” requires that payments from other states do not qualify for the deduction. The court also did not have a difficult time dismissing the taxpayers’ claims that applying the deduction to in-state payments but not out-of-state payments violates the Commerce Clause. The court held under the “government function exemption” from the Commerce Clause, disparate treatment between in-state and out-of-state interests is tolerated if the challenged provision (1) benefits the exercise of a government function, and (2) treats private interests the same.


Peacehealth St. Joseph Med. Ctr. v. Dep’t of Revenue, Wash., No. 97557-4 (Aug. 6, 2020).


			
		


		

	


	

	

 		
 		
		
		


	 							
									
			
South Carolina Information Letter No. 20-23 clarified that COVID-19-related surcharges, takeout charges, and the like are subject to sales tax. The information letter, released August 5, “remind[ed]” taxpayers that the 6% sales tax applies to “gross proceeds of sales,” which includes all value that comes from the sale of tangible personal property, such as restaurant meals. The guidance provided four examples of taxable surcharges added to restaurant meals, including coronavirus-related surcharges added to meals ordered through online food delivery marketplaces. Under this guidance, such marketplace facilitators are responsible for collecting and remitting tax on these surcharges.


			
		


		

	


	

	

 		
 		
		
		


	 							
									
			
On August 10, the Virginia Lottery released full draft sports betting regulations for public comment. The regulations will implement H.B. 896/S.B. 384, signed into law on April 22 as Chapter 1218. The proposed regulations concern operations, internal controls, and enforcement. The Virginia Lottery Board will accept public comments regarding the regulations through September 9. The Board must approve final regulations by September 15 and begin accepting initial applications for licenses in October.


			
		


		

	


	

	

 		
 		
		
		


	 							
									
			
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 St. Louis-based army quartermaster prompted the enactment of the federal False Claims Act?


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!


			
		


		

	


	

	

 		
 		
		
		


	 							
									
			
A recent wave of local tax initiatives passed by simple majority vote in cities and counties across California has resulted in either court validation actions or challenges under the state constitution. Article XIII C, Section 2(d) of the California Constitution provides that “[n]o local government may impose, extend, or increase any special tax unless and until that tax is submitted to the electorate and approved by a twothirds vote.” Thus far, trial courts have split as to whether this provision applies to voter-initiated local taxes, and one appellate court already has concluded it does not.


By and large, the cases turn on the interpretation of California Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924, wherein the California Supreme Court held that Article XIII C, Section 2(b) of the California Constitution does not require voter-initiated local general taxes to be submitted to the electorate at a general election, as opposed to a special election. Article XIII C, Section 2(b) states “[n]o local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote” at a “general election.” The Court in Upland concluded that in the context of this specific provision, “local government” does not extend to the electorate and voter initiatives related to local general taxes may be considered in a special election. Given the similarity in language between Article XIII C, Sections 2(b) and 2(d), a San Francisco trial court – and now the First District Court of Appeal – concluded the reasoning and holding of Upland apply and that special taxes introduced by voter initiative only require a simple majority vote. Trial courts in Fresno and Oakland, on the other hand, relied on language in Upland that distinguished the “procedural timing requirement” in Section 2(b) and the “procedural two-thirds vote requirement” in Section 2(d) to conclude Upland does not demand a similar result when interpreting the latter.


This special edition of Eversheds Sutherland’s SALT Scoreboard – California Local Tax Cases, discusses the five key California cases showcasing this divide. A number of the cases are now on appeal, and since one appellate court already weighed in, the question remains whether the California Supreme Court will take review of the case and clarify its decision in Upland.


Read the special edition of the Eversheds Sutherland SALT Scoreboard here.


			
		


		

	


	

	

 		
 		
		
		


	 							
									
			
In this episode we discuss three recent developments, including an electricity tax matter in California (City of Arcata v. Pacific Gas & Electric Co.) a Texas unclaimed property matter (CKD Homes Direct, Ltd v. Comptroller) and a Utah income tax matter.


 


 


 


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On Aug. 11, the California Franchise Tax Board (FTB) held the latest Interested Parties Meeting (IPM) in its three-year long project to amend the state’s alternative apportionment petition regulation. The meeting covered changes in the latest proposed regulation language (PDF) and provided taxpayers with the opportunity to voice concerns regarding potential gaps and ambiguities with the draft language. Once finalized, the regulation will help settle significant uncertainty regarding how taxpayers can preserve their rights and privacy during the alternative apportionment petition process.


Project Background


California Revenue and Taxation Code Section 25137 and FTB Regulation 25137 allow for relief where the standard apportionment formula does not result in a fair representation of a corporate taxpayer’s business activity in California (typically an unusual situation). However, neither the statute nor the current regulation offer taxpayers any guidance on the process for petitioning for such relief.


On June 30, 2017, the FTB held its first interested parties meeting to discuss potential amendments to Regulation 25137 to provide more guidance regarding the Section 25137 Petition process. Follow-up meetings were held on Nov. 26, 2018 and Dec. 4, 2019. The meeting held on Aug. 11 was the latest IPM in this years-long process, but signaled progress in clarifying a few significant taxpayer concerns.


Key Takeaways from the Latest Section 25137 Petition IPM


Highlights from the IPM include:


    

  • Confidentiality: Regulation amendments clarify that the California Public Records Act and the Bagley-Keene Act apply to the decision of the three member FTB board (“the FTB, itself”), and records submitted to the FTB, itself, by the taxpayer or the FTB staff. Accordingly, the decision and any such records are subject to public disclosure. Records that are not submitted directly to the FTB, itself, remain subject to the confidentiality provisions of Cal. Rev. & Tax. Code § 19542.
    • 

  • Right to a Hearing: The FTB clarified that nothing entitles a taxpayer to a Section 25137 Petition hearing. The decision whether to conduct such a hearing remains with the FTB, itself.
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  • Outstanding Exhaustion Issues: A subsequent iteration of the regulation may address whether taxpayers need to go to the FTB, itself, before filing an appeal to the Office of Tax Appeals. Similarly, a taxpayer at the IPM requested a “deemed denial” provision that would allow taxpayers to appeal the FTB’s inaction on a Section 25137 Petition.
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  • Notice Concerns: One taxpayer voiced concern regarding the lack of a requirement to notify a taxpayer of a Section 25137 Petition hearing. A FTB representative said that taxpayers will be notified 30 days before any hearing before the FTB, itself, but more notice is impracticable given the sporadic nature of board meetings.
    • 



For an in-depth look at California’s alternative apportionment process and the FTB’s efforts to amend the Section 25137 Regulation, please see the recent 3-part series in Bloomberg Tax by Eversheds Sutherland SALT partner Timothy A. Gustafson and associate Justin T. Brown: