In a 5-to-4 decision, the US Supreme Court held that states retain sovereign immunity from private suits brought by individuals in courts of other states, and therefore, overruled its prior decision in Nevada v. Hall, 440 US 410 (1979). The decision arose from a longstanding dispute brought by an individual taxpayer against the California Franchise Tax Board (FTB) alleging abusive audit and investigative practices. By overruling Hall, the court ultimately held that the FTB is immune from the individual’s suit in a Nevada court. Writing for the majority, the Court acknowledged that “[b]ecause of our decision to overrule Hall, [the individual taxpayer] unfortunately will suffer the loss of two decades of litigation expenses and a final judgment against the [FTB] for its egregious conduct.” (Franchise Tax Bd. of California v. Hyatt, No. 17-1299, ___ U.S. ___, (2019))

In a case of first impression, a New York administrative law judge (ALJ) ruled that a corporate member of a disregarded limited liability company was not permitted to use a special apportionment rule for broker-dealers even though the disregarded entity was a registered broker-dealer.

Read the full article here.

Romeo Trencs was named after one of the greatest love stories of all time. So it is only fitting that he now finds himself wrapped up in another love story of epic proportions. Romeo’s owners, Eversheds Sutherland Associate Samantha Trencs and her fiancé Davis Jenkins, are planning for their wedding this August. 

Romeo, an apricot Toy Poodle, has been tasked with the all-important role of pup-of-honor and has taken his responsibilities quite seriously. He has been heavily involved throughout the planning process, but his favorite task by far has been the food tasting. While he was not able to convince his owners to choose bacon or salmon as the main course, he was happy to settle for one of his other favorites – beef sirloin.

Romeo is also an avid skier and has been hoping he could convince his parents to spend their honeymoon at one of his favorite ski resorts in either Vail, Colorado or outside of Toronto, Canada. However, Samantha and Davis have their hearts set on exploring elsewhere (and dog-free). Still, Romeo has his bags packed and lift pass ready to go just in case. 

We are thrilled to feature Romeo as our May Pet of the Month!

The Maryland Court of Special Appeals held that the Maryland Tax Court erred as a matter of law in ruling that none of the equipment purchased by a public utility company and used in transmitting electricity from a third-party power plant to the utility’s customers in Maryland qualified for a sales tax exemption applicable to property used in a “production activity.”  A “production activity” is defined by statute to mean, among other things, “processing” Tangible Personal Property (“TPP”) for resale.  The Court explained that within the utility’s transmission and delivery network, the voltage of the electricity (which is treated as TPP in Maryland) is stepped up and stepped down, as needed, to ensure that it travels long distances and is made available to the utility’s customers at a voltage that is appropriate for the intended residential or commercial use.  The Court concluded that “some degree of processing was required” between the point at which the utility received the electricity from the generating plant and the point of delivery to its customers, and that there was no rational basis for the Tax Court to rule that such activity does not fall within the statutory definition of a “production activity.”  Potomac Edison Co. v. Maryland Comptroller of the Treasury, Dkt. No. 1645 (Md. Ct. Spec. App. Apr. 29, 2019).

The Florida District Court of Appeal reversed the trial court’s certification of a class in a sales tax refund claim because the class was not “ascertainable.” Plaintiff filed suit against BJ’s Wholesale Club, Inc. (“BJ’s”) alleging that BJ’s thirty-one Florida stores improperly imposed sales tax on the full, undiscounted price of products purchased with a discount. The court held that the class was not ascertainable because: (i) the tax issue only affected Florida stores, (ii) members were not members of specific stores, and (iii) any member could make a purchase in a Florida store. Therefore, the court reasoned that BJ’s nationwide membership program, which was not tied to store location, could not be an ascertainable class because the membership program included every current and future BJ’s member or did not include anyone, as membership is not limited by state.

BJ’s Wholesale Club, Inc., and State of Florida Department of Revenue v. Laura Bugliaro, et al., Nos. 3D17-1495 and 3D17-1476 (Fla. Dist. Ct. App. 2019).

Doug Mo, Of Counsel in Eversheds Sutherland’s SALT group, is well known for his deep knowledge of property tax. Today we would also like to share with you his other enterprise, Mo Family Vineyards. Born out of, as Doug puts it, “a 30-year love affair with wine” and a desire to give back (all of the profits go to animal rescue) the family started their vineyard when they moved to the Sonoma Valley in 2006.

Today they produce wine from estate grown grapes, olive oil from their own trees and additional wine varietals from Russian River Valley-sourced grapes.  Our favorite is the Fancy Dog Cabernet Sauvignon, named after Riley, their Border Collie/Labrador mix with a label designed by Doug’s son Benjamin. It is a rich Cabernet that takes on a whole other dimension when paired with chocolate, adding an anise finish (according to this happy taster.)

We congratulate the Mo family for producing terrific wine and supporting a worthy cause. Please view this short video to meet Doug and see their inspiring rescue dogs.

 

On April 1, 2019, the Arkansas Office of Hearings and Appeals held that a taxpayer could not deduct interest expense for long-term debt used to finance a cash dividend as a non-business expense allocable to Arkansas because there was no corresponding non-business income allocable to the state.

The taxpayer was a corporation based in Arkansas that separated from its parent company. In connection with the separation, the taxpayer obtained third-party long-term debt to finance a cash dividend, which resulted in interest expense for the taxpayer. The taxpayer argued the interest expense should be classified as non-business expense allocable to Arkansas because it satisfied the transactional and functional tests under the Uniform Division for Income Tax Purposes Act (UDITPA). The administrative law judge held, however, that UDITPA’s business and non-business classifications only apply to income and there is no independent characterization of expenses apart from income. Thus, parsing of expenses occurs only after business and non-business income is determined. Here, because the interest expense was not linked to the generation of non-business income directly sourced to Arkansas, the interest expense could not be characterized as a non-business expense allocated to the state. Administrative Decision Nos. 19-185 & 19-186, Ark. Dep’t of Fin. & Admin. (Apr. 1, 2019).

The New Jersey Tax Court held that a parent corporation was not required to add back to its corporation business tax base any amount of royalty payments it made to a subsidiary. The parent company and subsidiary company each filed a New Jersey CBT return. The parent deducted the royalty payment, and the subsidiary included the royalty in its CBT base. New Jersey law generally requires taxpayers to add back federal deductions for royalties paid to related parties except in the case where the taxpayer can show by clear and convincing evidence as determined by the Division of Taxation that the addback is unreasonable. In this case, because the subsidiary’s allocation factor was lower than the parent’s, the Division of Taxation argued that the parent corporation was only entitled to a partial exception from the addback for royalties paid. The Tax Court disagreed and determined that the taxpayer was not required to add back any amount of royalties because the full amount of the royalties had been reported on the subsidiary’s CBT return, and the subsidiary paid tax on the royalties allocated to New Jersey. The court was “hard-pressed to accept Taxation’s argument that there was a mismatch of income and expense solely due to the difference in the unchallenged allocation factors of Parent and Subsidiary” and, accordingly, held that an addback of any amount on the parent’s return would be unreasonable.

Lorillard Tobacco Co. v. Dir., Div. of Taxation, No. 008305-2007 (NJ Tax Ct. Feb. 27, 2019).