By Liz Cha and Carley Roberts

The California Court of Appeal held that the entire value of an air taxi company’s jets were subject to the County of Los Angeles 1% personal property tax, despite the fact that the jets spent 40% of their time outside of California. The court reasoned that the brief touchdowns of the jets in out-of-state airports were insufficient for other states to acquire situs over the jets such that California could no longer tax the full value of the aircraft. The court further stated that the landing-based situs rule for aircraft under California Revenue & Tax Code section 1161(b) only applies to fractionally owned aircraft and thus declined to extend this special situs rule to all aircraft. Jetsuite Inc. v. Los Angeles, No. B279273 (2d Dist. 2017).

By Chelsea Marmor and Jonathan Feldman

The Washington Administrative Review and Hearings Division of the Department of Revenue found that an out-of-state diamond and gold wholesaler was subject to the business and occupation (B&O) tax based on in-state consigned property. The wholesaler consigned jewels to Washington jewelry retailers for five days at a time, during which time the retailers had the option to purchase. The audit began when the Department identified the wholesaler as a creditor in financing statements within Washington UCC filings. Upon petition of an assessment for the wholesaling B&O tax, the Hearing Division concluded that the consigned jewels constituted substantial nexus as the person who consigns property retains ownership of that property. Further, the B&O tax applied because the jewels were located in Washington at the time they were sold to the retailer and thus the purchaser received the goods in Washington. Det. No. 17-0057, 36 WTD 529 (2017).

Tax reform efforts, if successful, will have a major impact on virtually every business. There has been a great deal of reporting on the tax reform process and the proposed changes to the US Internal Revenue Code (IRC). This Alert provides a high-level overview of the top 7 tax reform issues that all executives need to know:

  • Current status of tax reform
  • Tax rate for corporations and partnerships and other pass-through income
  • Limitations on interest deductibility
  • Immediate deductibility of otherwise capital costs
  • Changes to the US international tax system
  • State and local tax impacts
  • Compensation and benefits provisions

View the full Legal Alert.

Eversheds Sutherland (US) is a proud sponsor of the COST Pacific Northwest Regional State Tax Seminar on December 7, 2017, in Seattle, Washington. The Eversheds Sutherland SALT Team presents and details of their presentations are below:

“Discussion of National State Tax Cases and Issues”
Speakers: Jeff Friedman and Michele Borens

“The Collision of Formulary Apportionment and Transfer Pricing”
Speakers: Todd Lard and Ted Friedman

“State Tax Policy Update – Including State Tax Implications of Federal Tax Reform”
Speaker: Todd Lard

View details, including registration information, here.

 

Eversheds Sutherland (US) is a proud sponsor of the TEI Silicon Valley Chapter State and Local Tax Day on December 5, 2017, in Santa Clara, California. The Eversheds Sutherland SALT Team presents and details of their presentations are below:

“The Collision of Formulary Apportionment, Alternative Apportionment and Transfer Pricing”
Speakers: Eric Tresh and Tim Gustafson

“State-Level Gross Receipts Taxes:  More to Come?”
Speakers: Jeff Friedman and Marc Simonetti

“Property Tax Disputes – Best Practices”
Speakers: Eric Tresh and Robert Merten

“Sharing is Caring: The Implications of Increased Information Sharing by Revenue Authorities”

Speakers: Carley Roberts and Marc Simonetti

 

“Jurisdictions Overreaching: A Survey of Recent Sales & Use Tax Decisions”
Speakers: Michele Borens and Jeff Friedman

“California’s Department of Taxation & Fee Administration and Office of Tax Appeals:  What Now?”
Speakers: Eric Coffill and Carley Roberts

View details, including registration information, here. 

By Dmitrii Gabrielov and Andrew Appleby

The New York State Department of Taxation and Finance issued an advisory opinion determining that non-US unauthorized life insurance companies’ premiums were not includable in the New York State insurance franchise tax apportionment factor. The Department reasoned that the apportionment statute requires a life insurance company to report its premiums on a basis “consistent with” the Insurance Law filing requirements for authorized insurers. The applicable Insurance Law statute: (1) does not apply to unauthorized insurers; and (2) requires (authorized) non-US insurers to report only their US business and assets. Therefore, the Department concluded that a non-US unauthorized life insurance company’s premiums were neither “New York premiums” nor “total premiums” (the premium factor numerator and denominator, respectively). Notably, the Department relied on Insurance Law filing requirements to determine the insurance companies’ tax treatment. N.Y. Advisory Opinion TSB-A-17(2)C (Oct. 4, 2017).

Eversheds Sutherland (US) is a proud Gold-Level sponsor of the NYU 36th Institute on State and Local Taxation on December 4-5, 2017, in New York, New York. The Eversheds Sutherland SALT Team presents, and the details are below:

Review and Preview of Federal Constitutional Issues
Speaker: Jeffrey A. Friedman

State Tax Aspects of Cross-Border Transactions and Federal Legislation
Speaker: Maria M. Todorova

View details, including registration information, here.

 

The Eversheds Sutherland SALT Team is always excited to see what kind of pets our clients and friends have. Our team features a different pet at the end of every month, and we want to feature YOURS! Featured pets will receive a fun prize from the SALT Team. The deadline for November submissions is Monday, November 27.

To submit your pet to be featured, visit the Eversheds Sutherland SALT Shaker App, click “Pet of the Month” in the drop-down, then click “Submit A Pet.”

Don’t have the app? It is available for download in the Apple App Store, Google Play and the Amazon Appstore.

View previously-featured furry friends.

By Dmitrii Gabrielov and Tim Gustafson

The New York State Supreme Court, Appellate Division, affirmed the New York City Tax Appeals Tribunal’s (Tribunal) determination that certain real estate transactions were subject to the New York City Real Property Transfer Tax (RPTT) under the step transaction doctrine.

The taxpayer and a nonparty owned, respectively, 45% and 55% tenant-in-common interests in New York City real estate. They contributed their tenant-in-common interests to a newly formed LLC in exchange for 45% and 55% LLC membership interests, respectively. On the same day, the taxpayer transferred its 45% LLC membership interest to the nonparty in exchange for cash and debt relief.

In the Tribunal proceeding, the taxpayer argued that the contribution of the 45% tenant-in-common interest to the LLC was exempt from RPTT as a “mere change of form of ownership” and the transfer of the 45% LLC membership interest was exempt as a transfer of a noncontrolling interest in an entity that owns real property. However, the Tribunal applied the step transaction doctrine to characterize these transactions as a taxable transfer of the 45% tenant-in-common interest in exchange for cash and debt relief. The Tribunal found that the contribution agreement contained provisions more typical of a sale than the formation of a joint venture. The Tribunal noted, in part, that the taxpayer was released under its obligations under the mortgage on the property and received back its collateral while the nonparty was not released and had to provide a replacement letter of credit. The nonparty’s obligation to close also was conditioned on the LLC’s interest in the property being insured while the taxpayer’s obligation to close was not.

The Appellate Division affirmed the Tribunal’s application of the step transaction doctrine. The Appellate Division also held that even if the step transaction did not apply, the taxpayer’s contribution to the LLC did not constitute a “mere change of form of ownership” because the taxpayer no longer held a 45% direct or indirect interest in the real property at the conclusion of the same-day transactions. GKK 2 Herald LLC v. N.Y.C. Tax App. Trib., No. 82/16 4074 (N.Y. App. Div., 1st Dep’t Oct. 10, 2017).

By Samantha Trencs and Eric Coffill

The Colorado Court of Appeals held that a corporate parent doing business in Colorado was not required to include its subsidiary holding company that held no property or payroll in Colorado or elsewhere in its Colorado unitary combined corporate income tax report. The holding company was not an “includable” corporation under Colorado’s 80/20 test because it did not have more than 20% of its property and payroll assigned to locations in the US. The court also held that even though the holding company and its foreign subsidiaries (which held property and payroll outside of the US only) elected to be treated as a single C corporation on its federal return under the federal check-the-box regulations, Colorado was not bound by this election for state tax purposes. The court also rejected the Department of Revenue’s economic substance argument to include the holding company in the Colorado combined report. Agilent Technologies, Inc. v. Dep’t of Revenue of Colorado, No. 16CA849 (Colo. App. Nov. 2, 2017).