By Dmitrii Gabrielov and Tim Gustafson

The South Carolina Court of Appeals held that all of DIRECTV’s South Carolina customer subscription receipts were properly sourced to the state for purposes of determining DIRECTV’s corporate income tax apportionment factor due to the location of its satellite signal delivery. South Carolina’s apportionment statute requires a taxpayer to source sales of services based on where the taxpayer performs “the income-producing activity.” DIRECTV argued that it generated income through content development, sales and marketing, broadcast operations, and customer service, which were activities it performed primarily outside of South Carolina. The Court of Appeals rejected this argument and found that DIRECTV’s sole income-producing activity related to its South Carolina customer subscription receipts was the delivery of its satellite signal to those customers. The Court of Appeals distinguished a prior decision, Lockwood Greene Eng’rs, Inc., in which it held that an engineering firm must source its receipts based on the engineers’ “place of activity.” The Court of Appeals acknowledged that DIRECTV employs highly-trained engineers and other employees to develop the company’s technology and obtain content, but found that DIRECTV’s customers purchase the end result of the employees’ work, which is the satellite signal delivery. In effect, the Court of Appeals reached a market-based result without explicitly applying a market-based sourcing methodology. DIRECTV, Inc. v. S.C. Dep’t of Revenue, No. 2015-001509 (S.C. Ct. App. Aug. 30, 2017).

On Aug. 28, 2017, in California Cannabis Coalition v. City of Upland, the California Supreme Court held local taxes imposed by taxpayers via initiative are subject to less stringent requirements than taxes imposed by local governments pursuant to Proposition 218. In their article for Law 360, Eversheds Sutherland attorneys Eric Coffill and Robert Merten discuss that this opinion has far-flung ramifications on how local taxes can be imposed in California.

View the full article

On August 31, 2017, the Virginia Supreme Court issued its opinion in Kohl’s Department Stores, Inc. v. Virginia Department of Taxation, holding that only the portion of royalties that are actually taxed by another state falls within its “subject to tax” exception to Virginia’s addback statute for corporate income tax purposes.

  • The Court interpreted the “subject to tax” standard as an “actual” taxation standard.
  • The Court remanded the case to the Circuit Court to determine the portion of the royalty payments actually taxed by another state.
  • Three justices dissented to this opinion finding that the statute is not ambiguous and favored the taxpayer’s application of the statute.

View the full Legal Alert. 

Read our August 2017 posts on stateandlocaltax.com or read each article by clicking on the title. For the latest coverage and commentary on state and local tax developments delivered directly to your phone, download the latest version of the Eversheds Sutherland SALT Shaker app.

FEATURED PUBLICATIONS

  • Videocast: SALT Scoreboard – 2017 Mid-Year Review
    The quarterly Eversheds Sutherland SALT Scoreboard tallies significant state and local tax litigation wins and losses.
  • Sugar-Sweetened Beverage Taxes Burden Taxpayers
    To raise revenue and tackle health concerns, a number of localities have imposed sugar-sweetened beverage (SSB) taxes. However, localities may have limited guidance on how these taxes are administered. Read this Bloomberg BNA article, by Eversheds Sutherland (US) attorneys Jonathan Feldman and Alla Raykin, which discusses the sugar-sweetened beverage tax background, why local SSB taxes are so problematic, and implications for taxpayers.

EVENTS – LEARN ABOUT OUR UPCOMING EVENTS

ANNOUNCEMENTS

Eversheds Sutherland Associate DeAndre Morrow Selected as One of The National Black Lawyers Top 40 Under 40
WASHINGTON—Eversheds Sutherland is pleased to announce that Associate DeAndre R. Morrow has been selected as one of The National Black Lawyers Top 40 Under 40. He joins an elite group of attorneys from Washington DC and across the country as members of the organization composed of outstanding black attorneys under the age of 40 who exemplify superior leadership and achievements in the legal industry and within their communities.

Photo1.jpgMeet five-year-old Eleanor and two-year-old Casper, the beloved pets of Kathryn McClure, Senior State Tax Director at NBC Universal (a Comcast company). Eleanor (Ellie) is a delightful mix of Golden Lab, Keeshond, West Highland Terrier and Dachshund. She came to Kathryn through the Golden Retriever Rescue. Ellie is highly intelligent, very stubborn and resourceful; she can open dog crates, wrought iron gates, the pantry door (and steal the greenies) and has an extensive vocabulary. She loves getting dressed up; she has a tutu for fancy events and a wide variety of sweaters. If you show her a sweater and she wants to wear it, she will let you know and then take it off by herself when she doesn’t want it anymore.

Unfortunately for Ellie, the dreaded mange, which had affected Ellie’s litter, continued to surge again and again. When Kathryn asked the vet what else could be done to help Ellie (as well as two cats who had stress-related health issues because they hate Ellie), the vet’s response was “get a puppy, a very young one. Give Ellie a job and wear out her brain.” Enter Casper, aka The Big Goomba. 

Photo2.jpgCasper is an English Cream Golden Retriever who was eight weeks old and weighed eight pounds when he entered Kathryn’s life. Casper is now a sturdy and trim 105-pound giant; he could be taken for a small Great Pyrenees. He is Kathryn’s third Golden and everyone feels relaxed around him. Casper is a little odd about some things. For example, he will not walk from the hall into the living room; he has to back up like a truck every single time. Casper also is terrified of the cats. One of the cats will sit at the end of the hallway and trap him. He won’t walk past her. Instead he sits and cries for help. Casper has a sense of humor (Ellie doesn’t) and makes Kathryn laugh every day by just being a big goofball. And that horrible mange that plagued Ellie for years? She has not had a single outbreak since Casper entered the family; he is literally worth his weight in gold!  

We are thrilled to feature Eleanor and Casper as our August Pets of the Month!

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

By Debra Salvato and Scott Wright

The Minnesota Tax Court recently held that the annual limitation on net operating losses of an acquired corporation is to be applied only once to a taxpayer’s pre-apportioned income. The taxpayer, Sinclair Broadcast Group, Inc., acquired a company with significant losses to which Section 382 limitations applied. The Commissioner took the position that Sinclair was required to apply Section 382 limitations twice—once on Sinclair’s state net income before apportionment and again to Sinclair’s state taxable income after apportionment under the new corporation’s present year apportionment ratio. The Tax Court rejected the Commissioner’s interpretation, finding that Minnesota’s net operating loss statute requiring Section 382 limitations to be “applied to net income, before apportionment…” was clear and unambiguous. The taxpayer’s position was also supported by the larger policy purpose behind the adoption of Section 382. Sinclair Broadcast Group, Inc., and Subsidiaries v. Comm’r of Revenue, No. 8919-R (Minn. Tax Ct. Aug. 11, 2017).

By Samantha Trencs and Carley Roberts

In a private letter ruling, the Colorado Department of Revenue stated that an affiliated group of corporations engaged in distinctly different commercial activities requiring different apportionment methodologies under Colorado law could use the allocation and apportionment methodology set forth in two previous private letter rulings (PLR-11-002 and PLR 15-005) to calculate the group’s combined income tax liability. Under the rulings, the Department set forth the following steps to calculate the affiliated group’s Colorado income tax liability: (1) eliminate all intercompany transactions; (2) separately calculate the modified federal taxable income for each subgroup; (3) separately allocate income and loss and apportion any apportionable business income or loss using the respective apportionment methodology and factors for each subgroup; (4) add together all business income or loss allocated and apportioned to Colorado for each subgroup to produce the aggregated Colorado tax base; and (5) apply the income tax rate to the aggregated tax base. The Department also noted it is in the process of adopting a new methodology via amendment to its administrative rules and that once these rules become effective, the affiliated group must calculate its combined income tax liability consistent with the amendment. Colo. Dep’t. of Rev., PLR-17-001 (Apr. 27, 2017).

To raise revenue and tackle health concerns, a number of localities have imposed sugar-sweetened beverage (SSB) taxes. However, localities may have limited guidance on how these taxes are administered. Read this Bloomberg BNA article, by Eversheds Sutherland (US) attorneys Jonathan Feldman and Alla Raykin, which discusses:

  • Sugar-sweetened beverage tax background
  • Why are local SSB taxes so problematic?
  • Implications for taxpayers

View the full article.

By Samantha Trencs and Jeff Friedman

The Minnesota Supreme Court respected a foreign entity’s federal check-the-box election for the purpose of determining which entities were included in the Minnesota combined franchise tax reports. The court held that including the income and apportionment factors of a foreign entity that elects under federal tax law to be disregarded as a separate entity did not violate Minnesota’s water’s edge rule. The court determined that the federal treatment as a disregarded entity also meant that it was disregarded for Minnesota franchise tax purposes, and it was therefore treated as part of its domestic parent. Ashland Inc. v. Minnesota Comm’r of Revenue, No. A16-1257 (Minn. Aug. 2, 2017).

WASHINGTON—Eversheds Sutherland is pleased to announce that Associate DeAndre R. Morrow has been selected as one of The National Black Lawyers Top 40 Under 40. He joins an elite group of attorneys from Washington DC and across the country as members of the organization composed of outstanding black attorneys under the age of 40 who exemplify superior leadership and achievements in the legal industry and within their communities.

View the full press release