By Doug Upton and Madison Barnett

The Michigan Court of Appeals held that a taxpayer was precluded from recovering sales tax it voluntary paid in response to a preliminary audit determination, even though assessment of the tax may have otherwise been barred under the four-year statute of limitations. The court reasoned that a preliminary audit determination is not an “assessment” and, as a result, the four-year statute of limitations on assessments was not triggered to bar the audit determination. Because the statute of limitations did not apply, the court declined to review whether an amendment to the statute of limitations period applied retroactively to prevent the Department from assessing tax at the time it issued its preliminary determination or to prevent the taxpayer’s resulting claim for refund. W. Soule & Co. v. Dept. of Treasury, No. 329213 (Mich. Ct. App. Jan. 17, 2017) (unpublished).  

In a rare special meeting on February 24, 2017, the Multistate Tax Commission (MTC) adopted amendments to the MTC’s Model General Allocation and Apportionment Regulations that it has worked on since 2014. Among other things, the 94-page Model Regulations:

  • Provide a new section related to market-based sourcing of receipts from the sale of services and intangibles.
  • Clarify the definition of “apportionable income,” narrow the definition of “receipts” and remove the requirement for equal weighting of the three-factor apportionment formula.
  • Eliminate the portion of Section 18 related to the receipts factor along with the corresponding examples.

View the full Legal Alert.

Read our February 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.

up square.jpgMeet Raven, the lovely Labrador retriever belonging to Sacramento SALT receptionist Sheryl Burns and her family. Raven turns 14 in April and has been a member of the Burns household since she was only six weeks old.

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Also known as Ravey Gravy and Nini Bear, Raven will not hesitate to lick visitors, and she loves to drink out of the toilet. She is a very sociable girl who wants to be where the action is and stays near Sheryl and her husband almost constantly when they’re at home.

In her younger years, Raven spent her days on squirrel patrol, happily chasing squirrels away from the yard. These days, her hips don’t allow her to run and jump like she used to, so she prefers to nap in the sun or carry around her babies (toys). Currently, her favorite toy is her quail, and if she can’t find her quail, her penguin will do.

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This sweet senior gal is honored to be February’s Pet of the Month!

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By Charles Capouet and Andrew Appleby

The Florida Department of Revenue determined that a reinsurer did not have nexus with Florida for corporate income tax purposes.  The Department first asserted that an insurer or reinsurer would have nexus with Florida if it was authorized to transact business in the state.  The Department also stated that nexus would exist if an approved reinsurer reinsured policies from an insurer domiciled in Florida.  In this case, the reinsurer did not have nexus with Florida because: (1) it was not an approved reinsurer and was not registered with the Florida Office of Insurance Regulation; and (2) the ceding companies were not domiciled in Florida.  The Department also addressed an insurance company’s apportionment factor, which depends on whether the ceding insurance companies are resident, or have a regional home office, in Florida.  Fla. Technical Assistance Advisement No. 17C1-001, Fla. Dep’t of Rev., Jan. 13, 2017.

By Zack Atkins & Open Weaver Banks

The Utah State Tax Commission ruled that machinery and equipment purchased by the owner of a social networking community qualified for the state’s exemption for purchases and leases of certain property used in the operation of a web search portal.  In connection with its proposed construction and operation of a data center campus in Utah, the taxpayer anticipated buying, among other things, computer servers, fiber infrastructure and network equipment, power equipment and infrastructure, backup generators, fire suppression equipment, security equipment, electrical substations, and cooling equipment.  Utah exempts from sales and use tax purchases and leases by an in-state establishment described in NAICS Code 518112, Web Search Portals, of machinery, equipment, and parts used in the operation of a web search portal and with an economic life of at least three years.  The Commission concluded that the taxpayer was described in the requisite NAICS Code and the proposed data center qualified as an in-state establishment.  It also determined that the taxpayer’s anticipated machinery and equipment purchases would qualify for the exemption, with three exceptions.  Fire suppression, security and cooling equipment, the Commission said, would not be used in the operation of the web search portal; rather, that equipment would be used to provide a proper environment for other categories of machinery and equipment to operate the web search portal. Utah State Tax Comm’n, Private Letter Rul. No. 16-001.

By Nicole Boutros and Eric Coffill

The Alabama Tax Tribunal held that a taxpayer banking corporation properly deducted dividends received from an affiliated real estate investment trust (REIT) for financial institution excise tax purposes because the REIT qualified as a “corporation.” The Tribunal rejected the Department of Revenue’s assertion that the REIT was not a corporation based on its tax treatment as a REIT, explaining that the deduction applies more broadly to dividends received from payor entities that are corporations organized and existing under Alabama law. The Tribunal further disagreed with the Department of Revenue’s assertion that the REIT was a financial institution and therefore was not a “corporation,” finding that the REIT did not meet the requirements to qualify as a bank. Ameris Bank v. Ala. Dep’t of Revenue, Docket No. BIT. 16-255 (Ala. Tax Trib. Feb. 9, 2017).

For more than 25 years, The Tax Executives Institute has met the tax controversy needs of the in-house professional community through its Audits & Appeals Seminar. Leading practitioners, regulators, policymakers and jurists join TEI annually to discuss the nuts, bolts and nuances of tax controversy.

Eversheds Sutherland is delighted to participate in a full day (May 3, 2017) on Managing State and Local Tax Controversies, which includes sessions on:

  • Filing strategies
  • Audit management
  • Assessments and protests
  • Litigation and select controversy issues
  • Panels featuring state tax judges and industry professionals

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TEI’s Audits & Appeals Seminar will take place May 1-3, 2017, in Seattle, Washington:

  • May 1-2: Insights and Skills for Federal Tax Controversy Success
  • May 3: Managing State and Local Tax Controversies, sponsored by Eversheds Sutherland

You are invited to register for all three seminar days, the first two days or the final day devoted to state and local tax controversy, depending on your individual needs.

View details and register now!

The Georgia Tax Tribunal, in its first published decisions in more than a year, held that:

  • Scholastic Book Clubs has nexus in Georgia and must collect sales tax as a result of its relationship with teachers in the state; and
  • In a case affording significant deference to the Department’s regulations, a taxpayer that elects to claim one tax credit for creating jobs cannot change its election in later tax years and instead claim an alternative credit.

View the full Legal Alert.

By Chelsea Marmor and Amy Nogid

The US Court of Appeals for the Eighth Circuit affirmed the district court and held that it lacked jurisdiction under the Tax Injunction Act  and the principles of comity to “enjoin, suspend or restrain the assessment, levy or collection” of any Ohio tax where a “plain, speedy and efficient remedy” exists in an Ohio court. Diversified Ingredients, Inc. (Diversified), a Missouri company not registered to do business in Ohio and having no employees or offices in Ohio, sold goods manufactured outside of Ohio to customers in Ohio. Diversified sought a declaration that the Interstate Income Act (IIA), 15 U.S.C. § 381, often referred to as Public Law 86-272, which limits the authority of states to impose net income taxes, deprived Ohio of the jurisdiction to assess and collect commercial activity tax (CAT). Diversified argued that because the CAT statute provides that the CAT is not subject to the IIA, a plain remedy does not exist. Diversified also argued that federal courts have exclusive jurisdiction over the interpretation and enforcement of the IIA. The court disagreed, holding that the IIA does not explicitly provide for exclusive federal jurisdiction, and that Ohio provides the right to appeal to an appellate court that can determine whether the statute violates the IIA “regardless of the Ohio Legislature’s contrary intention.” Diversified Ingredients, Inc. v. Testa, No. 16-2791 (8th Cir. Jan. 23, 2017).