The Ohio Supreme Court recently heard oral arguments in three cases that could test the constitutionality of the Ohio commercial activity tax (CAT). These cases turn on whether the CAT’s “bright-line” nexus standard violates the dormant Commerce Clause of the United States Constitution. The Ohio Department of Taxation argues, among other things, that the taxpayers’ “virtual” presence in Ohio satisfies substantial nexus as required by the dormant Commerce Clause. If decided on the merits, these cases may have far-reaching consequences for online sellers of goods and services.

In their article for Law360, Sutherland attorneys Jeffrey Friedman and Chris Mehrmann discuss the three cases and review the potential arguments that states will use in both defending factor-based nexus standards and asserting jurisdiction over remote retailers.

View the full article, published by Law60 on May 6, 2016.

By Nicole Boutros and Eric Coffill

The New York State Tax Appeals Tribunal determined that a taxpayer subject to the Article 32 bank franchise tax must use its net operating loss deduction to reduce its entire net income to zero in years in which the bank franchise tax was paid by the taxpayer on an alternative, non-income tax base. The Tribunal reached its decision notwithstanding that the taxpayer would have paid the bank franchise tax on an alternative tax base even without applying the NOL deduction. While New York State tax reform changed the NOL computation for tax years beginning on or after January 1, 2015, taxpayers can still carry over pre-tax reform NOLs to post-tax reform years using the “prior net operating loss” subtraction. As such, New York State bank franchise tax and corporation franchise tax taxpayers may want to consider how this decision affects their unabsorbed NOL base in pre-tax reform years, as such NOLs will enter into their prior net operating loss subtraction pool. In the Matter of the Petition of TD Holdings II, Inc., DTA No. 825329 (N.Y. Tax App. Trib. Apr. 7, 2016).

For the second year, Sutherland Asbill & Brennan LLP is delighted to join TEI’s Audit & Appeals Seminar, sponsor, and lead a full day dedicated to state and local tax controversies covering:

  • Understanding the State Tax Controversy Lifecycle
    Speakers: Marc A. Simonetti, Sutherland; Pilar Mata, Tax Executives Institute
  • Best Practices for Preparing and Managing State Tax Audits
    Speakers: Madison J. Barnett and Michele Borens, Sutherland
  • Best Practices for Protests and Litigation
    Speakers: Timothy A. Gustafson and Carley A. Roberts, Sutherland
  • A Luncheon Panel Comprised of Distinguished State Tax Court Judges
    Panel:
    • Thomas Hammond, Chairman of the Massachusetts Appellate Tax Board
    • Roberta Moseley Nero, President and Commissioner of the New York State Tax Appeals Tribunal
    • Bill Thompson, First Chief Tax Tribunal Judge of the Alabama Tax Tribunal
    • Pilar Mata (Moderator), Tax Executives Institute
  • Settlement Strategies: Getting to Yes!
    Speakers: Jonathan A. Feldman and Leah Robinson, Sutherland
  • Coordinating Federal, State and Multistate Tax Audits and Controversies
    Speakers: Andrew D. Appleby and Maria M. Todorova, Sutherland
  • Industry Perspective of Managing Audits and Litigation
    Panel:
    • Stephanie Anderson, State Tax Counsel at Amazon.com
    • Jaimie Lee, Indirect Tax Senior Manager at Uber USA LLC
    • Jen Galbreath, Director, State and Local Tax Audits at Comcast Corporation
    • Nick Kory, Director and Senior Tax Counsel at IBM Corporation
    • Jeffrey A. Friedman (Moderator), Sutherland

The program will take place June 13-15* in Boston, Massachusetts:

  • June 13-14 – Insights and Skills for Federal Tax Controversy Success
  • June 15 – Managing State and Local Tax Controversies, sponsored by Sutherland

Sutherland also invites attendees to join us for the Red Sox vs. Orioles baseball game the evening of Tuesday, June 14. Join us and register for TEI’s Audits & Appeals Seminar today!

Click here for event details and registration information. #TEIAuditseast

*TEI is also hosting an Audits & Appeals Seminar May 17-19 in Santa Clara, California. The programming for Day 3 will focus on international tax controversies in challenging jurisdictions.

**Limited number available. Official RSVP invite will go out to TEI Audits & Appeals registrants at a later date.

Read our April 2016 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 Sutherland SALT Shaker app.

Whiskey-on-the-couch.jpgMeet Whiskey, a two-and-a-half-year-old Cavalier King Charles Spaniel belonging to Teresa Chiftis, Group Manager-Tax Controversies at Microsoft Corporation, and her husband, Jeff.

During his time as a show dog, this handsome guy used the moniker “Covington Virginia’s Gentleman,” a riff on a type of bourbon whiskey. Keeping with the theme, Teresa and Jeff renamed him “Whiskey” when they adopted him about eight months ago. Other names this sweet boy answers to include Peanut, Whiskey Woo, Woo Woo, and Little Man.

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Whiskey enjoys visiting the park and hiking on nearby trails, though during his first hike, he had no idea what to do when he came upon a fallen log blocking the path. His hiking skills have

 improved tremendously since then, and he now bounds over such obstacles without hesitation.

Whiskey is not a finicky eater and loves all food. He can be a bit skittish but will warm up to just about anyone if treats are involved!

At the end of the day, Whiskey retires to Teresa and Jeff’s bed and almost always manages to position himself so that he and Teresa are touching heads.

He loves his furry brother Rocky and his new parents immensely. Whiskey is a very-deserving Pet of the Month!

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By Charles Capouet and Jeff Friedman

In a 4-4 decision, the U.S. Supreme Court affirmed the Nevada courts’ exercise of jurisdiction over the California Franchise Tax Board (FTB), but held, by a majority of the justices, that the taxpayer could only receive the damages Nevada provides for suits by private citizens against Nevada agencies. The taxpayer, Gilbert Hyatt, sued the FTB in Nevada for abusive audit and investigation practices. The Nevada Supreme Court rejected the FTB’s claims that the U.S. Constitution’s Full Faith and Credit Clause required Nevada to apply California’s sovereign immunity law, holding that Nevada courts, as a matter of comity, would immunize California where Nevada law would similarly immunize its own agencies and officials. The Nevada Supreme Court, however, set aside much of the nearly $500 million in damages awarded by the jury after trial and only affirmed $1 million of the award. Nevada statutes would impose a $50,000 limit in a similar suit against its own officials. The Court held that the Full Faith and Credit Clause does not permit Nevada to award damages against California agencies under Nevada law that are greater than it could award against Nevada agencies in similar circumstances. As a result, the Court held that the taxpayer’s award for damages could not exceed Nevada’s $50,000 limit. Franchise Tax Bd. of California v. Hyatt, No. 14-1175 (U.S. Apr. 19, 2016).

By Evan Hamme and Marc Simonetti

The Texas Comptroller upheld a taxpayer’s separate Franchise Tax return filing position, rejecting an Administrative Law Judge’s finding that the taxpayer and its affiliate shared a strong centralized management structure that required a unitary combined report. Although the companies were commonly owned and shared an administrator, the Comptroller found that, even if the companies shared some centralized management, the companies did not meet the statutory threshold of “strong” centralized management necessary to require a combined return because: (1) the companies operated in completely separate lines of business (the taxpayer ran a cleaning business and its affiliate ran a marketing consulting business); (2) the owner did not participate in the day-to-day management of either company; (3) the companies shared no other employees besides the administrator; and (4) the companies had only one common client. Tex. Cmptl’r Dec. No. 111,557 (Oct. 22, 2015) (released April 2016).

By Elizabeth Cha and Charlie Kearns

In Hegar v. CheckFree Serv. Corp., a Texas Court of Appeals affirmed the trial court’s decision and held that the taxpayer’s online bill pay service was not a taxable data processing service for Texas sales tax purposes. Based on the trial court’s uncontested factual findings, the taxpayer provided “a professional service— facilitated by the use of computers and an electronic commerce system—that required the oversight and management of thousands of certified specialists to achieve the goal of paying the [customer’s bills].” The court of appeals noted that any activities the Comptroller labeled as data processing services were incidental to the professional services provided by the taxpayer. Thus, the court of appeals determined that the “essence of the transaction” was the sale of professional services, not data processing services. Hegar v. CheckFree Serv. Corp., No. 14-15-00027-CV (Tex. App. 14th Dist., April 19, 2016).

Recently proposed Treasury regulations under IRC § 385 would create sweeping changes to the federal income tax treatment of related-party debt. The Proposed Regulations could also have far-reaching effects for state income tax purposes, particularly on the deductibility of intercompany interest expenses in separate company reporting states.

View the full Legal Alert.

Carley.Roberts_TaxAnalysts.jpgSutherland is pleased to announce that Partner Carley A. Roberts has been recognized as one of the “Outstanding Women in Tax” by Tax Analysts, a leading publisher of tax news and analysis.

A group of Tax Analysts editors, reporters and board members reviewed more than 300 submissions, of which only 10 women were honored for having a significant impact on tax practice or tax policy. Carley was recognized for her noteworthy contributions to the California and national state tax communities.

Carley is a nationally recognized California tax litigator, who has developed a significant practice handling cases involving many of California’s most critical state and local tax (SALT) issues, including some of the most important corporate income and sales/use tax cases in litigation and on appeal. She represents a wide range of clients, including technology and financial service providers, energy businesses, retailers, manufacturers, communications providers and media businesses.

“This award is a fitting tribute to Carley’s commitment to her clients and dedication to advancing the SALT community,” said Sutherland Managing Partner Mark D. Wasserman. “We congratulate her on this wonderful honor.”

In 2007, Carley revived the California Tax Policy Conference—the leading conference on developments in the bellwether state for state tax policy. She chaired that event through 2014 and has given selflessly to the California State Bar’s Taxation Section and the California tax community.

Carley has been the recipient of numerous awards and is regularly featured in the legal profession’s “best of” and “who’s who” lists. Most recently, she was recognized as a key influencer in SALT and was featured in a “State Tax Spotlight,” published by State Tax Today, one of Tax Analysts’ weekly print publications. Carley was also named a Law360 2014 Tax MVP of the Year for having the biggest wins and making the most significant contributions to the SALT community.

View the complete Tax Analysts “2016 Outstanding Women in Tax” list.