Thumbnail image for _MG_0332.jpgMeet Zander, the seven-year-old Great Pyrenees belonging to Sutherland SALT Associate Madison Barnett and his family. Already a proud dog owner of two handsome pups, Madison hadn’t planned on adding a third to the Barnett household. That plan changed abruptly four years ago when he nonchalantly showed his wife and daughters an email about a dog whose family had been killed in a tornado. Zander was the lone survivor. Madison explains, “One minute I was reading an email, the next minute my daughters were sobbing, and four hours later I had a new dog living with me. I’m still not sure what happened.”

Rescued through Great Pyrenees Rescue Atlanta, Zander is fiercely loyal and fiercely stubborn. If he thinks something is dangerous, he runs to the kids to guard them. If he thinks a command is ridiculous, he won’t bother to acknowledge it and does what he wants. There is no convincing him that he is not supposed to do things like lick birthday cakes.

Zander spends his time indoors and out. While outside, he enjoys adding his personal touch to the backyard landscape design. If he notices the plants looking too healthy, he immediately gets to work digging them up or trampling them.

Thumbnail image for Thumbnail image for FinsihedProof.jpgZander is also a skilled escape artist. He can open any door in the house and let himself out, and according to Madison, privacy has become a thing of the past. The Barnetts have considered creating a YouTube channel for this canine Houdini to show him plotting and executing his escapes. Even an “escape proof” crate they bought online was no match for Zander. He managed to get out within 15 minutes.

Though he tips the scales at over 100 pounds, this sweet, sociable boy thinks he belongs on everyone’s lap. Guests stare at him in horror while he careens his body into them so he can climb up and get comfortable. He is honored to be August’s Pet of the Month! 

By Charles Capouet and Timothy Gustafson

The Supreme Court of Missouri denied a Missouri corporation’s sales tax refund claims on its sales of trade show displays shipped to out-of-state customers because it did not prove that the title to the goods transferred outside of Missouri. Missouri exempts from sales tax retail sales made in interstate commerce, looking at when title to the goods passes to the purchaser, rather than the ultimate destination of the goods, to determine whether the exemption applies or sales tax is owed. Thus, for the Court, whether sales tax was owed on the transactions depended solely on whether title to the displays transferred inside or outside of Missouri. The only documentary evidence the taxpayer provided of title passage, however, was a blank order form setting out standard terms and conditions for purchase of displays, including a provision that delivery was “F.O.B. manufacturer.” Without evidence of a specific alternative agreement about title passage, the Court held the course of dealing as reflected in the display order governed. In this case, the terms of the display order evidenced that the title transferred to the purchaser upon delivery of the goods to the shipper, within Missouri, for shipment out of state to the customer. Accordingly, the Court concluded the taxpayer was not entitled to a sales tax refund for sales of goods shipped out of state. VisionStream, Inc. v. Dir. of Revenue, No. SC94441, 2015 WL 3978835 (Mo. Jun. 30, 2015) (en banc). 

By Nicole Boutros and Amy Nogid

The New Jersey Tax Court ruled that the Division of Taxation (“Division”) properly required a foreign (non-New Jersey domesticated) corporation to file corporation business tax (“CBT”) returns reporting licensing revenue from its parent attributable to New Jersey, based on New Jersey’s economic presence nexus standard, despite the parent’s royalty expense addback in computing its CBT liability. The licensing subsidiary filed CBT returns before New Jersey’s enactment of the addback provision; once the parent corporation became obligated to add back the royalty expenses to its income, the licensing subsidiary ceased filing CBT returns, asserting that the parent’s royalty expense addback captured the income. In rejecting the subsidiary’s position, the court explained that the subsidiary was taxable under New Jersey’s CBT subjectivity provisions (specifically, the economic presence nexus standard), and that such provision and the royalty addback provision do not operate in the alternative, as neither provision contains a cross-reference to or an exception with respect to the other provision. The court also rejected the argument that requiring the subsidiary to file a return when the parent had already added back the royalty payments it made to the subsidiary would result in unconstitutional double taxation. The court explained that statutory and regulatory mechanisms existed to eliminate the possibility of double taxation, including the payor’s ability to assert relief under the unreasonableness exception to the addback statute and the Division’s “subject to tax” exception, as well as the payee’s ability to request discretionary relief from the Division (“Section 8” relief). Failing to take advantage of any of the relief mechanisms made the subsidiary’s claim of unconstitutional double taxation “questionable.” The court, nevertheless, left open the possibility for Section 8 relief once the subsidiary filed the returns and emphasized that the Division must ensure that it taxes such income only once. Spring Licensing Grp., Inc. v. Dir., Div. of Taxation, No. 010001-2010 (N.J. Tax Ct. Aug. 14, 2015).

By Olga Goldberg and Andrew Appleby

The Texas Court of Appeals held that a taxpayer was not entitled to elect the Multistate Tax Compact (MTC) three-factor formula because the Texas franchise (margin) tax is not an “income tax,” as defined in the MTC. Specifically, the court ruled that the franchise tax is not “imposed on or measured by net income.” Relying on the plain meaning, dictionary definition of “net income,” the court reasoned that all expenses must be deducted for a tax to qualify as an “income tax.” For franchise tax purposes, conversely, a taxpayer’s margin is computed by deducting a flat amount unrelated to expenses (e.g., 30%) or certain limited expenses (e.g., costs of goods sold). The court also rejected the taxpayer’s reliance on Int’l Bus. Machines Corp. v. Dep’t of Treasury, 852 N.W.2d 865 (Mich. 2014), which held that Michigan’s modified gross receipts tax was an “income tax” under the MTC. Because the Michigan tax was a “variation of net income,” the court determined that the tax was not “sufficiently similar” to Texas’s franchise tax.

Because the MTC election applies only to an income tax, the court did not decide the taxpayer’s two other issues: (1) whether the single-factor formula repealed the election by implication; and (2) whether the MTC is a binding, interstate compact. However, the opinion indicates that the Legislature intended to exclude the three-factor formula election when it restructured the franchise tax in 2006. Graphic Packaging Corp. v. Hegar, No. 03-14-00197-CV (Tex. App.—Austin July 28, 2015, no pet. h.).

By Stephen Burroughs and Amy Nogid

The Superior Court of Arizona, Maricopa County, rejected the Department of Revenue’s request that rental car companies be granted only prospective relief from the court’s earlier decision which declared the car rental charge illegal. The voter-approved surcharge was enacted for the Arizona Tourism and Sports Authority to finance the Arizona Cardinals’ football stadium and other tourism-related activities. The superior court, however, had declared it illegal because the Arizona Constitution requires that taxes relating to the operation or use of vehicles be used for highway-related purposes. Stadium financing and tourism promotion fell outside of this limitation. In its latest ruling, the superior court said that car rental companies are entitled to refunds under Arizona precedence interpreting McKesson v. Division. of Alcoholic Beverages & Tobacco. The court observed that refunds would result in a windfall to car rental companies because they generally pass the surcharge on to their customers. While the court noted that McKesson might permit prospective-only relief if retroactive application would result in a windfall to taxpayers, it also acknowledged that it was bound by two decisions of the Arizona court of appeals mandating retroactive relief when a tax is declared illegal. 

The court did not address whether a car rental company must refund the illegal tax to its customers prior to claiming a refund for itself. This may be in response to dicta from the resolution of a 2007 class action suit brought by customers challenging the same tax. There the court of appeals stated that because the incidence of the car rental surcharge fell on car rental companies, if it were declared illegal car rental companies would receive the refund and not be required to pass the refund on to customers. This stands in contrast to several other jurisdictions which generally require that vendors, as a prerequisite to a valid refund request, first refund the contested amounts to their consumers. Saban Rent-A-Car LLC v. Ariz. Dep’t of Revenue, TX 2010-00189 (Sup. Ct. Maricopa Cnty. July 28, 2015). 

Sutherland Asbill & Brennan LLP invites you to join us for a State and Local Tax Roundtable in Houston, Texas on September 10.This program will cover a variety of topics, including:

  • State Taxation of Commodities Trading Transactions 
  • SALT Issues in M&A 
  • Alternative Apportionment: Can Two Play that Game? 
  • Credits and Incentives 

Since late 2008, the New York State Department of Taxation and Finance has routinely taken the position that charges for application service provider services, software as a service, or other online services may be subject to New York sales tax as licenses of software. Some sellers began collecting sales tax on this basis, and the Department has audited and assessed many sellers who did not.

In their article for State Tax Notes, part one of a two-part series, Sutherland attorneys Leah Robinson and Evan M. Hamme provide a roadmap for challenging a “remote access” audit. While the article focuses on a New York audit, the approach should be considered in other states as well.

View the full article, reprinted from the July 27, 2015, issue of State Tax Notes.

On August 7, the Chicago Department of Finance delayed the effective date of the imposition of the Personal Property Lease Transaction Tax on cloud computing services from September 1, 2015, to January 1, 2016. However, the Department did not delay the effective date of the imposition of the Amusement Tax on streaming services. Chicago will seek to impose the Amusement Tax on streaming services beginning September 1, 2015.

View the full Legal Alert.

Read our July 2015 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 mobile app.

• Hog Wild: In Harley-Davidson, California Court of Appeal Finds Discrimination, Affirms Nexus
The California Court of Appeal held that California’s disparate treatment of intrastate and interstate unitary businesses discriminated against interstate commerce.
• SALT Pets of the Month: the Packard Crew
Meet Archon, Little Allu, Ifrit, Parunga and Zegan, all belonging to Damien Packard, user support coordinator in the Houston office, and his wife Chelsy.
• No Appeal From Georgia Tax Tribunal’s Decision on Texas Franchise Tax
Eight months ago, the Georgia Tax Tribunal held in Rosenberg that the Texas franchise tax (TFT) is a tax “on or measured by income” that qualifies for the pass-through entity owner’s subtraction modification available to individual Georgia residents (See prior coverage).
• Bridging the Gap: Illinois Provides Guidance on Videoconferencing Broker and Bridging Services
The Illinois Department of Revenue issued a General Information Letter explaining how it will apply retailers’ occupation tax (ROT) and telecommunications excise tax (TET) to videoconferencing services.
• A Reasonable Result in Massachusetts: Related Party Interest Deductions Allowed Under the Unreasonable Exception
In a significant taxpayer win, the Massachusetts Appellate Tax Board (ATB) held that intercompany interest payments from a wholly owned subsidiary to Massachusetts Mutual Life Insurance Company (MassMutual) were bona fide loans and were deductible for excise tax purposes.
• Out of Steam: Nuclear Power Company Loses Bid for New York Manufacturing Tax Credits
A New York appellate court denied a nuclear power company’s bid for manufacturing tax credits, finding that equipment used at two power plants to produce steam and water during the electricity generation process was not used for manufacturing.
• Room for Sale: Rent-to-Own Is a Retail Trade Under the Texas Franchise Tax
The Texas Court of Appeals ruled that Rent-A-Center is primarily engaged in retail trade and thus qualifies for the lower 0.5% franchise tax rate available to retailers and wholesalers.

 

Thumbnail image for IMAG1068_Fotor.jpgMeet Archon, Little Allu, Ifrit, Parunga and Zegan, all belonging to Damien Packard, user support coordinator in the Houston office, and his wife Chelsy.

Archon is a German Shepherd that celebrated his first birthday in May. Along with Little Allu, the Chilean rose hair tarantula, he was a birthday gift for Chelsy last year.

Of the many pets Damien and Chelsy have owned together, Archon is the first canine to join the Packard pack. This sweet boy enjoys visits to the dog park, training sessions and playing with the vacuum cleaner.

Archon and the vacuum cleaner weren’t always on friendly terms; it used to terrify him. Chelsy and Damien had the idea to scold the appliance as if it were another dog so Archon wouldn’t feel threatened. Now, whenever Chelsy takes the vacuum cleaner out of the closet, Archon immediately tries to play with it. He’ll puppy bow, bark and hop around.  Sometimes when it’s left out, Chelsy finds Archon sleeping next to it or licking it.

Archon dislikes the sounds of plastic bags and cardboard – the rustling, popping and tearing send him running for cover – usually to the safety of the computer room, under Damien’s desk. His favorite treats include ice cubes, peanut butter, yogurt and bully sticks, and his most treasured toy is a six-foot squeaker snake that he carries around everywhere.

Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for 20131228_200530_Fotor_Fotor_Collage_Fotor.jpgThe Packard household is not limited to only snakes of the squeaker variety. Damien and Chelsy also own two ball pythons, Parunga and Zegan. They, like Ifrit the veiltail betta fish, were rescued from a negligent pet store.Thumbnail image for 20150515_213915_Fotor_Fotor_Collage_Fotor.jpg

Both pythons are calm and gentle and prefer to stay in their terrariums. Feeding day is an exciting time for these two, and they definitely show it. Parunga gets what is commonly referred to as the “wobbles,” and Zegan will waggle his tail when he grabs his dinner. Archon loves to watch the snakes eat – Chelsy thinks it might be the smell of the feeder rats that Archon is really interested in.

Archon and his exotic siblings are honored to be featured as the July Pets of the Month!

Thumbnail image for 10308355_796746953670897_1683682816579929667_n_Fotor_Fotor.jpgThumbnail image for Thumbnail image for Thumbnail image for 20140527_213652_Fotor_Fotor.jpg