By Zachary T. Atkins and Open Weaver Banks

In a closely followed case, a Florida district court of appeal held that a proposed assessment is not an assessment for statute of limitations purposes. The Florida Department of Revenue generally has three years to “determine and assess” any tax, penalty or interest due. The Department has long believed that issuing a notice of proposed assessment prior to the expiration of the three-year period satisfies the statute. After conducting a sales and use tax audit, the Department issued a notice of proposed assessment approximately two months before the expiration of the agreed-upon, extended statute of limitations period. The notice indicated that the proposed assessment would become a final assessment after 60 days unless the taxpayer submitted an informal protest. The taxpayer did not submit an informal protest but instead filed a complaint against the Department challenging the validity of the assessment on the grounds that it did not become final prior to the expiration of the statute of limitations. Although the statutory term “assess” was not defined in the general statute of limitations, the court looked to a separate provision in the tax statutes that tolls the “statute of limitations upon the issuance of final assessments” if the taxpayer follows certain informal conference procedures. In finding the Department failed to issue a timely assessment, the court concluded that the legislature could have used the broader term “assessments” if it believed that a proposed assessment was an assessment for statute of limitations purposes. Separately, the taxpayer and the Department had agreed to extend the statute of limitations period for the tax periods under audit to March 31, 2011. The district court of appeal rejected the trial court’s conclusion that the written agreement extended the statute of limitations period with respect to the first sales and use tax period to March 31, 2011, and the statute of limitations for each subsequent period by another month thereafter. Thus, the agreed-upon date applied to all of the tax periods under audit. Verizon Bus. Purchasing, LLC v. State of Fla., Dep’t of Revenue, No. 1D14-3213, 2015 WL 3622356 (Fla. 1st DCA June 11, 2015).

By Robert P. Merten III and Timothy A. Gustafson

The California State Board of Equalization (BOE) has issued a rare ruling on residency topics, finding in favor of individual taxpayers on two issues. First, the BOE found that the taxpayers established domicile in Washington three months earlier than the Franchise Tax Board claimed, because they purchased a fully furnished $2.8 million home, registered to vote, registered automobiles and obtained driver’s licenses in the state. Although the taxpayers only spent six days in Washington and 64 days in California during the pertinent time frame, they sufficiently established that their time spent in California was only for a “temporary or transitory purpose” between post-retirement trips. Second, the BOE concluded that the taxpayers were not liable for $3.7 million in California income tax on payments from a California partnership made to liquidate the newly retired taxpayer’s partnership interest because such payments were non-taxable distributions as opposed to taxable distributive shares or guaranteed payments with a California source. Because the amount at issue was more than $500,000, the BOE must follow its ruling with a written decision. The BOE is currently considering whether the written opinion should take the form of a precedential formal memorandum or a non-precedential summary decision. If the former, then taxpayers will be provided with official BOE California residency guidance for the first time in years. Appeal of Michael J. and Mary E. Bills, Cal. St. Bd. of Equal. (heard May 28, 2015).

New Jersey law contains a little-known, one-sentence provision with substantial implications for companies contesting corporate tax assessments in the New Jersey Tax Court: Filing a Tax Court complaint for one tax year causes the statute of limitations period for assessing additional tax for all subsequent open years to remain open—with no defined closing date—for any issues contested in the Tax Court complaint.

In their article for State Tax Notes, Sutherland attorneys Leah Robinson and Open Weaver Banks discuss how New Jersey corporate taxpayers may inadvertently waive the statute of limitations period for assessment by filing a Tax Court complaint. They also review implications for the law and suggest ways it could be best applied.

View the full article.

On June 2, 2015, the U.S. House of Representatives Judiciary Committee’s Subcommittee on Regulatory Reform, Commercial and Antitrust Law conducted a hearing on three state tax bills: the Mobile Workforce State Income Tax Simplification Act, the Digital Goods and Services Tax Fairness Act, and the Business Activity Tax Simplification Act.

View the full Legal Alert.

By Nicole Boutros and Andrew Appleby

In yet another taxpayer victory, the recently reconstituted New York State Tax Appeals Tribunal determined that the New York State Department of Taxation and Finance improperly denied the taxpayers’ amended returns, which were filed on a combined basis for the 2005 and 2006 tax years (i.e., prior to the 2007 and 2014 law changes). At the lower level, the administrative law judge (ALJ) found that the group did not satisfy the combined reporting filing requirements because it failed to prove the existence of a unitary business and failed to prove that filing on a separate return basis resulted in a distortion of the group’s income (a required element for the tax years at issue).

In reversing the ALJ decision, the Tribunal applied the Mobil 3-factor unitary test (functional integration, centralized management and economies of scale) to determine that the entities were engaged in a unitary business. Specifically, the Tribunal found that the entities (1) were functionally integrated by engaging in the same activity of selling software and related services (in the same or related lines of business), despite the differences between the specific products and services; (2) had centralized management through the corporate strategic planning, budgeting and central office functions (accounting, tax, insurance, legal, human resources, purchasing, marketing and technology); and (3) obtained economies of scale through consolidated purchasing (achieving “significant discounts and reduced costs”), consolidated debt service (subsidiary guarantees, factoring receivables and negative borrowing covenants), and cross-selling of products and services.

Further, the Tribunal determined that distortion resulted from separate filings because the parent: (1) provided the centralized management functions to the subsidiaries without reimbursement; (2) provided the centralized cash management system without reimbursement and access to interest free loans; and (3) benefited from reduced borrowing costs because of factoring the receivables. The Tribunal acknowledged that many of the factors that demonstrated a unitary business also gave rise to a distortion of income. In the Matter of the Petitions of SunGard Capital Corp. & Subsidiaries et al., DTA Nos. 823631, 823632, 823680, 824167, 824256 (N.Y. Tax App. Trib. May 19, 2015).

Read our May 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.

• SALT Pet of the Month: Callie and Cutie 
Meet Callie and Cuite, aka “Callie Poo” and “Cutie Pie”, the nine-and-a-half-year-old Domestic Short Hairs belonging to Margie Tiffert, Senior Manager, State Taxes at Fluor Corporation.
• Hubba, Hubba, Hubba! Money, Money, Money! Who Do You Trust? California and North Carolina Differ on the Constitutionality of Taxing Undistributed Foreign Trust Income
The California Franchise Tax Board (FTB) issued an information letter explaining that a trust is taxable in California if any of the following three conditions are met: (1) the trust has income from California sources; (2) a trustee is a resident of California; or (3) a non-contingent beneficiary is a resident of California.
• Tennessee Follows Illinois and Expands Direct Placement Tax on Non-Admitted Insurance
Illinois enacted a direct placement tax on non-admitted insurance in 2014. However, there is a strong movement in Illinois to repeal or narrow the tax.
• Better Out than In: Texas Court Upholds Property Tax Assessment on Stored Natural Gas
A Texas court ruled that natural gas stored in an underground reservoir is subject to property tax, whether or not the gas is in interstate commerce.
• Tax-Free Conferencing: Vermont Commissioner of Taxes Rules Conference Bridging and Meeting Collaboration Software Services Not Subject to Sales Tax
The Vermont Commissioner of Taxes determined that conference bridging and meeting collaboration software services provided to Vermont customers were not subject to sales and use tax.
• Washington Plays the Name Game: Domain Name Registration Services Are Subject to Sales Tax
The State of Washington Department of Revenue issued public guidance explaining that the initial sale of a domain name by a registrar is subject to retail sales or use tax.

 

Meet Callie and Cutie, aka “Callie Poo” and “Cutie Pie,” the nine-and-a-half-year-old Domestic Short Hairs belonging to Margie Tiffert, Senior Manager, State Taxes at Fluor Corporation.

Thumbnail image for Callie and Cutie.jpegThese sisters have been with Margie since they were eight weeks old. Margie hadn’t planned on going home with two kittens the day she adopted them, but when she was told they were littermates and had never been separated – she couldn’t leave with only one.

Cutie (the larger one) thinks she is the world’s biggest paperweight. Whenever Margie is working at her desk at home, Cutie likes to make herself comfortable on top of a pile of papers, forcing Margie to pull them out from under her to look at them.

Both girls are a bit shy. When the doorbell rings, they head under the bed (or at least under the comforter). Visitors won’t see them for an hour or more, and then two cute little faces will peer around the corner. Eventually, once they are at ease, Callie and Cutie will allow a lucky guest to pet them.

They are not timid at all when it comes to treats and love nearly all kinds – except the healthy ones like grain free or tartar control. They are particularly fond of deli ham. Margie wouldn’t recommend making a sandwich without sharing. She also doesn’t recommend leaving your drink unattended. One day she came back in the room and caught Callie drinking from her glass.  Margie wonders how many other beverages she’s unknowingly shared with the girls over the years!

By Olga Jane Goldberg and Open Weaver Banks

A Texas court ruled that natural gas stored in an underground reservoir is subject to property tax, whether or not the gas is in interstate commerce. Without actually deciding whether the natural gas was in interstate commerce, the Houston Court of Appeals (1st District) held that tax on the stored gas did not violate the Commerce Clause of the U.S. Constitution. The court took care to distinguish Peoples Gas, Light, and Coke Co. v. Harrison Central Appraisal District, 270 S.W.3d 208, 218-19 (Tex. App. – Texarkana 2008, pet. denied), in which the Texarkana Court of Appeals exempted natural gas from property tax because its owner, a natural gas marketer, had no substantial nexus with Texas. The Houston court stressed that Peoples Gas did not have any employees or facilities in Texas; did not have any control over where the unrelated, interstate pipeline company stored Peoples’ natural gas; and had an existing contract to deliver the gas to Chicago. Conversely, ETC Marketing, Ltd., maintained offices and employees in Harris County, Texas; specifically contracted to store its natural gas with its intrastate affiliate, Houston Pipeline; and had not pre-sold the gas stored in the Harris County reservoir to any out-of-state customers. Thus, the court found ETC Marketing had substantial nexus because it purposefully chose to store the gas in Texas “to serve its own business purpose.” ETC Marketing, Ltd. v. Harris County Appraisal District, No. 01-12-00264-CV, 2015 WL 2090399 (Tex. App. – Houston [1st Dist.] May 5, 2015). 

A recording of the Sutherland SALT Quick Call: Deciphering Wynne with Professor Walter Hellerstein is now available. In this Quick Call, Jeff Friedman and Professor Hellerstein discuss the U.S. Supreme Court’s decision in Maryland Comptroller v. Wynne and its implications. 

By Jessie Eisenmenger and Andrew Appleby

The State of Washington Department of Revenue issued public guidance explaining that the initial sale of a domain name by a registrar is subject to retail sales or use tax. A domain name is a unique name that allows users to access a website without using the website’s Internet Protocol (IP) address. Individual users cannot access the global domain name clearinghouse, but instead must use a third-party domain name registrar to purchase a domain name. Under Section 82.04.050(8)(A) of the Revised Code of Washington (Code), taxable retail sales include sales of digital automated services to consumers. A digital automated service is defined under Section 82.04.192(3) of the Code as “any service transferred electronically that uses one or more software applications.” In a prior determination, Det. No. 11-0081, 32 WTD 46 (2013), the Department determined that domain name registration services are digital automated services because the registrar transfers the domain name to the purchaser electronically. In this guidance, the Department makes clear that the initial sale of a domain name by a registrar is a digital automated service subject to retail sales and use tax. Washington Department of Revenue, Tax Topics: Domain Name Registration Services (May 7, 2015).