By Andrew Appleby

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. Tennessee has now legislatively expanded its direct placement tax on non-admitted insurance, falling in line with many other states, including Illinois. Previously, Tennessee imposed a direct placement tax only on limited lines of insurance (such as marine insurance). Many states are now focusing on direct placement taxes after the Nonadmitted and Reinsurance Reform Act (NRRA) altered the tax landscape. The NRRA, part of the Dodd-Frank legislation, mandates that only an insured’s home state may impose tax on premiums paid for non-admitted insurance. Tenn. SB 82, amending Tenn. Code Ann. § 56-2-411.      

By Michael Penza and Timothy Gustafson

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. The letter elaborated that where a trust accumulates income from both California and foreign sources, California taxes 100% of the California source income, plus a percentage of the foreign source income reflecting the proportion of trustees and beneficiaries residing in California to trustees and beneficiaries residing outside of California. California FTB Information Letter No. 2015-02 (April 21, 2015).

The information letter is consistent with the California Supreme Court’s ruling in McCulloch v. Franchise Tax Board, 390 P.2d 412 (Cal. 1964), which held that California could tax a foreign trust’s undistributed income based on a beneficiary’s California residence without violating the federal Constitution. A North Carolina Superior Court, however, reached the opposite conclusion in The Kimberley Rice Kaestner 1992 Family Trust v. North Carolina Department of Revenue. In Kaestner, the trust’s only connection to the state was through its beneficiary, a North Carolina resident. The trust did not hold any real or personal property in North Carolina; it did not generate any income from direct investments in North Carolina; it did not maintain any records in North Carolina; and its sole trustee did not reside in North Carolina. Accordingly, the court held that the federal Due Process Clause prevented North Carolina from taxing the trust’s undistributed income because: (1) the trust did not have a physical presence in the state, or derive any income from sources within the state; and (2) the trust did not receive any benefits from the state that could justify the tax imposed. Similarly, the court held that the Commerce Clause prevented the state from taxing the trust because: (1) the trust did not have substantial nexus with the state; and (2) the tax was not fairly related to the services provided by the state. The Kimberley Rice Kaestner 1992 Family Trust v. North Carolina Department of Revenue, Docket No. 12 CVS 8740 (N.C. Super. Ct., April 23, 2015).

Following Monday’s U.S. Supreme Court decision that Maryland’s personal income tax regime is unconstitutional, join Sutherland SALT and Professor Wally Hellerstein, University of Georgia Taxation Law Professor and author of State Taxation, on Thursday, May 21 at 2:00 p.m. EST for a discussion including an analysis and potential implications of the Court’s ruling. To learn more or to register, click here. 

By Suzanne Palms and Timothy Gustafson

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. The service provider’s conference bridging service allowed customers to call into a number with an access code to participate in a conference call for both an annual and a monthly subscription fee. The meeting collaboration software service allowed audio and video conferencing along with the use of shared computer screens and files during the conference. Customers were charged based on a per-minute access fee. The Commissioner ruled that the conference bridging service was not a taxable telecommunications service, but was instead specifically exempt as an ancillary “vertical service” under Code of Vt. Rules § 1.9771(5)-2.B.1, which is defined to include “conference bridging services.” Additionally, the Commissioner determined that the meeting collaboration software service was not a taxable telecommunications service because customers were only purchasing the ability to share and access information from the service provider, and they paid other third parties for Internet access and voice transmission services. Furthermore, the customers did not receive a disk containing the service provider’s software nor did they download, host, or directly access the software. Finally, since the conference bridging and meeting collaboration software services were separately exempt, the Commissioner found that bundled transactions including both services were also exempt. Vermont Formal Ruling No. 2015-01, Vermont Department of Taxes, May 1, 2015.

View the full Legal Alert.

A divided U.S. Supreme Court ruled that Maryland’s personal income tax regime is unconstitutional. Comptroller of the Treasury v. Wynne, 575 U.S. __ (2015). The Court affirmed the Maryland Court of Appeals in a 5-4 decision and held that Maryland unconstitutionally created the risk of multiple taxation.

View the full Legal Alert.

This morning the U.S. Supreme Court ruled that Maryland’s personal income tax regime is unconstitutional. By failing to provide a full credit to its residents for taxes paid to other states, Maryland unconstitutionally created the risk of multiple taxation. The Maryland Court of Appeals was affirmed. The decision was 5-4, with the majority opinion authored by Justice Alito. Dissenting opinions were authored by Justices Scalia, Thomas and Ginsburg. Sutherland will release a comprehensive Legal Alert later today.

Sutherland and the Tax Executives Institute (TEI) are pleased to present this first ever full-day program dedicated to the “Theory, Strategy and Practice of State Tax Controversy” in San Francisco, California on May 21. Topics covered will include:

Continue Reading Join Sutherland and TEI for a full day SALT controversy workshop at the 2015 Audits and Appeals Seminar in San Francisco (May 19-21, 2015)

In New Jersey, Governor Christie conditionally vetoed AB939/S1403. The bill, as written, would modify tax expenditure reports produced by the Department of the Treasury during the annual budget process. “Tax expenditures” includes credits such as the film tax credit. Further, the legislation would require additional reports regarding tax expenditures associated with development subsidies primarily used to incentivize large-scale development projects in areas that companies might not otherwise consider. The Governor’s proposed amendments would remove the requirement that evaluations be part of the annual budget process and would modify the items considered in evaluating expenditures.  

A conditional veto is one in which the Governor objects to parts of a bill and proposes amendments that would make it acceptable. The bill goes back to the Legislature for consideration of the Governor’s recommendations. If the bill is passed again, it will go to the Governor for signature again. The bill is being reconsidered in the Assembly today.

After nearly a year of planning, the Multistate Tax Commission Executive Committee today approved the Arm’s-Length Adjustment Services Advisory Group Final Program Design. The following six states have agreed to participate in the Program:  Alabama, Iowa, Kentucky, New Jersey, North Carolina and Pennsylvania.

View the full Legal Alert.

Perhaps no aspect of New York’s expansive 2014 tax reform has generated as much excitement as the incentives for qualified New York manufacturers. The new law spells out the requirements for qualification and has been supplemented by some additional guidance, including legislation passed a few weeks ago.
In their article for State Tax Notes, Sutherland attorneys Leah Robinson and Andrew Appleby pull together the 2014 tax law changes, various guidance published by the New York State Department of Taxation and Finance, and the recently passed 2015 tax law changes to provide a complete guide to the manufacturing benefits.
Just last week, New York City’s conforming legislation was enacted. It includes similar, but generally more restrictive benefits. Following the State Tax Notes article is a primer on the City’s differing manufacturer regime.
View full article and addendum.

Perhaps no aspect of New York’s expansive 2014 tax reform has generated as much excitement as the incentives for qualified New York manufacturers. The new law spells out the requirements for qualification and has been supplemented by some additional guidance, including legislation passed a few weeks ago.

In their article for State Tax Notes, Sutherland attorneys Leah Robinson and Andrew Appleby pull together the 2014 tax law changes, various guidance published by the New York State Department of Taxation and Finance, and the recently passed 2015 tax law changes to provide a complete guide to the manufacturing benefits.

In April, New York City’s conforming legislation was enacted. It includes similar, but generally more restrictive benefits. Following the State Tax Notes article is a primer on the City’s differing manufacturer regime.

View full article and addendum.