Phone.jpgWith 200+ posts on the most important state and local tax developments across the nation, the Sutherland SALT Shaker mobile app is the best way to stay up-to-date on the latest in state and local tax.

With updates added continually, state tax professionals now have a go-to source for state-by-state, tax-by-tax, issue-by-issue coverage and commentary on critical state and local tax developments—all with the distinct flavor of Sutherland SALT.

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The Sutherland SALT Team will release commentary on the revamped New York State corporate tax system that was reformed as part of the recently enacted Budget Legislation (“Budget”). By way of background, Governor Andrew Cuomo signed into law the tax provisions of the Budget on March 31. The changes will affect nearly every New York State corporate taxpayer and should be considered in preparing financial statements for the first quarter of 2014.

In the coming days, Sutherland will release targeted, concise commentary on each of the most significant aspects of the Budget, including:

  • Mandatory Unitary Combined Filing
  • Economic Presence Nexus
  • Income Tax Base Changes
  • Sourcing/Apportionment (market-based approach)
  • Net Operating Losses (NOLs) and other Tax Attributes
  • Rate Changes
  • Capital Base Changes
  • Financial and Insurance Industry Impact

By Ted Friedman and Prentiss Willson

The Indiana Department of Revenue determined that affiliated entities of an out-of-state manufacturing corporation were not unitary. The corporation conducted marketing operations as one business segment and production operations as a second business segment. The corporation included its marketing entities in its Indiana consolidated return. On audit, Department staff included the production entities in a combined Indiana return. In considering the corporation’s protest, the Department stated that, in order to require related entities to file a combined return to fairly reflect income, the Department must: (1) find that the entities form a unitary group; (2) make a finding that the corporation’s own method of filing distorts the corporation’s Indiana income or expenses; and (3) be unable to fairly reflect Indiana income using other methods before requiring the combined-filing method. The Department determined that the corporation had established that the production and marketing entities conducted inter-divisional transactions on an arms-length basis, that the transactions were financially and competitively market driven, and that the entities were separately managed. The Department also determined the inter‑divisional transactions were not self-serving and were not structured simply as a means of minimizing state tax obligations. Accordingly, the Department concluded that the marketing and production entities were not unitary and that the corporation had met its burden of establishing that the Department erred in requiring the corporation and its affiliates to file a combined return. Supplemental Letter of Findings, 02-20120008 (Ind. Dep’t of Revenue Mar. 26, 2014).

By Stephanie Do and Andrew Appleby

The Indiana Department of Revenue determined that an out-of-state wireless communications equipment wholesaler’s in-state business activities were protected by P.L. 86-272, and therefore, the wholesaler did not have nexus for Indiana corporate income tax purposes. The wholesaler’s in-state activities were limited to shipping products to Indiana customers by common carrier and a sales employee who worked from his home office. The sales employee only solicited sales orders of the wholesaler’s products, not any services offered by the wholesaler. The sales orders were approved and fulfilled out-of-state. The Department evaluated the totality of the wholesaler’s business activities to determine whether its in-state activities were within the protection of P.L. 86-272. The Department reasoned that the wholesaler’s business activities were protected as either activities related to soliciting tangible personal property orders or as activities that did not rise above the de minimis level. Ind. Dep’t of Revenue, Letter of Findings No. 02-20130167 (Mar. 26, 2014).

By Nicole Boutros and Pilar Mata

The Texas Comptroller determined that a taxpayer’s “digitizing” services provided to oil and gas industry clients were taxable data processing services for Texas sales and use tax purposes. The services at issue consisted of taking well log data from the client; analyzing, manipulating and interpreting such data; and providing the output of the data. The taxpayer argued such services were not taxable because they fell under an exception that excludes the use of a computer to facilitate “the application of the knowledge of the physical sciences…E.G., the use of a computer to provide interpretive or enhancement geophysical services” from the definition of taxable data processing. The Comptroller, however, disagreed and held that the taxpayer was processing client data for the purpose of providing the data to its client in a requested format and that such data extraction, manipulation, storage and conversion constituted a taxable data processing service under Texas law. Tex. Comp. Dec. 108,154 (Dec. 12, 2013).  

Click here to read our March 2014 posts or read each article by clicking on the title. A printable PDF is also available here. To read our commentary on the latest state and local tax developments as they are published, be sure to download the Sutherland SALT Shaker mobile app.

We hope you enjoy this very special edition of the Sutherland SALT Shaker newsletter.

In this issue:

  • Colorado Considering New “Bummer Taxes” on Transactions Related to Consumption of Marijuana
  • BOE Rules that P.L. 86-272 Is Not Applicable in California
  • Maryland Proposes a “Relative Tax”
  • Blow the WhISTLE! Proposed Legislation Startles State Tax Community
  • New York Amends False Claims Act to Encourage Tax Directors to Report Employees Who Make Errors on Returns
  • MTC “Super-Audits” to Become the Norm in 2014
  • SALT Pet of the Month: Sparkles the Unicorn!

Read the full April 1, 2014 Sutherland SALT Shaker newsletter.

Francois1.jpgMeet Le Petit Prince Francois Malvar (Francois for short). Francois is a seven-month-old adorable Maltipoo belonging to Ana Malvar, Senior Indirect Tax Manager at Microsoft. Francois has a lot of energy and loves to run around and play in the sun. He also loves to cuddle with his mommy. Ana fell in love with Francois instantly when they met, and they have been inseparable ever since. Francois even accompanied Ana on her most recent trip to Seattle and will be joining her there again in a few weeks.Francois2.jpg

Francois has many fans on Instagram and is contemplating starting his own Twitter page. For the Oscars, Francois wore a tux (pictured) and later in the evening had a wardrobe change into a glittery vest and cufflinks. He might be little (only 6.5 pounds), but Francois loves to play with the big dogs, and his best Thumbnail image for Francois3.jpgfriend is a Beagle mix named Chloe. The two even like to share a crate sometimes.

Francois is looking forward to meeting everyone on the Sutherland team!

By Madison Barnett and Andrew Appleby

The Florida Department of Revenue determined that a company providing television viewing data and analytics services must source its receipts from such services to the location of its customers, despite (1) the state’s majority costs of performance souring rule and (2) that the taxpayer appeared to incur the majority of its costs outside of the state. After questioning the policy wisdom of the costs of performance rule and reviewing two cases from other states, the Department adopted a narrow view of what constitutes the “income-producing activity.” The Department ultimately concluded that no costs of performance analysis was required because “[t]he income producing activity in the present case occurs wholly within Florida if the Taxpayer’s customer is located in Florida.” While the Department has issued a number of costs of performance rulings in the past several years, this ruling is particularly noteworthy for the depth of its analysis on the issue and its potential conversion of the regulatory costs of performance rule to a market sourcing rule in application. Fla. Dep’t of Revenue, TAA 13C1-011 (Nov. 21, 2013) (released Feb. 18, 2014).