We can’t resist man’s best friend, and four handsome hounds caught our eye…Layla, Romeo, Gracie and Rocky.

Pet 1 - Wechman.jpgMeet Layla, also known as Lei-Lei, the 18-month-old companion of Craig Wechman (State Tax Director, Royal Bank of Canada), his wife Trish, and their kids Dylan and Lauren. The family went apple picking in Pennsylvania in October 2012 when they were greeted by a dog with an apple in her mouth. The farm owners said she had been there for three days. The kids were immediately drawn to her, and after the farm agreed to keep her for a month in case anyone was looking for her, the family returned to Pennsylvania in November of 2012 to pick her up. It has been a great match ever since. Layla loves the outdoors and spends many afternoons relaxing by the Mahwah River. She knows the sound of the school bus and comes down to the corner to pick up Lauren on most weekdays. Once the cool fall air comes, Layla puts on her Rutgers jersey and has even sported it at football tailgates. As for her name, Craig and Trish were members of a 60s cover band in the early 90s doing classics such as the Grateful Dead, Hot Tuna, Bob Dylan and Eric Clapton. The kids always laugh at the old video of “Layla,” so that’s how she got her name. The only fight in the evening is who Layla should sleep with, Dylan or Lauren, as she always likes to go to the far end of the bed and sleep late. Either way, she has been a great addition to the family, and the Wechmans can’t wait for puppies.

Pet 2 - Ledesma.jpgMeet Romeo, the granddog of Victor Ledesma (Tax Manager, Kimberly-Clark Corporation) and his wife, Jackie. Although not as seasoned with age as his cousin Anna (2010 December Pet of the Month), his companionship never wanes. Romeo is a constant shadow on a relentless search for a lap to sit on or a car ride to the store. He even puts up with photo shoots if car keys are in view. Romeo is adorable, but we think Victor’s granddaughter is pretty precious, too.

 

 

Pet 3 - Filion.jpgMeet Gracie, part of Kathy Filion’s (Assistant, Tyco International) family and the unsung hero of the Tyco International SALT Team. A true adventure dog, Gracie loves to travel and is happiest running around the rocks on the coast of Maine. It would be wonderful if she could talk and tell us what is actually on her mind, but her smile says it all.

 

 

 

 

Thumbnail image for Pet 4 - Chiftis.jpg

Meet Rocky and his mom Teresa Chiftis (Senior Manager Tax Controversies, Microsoft Corporation). Rocky and Teresa’s picture stole our hearts. We think it says it all.

 

 

 

 

 

SALT people are apparently dog people, as we had no cats submitted in our contest. So, cat people, represent! Send us your adorable feline friends for our February feature.

By Jessica Kerner and Timothy Gustafson

The Indiana Department of Revenue determined that the storage of advertising catalogs in Indiana, for a taxpayer’s out-of-state clients, did not create sales tax nexus for such clients. The taxpayer stored the catalogs at its facilities in Indiana prior to distributing the catalogs to recipients throughout the United States. The Department determined the Commerce Clause of the U.S. Constitution, as interpreted by Quill Corp v. North Dakota, 504 U.S. 298 (1992) and subsequent cases, prevented the state from compelling the clients to collect and remit the sales tax. Specifically, the Department found that the substantial nexus prong of the four-part test for sustaining a tax against a Commerce Clause challenge established in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), was not met. The Department explained that in order for there to be substantial nexus with a state, there must be “some kind of physical presence” in that state. The Department then concluded, without any further analysis, that having the advertising catalogs in the state alone was not the required physical presence contemplated by Quill and its progeny. Indiana Revenue Ruling No. ST 13-08 (Dec. 3, 2013). The Department drafted Revenue Ruling No. IT 13-03 on the same facts for corporate income tax nexus purposes, similarly concluding that the taxpayer’s out-of-state clients did not have corporate income tax nexus.

By Sahang-Hee Hahn and Andrew Appleby

The California Franchise Tax Board amended its regulation governing the sourcing of sales of tangible personal property to reflect California’s statutory shift in 2009 to the Finnigan rule, effective for tax years beginning on or after January 1, 2011. As amended, the regulation assigns receipts from sales of tangible personal property delivered or shipped to a purchaser in California to a taxpayer’s California sales factor numerator if the seller, or any member of the seller’s combined reporting group, is taxable in California. In addition, all receipts from sales of tangible personal property delivered to a state other than California are not assigned (thrown back) to the seller’s California sales factor numerator if any member of the seller’s combined reporting group is taxable in the destination state. Prior to California’s 2009 legislative change, California followed the Joyce rule to source the California-destination receipts of an out-of-state taxpayer. Under the Joyce rule, California-destination receipts from sales of goods by a seller that was part of a unitary business were included in the combined filing group’s California sales factor only if the seller was taxable in the state. Title 18, Cal. Code Regs. 25106.5, effective January 1, 2014; Cal. Rev. & Tax. Code § 25135.

By Maria Todorova and Prentiss Willson

On January 14, 2014, the U.S. Supreme Court reversed the Ninth Circuit and held that due process prevents a state court from exercising general personal jurisdiction over a foreign corporation based solely on the business activities performed in the forum state by a U.S. subsidiary on behalf of the foreign parent. Residents of Argentina sued DaimlerChrysler, a German company, in California alleging that DaimlerChrysler’s Argentine subsidiary had collaborated with state security forces to commit certain acts. Plaintiffs alleged that California had jurisdiction over the lawsuit because of the California business activities by DaimlerChrysler’s U.S. corporate subsidiary that was incorporated in Delaware with its principal place of business in New Jersey. The Ninth Circuit imputed the U.S. subsidiary’s California contacts to DaimlerChrysler and held that the subsidiary was the parent’s agent for jurisdictional purposes, thereby providing California with general jurisdiction over DaimlerChrysler. The U.S. Supreme Court rejected the Ninth Circuit’s “agency” test for general personal jurisdiction. Moreover, the Court concluded that even if the subsidiary’s California contacts were imputable to its parent, “there still would be no basis to subject DaimlerChrysler to general jurisdiction in California, for DaimlerChrysler’s slim contacts with the State hardly render it at home there.”  The Court explained that a corporation’s “home” is typically its place of incorporation and principal place of business. Neither DaimlerChrysler nor its subsidiary was incorporated in California, and neither had its principal place of business there. Accordingly, California could not be DaimlerChrysler’s “home” for jurisdictional purposes. Although there are no direct state tax implications in this case, the decision, along with the Court’s recent opinions in Goodyear Dunlop Tires Operations S.A. v. Brown, 131 S. Ct. 2846 (2011), and J. McIntyre Machinery LTD v. Nicastro, 131 S. Ct. 2780 (2011), and the state court holdings in Griffith v. ConAgra Brands Inc., 728 S.E.2d 74 (W.Va. 2012), and Scioto Insurance Co. v. Okla. Tax Comm’n, 279 P.3d 782 (Okla. 2012), might be the start of a trend to revitalize the Due Process Clause as a limitation on state taxing jurisdiction over multistate businesses. Daimler AG v. Bauman, No. 11-965, 2014 U.S. LEXIS 644 (2014).

By Nicole Boutros and Timothy Gustafson

The New York State Department of Taxation and Finance issued an advisory opinion determining that a securities broker may source receipts from “matched principal transactions” based on the “production credit method” provided in New York tax law. The taxpayer was a U.S. entity operating in six states, including New York. Although the taxpayer was not a registered broker-dealer with the Securities and Exchange Commission, it indirectly owned single member limited liability companies (SMLLCs) that were registered broker-dealers. One SMLLC frequently engaged in voice-brokered and electronically traded matched principal transactions, whereby the SMLLC acted as principal, buying securities from a seller and selling those securities to a separate buyer. The Department determined that the taxpayer is allowed to source income derived from matched principal transactions—limited to the spread between the purchase and sale price of the securities, and excluding any related commission—based on production credits awarded to the trading desk associated with each transaction. In so doing, the Department concluded that the SMLLC’s broker-dealer status, like its income, flows through to the taxpayer as the single member. This position represents a broad application by the Department of the production credit sourcing methodology for broker-dealers. N.Y. Advisory Opinion TSB-A-13(11)C (Dec. 20, 2013).

By Kathryn Pittman and Timothy Gustafson

The Virginia Tax Commissioner ruled a taxpayer’s licensing arrangements with a subsidiary intangible holding company (IHC) did not meet the unrelated party exception to Virginia’s intangible expense add-back statute. The taxpayer, a national operator and franchisor of fast food restaurants, created the IHC to hold its intangible property and entered into licensing agreements with the IHC for the use of such property. In turn, the taxpayer paid the IHC a 4% royalty based on each franchisee’s or restaurant’s gross sales. The taxpayer also entered into sublicensing agreements with its various franchisees, under which the franchisees paid the taxpayer a percentage of their receipts in exchange for the use of the intangibles. Virginia law provides for an exception to intangible expense add-back if the related member to whom the expenses are paid derives at least one-third of its gross revenues from the licensing of intangible property to persons who are not related members and the transaction giving rise to the expenses was made at rates and terms comparable to rates and terms in licensing agreements with such unrelated persons. After noting the first requirement can be met by the related member’s direct or indirect revenues, the Tax Commissioner examined the second requirement and found that since the IHC did not have any transactions with unrelated parties, no comparable arrangements existed for purposes of the exception. Furthermore, the Tax Commissioner noted that even if the licensing agreement between the IHC and the taxpayer was an indirect agreement between the IHC and the taxpayer’s franchisees, the arrangements between the IHC and the taxpayer and the arrangements between the taxpayer and its franchisees were substantially different and therefore could not form a basis for comparison for purposes of the add-back exception. Va. Pub. Doc. No. 13-239 (Dec. 19, 2013). This is Virginia’s fourth ruling issued in recent months to address application of its add-back statute. For additional coverage, see our previous post, “Unlike Sandals Resorts, Virginia Add-Back Exception Not All-Inclusive.”

By Todd Betor and Timothy Gustafson

The Virginia Tax Commissioner ruled that the state’s intangible expense add-back exception is not all inclusive and does not apply to the gross amount of royalty payments made to a taxpayer’s affiliate based solely on the gross amount of the payments shown on another state’s tax return. The taxpayer argued that the plain meaning of Va. Code Ann. § 58.1-402(B)(8)(a)(1) entitled it to exclude 100% of royalty payments made to its affiliates from the add-back provisions because the payments were subject to tax based on or measured by net income imposed by other states. The Tax Commissioner, however, ruled that when considering the statute in its entirety, the exception only applies to the portion of a taxpayer’s royalty payments to its affiliate that corresponds to the portion of such affiliate’s taxable income in other states, as evidenced by the actual apportionment percentages shown on such affiliate’s tax returns filed with those other states. The Tax Commissioner also ruled that where a state’s tax is based on gross receipts (i.e., New Jersey), the ratio to determine royalties eligible for the exception also must be based on gross receipts. Va. Pub. Doc. Rul. 13-226 (Dec. 17, 2013). This is one of four recent rulings issued by the Tax Commissioner discussing the application of Virginia’s add-back statute. See also, Va. Pub. Doc. Rul. No. 13-213 (Nov. 18, 2013); Va. Pub. Doc. Rul. No. 13-238 (Dec. 19, 2013); and Va. Pub. Doc. Rul. No. 13-239 (Dec. 19, 2013).

By Scott Booth and Andrew Appleby

The Massachusetts Governor released his proposed fiscal year 2015 budget, which includes a tax provision that is targeted directly at the insurance industry. Currently, income earned by pass-through entities, such as partnerships, owned by licensed life or property and casualty insurers is excluded from Massachusetts income tax because the owners are subject to a premiums tax instead. The proposal would treat pass-through entities owned by insurance companies as corporate entities for Massachusetts tax purposes. A similar proposal had been discussed in the Multistate Tax Commission Financial Institutions Work Group but ultimately did not materialize. The provision would apply when an insurance company owns, directly or indirectly, at least 50% of an entity engaged in a non-insurance trade or business that would otherwise be treated as a partnership or disregarded entity. In that case, the net income that passes through to the insurance company with respect to the non-insurance trade or business would be taxed as if the partnership or disregarded entity were a corporation subject to the state’s corporate excise tax.