During the Multistate Tax Commission’s Annual Conference and Committee Meetings in San Diego on July 22, 2013, the Income and Franchise Tax Uniformity Subcommittee discussed its effort to redesign the financial institution apportionment rules. In addition, the Sales and Use Tax Uniformity Subcommittee will move forward in drafting a model nexus statute.
View our full Legal Alert for more details.
By Nicole Boutros and Andrew Appleby
In a case of first impression interpreting when substantial intercorporate transactions are present for purposes of New York’s mandatory combined reporting provisions, a New York State Division of Tax Appeals Administrative Law Judge (ALJ) concluded that the taxpayers could not file on a combined basis. In 2007, New York State amended Tax Law section 211[4] to provide that a combined report is required for corporations engaged in a unitary business if substantial corporate transactions exist between the corporations. Knowledge Learning Corporation (KLC) acquired KinderCare and moved all of KinderCare’s employees to KLC. KLC and KinderCare, along with certain other affiliates, filed on a combined reporting basis for their 2007 tax year. Despite all employees being KLC employees and KLC paying all of KinderCare’s expenses, the ALJ failed to find “substantial intercorporate transactions.” The ALJ weighed “heavily” against the taxpayers because of the absence of written intercompany agreements memorializing the claimed intercorporate transactions and disregarded witness testimony specifically supporting the existence of such intercorporate transactions. The ALJ inexplicably declined to analyze the taxpayers’ alternative argument that there was actual distortion even if there were not substantial intercorporate transactions, permitting “forced combination.” Although the “forced combination” provision remains in New York Tax Law, the ALJ summarily concluded in a footnote that the 2007 amendment eliminated the need to entertain a distortion analysis. Matter of Knowledge Learning Corp., DTA Nos. 823962 and 823963 (June 27, 2013).
By Stephen Burroughs and Timothy Gustafson
The Texas Comptroller determined that receipts received for the delivery of satellite programming to Texas subscribers should be sourced to the site of the subscriber’s set-top box for apportionment purposes. The taxpayer provides direct broadcast satellite television programming to subscribers in Texas and across the United States. For the years in dispute, the taxpayer did not include programming receipts in its Texas receipts factor numerator because the equipment used to receive, amplify and transmit programming signals was located outside of Texas, and therefore the taxpayer concluded the service was being performed outside of Texas. However, the Comptroller determined that “the act that produces the receipts at issue…is the act performed by the [set top box]” in Texas. The set-top box descrambled incoming satellite signals into viewable television programming and therefore, according to the Comptroller, provided the “end-product acts for which the customer contracts and pays to receive.” Texas’s place-of-performance sourcing statute resembles a market-based sourcing mechanism for satellite television providers. Tex. Comp. Dec. 104,224 (May 17, 2013).
By Shane Lord
The Commonwealth Court of Pennsylvania held that gross receipts received by Verizon in connection with nonrecurring service charges—including telephone line installation, moves of or changes to telephone lines and service, and repairs of telephone lines—were not taxable under the Commonwealth’s gross receipts tax on telephone companies. The court distinguished these nonrecurring services from Verizon’s provision of private telephone lines and directory assistance services, which the court held were taxable. Gross receipts from private telephone lines were held to be taxable because such services were provided for the sole purpose of transmitting telephone messages, while gross receipts from directory assistance services were held to be taxable because such services allowed Verizon to transmit telephone messages more effectively and satisfactorily and therefore were also services provided for the sole purpose of transmitting telephone messages. In contrast, the court determined that gross receipts from Verizon’s nonrecurring services were not taxable because the services: (1) did not include a transmission of telephone messages; (2) were separately billed to customers; and (3) where inside wiring was required, the work did not have to be done by Verizon (i.e., it could be completed by the customer or through a third party). In holding for Verizon on the nonrecurring service charge issue, the court emphasized that, as a tax imposition statute, the law had to be strictly construed with any ambiguity resolved in favor of the taxpayer. Verizon Pennsylvania, Inc. v. Commonwealth, No. 266 F.R. 2008 (Pa. Commw. Ct. July 5, 2013).
Sutherland SALT’s Eric Tresh (center) is joined by Timothy McCormally (KPMG, former Executive Director for TEI), Lia Dorsey (Sutherland), Melissa Rubin (CorpTax), Christina Thompson (Coca-Cola), Janet Ingle (Ingram Industries), Rusty Ingle, John Lechko (Duke Energy), Gina Howren, Robert Howren (BlueLinx), and Marcus Shore (Duke Energy) during the TEI Region VII conference, which was held in Hilton Head, South Carolina, at the end of June. Eric was a roundtable leader on state tax planning and techniques during the conference.
A New York State trial court has denied a motion filed by Sprint Nextel Corporation and its subsidiaries (Sprint) to dismiss a claim brought under the New York False Claims Act (FCA) alleging the company knowingly filed false tax returns and underpaid New York State sales taxes on fixed-rate monthly wireless telephone plans sold to New York customers. The court rejected Sprint’s argument that it reasonably interpreted the law when it determined that section 1105(b) of the New York Tax Law allowed it to exclude from sales tax the portion of its fixed monthly charges attributable to interstate voice services. Focusing solely on section 1105(b)(2) of the Tax Law, which imposes tax on sales of mobile telecommunication services, the court held that sections 1105(b)(1) and (3) of the Tax Law were not relevant to the analysis, even though those provisions specifically exempt interstate telecommunications from tax and despite statutory language suggesting that the provisions must be read together. The court also rejected Sprint’s arguments under federal law and the U.S. Constitution. Specifically, the court held: (1) the federal Mobile Telecommunications Sourcing Act (MTSA) does not require that Sprint be allowed to unbundle its charges because the MTSA applies only to states that—unlike New York—do not subject aggregated telecommunications services to taxation; and (2) the Ex Post Facto Clause of the U.S. Constitution does not prohibit retroactive application of the FCA because the penalties imposed under the FCA are not intended as a punishment. Plaintiffs’ causes of action brought under the Executive Law and Tax Law were partially dismissed as time-barred for periods prior to March 31, 2008. Plaintiffs’ cause of action alleging that Sprint conspired to violate New York law was dismissed in its entirety. People ex rel. Empire State Ventures, LLC, v. Sprint Nextel Corp., Sprint Spectrum L.P., Nextel of New York, Inc., and Nextel Partners of Upstate New York, Inc., Index No. 103917/2011 (N.Y. Sup. Ct., July 1, 2013).
By Zachary Atkins and Prentiss Willson
The Colorado Supreme Court held that the Colorado Division of Property Taxation did not violate a public utility’s equal protection and uniformity rights by valuing and taxing its property differently than cable companies’ property. The public utility, Qwest Corporation, is a telecommunications service provider that competes with cable companies for telephone service customers in Colorado. Unlike Qwest, which is subject to central assessment, cable companies are not treated as public utilities and, therefore, are subject to local assessment. The key difference is that public utilities are not entitled to the intangible property exemption or cost cap valuation method afforded by statute to locally assessed taxpayers. Qwest argued that the Division’s failure to apply the exemption and the valuation method to its property violated the federal Equal Protection Clause and its counterpart in the Colorado Constitution, as well as the Colorado Uniform Taxation Clause. Rather than seeking to invalidate the exemption and valuation method statutes, Qwest sought to have both applied to its property. The court affirmed the dismissal of Qwest’s complaint, concluding that the differential tax treatment has a rational basis for equal protection purposes and is not the type of differential taxation that the Colorado Uniform Taxation Clause prohibits. Qwest Corp. v. Col. Div. of Property Taxation, Case No. 11SC669 (Col. June 24, 2013).
We invite you to read our articles from June 2013 here on our website, or read each article by clicking on the title. If you prefer, you may also view a printable PDF version.
Meet Mulligan (Mulli) and Sassy, the adorable Miniature Schnauzers of Sutherland SALT’s Prentiss Willson and his wife, Janice. Janice rescued the dogs, now ages 13 and 11, about six years ago, and they became part of the Willson family after Prentiss and Janice married last year (you can read more about their incredible love story here). Sassy is a sweet girl who is motivated only by food and is quick to remind them when it is time for her next meal (or at least when she thinks it is time). Mulli is a bit skittish after being attacked by another dog earlier in his life, but he is slowly warming up to the steady flow of visitors in the new house.
Since becoming Willsons, the dogs have had to adjust to a new discipline regime. Having finally learned that
he is not supposed to bark, Mulli faces a moral dilemma every time someone walks by the house (which happens frequently in the friendly vineyard town of Yountville, California). In order to resist the temptation to “warn” Prentiss and Janice about passersby, Mulli now runs and hides in a closet until the coast is clear. It is not all work and no play for the pups, though, as Prentiss and Janice enjoy taking the dogs to a nearby park each day. The dogs enjoy being able to run off-leash in the park, where Prentiss and Janice stand at opposite ends and take turns calling the dogs, who race for treats. Speedy Mulli enjoys lapping slow Sassy, whose fastest run is at best a brisk walk.
Mulli and Sassy are honored to be the June Pets of the Month and promise to sit quietly for a treat to celebrate!
By Sahang-Hee Hahn and Jack Trachtenberg
The Missouri Department of Revenue determined that an out-of-state provider of mail systems products had nexus for sales and use tax purposes due to the selling activities of dealers in the state. The taxpayer sold products that enabled customers to centralize the distribution and collection of their mail and packages. The Department’s nexus determination was based in large part on a finding that the taxpayer engaged in business activities within Missouri through four dealers who sold its products in-state and on the fact that it advertised its product line through an internet catalog, informing potential customers that it could provide a quote and install products in Missouri. Despite the fact that the taxpayer had less than $500,000 of in-state annual sales and did not have a place of business in Missouri, the Department nonetheless concluded that the taxpayer was a “vendor” for sales and use tax purposes because the dealers were considered the taxpayer’s “selling agents” in the state within the meaning of RSMo section 144.605(14). Mo. Ltr. Rul. No. 7271 (May 23, 2013).
