A combined case against Cingular Wireless (now AT&T) has been working its way through state and federal courts for some time now. At issue was Cingular’s practice of passing through to its customers, as a line-item surcharge, the Washington business & occupation (B&O) tax assessed against the company. The plaintiffs sued Cingular on the grounds that its billing practice violated, among other things, R.C.W. 82.04.500 and Washington’s Consumer Protection Act (CPA). Section 82.04.500 provides that the B&O tax is to be levied upon and collected from the person engaged in the business activities rather than purchasers or customers. The federal district court held that R.C.W. 82.04.500 was preempted by the Federal Communications Act and granted Cingular’s motion for summary judgment on the plaintiffs’ remaining claims. 

On appeal, the Ninth Circuit held that R.C.W. 82.04.500 is not preempted by federal law.  Section 332(c)(3)(A) of Title 47 of the U.S. Code provides that state and local governments are not authorized to regulate the entry of or the rates charged by any commercial mobile service; however, a savings clause in the same section authorizes state and local governments to regulate “the other terms and conditions of commercial mobile services.” The Ninth Circuit found that R.C.W. 82.04.500 regulates “other terms and conditions,” not rates, because it only requires that businesses quote all prices inclusive of the B&O tax.

The Ninth Circuit also ruled that Cingular engaged in an unfair or deceptive practice in violation of the state CPA. Under Washington case law, a successful CPA claimant need only show that the practice in question had the capacity to deceive a substantial portion of the public, rather than an intent to deceive or actual deception. The Ninth Circuit determined that Cingular’s inclusion of the surcharge on customers’ bills had the capacity to deceive the public into believing the surcharge had the FCC’s blessing.

As we previously posted, the Sutherland SALT Team hopes you will join us on November 13-14 at the Bloomberg BNA Tax Policy and Practice Summit in Washington, D.C. We are pleased to let you know that the $200 discount off the conference registration fee for our clients and friends is now available through Wednesday, November 7, so it’s not too late to register! 

To receive the Sutherland discount, please use this link to register.

For any questions, please contact Katie O’Brien or your favorite Sutherland SALT attorney. We look forward to seeing you in Washington, D.C.!

On October 16, 2012, the Virginia Department of Taxation issued two identical determinations in which it found cable set-top boxes (a/k/a “converters”) exempt from the Business Tangible Personal Property (BTPP) tax (Ruling Nos. PD 12-162 and PD 12-163). Intangible personal property generally is exempt from the BTPP tax. Section 58.1-1101 of the Virginia Code classifies certain tangible personal property as intangible for property tax purposes. Currently, section 58.1-1101.A.2a treats personal property used in cable television businesses as exempt intangible personal property; however, “machines” of such businesses are subject to the BTPP tax.

The Department rejected the contention of Chesterfield and Virginia Beach that converters constitute taxable “machines.” The Department recognized that the 1983 version of section 58.1-1101.A.2a treated converters as taxable tangible personal property, but noted that the General Assembly amended the statute one year later and removed the term “converters” from the list of property that was subject to the BTPP. The legislature’s actions, the Department concluded, evidenced an intent to treat converters as exempt intangible personal property.

Determinations from the Virginia Department of Taxation can be found at this link under “Rulings of the Tax Commissioner.”

Thumbnail image for Pet of the Month - Chloe 1.jpgMeet Chloe, the yellow Labrador Retriever of Atlanta’s newest Sutherland SALT associate, Suzanne Palms, and her boyfriend, Jeremiah. Suzanne, a self-proclaimed neat freak, was never a dog person, having grown up with outdoor cats. However, her desire for a furry companion outweighed her love of a spotless space after befriending her law school roommate’s black Lab, Grace. It was not long after sharing her home with the adorable Grace that Suzanne was begging for a Lab of her own! 

Jeremiah purchased Chloe as a Christmas present for Suzanne from a breeder on a farm in middle-of-nowhere Florida. Chloe was a patient study partner while Suzanne finished law school in Florida and was an excellent roommate even in the close quarters of Suzanne’s 500-square-foot Washington, DC condo during Suzanne’s LL.M. program at Georgetown. As a lover of space and sunshine, Chloe is thrilled that Suzanne decided relocate one more time to join Sutherland’s Atlanta office. Chloe now lives in doggy luxury in a house with a yard, where she loves to play fetch and relax outside, and she always loves going on a run with Mom.Pet of the Month - Chloe 2.JPG

True to her breed, Chloe is a smart cookie. She understands the meaning of all kinds of words, including the name of each one of her toys and her dining options – “breakfast,” “dinner,” and “treat.”

Suzanne and Jeremiah dote on Chloe so much that Chloe has started to think of herself as a human. In fact, whenever Chloe goes to doggie daycare, she prefers spending time with the staff rather than with the other dogs. She loves being the center of attention, and her tail is wagging extra fast at the thought of being selected as Pet of the Month. 

We hope you will join us on November 13-14 at the Bloomberg BNA Tax Policy and Practice Summit in Washington, D.C. Sutherland is pleased to sponsor the Summit and to offer our clients and friends a $200 discount off the Summit registration fee.

The Summit is perfectly timed to provide insights into the tax implications of the election results, as well as discussions of pressing tax issues. Sutherland SALT’s Michele Borens and Eric Tresh will lead a discussion of state tax issues associated with cloud computing – including some never before released analyses of industry trends. Other Summit presenters include Thomas Barthold, Chief of Staff for the Joint Committee on Taxation, and William Wilkins, Chief Counsel of the IRS.

To receive the Sutherland discount, please use this link to register. Please register by October 31 in order to receive the discount.

For any questions, please contact Katie O’Brien or your favorite Sutherland SALT attorney. We look forward to seeing you in Washington, D.C.

The Texas Supreme Court upheld the imposition of the franchise tax (often referred to as the Texas Margins Tax) under both the Texas and United States Constitutions. In Re Nestle USA, Inc., No. 12-0518 (Tex. 2012) (opinion delivered Oct. 19, 2012).

Nestle argued that the imposition of the franchise tax was unconstitutional, both facially and as applied.  In Texas, the franchise tax rate is 1%, except for those taxpayers “primarily engaged in a wholesale or retail trade,” for whom the rate is 0.5%. Nestle was engaged only in wholesale and retailing activities in Texas, but because it was engaged in manufacturing outside of Texas, it was subject to the 1% franchise tax rate rather than the lower wholesale/retail rate. Specifically, Nestle argued that the differential rate based on the wholesale/retail classification was unconstitutional under the Equal and Uniform Clause of the Texas Constitution and the Equal Protection, Due Process, and Commerce Clauses of the United States Constitution because the tax lacked a reasonable relationship with actual business in Texas and because of the fact that the tax is higher for those with a manufacturing business outside of Texas.

Continue Reading That’s the Way the Cookie Crumbles: Nestle Loses Its Battle on the Constitutionality of the Texas Franchise Tax

In the latest edition of A Pinch of SALT, Carley Roberts, Jack Trachtenberg and Tim Gustafson discuss the significant increase in third-party enforcement actions, including consumer class actions and qui tam actions involving state tax questions, which is forcing corporate taxpayers to assess unfamiliar and possibly conflicting risks in connection with their compliance obligations.

Read “Between a Rock and a Hard Place: Third-Party Enforcement Actions,” reprinted with permission from the October 1, 2012 issue of State Tax Notes.

As we previously noted, on October 2, 2012, the California Court of Appeal issued an opinion on rehearing in The Gillette Company et al. v. Franchise Tax Board, reversing in full the trial court’s decision in favor of the Franchise Tax Board (FTB). 207 Cal.App.4th 1369 (Op. on Rehearing, Oct. 2, 2012). Read our legal alert, “A Close Shave: California Court of Appeal Rules on Multistate Compact Election,” for our analysis of the opinion.

The three-judge panel of the California Court of Appeal has reissued its opinion in The Gillette Company et al. v. Franchise Tax Board, finding on the same grounds as in the court’s initial opinion that California was bound by the UDITPA election in the Multistate Tax Compact. 207 Cal.App.4th 1369 (Op. on Rehearing, Oct. 2, 2012). The court held that taxpayers, in calculating their California franchise tax, were entitled to make the Article III election to use UDITPA rather than the California-specific provisions. The only change in the Opinion on Rehearing from the initial opinion is that the court notes that subsequent to the years at issue, the California governor signed a bill stating that the code section adopting the Multistate Tax Compact is repealed. Importantly, the court notes that any issue regarding the effect or validity of this repeal was not before the court. Stay tuned for our analysis of the reissued opinion.