Illinois Senate President John Cullerton introduced a bill on May 9 that would require publicly traded corporations doing business in Illinois, and those that are at least 50% owned by a publicly traded company, to disclose certain income tax liability information for eventual publication on an Internet database. SB 282 would require the information, usually considered confidential, to be disclosed by corporations that are not obligated to file a corporate income tax return. The data would be publicly searchable, although the data would not be disclosed until two years after the relevant tax year. Although the General Assembly adjourned on May 31 without voting on the bill, Senator Cullerton plans to work on the bill over the summer with the intent of holding hearings before the November veto session.

The information that Illinois would require to be disclosed in an annual statement filed with the Secretary of State includes, among other items: (1) name and address of the corporation; (2) name and address of any corporation that owns 50% or more of the voting stock; (3) modified taxable income; (4) business and nonbusiness income; (5) apportioned income; (6) Illinois apportionment factor; (7) Illinois credits claimed; and (8) Illinois tax liability before and after credits.

Continue Reading Illinois Senate President Wants Corporate Tax Liabilities on Internet

The Indiana Tax Court held that a retailer was permitted to seek sales and use tax refunds of tax collected from its customers before refunding the tax to its customers. In Fresenius USA Marketing, Inc. v. Indiana Dep’t of State Revenue, No. 49T10-1008-TA45 (Ind. Tax Ct. 2012), a retailer sold dialysis equipment to customers and collected and remitted sales tax to the Indiana Department of Revenue (the Department). The retailer filed refund claims alleging that the equipment was exempt durable medical equipment but did not refund the tax to its customers. The Department denied the refund claim and the retailer appealed to the Indiana Tax Court.

The refund statute at issue provided that “a retail merchant is not entitled to a refund of state gross retail or use tax unless the retail merchant refunds those taxes to the person from whom they were collected.” Ind. Code 6-2.5-6-14.1 (emphasis added). The Department argued that the statute required that the merchant refund the claimed over-collected tax to its customers prior to seeking a refund. The court disagreed and found that the statute does not limit the merchant’s ability to seek a refund; it only limits the merchant’s ability to receive the refunded tax (if it is determined that the merchant is entitled to the refund). Therefore, the statute limiting the merchant’s ability to receive the money (if the merchant is entitled to the money), does not limit a merchant’s ability to seek a refund. 

This morning, the North Carolina Court of Appeals released its decision in Delhaize America, Inc. v. Lay, No. COA11-868 (N.C. Ct. App. 2012). Delhaize, formerly known as Food Lion, formed an intangible holding company as part of a restructuring in the late 1990s. The Secretary of the North Carolina Department of Revenue sought to combine Delhaize with its intangible holding company on the ground that combination was necessary to reflect Delhaize’s “true earnings,” which is a North Carolina statutory standard used to justify the application of forced combination. The Department assessed Delhaize approximately $20.6 million in tax, interest, and penalty, which Delhaize challenged primarily on procedural due process grounds.

The definition and application of “true earnings” has been a controversial issue. In Wal-Mart Stores East, Inc. v. Hinton, 676 S.E.2d 634 (N.C. Ct. App. 2009), the North Carolina Court of Appeals held that the Secretary of Revenue has discretionary authority to apply forced combination, and the court will not disturb the Secretary’s findings absent an abuse of discretion. Moreover, the Wal-Mart court defined “true earnings” to include income up to the limit found in the U.S. Constitution.

Continue Reading Delhaized and Confused: North Carolina Court of Appeals Finds Forced Combination, Penalty

For the first time in 50 years, the California Supreme Court is revisiting the issue of the proper application of the property tax to intangible assets. In Elk Hills Power, LLC v. California State Board of Equalization, Case No. S194121, the court will address whether the California State Board of Equalization (the Board) may assess Elk Hills’ intangible Emission Reduction Credits (ERCs). In Elk Hills, the Board treated the ERCs as “necessary” to put a power plant to “beneficial or productive use” and thus taxable for property tax purposes. Because many businesses use intangible assets that are “necessary” to the conduct of their businesses (e.g., trademarks, trade names, franchises, licenses, customer relationships, patents, and copyrights), the case has attracted attention across a broad spectrum of the California business community.

Continue Reading California Supreme Court Considers Case to Allow Property Tax on Intangible Assets

Sutherland SALT’s Jack Trachtenberg recently sat down with Bloomberg Law’s Spencer Mazyck to discuss the application of the False Claims Act in state taxation and the growing number of state-tax related whistleblower lawsuits. You can view the full interview here:

 

In the latest edition of A Pinch of SALT, Sutherland SALT’s Carley Roberts, Prentiss Willson and Maria Todorova discuss the California Franchise Tax Board’s recent chief counsel ruling stating that California’s alternative apportionment provisions do not apply to the combined group’s intrastate apportionment results.

Read “Intrastate Apportionment: Ripe for Equitable Relief?” reprinted with permission from the August 6, 2012 issue of State Tax Notes.

Yesterday, on its own motion, the California Court of Appeal ordered a rehearing in The Gillette Company, et al. v. Franchise Tax Board and vacated its July 24 decision and opinion, which we previously discussed here. The court’s order came one day after the Franchise Tax Board filed a petition for rehearing. Stay tuned for Sutherland SALT’s coverage of this closely watched case.

In a somewhat troubling decision, an Illinois Appellate Court held that a taxpayer’s parent company and its subsidiaries engaged in two lines of business—consumer packaging manufacturing and filtration product manufacturing—were unitary and had to file a combined Illinois return. Clarcor, Inc. v. Hamer, 2012 WL 1719518 (Ill. App. 1st May 11, 2012). The taxpayer contended that there was a lack of unity between the entities because: (1) the subsidiary groups lacked horizontal integration as required by the Seventh Circuit’s holding in In re Envirodyne Industries, Inc., 354 F.3d 646 (2004), and (2) even if horizontal integration is not required, there was insufficient vertical integration between the parent and the subsidiary groups to support a unitary finding.

Continue Reading A Pupu Platter of a Case: Packaging and Filtration Businesses Held Unitary

In an unpublished opinion, the Michigan Court of Appeals affirmed a lower court holding that E I Du Pont de Nemours (DuPont) was not unitary with its subsidiary, DuPont Pharmaceuticals Company (DPC). E I Du Pont de Nemours & Co. v. Dep’t of Treasury, Dkt. No. 304758 (Mich. Ct. App. 2012) (unpublished). Because the two businesses were not unitary, Michigan could not subject the proceeds from DuPont’s sale of DPC to the Single Business Tax. The Court of Appeals upheld the lower court’s findings that the two entities were not in the same line of business, there was no synergy between them, and the flow of capital from parent to subsidiary merely served an investment, rather than an operational, function. The Court of Appeals also refused to consider additional evidence that the state Department of Treasury attempted to include in its argument on appeal on the ground that the additional evidence, though in the record, was not presented to or addressed by the lower court.

The court also found in favor of the taxpayer on the issue of whether profits from currency exchanges on foreign exchange contracts (FECs) should have been included in the sales factor for purposes of the Single Business Tax. The court held that the FECs should have been included because the term “sales” is broadly defined to include consideration from the use of tangible personal property, and the contracts involved exchanging U.S. dollars for foreign currency, which involves the use of tangible property. 

Read the full Du Pont decision here.

The Oregon Tax Court issued its second decision in less than a month regarding combined returns that include an insurance company, this time finding for the taxpayer. Last month, in Costco Wholesale Corp. v. Oregon Dept. of Rev., TC 4956, (Ore. Tax Ct. July 16, 2012), the court held that the income of Costco’s affiliated reinsurance company was not permitted to be excluded from Costco’s Oregon unitary combined return. The court reasoned that Oregon’s requirement that companies “permitted or required” to use an alternative apportionment formula (e.g., insurance companies) are excluded from a unitary combined return and are required to file a separate return applied only to combined group members over which Oregon had jurisdiction to tax.

On August 2, the Tax Court issued its decision in Stancorp Financial Group Inc. et al. v. Department of Revenue, where it held that a parent corporation was not required to include dividends received from a subsidiary insurance company because the dividends were eliminated under the federal consolidated return regulations. However, in contrast to Costco, the insurance company in the Stancorp combined group was taxable in Oregon and therefore was required to file a separate Oregon income tax return. Thus, the insurance company was not included in the parent’s unitary combined return, unlike the insurance company in Costco.

Under Oregon’s rules, dividends are added back if: (1) they were eliminated under federal consolidated return regulations; and (2) the dividends were paid by members of a federal affiliated group that are part of a different unitary group. In Stancorp, the parties stipulated that the parent and the insurance company were part of the same unitary business; therefore, there was no requirement for the parent to add back the dividends paid by the insurance company subsidiary.

The Department argued that the requirement under Oregon law for the insurance company to file a separate Oregon return must also be treated as the insurance company being excluded from the federal consolidated return for purposes of computing the parent’s taxable income. The Tax Court refused to read this inference into the statute and stated that if the legislature desires to provide for such a rule, only a small addition to the existing dividends add back provision would be required.