Estimated state tax assessments are based on assumptions that typically favor state tax authorities. In this A Pinch of SALT, Sutherland SALT’s Eric Tresh and Madison Barnett examine the potential impact and recommended course of action for taxpayers facing estimated assessments.
Read “State Audit Guessing Games: When Can States Issue Estimated Assessments?” reprinted with permission from the March 5, 2012 issue of State Tax Notes.
We are pleased to announce that Jack Trachtenberg, the former New York State Department of Taxation and Finance Deputy Commissioner and Taxpayer Rights Advocate, has joined our State and Local Tax (SALT) Practice as Counsel in New York. Jack has more than 10 years of experience advising clients and taxpayers on New York State, New York City and multistate tax matters. Prior to serving as the Taxpayer Rights Advocate, Jack practiced at a New York law firm, counseling clients on all aspects of state and local taxation. Jack has litigated cases before the New York State Division of Tax Appeals, the New York State Tax Appeals Tribunal and the New York State Supreme Court. He is also an adjunct professor at Albany Law School, where he teaches a course on state and local tax.
Jack’s arrival comes just weeks after we announced that Carley Roberts and Prentiss Willson, nationally recognized leaders in California and multistate tax matters, joined Sutherland SALT in Sacramento.
Read full details on our latest addition to Sutherland SALT in our press release, “Sutherland Expands National State and Local Tax Practice in New York.”
Meet Biscuit, the seven-year-old ruby nose beagle (also known as a lemon beagle) of GenOn Energy Tax Manager Lucy Lunt. Although you might not believe it from the looks of her photos, Biscuit loves going for walks and tracking rabbits—although 
she would have no idea what to do with a rabbit if she ever actually caught one. A true couch potato at heart, Biscuit loves her dog treats and believes that nothing is better than lazing around with a book or magazine. However, the Internal Revenue Code is her least favorite book. She thinks there are far too many regulations in the tax world, and reading it—or being used as Lucy’s desk under the heavy weight of all those rules—makes her very grumpy!
The California State Board of Equalization (BOE) has provided guidance regarding the application of sales and use tax to purchases of tangible property from retailers using certificates such as Groupon or LivingSocial coupons. Special Notice L-297, California State Board of Equalization (Nov. 2011). In particular, the BOE addressed transactions in which retailers contract with Internet-based third parties to issue to retail customers “deal-of-the-day instruments” (DDI) that are redeemable to purchase tangible property at a discount from those retailers.
The BOE advised in a special notice that the sale of a DDI is not a taxable transaction because the DDI is treated as evidence of an intangible right to receive tangible personal property at a later date. However, when a customer subsequently purchases tangible property from the retailer and pays in whole or part with a third party certificate, the sales tax applies to the amount the customer paid for the DDI plus any other consideration paid to the retailer at the time of purchasing the tangible property.
By applying sales tax only to the sum of the consideration paid for the DDI and the tangible property, the BOE has, in fact, opted to treat these certificates as reducing the tangible property’s purchase price. In other words, the coupons are deemed to be the equivalent of “cash discounts” issued by the retailers themselves. California’s position is significantly different from other states where the DDI is not treated as a reduction of the property’s sale price, and the coupon’s price discount is disregarded for sales tax purposes. See, e.g., Massachusetts’s Working Draft Directive 11-XX: Application of Sales Tax to Sales and Redemption of Third Party Coupons (Sept. 16, 2011) (providing that sales and use tax is applied on the coupon’s entire face value plus any additional consideration paid to the retailer).
llinois enacted legislation on December 16, 2011, that includes several new tax provisions, some of which benefit only Illinois-based companies. SB397 gives two Illinois taxpayers—CME Group and Sears Holdings—a tax incentive to stay in the state after Illinois’s recent significant tax rate increases. SB397 also extends and broadens the Illinois research and development tax credit for five years, extends the Illinois Economic Development for a Growing Economy (EDGE) job creation program, and restores the corporate income tax operating loss deduction.
One of the most contentious aspects of SB397 is the revised sourcing provision for federally regulated exchanges. Federally regulated exchanges include securities and commodities exchanges and clearing agencies. The Illinois legislature crafted an elective regime that allows exchanges to source receipts using an alternate methodology. This provision includes two unique, potentially problematic aspects. First, the provision imposes a fixed percentage to source electronic trading receipts. The fixed percentage for tax years ending on or after December 31, 2013, is 27.54%. This fixed percentage appears to be arbitrarily determined, and is at a level that will likely benefit only exchanges based in Illinois. Most out-of-state exchanges likely have an Illinois apportionment factor much lower than 27.54%, while most in-state exchanges likely have an Illinois apportionment factor much higher than 27.54%. Second, the provision effectively eliminates the throw-out rule that applies to services. Some may question whether eliminating the often problematic throw-out rule only for electing exchanges—which will generally only be in-state exchanges—raises discrimination concerns.
On the other hand, most taxpayers are happy to hear that SB397 finally creates an independent tax tribunal. Beginning July 1, 2013, the Illinois Independent Tax Tribunal Board will assume responsibility for protests of all taxes administered by the Department of Revenue.
In an interesting procedural case, and important decision for online intermediaries, the Seventh Circuit Court of Appeals held that the City of Chicago may not require Internet intermediaries to collect and remit the City’s amusement tax on the difference between the original ticket price and resale price of tickets sold online. City of Chicago, Illinois v. StubHub!, Inc., Dkt. No. 09-3432 (7th Cir. Nov. 23, 2011); City of Chicago, Illinois v. eBay, Inc., Dkt. No. 10-1144 (7th Cir. Nov. 23, 2011).
Beginning in 1991, Illinois authorized ticket brokers to resell their tickets at a premium price, provided the broker registered with the State and collected local taxes. The City of Chicago took advantage of this opportunity to tax the incremental price of resold tickets until Illinois amended its ticket scalping laws in 2005. Following the 2005 amendments, an “Internet auction listing service” was relieved of the mandatory collection of local taxes, provided it met certain registration requirements and published a written notice on its website “inform[ing] the ticket reseller of the ticket reseller’s potential legal obligation to pay any applicable local amusement tax.” 720 ILCS 375/1.5(c).
Continue Reading Seventh Circuit Not Amused by Chicago’s Amusement Tax
We are pleased to announce that Carley Roberts and Prentiss Willson, nationally recognized for their leadership in California and multistate tax matters, have joined Sutherland’s State and Local Tax Practice. Carley (a partner as of February 9) and Prentiss (of counsel, effective March 1) join our other Sacramento-based lawyers – former CalTax Vice President and General Counsel Michele Pielsticker and leading property tax adviser Doug Mo, both of whom joined our SALT Team last year.
Read full details on our new team members in our press release, “Sutherland Expands State and Local Tax Practice; Grows Sacramento Office.”
Independent tax appeal forums go a long way toward ensuring effective and fair state tax administration. In the latest edition of A Pinch of SALT, Sutherland SALT’s Scott Wright, Jonathan Feldman and Andrew Appleby examine the features of independent tax forums that are fundamental to tax fairness and efficiency, and they identify many recent tax forum developments.
Read “Courting Independence: The Rise of Effective State Tax Courts and Tribunals,” reprinted with permission from the February 6, 2012 issue of State Tax Notes.
Meet Calvin and Maggie, the playful new kittens of Sutherland Client & Practice Development Manager Katie O’Brien and her boyfriend, Scott. It has been just five days since the four-month-old pair was adopted from the Atlanta Humane Society, but they are already Sutherland SALT’s biggest fans: while Mom and Dad are away at work, the kittens’ favorite napping spot is on Katie’s fuzzy Sutherland SALT blanket.
Calvin (pictured with Scott) is quite the cuddly cat, preferring to nap every moment he can in Scott or Katie’s lap. Maggie (pictured with Katie) 
also enjoys her naps, but she truly loves darting around, determined to capture the ever-elusive red dot of the laser pointer.
Katie and Scott could not be more in love with their new “kids” but hope the coming months bring fewer 4:00 a.m. wakeups by the furry pair purring loudly and batting Mom and Dad’s faces, letting them know it is time to play!
On December 1, 2011, the California Franchise Tax Board (FTB) approved Proposed Regulation 25136-2, which implements a market rule for sourcing receipts from sales of services and intangibles for those taxpayers electing a single sales factor apportionment formula. The Proposed Regulation now moves to the Office of Administrative Law to be finalized. The FTB’s decision follows a nine-month interested parties process and a regulatory process that began in June 2011.
Proposed Regulation 25136-2 applies a series of cascading rules, establishing separate rules for receipts from:
Continue Reading California Franchise Tax Board Decides Fate of Proposed Market Sourcing Regulation
