The New Mexico Court of Appeals held that for purposes of imposing the state’s gross receipts tax, Barnes & Noble Booksellers, Inc.’s (Booksellers) in-state activities may be imputed to an out-of-state retailer (Taxpayer) based on the use of common Barnes & Noble trademarks. New Mexico Tax. & Revenue Dep’t v. Barnesandnoble.com LLC, No. 31, 231 (N.M. Ct. App. Apr. 18, 2012). Notably, Booksellers undertook no physical activities on behalf of the Taxpayer that would independently satisfy the physical presence standard established in Quill. However, according to the court, the goodwill generated by Booksellers’ use of the same Barnes & Noble trademarks helped the Taxpayer establish and maintain a market in the state, thereby creating substantial nexus that is the “functional equivalent” of physical presence under Quill.

Continue Reading “Functional Equivalent” Nexus: When Goodwill Goes Bad in New Mexico

Please join Sutherland’s State and Local Tax Team for a webinar to discuss recent developments regarding California’s sales and use tax treatment of sales of intangible property bundled with tangible property and sold subject to the seller’s patent or copyright interest.

California’s special tax provisions, known as technology transfer agreements (TTAs), have widespread application and have been the subject of recent litigation. The California State Board of Equalization intends to hold an interested parties meeting in mid-July to discuss potential amendments to the TTA regulations.

Please join us to discuss the recent developments and how your company may be able to benefit from these provisions. Please note, this program is limited to in-house counsel and in-house tax professionals. Register for the webinar now.

The Louisiana Supreme Court declined to review the Court of Appeal’s holding that an out-of-state corporation’s passive ownership of an interest in a limited partnership is not a sufficient basis, by itself, to subject the foreign limited partner to Louisiana franchise tax. UTELCOM, Inc. v. Bridges, No. 2010-0654, 77 So.3d 39 (La. App. 1st Cir. Sept. 12, 2011), reh’g denied (Nov. 1, 2011), writ denied, No. 2011-C-2632 (La. Mar. 2, 2012). The court’s decision to not accept the case should prompt the Department of Revenue to reverse course on its current position.

In UTELCOM, the Department issued franchise tax assessments against two out-of-state corporations whose only connection with Louisiana was their ownership interests in a limited partnership engaged in the long-distance telecommunications business in Louisiana. The primary basis for the Department’s position was a regulation that provided that owning property in Louisiana through a partnership is sufficient to create franchise tax nexus. The trial court upheld the assessments based on the Department’s regulation.

Continue Reading No Louisiana Nexus Over Out-of-State Corporate Partners

The Illinois Court of Appeals held that a taxpayer that did not participate in an amnesty program because it was under federal and state audits, and did not know its ultimate tax liability, was not liable for the special amnesty penalty. Met. Life Ins. Co. v. Illinois Dep’t of Revenue, 2012 IL App (1st) 110400, at *1 (Ill. App. Ct. Mar. 5, 2012).

A 2003 Illinois amnesty program provided amnesty to taxpayers who paid “all taxes due” for eligible tax years by November 2003. A double interest penalty applied for those taxpayers that had a tax liability eligible for amnesty but failed to pay it. In 2000, the Internal Revenue Service began an audit of MetLife for prior tax years and concluded in 2004 that MetLife owed additional federal tax. Additionally, in 2002, the Illinois Department of Revenue (Department) commenced an audit and, after 2004, concluded that MetLife owed additional state income tax for amnesty eligible tax years. Although MetLife had paid the additional tax, the Department notified MetLife in 2008 that the Department was assessing the amnesty double interest penalty.

In finding that the taxpayer did not owe the penalty, the Court of Appeals reasoned that “all taxes due” meant those taxes that a taxpayer knew were due and owed during the amnesty period. The court held that MetLife could not have participated in the protections afforded by the amnesty program to avoid the double interest penalty because MetLife did not know it owed additional taxes during the amnesty period, and the federal and state assessments were not made until after the end of such period. The court also found that the Department’s rules stating that a taxpayer under audit during the amnesty period must make a “good faith estimate” of its tax liability and pay it “irrespective of whether that liability is known to the Department or the taxpayer” exceeded the authority that the legislature conferred to the Department.

Georgia Governor Nathan Deal signed three bills that will enact a wide range of changes to Georgia’s tax structure and procedure (HB 386, HB 100, and HB 846). These changes include a new sales tax exemption for energy used in manufacturing, an affiliate nexus provision, creation of a new Georgia Tax Tribunal, publication of letter rulings, and changes to the taxation of motor vehicles, among others. The bills are the culmination of the comprehensive tax reform effort started in 2010 by the Tax Reform Council. While the bills fall short of the dramatic changes originally proposed by the Council (which included taxation of services and groceries, and communications tax reform), they nevertheless include a number of taxpayer-friendly changes.

Continue Reading Georgia Tax Reform 2.0: Three Bills Signed by Governor

Fees masquerading as taxes have become increasingly common. And, as illustrated by the Iowa Supreme Court’s recent decision in Kragnes v. City of Des Moines, Docket No. 09-1473 (Mar. 2, 2012), in some cases all or part of a fee may constitute an illegal exaction to the extent it is deemed to be a tax. In Kragnes, the Iowa Supreme Court affirmed the district court’s holding that municipal franchise fees imposed on gas and electric services for almost 10 years exceeded the city’s reasonable costs of regulating the gas and electric franchises and, thus, the difference between the tax collected by the city and the city’s reasonable costs constituted an illegal tax.

Continue Reading City of Des Moines and Residents in ROW over Franchise Fees

False claims act (FCA) statutes allow private persons to bring civil actions against alleged wrongdoers on behalf of the government. FCAs and qui tam actions vary, but generally impose significant penalties for “knowingly” failing to comply with a state law. In this edition of A Pinch of SALT, Sutherland SALT’s Jack Trachtenberg, Jeff Friedman and Eric Tresh explore the disturbing trend of the use of FCAs as a basis for challenging state taxpayers.

Read “Applying False Claims Acts in State Taxation,” reprinted with permission from the May 7, 2012 issue of State Tax Notes.

The controversial methodology relied upon by several states to assess corporate taxpayers for transfer pricing violations has been ruled invalid by a D.C. Administrative Law Judge. Several revenue authorities, including New Jersey, Alabama, Louisiana, Kentucky and the District of Columbia, have relied on this now invalidated transfer pricing audit methodology to assess corporate franchise and income tax.

Read Sutherland SALT’s Legal Alert, “Transfer Pricing Assessment Invalidated by DC ALJ” for more details.