The Sutherland SALT team publishes A Pinch of SALT, a monthly column about hot issues in state and local tax that appears in State Tax Notes. In this month’s A Pinch of SALT, attorneys Marc Simonetti, Zachary Atkins and Madison Barnett discuss jeopardy assessment provisions, which are are intended to protect taxing jurisdictions from taxpayers impeding or escaping the rightful collection of tax. However, the improper use of jeopardy assessments is on the rise, and in this month’s column, we explore this troubling trend and discuss the proper use of jeopardy assessments, the ways they are misused, and practical taxpayer considerations.

Read “Auditors Must Not Use Jeopardy Assessments to Coerce Taxpayers,” reprinted with permission from the April 11, 2011 edition of State Tax Notes.

Sutherland’s first poll of state and local tax issues provided a mix of expected and surprising results. The poll surveyed respondents’ views about granting a waiver of the statute of limitations to provide a state auditor more time to complete an audit. Following is our analysis and the results of the poll.

Continue Reading Weekly Poll Results: Waive or Walk

Sutherland SALT and the entire Sutherland Tax Practice Group hosted clients and friends at a reception in conjunction with the 61st TEI Midyear Conference on Monday night. Continue reading to check out some pictures from our event.

Continue Reading Sutherland Clients and Friends Get Into the Game at the 61st TEI Midyear Conference

On Monday, Sutherland SALT Partner Jeff Friedman participated in a panel discussion titled “Waive or Walk: Considerations for Extending the Statute of Limitations,” at the Tax Executives Institute (TEI) 61st Annual Midyear Conference. The panel was moderated by Tov Haueisen from General Electric Company and Henry Orphys from Intel Corporation, and included Steven Rainey from KPMG.

Click here to read the A Pinch of SALT article “Waive or Walk: Considerations for Extending the Statue of Limitations,” which appeared in State Tax Notes.

Now it’s time for our first weekly state and local tax poll:

 

Check in next week for our analysis of the poll results.

 

 

Several states are turning to contingent-fee audit contractors, sometimes referred to as “bounty hunters,” as a means of increasing corporate income tax collections. Bounty hunter firms are compensated based on the tax assessed, thus encouraging these firms to aggressively assess taxpayers.

Not surprisingly, contingent-fee-based auditors are supporting legislation in several states that would require state tax agencies to enter into contingent-fee audit contracts. Contingent-fee audits are viewed by corporate taxpayers (and some courts) as unfair, hostile, and bad public policy because the auditors have a financial stake in the outcome of the audit.

Continue Reading Bounty Hunters Gone Wild! States Turn to Controversial Contingent-Fee Auditors

An otherwise ordinary ad valorem property tax case turned interesting when a taxpayer requested that the Tennessee Court of Appeals “pierce the corporate veil.” Alcoa, Inc. v. Tenn. State Bd. of Equalization, No. E2010-00001-COA-R3-CV (Tenn. Ct. App. Feb. 18, 2011). The case arose out of an ad valorem property tax assessment against Alcoa for the alumina, coke, pitch, and fluoride it used to manufacture aluminum sheets. Alcoa disputed the assessment on the grounds that these raw materials were exempt from taxation. One of the exemptions Alcoa relied upon applies to “articles manufactured from the produce of th[e] state . . . in the hands of the manufacturer.” Alcoa claimed that the raw materials plus all scrap metal, potlining, and alloying metals used to create aluminum constituted exempt manufactured articles, but its claim was belied by a single stipulated fact in the case—Alcoa manufactures aluminum, but not the inputs that were manufactured by a subsidiary. The materials at issue were not manufactured in the “hands of the manufacturer” and did not qualify for the exemption.

Alcoa argued that the court should pierce the corporate veil and ignore the subsidiary’s separate existence. Under that theory, Alcoa would be deemed the manufacturer and thus would be entitled to the property tax exemption. Alcoa argued that its subsidiary had no substance—no employees or payroll, and business decisions were made by Alcoa employees who were paid by Alcoa and who received Alcoa benefits. The court rejected this argument and held that the taxpayer cannot simply disclaim its chosen structure whenever the legal implications prove undesirable.

It appears that the state tax world is not immune to the scandal involving former Illinois Governor Rod Blagojevich. On March 2, 2011, the U.S. Court of Appeals for the Seventh Circuit issued its ruling in Empress Casino Joliet Corp. v. Blagojevich, Nos. 09-3975 and 10-1019 (7th Cir. 2011), holding that the Tax Injunction Act (TIA) does not bar four riverboat casinos from challenging casino surcharges paid into the Illinois Horse Racing Equity Trust Fund because such payments were fees rather than taxes and not subject to the TIA.

Continue Reading You’re Not Fired! Tax Injunction Act Does Not Bar Federal Court Review of Blagojevich-Era Legislation