In addition to A Pinch of SALT (our monthly State Tax Notes column on hot issues in state and local tax), Sutherland SALT regularly publishes UPwords, which covers the latest developments in unclaimed property. In this edition of UPwords, we focus on a new form of digital property—the online prepaid discount voucher, such as those sold by Groupon and LivingSocial—and evaluate the unclaimed property issues it raises. 

Read “Prepaid Discount Vouchers: The Not-So-Final Frontier,” reprinted with permission from the May 16, 2011 issue of State Tax Notes.

 

Georgia’s grand experiment to comprehensively rewrite its state tax code came to an anti-climactic halt on April 11, 2011, when the Georgia House of Representatives adjourned without taking up the tax reform bill. In its final form, the bill was unable to withstand a substantial political attack with uncertainty as to the net revenue impact of the bill and whether changes in the personal income tax calculation would create a tax increase on the middle class.

The 10-month tax reform saga began in June 2010, with legislation creating the Special Council on Tax Reform and Fairness for Georgians (the Council), which issued a comprehensive report on January 7, 2011, generally recommending a transition from income taxes to more broad-based consumption taxes. (See Sutherland’s January 10, 2011 Legal Alert for detailed coverage of the Council’s report). The original tax reform bill, H.B. 385, was originally introduced to the Special Joint Committee on Georgia Revenue Structure (the Joint Committee) mirroring the recommendations of the Council and intending to be revenue neutral.

Continue Reading Peach State Politics: Georgia Tax Reform Effort Dies on the Vine

In an unusual twist of legislative procedure, the Alabama legislature passed a joint resolution (SJR 4) vetoing an Alabama Department of Revenue (Department) regulation that disallowed a Business Privilege Tax (BPT) deduction for equity investments in subsidiaries. 

The saga of SJR 4 relates to AT&T Corp. v. Surtees, 953 So. 2d 1240 (Ala. Civ. App. 2006). In AT&T, the Alabama Court of Appeals held that the BPT deduction for investments in subsidiaries found in Ala. Code § 40-14A-23(g)(1) was facially unconstitutional under the Commerce Clause, because the deduction was limited to only those subsidiaries doing business in Alabama. The court did not order the deduction to be stricken, but rather remanded the case to the trial court to afford the Department an opportunity to offer a permissible justification for the discrimination. The parties ultimately settled before the court entered judgment on the remedy issue.

Continue Reading Just Say No: Alabama Legislature Vetoes Department of Revenue’s BPT Regulation

Sutherland’s SALT Poll, “MTC Considering Broad Throwout Rule Under Cloak of Redefining ‘Sales,’” revealed that more than 80% of those surveyed oppose narrowing the scope of the type of “sales” used to calculate the receipts factor. The vast majority of respondents were opposed to altering the sales factor because they believed all receipts used to calculate business income should be reflected in the apportionment formula. The MTC’s proposal and the poll results are not surprising based on Sutherland’s experience with escalating attempts by state auditors to “throwout” certain types of receipts from the sales factor.

Continue Reading SALT Poll Results: Most Oppose MTC’s Proposal to “Throwout” Receipts

On March 24, Governor Jerry Brown signed into law SB 86 (Committee on Budget and Fiscal Review), a majority-vote bill, which includes a tax amnesty program for taxpayers with underreported income related to abusive tax avoidance transactions and offshore financial arrangements. The amnesty program—which is more stick than carrot—is part of a larger proposal to close the $26 billion gap between spending and revenue in the state budget, and is estimated to raise roughly $200 million due in large part to accelerated revenues. This revenue estimate is as likely to materialize as an Easter bunny carrying a copy of State Taxation (by Jerome and Walter Hellerstein) at your next family picnic.

The tax amnesty program—referred to as Voluntary Compliance Initiative Two (VCI II)—offers a 91-day amnesty period from August 1, 2011, through October 31, 2011, for personal and corporate income taxpayers with liabilities derived from abusive tax avoidance transactions and offshore financial arrangements related to taxable years prior to January 1, 2011, and tax deficiencies that are not final as of July 31, 2011.

Continue Reading Hey Wabbit!: California’s Amnesty Puttycat Program

Indiana just launched a new unclaimed property compliance enforcement effort that is bringing unwelcome news to some holders. In early April, Indiana sent out formal notices to holders indicating that fines could apply for failure to timely report and remit unclaimed property. In some cases, not only did holders receive the warning notice, but also an actual assessment and invoice reflecting the threatened fines. The letters accompanying these assessments indicated that the holder has 60 days to pay the assessment, including the fine, or demonstrate to the Indiana unclaimed property authorities that the assessment was incorrect. Adding salt to the wound, the letters indicated that failure to comply may subject the company to an audit.

Idaho, on the other hand, recently passed a law that eases the compliance burden associated with reporting unclaimed corporate securities and related distributions. HB 174 (effective July 1, 2011). Idaho’s new law makes two major changes to corporate securities reporting: (1) a requirement that the owner is actually “lost” before the dormancy period commences, and (2) clarification of the requirements for reporting unclaimed dividends paid pursuant to dividend reinvestment program accounts (DRIP accounts).

Continue Reading The “I’s” Have It: Indiana and Idaho Unclaimed Property Developments

On April 26, the Multistate Tax Commission (MTC) Income & Franchise Tax Uniformity Subcommittee (Subcommittee) held the first of three scheduled meetings to revise corporate income tax apportionment. Specifically, the MTC is seeking to limit the definition of “sales” under Article IV.1(g) of the Uniform Division of Income for Tax Purposes Act (UDITPA) for purposes of calculating the sales apportionment factor. The effect of the proposed limitation will lead to reducing the sales factor denominator in certain situations—and increasing state apportionable income.

Read the Sutherland SALT Team’s legal alert, “No Sale! MTC Proposes to Limit Receipts Included in the Sales Factor,” and be sure to vote in our poll on the MTC’s proposal.

Yesterday, the New Jersey Supreme Court heard oral arguments in the Whirlpool case. Whirlpool Properties, Inc. v. Div. of Taxation, Docket A-25-10 (N.J. Supreme Court argued May 4, 2011). Whirlpool argued that the New Jersey “Throwout Rule” is facially unconstitutional because it is designed to tax extraterritorial income. The New Jersey Throwout Rule required taxpayers to exclude (or “throwout”) receipts from the denominator of their sales factor if the sales were assigned to a state where the taxpayer was not “subject to tax.” Interestingly, New Jersey asserted that the Throwout Rule is not a tax and does not increase New Jersey tax because the rule impacts only the denominator and not the numerator. In its questioning, the court appeared to scrutinize the Throwout Rule from both an internal and external consistency perspective. While the argument related to the facial constitutional challenge, the court posed several questions relating to an as-applied constitutional challenge, which many taxpayers are in line to bring if the court holds that the Throwout Rule is not facially unconstitutional.

Sutherland filed an amicus brief on behalf of the Council on State Taxation (COST) supporting Whirlpool’s argument that the Throwout Rule is facially unconstitutional.

You can find prior Sutherland SALT coverage of the Whirlpool case here.

Digitally provided content and services raise numerous questions when it comes to reporting, collecting and enforcing taxes because tax laws have yet to catch up with the digital world. In this month’s A Pinch of SALT (a column published by the Sutherland SALT Team in State Tax Notes), attorneys Steve Kranz, Beth Freeman and Mark Yopp highlight some of the notable virtual business models and explore the complex tax challenges raised by each.

 

Read “Taxing the Virtual World… And Beyond,” reprinted with permission from the May 2, 2011 issue of State Tax Notes.

The Washington Supreme Court recently adopted the “primary purpose of the purchaser” test to determine whether a transaction should be broken down into its component parts or considered as a whole. In Qualcomm, Inc. v. Department of Revenue, the court overturned the state court of appeals and held that a taxpayer’s vehicle tracking service was subject to buiness and occupation (B&O) tax as an information service, and not as a network telephone service. The court reasoned that the purchaser was buying an integrated management tool that happened to include data transmission, not a telephone service coupled with tracking hardware and software.

Continue Reading Keep on Truckin’: Washington Supreme Court Analyzes the Primary Purpose of Vehicle Tracking Service