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

The U.S. Supreme Court reversed a U.S. Court of Appeals in holding that a railroad may bring suit to challenge the validity of a discriminatory Alabama sales tax exemption. CSX Transp., Inc. v. Ala. Dep’t of Revenue, No. 09-520, 2011 WL 588790 (U.S. Feb. 22, 2011). Alabama imposes its sales and use tax on the use of diesel fuel for off-road use, including fuel used by railroads, but provides exemptions for fuel used by railroads’ direct competitors, commercial truckers and interstate water carriers. CSX sued to challenge the discriminatory scheme under the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act).

Continue Reading Discrimination Train Has Left the Station: U.S. Supreme Court Remands Alabama Railroad Case

Sin City, Lost Wages, Glitter Gulch, or just plain old Las Vegas. What immediately comes to mind? Probably not unclaimed property. But the state of Nevada has finally discovered a way to add insult to injury by requiring unclaimed property holders (e.g., casinos) to remit uncashed “wagering instruments.”

On March 1, 2011, the Nevada Legislature introduced Assembly Bill No. 219. This bill, if passed, would add the following property type and dormancy period to the state’s unclaimed property law reporting and remittance requirements: Any wagering instrument, one year after the wager is placed, unless the Nevada Gaming Commission specifies by regulation a different period in which the wagering instrument must be redeemed is presumed abandoned.

Continue Reading Unclaimed Property…Nevada is Betting on a Sure Thing

The California Court of Appeal held that receipts from Nortel’s license of computer programs used to operate a telephone company’s switch hardware were not subject to sales tax. Nortel Networks, Inc. v. State Board of Equalization, Case No. B213415 (2d App. Dist. Jan. 18, 2011). The court also partially invalidated Regulation 1507 on the grounds that the State Board of Equalization (SBE) had exceeded its authority when it enacted the regulation.

The Court of Appeal’s decision provides guidance regarding the scope of exempt Technology Transfer Agreements (TTA), which are defined as “any agreement under which a person who holds a patent or copyright interest assigns or licenses to another person the right to make and sell a product or to use a process that is subject to the patent or copyright.” Cal. Rev. & Tax. Code § 6011(c)(10)(D); 6012(c)(10)(D).

Continue Reading California Court of Appeal Switcheroo: Software Constitutes Technology Transfer Agreement