The Multistate Tax Commission (MTC) is in the midst of two projects that focus on the financial services industry. The first project is an effort to amend the recommended formula for the apportionment and allocation of the net income of financial institutions, first adopted by the MTC in 1994. The second project, referred to as the “non-income taxpayer project,” involves the MTC’s drafting of a model statute that would subject certain partnerships and other pass-through entities to an entity level state income tax to the extent their income passes through to an entity that is not itself subject to the state’s income tax.

Continue Reading The Multistate Tax Commission Restructures Apportionment of Financials, Seeks to Tax Pass-Throughs

The California Board of Equalization (BOE) recently issued a decision holding that dividends received by an out-of-state corporate taxpayer were business income because the dividend payor played an integral and operational role in the taxpayer’s unitary business.  The BOE also denied the taxpayer’s dividends received deduction (DRD) under Cal. Revenue & Tax Code (R&TC) § 24402. Appeal of Rio Doce Ltd., No. 402204 (Cal. Bd. of Eq. Nov. 17, 2010) (released Jan. 17, 2011).

Continue Reading California Double Whammy: Dividends Are Apportionable Income, Not Deductible

Ever the trendsetter, California is hip to transparency and has posted proposed budget trailer bill language on the Department of Finance Web site, www.dof.ca.gov. The language confirms what taxpayers already knew: A target is on their backs as budget negotiations begin. The tax provisions specific to business taxpayers include a repeal of California’s Enterprise Zone Program and all related credit carryovers; mandatory single sales factor apportionment; mandatory market sourcing; tax shelter amnesty; and a financial institutions records match (FIRM) program. Other language includes a legislative constitutional amendment to extend current tax rates for five years. All of these proposals require a two-thirds legislative vote. However, the tax shelter amnesty and FIRM provisions could be enacted with a mere majority vote.

Continue Reading California Mischief: Budget Tax Proposals Repeal Credits, Limit Apportionment Methods

On January 26, 2011, the U.S. District Court for the District of Colorado granted the Direct Marketing Association’s (DMA) motion for a preliminary injunction preventing the Colorado Department of Revenue (Department) from enforcing its sales tax notice and reporting regime enacted in 2010 and set to become effective January 31, 2011. The Direct Mktg. Ass’n v. Roxy Huber, Civil Case No. 10-cv-01546-REB-CBS, Order Granting Motion for Preliminary Injunction (D. Colo. Jan. 26, 2011). The DMA’s amended complaint, which provided the basis for the injunction, alleged constitutional violations under the Commerce Clause, the First Amendment right to free speech of businesses and consumers, the right to privacy of Colorado residents, and the deprivation of the value of proprietary customer lists without due process or fair compensation. The preliminary injunction was premised only on the Commerce Clause claims and left open the consideration of the other claims in the amended complaint.

The court concluded that the DMA had demonstrated the four requirements to be granted a preliminary injunction: 

  1. The plaintiff has a substantial likelihood of success on the merits; 
  2. The plaintiff has an irreparable injury; 
  3. The injury to the plaintiff outweighs the injury to the defendant; and 
  4. The preliminary injunction is in the best interests of the public.

Continue Reading Oh No You Didn’t! Colorado Enjoined From Enforcing Reporting Requirements

Murphy and Craig.jpgThis month’s SALT Pet of the Month is none other than Murphy, one of a trio of dogs that occupy (some say run) the household of Craig and Laura Stroh. Craig is a loyal SALT Shaker reader and the senior manager of state income tax compliance for Emerson Electric Co. in Saint Louis.

Murphy is a 10-year-old basset hound/German shepherd mix. He possesses the long, low body of a basset, but his head and face quickly reveal the shepherd in him. Murphy is known as the resident “Mole Slayer” in the Strohs’ subdivision because his favorite pastime is to search for and catch The Moleslayer at Work.jpgmoles in the Strohs’ yard—hence his unofficial motto: “Chicks Dig Me—Moles Fear Me.” Although most of Murphy’s catches take place above ground, he will not hesitate to get his paws dirty and do serious excavating if moles are underground. The damage done to the lawn by Murphy’s digging usu¬ally exceeds the damage done by the moles themselves.

When not on mole patrol, Murphy spends his day on the living room couch. Like most professional couch potatoes, Murphy is content to hold court there until dinnertime, when he eagerly joins the family in the kitchen at the first sound of food being prepared.

On January 31, 2011, the California Supreme Court issued its long-awaited decision in California Farm Bureau Federation, et al. v. State Water Resources Control Board, No. S150518 (Cal. Jan. 31, 2011), which addressed the constitutionality of an annual levy imposed by the State Water Resources Control Board. While the court concluded that the statute imposing the water rights levy imposed a fee (not a tax) and was constitutional on its face, the court remanded to the Court of Appeals to determine whether the regulation implementing the statute was unconstitutional on an as-applied basis.

Continue Reading California Supreme Court Floats New Tax/Fee Decision