On January 10, 2011, the New Jersey Division of Taxation (the Division) started the new year off with a bang by issuing a Technical Advisory Memorandum (TAM), TAM-6 (Jan. 10, 2011) regarding the Division’s Corporate Business Tax (CBT) nexus policy. The issuance of this TAM sent both overt and subliminal messages to foreign corporations, particularly financial institutions.  

The Division advised that for privilege periods and taxable years beginning on or after January 1, 2002, amendments to the CBT made it clear that foreign corporations are subject to the CBT “for the privilege of deriving receipts from sources within this state, or for the privilege of engaging in contacts within this state.” N.J. Stat. Ann. § 54:10A-2. In addition, the Division adopted the holding of Tax Comm’r of W.Va. v. MBNA America Bank, N.A., 640 S.E.2d 226 (W.Va. 2006), cert. denied sub nom FIA Card Services, N.A. v. Tax Commissioner of W.Va., 127 S. Ct. 2997 (2007), as the constitutional standard by which New Jersey’s nexus statute would be measured. Based on this foundation, the Division set stated: “taxpayers performing services and domiciled outside the State that solicit business within the state or derive receipts from sources within the State must file a [CBT] return” (emphasis added). The Division expressly targeted this nexus policy at financial institutions by stating that “a [financial institution] that has its commercial domicile in another state [is] subject to tax in this State if during any year it obtains or solicits business or receives gross receipts from sources within this state.”

Continue Reading New Jersey’s “Situation”: Economic Nexus and Endless Possibilities

The Washington legislature has enacted the state’s first-ever amnesty program. The legislation (L. 2010, SB6892) allows the Department of Revenue to waive most interest and penalties on delinquent state and local sales and use tax, state business and occupation (B&O) taxes, and state public utility taxes. The amnesty program began on February 1, 2011, and will end on April 30, 2011.  Washington expects the program to generate $24.4 million for the state and $3.9 million for local governments.

Continue Reading Washington B&O Amnesty: Does It Stink?

On October 21, the Supreme Court of Kentucky overturned the denial of a taxpayer’s document request under Kentucky’s Open Records Law. Dep’t of Revenue v. Wyrick, Case No. 2008-SC-000468-DG (Ky. 2010). Wyrick, an attorney representing a newspaper company on a tax refund claim before the Board of Tax Appeals, sought numerous documents from the Department of Revenue through a pretrial discovery request. When the Board denied Wyrick’s pretrial discovery request, Wyrick requested many of the same documents from the Department under Kentucky’s Open Records Law. The Department denied most of the request, citing the civil litigation limit in Ky. Rev. Stat. Ann. § 61.878(1) (2010), which provides that “no court shall authorize the inspection by any party of any materials pertaining to civil litigation beyond that which is provided by the Rules of Civil Procedure governing pretrial discovery.”

Continue Reading Kentucky Supreme Court Tells Department of Revenue: ‘Open Sesame’

The Iowa Supreme Court and Iowa Department of Revenue issued interesting opinions that continue to expand corporate income tax nexus arguably beyond the limitations of the Commerce Clause of the U.S. Constitution.

The Iowa Supreme Court held that physical presence is not a required ingredient of the secret recipe for substantial nexus in the corporate income tax context. KFC Corp. v. Iowa Dep’t of Revenue, No. 09-1032 (Iowa Dec. 30, 2010). The Department issued a corporate income tax assessment to KFC Corp., which had no employees or property in Iowa. KFC’s only connection with Iowa was that it licensed the KFC intangible property to independent franchisees operating or conducting business in Iowa. The Iowa Supreme Court held that, despite this tenuous connection and no physical presence, KFC had substantial nexus in Iowa.

Continue Reading Iowa Supreme Court Deep-Fries Commerce Clause

David Lacey and Abbie.jpgMeet Abbie, the newest addition to the Sutherland SALT family. New York associate David Pope and his girlfriend, Lacey Zoller, adopted Abbie when the holiday spirit overtook them last month. Although David and Lacey were initially interested in getting a small, apartment-friendly dog, they immediately fell for Abbie, the rescue worker’s favorite.

The shelter claims that Abbie is an American and English bulldog mix, but David and Lacey suspectAbbie with Tennis Ball.jpg that she is really part bulldog, part pig and part alligator. Abbie is a loud snorer, drools incessantly, and loves to snort, give paw and do “Abbie alligator” rolls around the house to get her belly rubbed. Her long body, short legs, and giant head have convinced David and Lacey that Abbie is actually a special “three-in-one” animal.

Abbie is fairly clueless when it comes to doggie manners. Although she was initially rebuffed with fierce teeth and a solid snap by a large Weimaraner at the dog park, to Abbie, that simply meant “Hey, maybe I moved too fast; let’s try that again in about 30 seconds.” Her curiosity and persistence have paid off, because the Weimaraner eventually gave up and is now her new best friend.

The New York State Department of Taxation and Finance issued an advisory opinion regarding whether three different financial advice services are subject to New York sales and use tax. Section 1105(c)(1) of the New York Tax Law imposes sales tax on receipts from the “furnishing of information” by printed matter, including the collection, compilation, or analysis of information of any kind or nature and furnishing reports on the same. However, the statute excludes from the scope of “furnishing of information”: 

  1. Information that is personal or individual in nature; and 
  2. Information that is not or may not be substantially incorporated into reports furnished to others.

New York courts have further qualified the first criterion by requiring that an information service be “uniquely” personal or individual in nature.

Continue Reading New York Issues (Another) Advisory Opinion on Taxability of Financial Advice Services

At both the federal and state levels, the GOP won a number of game-changing races that will impact state and local tax policy in 2011 and beyond.  Of the 37 gubernatorial races held in 2010, Republicans won 23.  All six Republican incumbents won; Republicans defeated Democratic incumbents in two of the seven other incumbent races.  Further, the following state legislative chambers switch from “D” to “R” – Alabama (House and Senate); Indiana (House); Iowa (House); Ohio (House); Maine (Senate); Michigan (House); New Hampshire (House and Senate);  North Carolina (House and Senate);  Pennsylvania (House); New York (Senate); Minnesota (House and Senate); Montana (House); Colorado (House).  Only the Oklahoma Senate switched from Republican to Democrat controlled. 

These results will affect states’ willingness to enact significant state tax legislation, such as combined reporting, sales tax base expansion, and aggressive nexus legislation, to name a few.  Of course, Republicans’ historical temperance towards new taxes will be juxtaposed against the states’ ever-present budget shortfalls. At the federal level, Republican gains may hamper the Main Street Fairness Act because some right-leaning policy groups view the Streamlined Sales and Use Tax Agreement as a “new” tax. Look for a more detailed analysis from Sutherland of the 2010 elections and state tax issues in the near future.

When is an insurance company “subject to” premium tax? Recently, the Indiana Tax Court answered this question in United Parcel Service, Inc. v. Indiana Department of Revenue, 49T10-0704-TA-24 (December 29, 2010), concluding that an insurance company is “subject to” premium tax when it is placed under the authority, dominion, control, or influence of the tax, and not simply when it is required to pay the tax. 

In United Parcel Service, the Indiana Department of Revenue had determined that UPS should have included the income of two affiliated foreign reinsurance companies in its Indiana worldwide unitary corporation income tax return. UPS, however, maintained that its affiliated foreign reinsurance companies should be excluded because the Indiana statutes provided that there is no income tax on the adjusted gross income of insurance companies “subject to” the Indiana gross premium tax.

Continue Reading Inclusion of Insurance Company in Unitary Return – When Is an Insurance Company “Subject to” Premium Tax?

Recently, the Connecticut Department of Revenue Services issued an informational publication explaining its position on the application of the Connecticut Corporate Business Tax on real estate investment trusts (REITs) and revised a previously issued publication on the implications of the state’s economic nexus provisions to foreign (non-U.S.) companies.

The Department’s newly issued guidelines treat REITs in a manner that is similar to the Internal Revenue Code, but the Department strays in certain areas. IP 2010(21) (Dec. 1, 2010).

Continue Reading Connecticut “WREITS” Guidance for REITs and Economic Nexus

The Arizona Superior Court denied Home Depot a bad debt deduction related to customer credit card transactions. Home Depot USA Inc. v. Arizona Department of Revenue, TX 2006-000028 (Dec. 10, 2010). The court reviewed three conditions that must be met under Arizona law in order for a bad debt to be deducted: 

  1. The transaction upon which the bad debt deduction is being taken was reported as taxable;
  2. The debt arose from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money; and 
  3. All or a portion of the debt is worthless. Id.

In determining whether Home Depot could claim the deduction associated with its private label credit card transactions, the court relied on a decision of the Arizona Appeals Court and interpreted the first and second conditions as  limited only to those persons who made the sale and originally reported the tax. Id. (DaimlerChrysler Services North America, LLC v. Arizona Dep’t. of Revenue, 210 Ariz. 297, 302 (Ariz. App. 2005)). While Home Depot made the sales and reported the tax, it did not incur the bad debt directly. The finance company paid Home Depot the amount of each transaction, less a negotiated percentage that included the overall cost of bad debt for all transactions.

Continue Reading Retailers, Finance Companies and Sales Tax Refunds on Bad Debt – Heads I Win, Tails You Lose