From November 14 through 17, the Multistate Tax Commission (MTC) held its annual Fall Meetings in Little Rock, Arkansas. The MTC’s Uniformity, Executive, Strategic Planning, Audit, Litigation, and Nexus Committees met during the week. The Uniformity Committee meeting included the following topics:
Read the full Legal Alert here.
On August 31, 2022, the California Office of Tax Appeals (“OTA”), in the Matter of the Appeal of B. Housman and B. Pena, held that an Australian software company holder, Housman, and his wife are California residents and Housman is entitled to a stepped-up basis as a result of a valid check-the-box election to be classified as a partnership for federal and California income tax purposes.
Housman, an Australian citizen, formed an entity in Australia in 2000. In 2008, Housman and his wife moved to San Francisco, intending to stay for an indeterminate period of time. In 2009, Adobe Systems purchased Housman’s software-as-a-service company, a subsidiary of the entity, for $22.5 million. The California Franchise Tax Board (FTB) and the couple disagreed on how much tax was owed as a result of the sale.
The OTA denied the couple’s argument that they were entitled to a $4.7 million refund as they were California residents at the time the company was sold. The OTA found that, although the couple continued to own a house in Australia after moving to San Francisco in 2008 and contended that their presence in California was intended to be temporary, the couple remained in California for a relatively long or indefinite period of time and had significant connections in California which was not temporary or transitory in nature.
The OTA, however, did agree with Housman that he was entitled to a stepped-up basis from 2008 to offset the $1.4 million in capital gains resulting from the sale of the company to Adobe in 2009. The OTA determined that the company in question made a valid check-the-box election to be classified as a partnership for federal and state tax purposes that took effect on April 1, 2008. The OTA rejected the FTB’s argument that the partnership election did not qualify Housman for the stepped-up basis because the entity did not operate in the United States, stating that “the regulation does not address whether the entity itself is relevant, but whether the classification of the entity is relevant.” (emphasis added) The OTA further found that the appraisal, from which the basis was determined, is reasonable and consistent with revenue rulings.
As such, the OTA found that Housman is entitled to a stepped-up basis as result of a valid check-the-box and any additional penalties and interest were waived.
In re Housman, Cal. Office of Tax App., No. 18010200, 8/31/22
The California Office of Tax Appeals held that a taxpayer was a California resident and domiciliary when he redeemed shares of his Tennessee-based employer in 2012. Accordingly, the taxpayer was assessed additional state income tax on the value of the redeemed shares.
In 2008, the taxpayer moved from California to Tennessee and purchased a home. From 2008 – 2011, the taxpayer was domiciled in Tennessee and was involved in a Tennessee based business. In 2012, the taxpayer became engaged to a California resident, purchased a home in California to remodel, sold his Tennessee home, and paid a portion of his fiancé’s rent. The taxpayer argued that he was Tennessee resident during all of 2012 and only temporarily in California to visit his fiancé and remodel the California property. The OTA however found that the taxpayer’s strongest ties were to California at the time of the sale of the Tennessee business, based on a number of factors, such as the taxpayer maintained a permanent home in California, his fiancé was located in California and had no intention of moving, and the taxpayer spent more time in California than Tennessee. Additionally, the taxpayer did not file a Tennessee tax return during 2012 to report certain investment income subject to tax in Tennessee.
In the Matter of the Appeal of Beckwith, 2022-OTA-332P (Cal. Office of Tax Appeals 2022).
On the SALT Shaker Podcast this week, Eversheds Sutherland Associate Jeremy Gove invites fellow Associate Cyavash Ahmadi to the show for a discussion of the state taxation of cryptocurrency and digital assets. They begin with an overview of how state taxes have previously dealt with new technology, as well as a primer on the various terms that are used in the crypto space. They then take a deeper dive into the sales tax and income tax aspects of cryptocurrency and digital assets.
They wrap with an important, holiday-themed overrated/underrated question: stuffing.
Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.
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The Multistate Tax Commission (MTC) held its annual Fall Meetings in Little Rock, Arkansas (Eversheds Sutherland attorneys attended the meeting, and a full report of the meetings will be provided). On Thursday, November 17, the MTC Executive Committee dissolved the State Intercompany Transactions Advisory Service (SITAS) Committee. The Committee’s purpose of facilitating information sharing and dialogue among interested states, as well as sponsoring training with respect to intercompany transactions, will now be managed through the MTC’s Audit and Litigation Committees.
Read the full Legal Alert here.
Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!
We will award prizes for the smartest (and fastest) participants.
This week’s question: Which state tax organization recently unveiled a new mentorship program?
E-mail your response to SALTonline@eversheds-sutherland.com.
The prize for the first response to today’s question is a $25 UBER Eats gift card. Answers will be posted on Saturdays in our SALT Shaker Weekly Digest. Be sure to check back then!
On October 31, 2022, the Illinois Department of Revenue released new guidance providing clarity on the treatment of cryptocurrency. The Department’s guidance provides that Illinois conforms to the federal tax treatment of treating cryptocurrency as property. The new guidance also states that, for purposes of the applicability of Public Law 86-272 to an out-of-state company that sells cryptocurrency to customers in Illinois, the transaction will be treated as a sale of intangible property. In addition, the Department clarified that for apportionment purposes, the sale of cryptocurrency will be treated as a sale of intangible property for purpose of computing the sales factor. And, if an employee is paid with cryptocurrency, the fair market value of the cryptocurrency is subject to withholding and payroll taxes. A payment using cryptocurrency, however, is not subject to the same information reporting requirement as other payments made in property.
Illinois Dept. of Rev. General Information Letter IT 22-0010-GIL (July 15, 2022).
The Administrative Review and Hearings Division of the Washington Department of Revenue recently issued Determination No. 21-0055 in which it determined receipts from the provision of genealogy services should be apportioned based on the customer location for purposes of the Business and Occupation Tax. The genealogy company performs research, primarily online, investigating the customer’s ancestry, and sourced its receipts based on where the benefit was received, which it believed was the location of the ancestry, which is the location where the research was focused. Following an audit, the Department issued an assessment apportioning the company’s receipts according to the customers’ state of residence. On appeal, the Hearings Division upheld the assessment, reasoning that the benefit of the service is the result of the company’s research, and the customer “does not experience this benefit of increased knowledge about their family history” at the location where the genealogy research was focused. The Hearings Division concluded that because the service does not relate to a specific location, the benefit of the service is received where the customer resides.
This week, the MTC will host its Fall Committee Meetings, between November 14-17 in Little Rock, AR.
On November 15, Eversheds Sutherland Partners Michele Borens, Nikki Dobay and Jeff Friedman will present during the Uniformity Committee Meeting.
Topics include:
For more information and to register, click here.
In addition, Partner Jeff Friedman will present a state and local tax update during the New Jersey Society of Certified Public Accountants (NJCPA) Multistate Tax Conference webcast on November 16, addressing significant state and local tax litigation and legislation. Topics will include income tax apportionment, sales tax on services and digital products, and local taxes.
Finally, Eversheds Sutherland attorneys Michele Borens and John Ormonde will present to the Northern California Tax Directors Group on November 17.
View and learn more about past and upcoming events and presentations for the SALT team.
In this episode of the SALT Shaker Podcast policy series, Eversheds Sutherland Partner Nikki Dobay welcomes back Stephanie Do, Senior Tax Counsel at Council On State Taxation (COST), for a discussion of COST’s new mentorship program for SALT professionals.
Stephanie provides an overview of COST’s newly rolled-out mentorship program, how it was designed and why COST is uniquely positioned to make a mentorship program in the SALT community work. To conclude the episode, Stephanie provides insight into what she’s watching legislatively as we go to into 2023.
Nikki wraps up the episode with another edition of a surprise non-tax question – what was your least favorite food as a child, and how do you feel about it now?
The Eversheds Sutherland State and Local Tax team has been engaged in state tax policy work for years, tracking tax legislation, helping clients gauge the impact of various proposals, drafting talking points and rewriting legislation. Partner Nikki Dobay, who has an extensive background in tax policy, hosts this series, which is focused on state and local tax policy issues.
Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.
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