addback

Subscribe to addback via RSS

On March 28, 2013, the New York State Legislature passed budget legislation (S.2609D/A.3009D) that replaces the existing New York State and City related-party royalty add-back requirements with provisions based on the Multistate Tax Commission’s model add-back statute. In addition, the legislation repeals the New York State and City royalty income exclusions, which permitted taxpayers to…

By Zachary Atkins and Jack Trachtenberg

The Commonwealth notched another win before the Massachusetts Appeals Court in a case of first impression affirming corporate excise tax assessments based on a disallowance of the taxpayers’ interest and royalty expenses for pre-addback (pre-2002) and addback tax years (post-2001). Under a clear and convincing evidence standard, the court…

The Tennessee Department of Revenue released two taxpayer-favorable rulings related to the intangible expense addback statute and economic nexus on January 8, 2013. In Letter Ruling No. 12-32 (Dec. 19, 2012), the Department ruled that the discount incurred in the course of factoring trade receivables using an affiliated factoring company did not constitute an “intangible…

The Virginia Department of Revenue (i) applied its narrow interpretation of the State’s related member add-back provision to disallow a taxpayer’s factoring company discount losses, and (ii) prohibited the taxpayer and its affiliated factoring company from filing a combined return because the factoring company did not have nexus with the State. Va. Public Document No. 11-162 (Sept. 26, 2011).

The taxpayer sold, or “factored,” its account receivables to a bankruptcy remote affiliate at a discounted price and claimed deductions for its losses on the discounted sales. The taxpayer did not add back its factoring discount losses paid to a related party because the add-back statute provides a “subject to tax” exception from the add-back requirement if the related party was subject to tax in any other state. In this case, the factoring company was subject to tax in one state. Notwithstanding the literal language of the exception, the Department interprets the subject to tax exception narrowly to allow an exception only for the amount actually apportioned to and taxed by other states and, on audit, reduced the taxpayer’s losses accordingly. The Commissioner upheld the auditor’s narrow interpretation of the subject to tax exception, limiting it to post-apportionment amounts, consistent with prior rulings (See Va. Pub. Doc. Nos. 09-49, 09-115).Continue Reading Who Lost the Remote?: Virginia Disallowed Losses and Combined Reporting

On July 28, 2011, the New Jersey Supreme Court denied a taxpayer’s claim that New Jersey’s Throwout Rule (which excludes certain sales from the denominator of the sales apportionment factor) is facially unconstitutional. Whirlpool Props., Inc. v. Div. of Tax’n, Case No. 066595 (N.J. July 28, 2011). However, the court held that the application…

Taxpayers have just begun to struggle with the application of states’ related party addback provisions. On January 31, 2011, the Massachusetts Appellate Tax Board (ATB) issued its decision in the first Massachusetts case that addressed the application of the related party addback provision to an intercompany interest and royalty expense. Kimberly-Clark Corp. et al. v. Comm’r of Revenue, Mass. App. Tax Bd., Dkt. No. C282754 (Jan. 31, 2011). In Kimberly-Clark, the ATB addressed the deductibility of interest expense related to the company’s cash management system and royalties related to intellectual property.

The Massachusetts Department of Revenue (Department) assessed the taxpayer based on a denial of the interest expense deduction for pre-addback and addback tax years. The ATB upheld the Department’s denial of the expense deduction because it determined that, based on the preponderance of the evidence, the taxpayer’s cash management system loans did not constitute bona fide debt. The ATB determined that the loans were not debt because the taxpayer had no expectation that the cash advances would be repaid, and there were no security, default, or collateral provisions.Continue Reading Kimberly-Clark Gets No “Huggies” from Massachusetts Appellate Tax Board