The California Court of Appeal held that California income tax applies to the entire amount of trust income that is derived from California sources, even though a trust is managed in part by a non-resident trustee. The taxpayer had requested a refund on income taxes paid on capital gains, claiming that the income was incorrectly
apportionment
Pump the Brakes: North Carolina Supreme Court Determines that Brake-Pad Manufacturer Does Not Qualify for Special Apportionment Rule for Public Utilities
The North Carolina Supreme Court affirmed a lower court decision that held that a manufacturer of brake pads used by railroads did not qualify for an exception to the state’s standard three-factor apportionment formula that allows “public utilities” to instead apportion their income using a single-sales factor formula.
In February 2019, the North Carolina Superior…
How Does California Source Sales of Services and Intangibles for Apportionment Purposes?
California uses market-based sourcing to apportion sales of other than tangible personal property to the state. Under the governing statute, sales of services are sourced to California to the extent the purchaser of the service receives the benefit in the state.1 Sales of intangible personal property are sourced to California to the extent the…
Tennessee Court of Appeals Holds Legal Malpractice Settlement Proceeds are Taxable Business Earnings
The Tennessee Court of Appeals held that a manufacturer’s proceeds from a legal malpractice action are business earnings subject to the Tennessee excise tax. The malpractice action arose when the taxpayer’s attorneys improperly filed a European patent. The damages awarded in settlement of the claim were based on profits the taxpayer would have earned if…
Pennsylvania Attorney General Criticized For Not Representing Department of Revenue
Oral argument was held June 11 in the highly unusual case of Synthes USA HQ Inc. v. Commonwealth of Pennsylvania.
- The Attorney General faced skeptical questioning from the Commonwealth Court, with one judge suggesting that the Attorney General was “defeating,” rather than representing, the interests of the Department of Revenue.
- Synthes involves the question of
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Representative Representation Required
The Washington Court of Appeals held that Seattle’s method of apportioning the City’s business and occupation tax (B&O tax) was unconstitutionally applied and unfairly apportioned when the City excluded compensation paid to independent representatives from the apportionment payroll factor. The taxpayer, a financial services firm headquartered in Seattle, generated most of its income through the…
Taxpayer Dials the Wrong Number: New Jersey Court Holds Phone Company Sourcing Rule Inapplicable
On January 9, 2020, the New Jersey Superior Court, Appellate Division, upheld a New Jersey Tax Court decision that income, or “receipts,” earned by a taxpayer from providing broadcast fax, email and voice messaging services were performed within New Jersey and thus the majority of such receipts were properly sourced to New Jersey for purposes…
Massachusetts ATB Allows Taxpayers to Claim Refunds Based on Apportionment of Sales Tax
The Massachusetts Appellate Tax Board determined that three licensors of software properly sought refunds (or “abatements”) to apportion sales tax based upon proof of their purchasers’ intent to use the software in multiple locations, including outside of Massachusetts. In doing so, the Board rejected the Commissioner of Revenue’s argument that the taxpayers could apportion sales…
Too Bad, So Sad – Virginia Supreme Court Upholds COP Apportionment Despite Subjecting the Taxpayer to Double Taxation
The Virginia Supreme Court held that the use of the cost-of-performance method to apportion nearly 100% of the taxpayer’s sales of services to Virginia did not violate the U.S. Constitution, even though over 95% of the taxpayer’s customers were located outside of the state – perhaps an expected result for a services company based in…
New Jersey Tax Court Rejects Division’s Interpretation of Regulation Regarding “Regular Place of Business” and Permits Apportionment
The New Jersey Tax Court ruled that a corporation was entitled to apportion its corporate income based on a “regular place of business” outside of New Jersey. This now-repealed apportionment requirement was the source of several New Jersey Tax Court cases. For tax years beginning before July 1, 2010, N.J. Rev. Stat. § 54:10A-6 provided…