Arizona

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The Arizona Department of Revenue (the Department) issued an Individual Income Tax Ruling describing the treatment of Real Estate Mortgage Investment Conduits (REMICs). Ariz. ITR 11-6 (Aug. 8, 2011). The ruling affirms the Department’s longstanding positions regarding the sourcing of income received from REMICs and whether simply holding an interest in an Arizona REMIC creates nexus. Ariz. ITR 91-2 (Apr. 2, 1991). 

For federal tax purposes, the IRS treats REMICs as flow-through entities and does not tax the entity itself on its income. Rather, the REMIC’s interest holders are taxed on the REMIC’s income. Generally, REMICs will have two types of holders: regular interest holders and residual interest holders. Regular interest holders are taxed as if their interests were debt instruments, whereas residual interest holders report the REMIC’s taxable income or loss in proportion to their percentage ownership, similar to partners in a partnership.Continue Reading REMIC – the Remix – Arizona Style

On April 13, Arizona Governor Brewer vetoed legislation (S.B. 1552) that would have allowed specified taxpayers to elect to use market sourcing for corporate income tax purposes. Taxpayers would have continued to apportion income to Arizona using the standard three-factor formula with a heavily weighted sales factor. The binding 5-year election would have…

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?

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