Shaking things up in state and local tax
Shaking things up in state and local tax
By Robert P. Merten III and Open Weaver Banks
The Washington Court of Appeals held that a Honda automobile dealership was subject to state business and occupation (B&O) tax on more than $1 million in “dealer cash” payments the dealership received over a four-year span from manufacturer American Honda as part of an incentive program.
By Kathryn Pittman and Andrew Appleby
A Washington Superior Court held that using leased specialized railroad cars to transport products in Washington did not rise to the level of “substantial nexus.” The taxpayer, a California company, sold food products into the state by transferring its products into specially leased railroad cars that traveled to Washington.
A combined case against Cingular Wireless (now AT&T) has been working its way through state and federal courts for some time now. At issue was Cingular’s practice of passing through to its customers, as a line-item surcharge, the Washington business & occupation (B&O) tax assessed against the company. The plaintiffs sued Cingular on the grounds that its…
The Washington Department of Revenue (Department) determined that an out-of-state mail order retailer (Taxpayer) had substantial nexus with the state based on the activities of an in-state affiliate (Affiliate), and therefore, upheld an assessment of business and occupation tax (B&O Tax) and sales tax. Determination No. 10-0057 (released Dec. 20, 2011). The Taxpayer sold tangible…
In shocking similarity to the once-popular Amy Winehouse song “Rehab,” the U.S. Supreme Court denied certiorari in two nexus cases: KFC Corp. v. Iowa, 792 N.W.2d 308 (Iowa Dec. 30, 2010) and Lamtec Corp. v. Wash. Dep’t of Revenue, Docket No. 83579-9, en banc (Wash. Jan. 20, 2011) but left open the possibility to hear DIRECTV, Inc. v. Levin, 128 Ohio St.3d 68 (Ohio Dec. 27, 2010).
KFC is an economic nexus case involving the license of intangibles. KFC did not have any employees or property within Iowa; KFC licensed the use of trademarks and other intangibles to independent franchisees in the state in exchange for royalties. The Iowa Supreme Court held that KFC’s license of the intangibles was the “functional equivalent” of physical presence under Quill and that, in the alternative, physical presence was not required to find substantial nexus for corporate income tax purposes.
The Court also denied certiorari in Lamtec, where the taxpayer’s sole presence in the state was irregular employee visits to customers. The Washington Supreme Court determined that Lamtec had nexus with Washington for Business and Occupation (B&O) tax purposes and raised additional questions regarding how Washington views the physical presence test relating to the B&O tax, stating: “We conclude that to the extent there is a physical presence requirement, it can be satisfied by the presence of activities within the state.” (emphasis added).Continue Reading These Cases Tried to Go to the U.S. Supreme Court, But the Court said “No…No…Oh?”
The Washington Supreme Court recently adopted the “primary purpose of the purchaser” test to determine whether a transaction should be broken down into its component parts or considered as a whole. In Qualcomm, Inc. v. Department of Revenue, the court overturned the state court of appeals and held that a taxpayer’s vehicle tracking service was subject to buiness and occupation (B&O) tax as an information service, and not as a network telephone service. The court reasoned that the purchaser was buying an integrated management tool that happened to include data transmission, not a telephone service coupled with tracking hardware and software.Continue Reading Keep on Truckin’: Washington Supreme Court Analyzes the Primary Purpose of Vehicle Tracking Service
The Washington Court of Appeals has held that a statutory amendment barring the filing of 24 years of business and occupation (B&O) tax refund claims violates a taxpayer’s due process rights and is therefore unconstitutional. Tesoro Refining & Mktg. Co., No. 39417-1-II (Wash. Ct. App. Dec. 21, 2010). Tesoro Refining and Marketing Company (Tesoro), a Delaware corporation, operates an oil refinery in Washington. Tesoro manufactures and sells bunker fuel (a residual fuel oil that remains after gasoline and distillate fuel are extracted from crude oil) primarily to vessels engaged in foreign commerce for consumption outside the territorial waters of the United States.
Prior to 2009, Washington law permitted a company that manufactured and sold a qualifying fuel (such as bunker fuel) to deduct amounts derived from the sale of the fuel against its manufacturing B&O tax liability. Tesoro did not take the deduction on its originally filed tax returns and later filed a refund claim for B&O taxes paid on bunker fuel manufactured and sold from 1999 to 2004. The Department of Revenue denied the refund claim after finding that the deduction applied only to the wholesaler and retailer B&O tax and not to the manufacturer B&O tax. Tesoro appealed the Department’s determination to the superior court. While the case was pending, in 2009, the Washington legislature amended the B&O tax deduction statute limiting the applicability of the B&O tax deduction to retailers and wholesalers of qualifying fuels prospectively and retroactively. The superior court held that Tesoro was not entitled to the deduction and granted summary judgment to the Department. Tesoro appealed the superior court’s decision.Continue Reading Washington Court of Appeals Holds Retroactive Application of a Statute Unconstitutional
