The Indiana Department of Revenue found that a holding company was properly excluded as a member of its affiliates’ financial institutions tax (FIT) combined group return because the company failed to establish nexus with the state. The Department also decided that for purposes of the FIT, there is no distinction between business and nonbusiness income.
financial services
Ownership of Tennessee Mortgages Does Not Create Nexus for Foreign Investment Fund
A recent letter ruling from the Tennessee Department of Revenue concludes that the ownership of mortgages backed by Tennessee property was insufficient to subject a foreign investment fund (“Fund”) to the state’s franchise and excise taxes.
Tennessee broadly applies its franchise and excise tax to the extent permitted by the U.S. and state constitutions. A…
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…
Federal Treatment Not “Controlling” but “Persuasive”: Ohio Board of Tax Appeals Holds CAT Inapplicable to Three Types of Finance Company Receipts
On February 6, 2020, the Ohio Board of Tax Appeals held that a captive automobile financing company was not subject to commercial activity tax (CAT) on receipts that it earned in connection with three types of revenue streams:
- receipts from sales of retired leased vehicles,
- receipts from securitization transactions, and
- interest subvention payments.
Background:…
One For All – Michigan Court of Appeals Holds that Financial Institution’s Unitary Business Group Must be Treated as a Single Taxpayer
The Michigan Court of Appeals reversed the Court of Claims and held that an assessment of additional franchise tax on a bank was invalid because the Department of Revenue had improperly calculated the tax base of the bank’s unitary business group (“UBG”). The Michigan Business Tax Act provides that, for a financial institution, the “tax…
At Your Service: Premium Finance Companies are Financial Organizations Subject to Illinois’ Special Income Tax Apportionment and Combined Reporting Rules
On June 14, 2019, an Illinois Appellate Court held that a taxpayer’s subsidiaries are financial organizations that were excluded from the taxpayer’s Illinois combined return. During 2006, 2007 and 2008, Illinois excluded from a combined return those affiliates that apply a different apportionment method. (Note that, for taxable years ending on or after December 31,…
New York Disregards Taxpayer’s Reliance on Disregarded Entity Rules
The New York Division of Tax Appeals denied a refund claim to a taxpayer that sought to apply the income sourcing rules for registered broker-dealers to receipts from its separate investment advisory business. The taxpayer structured its broker-dealer operations and investment advisory operations into two separate single-member limited liability companies (LLCs). The taxpayer claimed that…
New York City Tax Tribunal finds that ownership of a flow-through interest can create nexus.
The New York City Tax Tribunal held that an out-of-state corporate taxpayer, with an indirect interest in a limited liability company investment fund engaged in business in New York City, had nexus with the City and was subject to tax on capital gain from its sale of the fund. The taxpayer had no property, employees,…
Deference by Alabama Court of Appeals to DOR’s Statutory Interpretation
In interpreting an ambiguous statute allowing for a tax credit against the state’s financial institution excise tax (FIET), the Alabama Court of Appeals held in favor of the Department of Revenue’s interpretation. Alabama imposes a 6½% FIET on the net income of certain financial institutions. After deducting administrative charges payable to the Department, the Department…
Minnesota Supreme Court Upholds Commissioner’s Use of Alternative Apportionment for Financial Institution
The Minnesota Supreme Court held that the state’s standard apportionment method did not fairly reflect the taxpayer’s net income allocable to the state, reversing the Tax Court’s ruling. The taxpayer, a national financial institution, transferred its loan portfolios to two newly formed partnerships. For apportionment purposes, Minnesota requires financial institutions to include loan interest in…