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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 Madison Barnett and Jack Trachtenberg

The Michigan Court of Appeals ruled in two consolidated cases that the state’s estimated corporate income tax assessments were invalid because the taxpayers’ sales factors were improperly calculated using an alternative population-based formula rather than the statutory costs of performance (COP) formula. The two taxpayers were out-of-state book publishers…

By Todd Betor and Pilar Mata

Oregon’s $29 million corporate excise tax claim against the taxpayers’ parent company was held to violate both the Due Process and Commerce Clauses of the U.S. Constitution by the U.S. Bankruptcy Court for the District of Delaware. Oregon claimed that Washington Mutual, Inc. (WMI) was liable for its subsidiaries’…

By Mary Alexander and Prentiss Willson

The disallowance of a credit for income taxes paid to other states against Maryland’s county income tax was ruled unconstitutional as a violation of the dormant Commerce Clause by the Court of Appeals of Maryland. Maryland’s income tax, which includes both state and county components, is imposed on all…

By Madison Barnett and Timothy Gustafson

The Missouri Administrative Hearing Commission ruled that interest income and capital gains generated by a “rabbi trust”—a trust established to fund a nonqualified deferred compensation plan for the taxpayer’s officers—constituted nonbusiness income under the Uniform Division of Income for Tax Purposes Act (UDITPA). The trust income failed the transactional…

The Multistate Tax Commission’s (MTC) Sales and Use Tax Uniformity Subcommittee is moving forward with a broad sales tax nexus model statute that includes click-through, affiliate and attributional nexus provisions. The Subcommittee also discussed a memorandum related to class actions and false claims acts. The nexus and class action projects are in the educational stage…

The Michigan Court of Appeals held that a $2.2 billion transaction involving the sale of assets related to the Grey Goose vodka product line did not constitute a “sale” for purposes of apportioning the Michigan Single Business Tax (SBT). Sidney Frank Importing Co., Inc. v. Dep’t of Treasury, No. 306742 (Mich. Ct. App. 2012). The taxpayer, Sidney Frank, transferred all of its tangible and intangible assets in the top-shelf vodka, including inventory, to Bacardi, Ltd. The transaction produced a substantial gain, and Sidney Frank included the proceeds in the denominator of its sales factor for 2004 apportionment purposes.

For purposes of the SBT, which was repealed in 2006, “sale” was defined in relevant part as the amounts received from the rental, lease, license or use of property that constitutes business activity. The taxpayer argued that the transfer of the Grey Goose assets was a sale of intangible property (and thus the proceeds should be included in the sales factor denominator) because it was a “use” of intellectual property. The Department argued that the term “sale” includes only transactions where the taxpayer allows a person to use property and does not transfer title to the property.Continue Reading The (Grey) Goose that Got Cooked in Michigan

We are pleased to announce the launch of the new Sutherland SALT Digital Economy Forum, which provides resources, legislative monitoring and advocacy, and strategic counsel on the state taxation of the Digital Economy. To access free resources on the taxation of the Digital Economy, click on the Digital Economy Forum link at the top of…

The Nebraska Department of Revenue (Department) recently declared, by way of an article in a third-party newsletter, that it has the authority to “examine all aspects of a return, including federal items.” George Kilpatrick, Nebraska Revenue Department’s Audit and Examination Powers Discussed, THE NEBRASKA CPA (Oct. 2012). While the article is aimed at personal income taxpayers, corporate taxpayers have good reason to be concerned because the statutory language relied on by the Department is applicable also to the corporate income tax.
Continue Reading Nebraska’s Below-the-Belt Decision to Audit “Above the Line”

We previously reported on a significant taxpayer victory in which the Oregon Tax Court held that changes or corrections made by other states’ taxing authorities will not hold open the Oregon statute of limitations. Dep’t of Revenue v. Washington Federal, Inc., TC 5010 (Or. Tax Ct., June 29, 2012). As promised, following is our analysis of the case.

The taxpayer, a multistate federal savings and loan corporation, timely filed its Oregon corporate excise tax returns for tax years 1999 through 2002. Arizona and Idaho state taxing authorities assessed the taxpayer in 2003 and 2006, respectively. In 2008, after the expiration of the standard Oregon statute of limitations for assessment (generally three years from the date the return was filed), the Oregon Department of Revenue (the Department) issued assessments for the tax years 1999 through 2002. The issue before the court was whether the Department’s assessments were timely.Continue Reading Oregon DOR Out of Luck on SOL: Our Analysis