On November 2, 2018, the Chief Counsel of the California Franchise Tax Board issued Chief Counsel Ruling No. 2018-01, determining: (1) that a taxpayer servicing mortgages was not a financial corporation for purposes of the corporation franchise tax; and (2) gains from interest rate hedging contracts are general income, not money or moneyed capital. Although the taxpayer earned origination income, interest income and net gains from sales of mortgages, its primary revenue was from servicing the mortgage loans.

Among other differences, California taxes financial corporations at a higher corporation franchise tax rate than general corporations.

First, the Chief Counsel determined that the taxpayer was not a financial corporation because it derives more than 50% of its total gross income from servicing mortgages. A financial corporation is a corporation that predominantly deals in money or moneyed capital in substantial competition with the business of national banks. While originating and selling mortgage loans constitutes dealing in moneyed capital, servicing loans does not. Rather, servicing loans generates income from a service activity. Because the taxpayer predominantly engaged in service activities instead of dealing in money or moneyed capital, it was not a financial corporation.

Second, the Chief Counsel determined that gains from interest rate hedging contracts are general income, not money or moneyed capital. The hedging contracts are not specifically listed as money or moneyed capital, nor are they similar to the listed examples. Thus, the hedging contracts would not qualify the taxpayer as a financial corporation.


Chief Counsel Ruling No. 2018-01, California Franchise Tax Board (Nov. 2, 2018).

Maryland Tax Court holds that Maryland’s limitation of interest on refunds resulting from the US Supreme Court’s decision in Comptroller of the Treasury of Maryland v. Wynne violates the US Constitution.

  • In 2014, the Maryland legislature passed a law to retroactively limit the statutory interest rate on refunds related to the Comptroller of the Treasury of Maryland v. Wynne decision.
  • The Tax Court held that the same rationale used by the Supreme Court in finding the law at issue in Wynne was in violation of the dormant commerce clause also applies to the limited interest rate on Wynne refunds.
  • The limited interest on Wynne refunds is also the subject of a separate class action lawsuit filed in the Circuit Court of Baltimore City, which had previously been dismissed due to Plaintiff’s failure to exhaust administrative remedies.

View the full legal alert.

The New York Legislature passed its 2018-2019 Fiscal Year budget on March 30, 2018, which is expected to be signed into law by Governor Cuomo. The Legislature responded to the Tax Cuts and Jobs Act (TCJA) passed by the United States Congress late last year by excluding IRC § 965 repatriated income from New York taxable income. However, the final budget failed to address other TCJA provisions, such as the tax on global intangible low-taxed income (GILTI) and the interest expense limitation under IRC § 163(j). Thus, New York will conform to these federal tax changes.

View the full Legal Alert.

On November 2, 2017, Republicans in the House of Representatives released their much-anticipated tax reform bill. The Tax Cuts and Jobs Act proposes numerous changes to the Internal Revenue Code, many of which will have an impact on taxpayers’ state and local tax liabilities.

  • Most states conform to the federal income tax base —at least in part. Consequently, federal base changes—either in the form of contraction or expansion—will have an impact on the state tax bases. States will need to weigh many considerations as they decide whether to conform.
  • The Commerce Clause may restrict a state’s ability to conform to some of the international tax provisions of the House Plan that may not also apply to purely domestic companies.
  • The House Plan proposes numerous changes that would move toward a territorial system of taxation. These will have an impact on state and local taxation, both by changing a taxpayer’s federal taxable income and by impacting taxpayer decision-making.

View the full Legal Alert.

By Eric Coffill

FTB announced that it will pay 1% interest on corporation tax overpayments for the period July 1, 2017 through December 31, 2017. Previously, the last time FTB paid interest on corporation tax overpayments (i.e., refunds) was for the period ending June 30, 2009 (for which the interest rate on overpayments was 2%). Under California Revenue and Taxation Code section 19521, interest rates are re-set every six months in accordance with provisions (as modified) of the Internal Revenue Code. Jan. 12, 2017 Memorandum from FTB Economic and Statistical Research Bureau.

Tinkering with a state’s interest provisions can be a hidden way to increase revenue without expanding the base or increasing the tax rate—an important work-around for legislators who have pledged not to increase taxes. However, fundamental fairness requires states to follow specific tenets related to interest provisions. View this State Tax Notes article, which outlines four tenets that states should follow to ensure sound tax policy:

  • Interest provisions should be neutral and evenhanded;
  • Interest should compensate parties for the time value of money;
  • The legislature, not the tax department, should set the applicable interest rate; and
  • Interest provisions should be predictable and consistent.

Read the full State Tax Notes article by Sutherland SALT attorneys Jonathan Feldman and Samantha Trencs.

The Louisiana Department of Revenue has proposed a new regulation expansively interpreting Louisiana’s recently enacted related party expense addback statute.  

  • Earlier this year, Louisiana enacted a new statute requiring taxpayers to add back interest expenses, intangible expenses and management fees paid to related members, subject to certain exceptions.
  • The Proposed Regulation seeks to adopt definitions, impose compliance and documentation requirements, and place additional limitations on intercompany expense deductions.
  • Comments on the Proposed Regulation should be due by November 29, with a public hearing scheduled for November 30.

View the full Legal Alert.

Georgia Governor Nathan Deal has signed into law several significant tax bills, affecting various Georgia tax matters, including sales and use taxes, property taxes, corporate income taxes and state tax credits, which:

  • Adjust Georgia’s statutory interest rates applicable for both assessments and refunds for all tax types, as well as create new procedural requirements for sales tax refund claims.
  • Address the calculation of both the Georgia Jobs Tax Credit and Quality Jobs Tax Credit.
  • Authorize counties to exempt inventory at e-commerce fulfillment centers under the freeport exemption and also allows the Department of Revenue greater oversight over a counties’ taxation of property.

View the full Legal Alert.

On March 24, the Georgia General Assembly passed House Bill 960, which would adjust the statutory interest rate applicable to tax assessments and refunds and addresses other issues related to refund claims for Georgia sales and use taxes. H.B. 960 passed the legislature while the Georgia Department of Revenue continues to consider regulatory action that would eliminate the payment of interest on sales and use tax refund claims for purchases made with direct pay permits. H.B. 960 is currently awaiting Governor Nathan Deal’s signature.

View the full Legal Alert.

By Zachary T. Atkins and Open Weaver Banks

In a closely followed case, a Florida district court of appeal held that a proposed assessment is not an assessment for statute of limitations purposes. The Florida Department of Revenue generally has three years to “determine and assess” any tax, penalty or interest due. The Department has long believed that issuing a notice of proposed assessment prior to the expiration of the three-year period satisfies the statute. After conducting a sales and use tax audit, the Department issued a notice of proposed assessment approximately two months before the expiration of the agreed-upon, extended statute of limitations period. The notice indicated that the proposed assessment would become a final assessment after 60 days unless the taxpayer submitted an informal protest. The taxpayer did not submit an informal protest but instead filed a complaint against the Department challenging the validity of the assessment on the grounds that it did not become final prior to the expiration of the statute of limitations. Although the statutory term “assess” was not defined in the general statute of limitations, the court looked to a separate provision in the tax statutes that tolls the “statute of limitations upon the issuance of final assessments” if the taxpayer follows certain informal conference procedures. In finding the Department failed to issue a timely assessment, the court concluded that the legislature could have used the broader term “assessments” if it believed that a proposed assessment was an assessment for statute of limitations purposes. Separately, the taxpayer and the Department had agreed to extend the statute of limitations period for the tax periods under audit to March 31, 2011. The district court of appeal rejected the trial court’s conclusion that the written agreement extended the statute of limitations period with respect to the first sales and use tax period to March 31, 2011, and the statute of limitations for each subsequent period by another month thereafter. Thus, the agreed-upon date applied to all of the tax periods under audit. Verizon Bus. Purchasing, LLC v. State of Fla., Dep’t of Revenue, No. 1D14-3213, 2015 WL 3622356 (Fla. 1st DCA June 11, 2015).