North Carolina HB 1079, providing a variety of sales tax changes, has been approved by both houses of the legislature and now awaits the Governor’s signature. In particular, the bill would exclude from sales and use tax sales of digital educational services and would exempt: (1) sales to home school operators of digital audio
North Carolina
Proposed Legislation in North Carolina May Mitigate Tax on State Incentives
The North Carolina legislature has introduced S.B. 622, which would make significant changes to a wide range of North Carolina taxes.
Among those changes, the legislation would allow a deduction, to the extent included in federal taxable income, for amounts received from specified economic incentive programs in North Carolina—the Job Maintenance and Capital Development…
North Carolina Supreme Court Decides in Favor of Taxpayer in Trust Nexus Dispute
The North Carolina Supreme Court recently held that the presence in the state of a trust’s beneficiary is not sufficient to establish income tax nexus for the trust. In the Kimberly Rice Kaestner 1992 Family Trust case, the trust’s beneficiaries were residents of North Carolina. There were no other connections between the state and the…
North Carolina Supreme Court Determines that Bank’s Market Discount Income Is Not Deductible as Interest
By Liz Cha and Open Weaver Banks
The North Carolina Supreme Court affirmed the North Carolina Business Court’s decision that Fidelity Bank was precluded from deducting “market discount income” from US bonds for North Carolina corporate income tax purposes. Fidelity Bank acquired US government bonds at a discount, held these bonds until maturity, and earned…
Keep It in the Family: North Carolina Appellate Court Finds Taxation of Trust Violates Due Process
By Ted Friedman and Madison Barnett
The North Carolina Court of Appeals held that it would violate Due Process to impose income tax on an out-of-state inter vivos trust because the trust lacked a sufficient connection with North Carolina. The trust was created and governed by laws outside of North Carolina, the Trustee resided outside…
Bueller? Bueller? MTC Still Calling on States to Join ALAS Program
The Multistate Tax Commission advanced several items of interest during its annual fall meetings held in Charleston, South Carolina, this week, including the creation of a new committee to continue gathering support for its transfer pricing program.
View the full Legal Alert.
Hubba, Hubba, Hubba! Money, Money, Money! Who Do You Trust? California and North Carolina Differ on the Constitutionality of Taxing Undistributed Foreign Trust Income
By Michael Penza and Timothy Gustafson
The California Franchise Tax Board (FTB) issued an information letter explaining that a trust is taxable in California if any of the following three conditions are met: (1) the trust has income from California sources; (2) a trustee is a resident of California; or (3) a non-contingent beneficiary is…
Delhaized and Confused: North Carolina Court of Appeals Finds Forced Combination, Penalty
This morning, the North Carolina Court of Appeals released its decision in Delhaize America, Inc. v. Lay, No. COA11-868 (N.C. Ct. App. 2012). Delhaize, formerly known as Food Lion, formed an intangible holding company as part of a restructuring in the late 1990s. The Secretary of the North Carolina Department of Revenue sought to combine Delhaize with its intangible holding company on the ground that combination was necessary to reflect Delhaize’s “true earnings,” which is a North Carolina statutory standard used to justify the application of forced combination. The Department assessed Delhaize approximately $20.6 million in tax, interest, and penalty, which Delhaize challenged primarily on procedural due process grounds.
The definition and application of “true earnings” has been a controversial issue. In Wal-Mart Stores East, Inc. v. Hinton, 676 S.E.2d 634 (N.C. Ct. App. 2009), the North Carolina Court of Appeals held that the Secretary of Revenue has discretionary authority to apply forced combination, and the court will not disturb the Secretary’s findings absent an abuse of discretion. Moreover, the Wal-Mart court defined “true earnings” to include income up to the limit found in the U.S. Constitution.…
Indiana Combination Is Last Resort
The Indiana Tax Court granted a motion for partial summary judgment to AE Outfitters Retail Co. and held that the Indiana Department of State Revenue may require combined reporting only after first determining that other alternative apportionment methodologies would result in an equitable apportionment of the taxpayer’s income. AE Outfitters Retail Co. v. Ind. Dep’t of State Revenue (Ind. Tax Ct. Oct. 25, 2011).
The dispute in the case was whether the Department was required to first apply statutorily provided remedies to adjust a taxpayer’s income before applying combined reporting. Like many states, Indiana statutes provide alternative apportionment methods for re-determining income if the taxpayer’s income is not fairly represented, including separate accounting, the exclusion of factors, the inclusion of additional factors, or any other method to effectuate an equitable allocation and apportionment of the taxpayer’s income. Ind. Code § 6-3-2-2(l). Furthermore, in the case of commonly owned or controlled businesses, the statute allows the Department to “distribute, apportion or allocate the income derived from sources within the state of Indiana between and among those organizations, trades or businesses in order to fairly reflect and report the income derived from sources within the state of Indiana by various taxpayers.” Ind. Code § 6-3-2-2(m). The statute, however, limits the Department’s ability to use combined reporting in situations where it “is unable to fairly reflect the taxpayer’s adjusted gross income for the taxable year through use of other powers granted to the department by” those other statutory provisions.…
MORE “and” LESS Unclaimed Property: North Carolina’s Grab for More Information and Delaware’s Shrinking Look Back Period
North Carolina
North Carolina H.B. 692 contains several important, and somewhat disconcerting, changes for unclaimed property holders. The bill provides that for amounts due to the apparent owners of intangible property valued at $50,000 or more, holders must report the following information with respect to the owner: “full name, last known address, SSN or TIN…