Transcript AGA/INGA Taxation Committee Meeting June 24, 2008 – Year In Review

AGA/INGA
Taxation Committee Meeting
June 24, 2008
State Taxes – Year In Review
Michael J. Semes, Esquire
Blank Rome LLP
One Logan Square
Philadelphia, PA 19103
215.569.5476
[email protected]
Current State of The State
Tax Environment
• Slowing economy
• Revenue shortfalls
• Continuing shift to service (away from
manufacturing of goods) economy
• Intergovernmental information sharing
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States’ Situation – Urgent Need To
Raise Revenue
•
Legislation, regulations and rulings
– Attempt to close perceived loopholes
•
•
•
•
Nexus
Combination
Addbacks
Apportionment
– Additional Reporting requirements
•
Litigation
– More aggressive positions
– Less willing to settle on reasonable terms
•
Audits
– Increased activity
– Heightened scrutiny
•
Abandoned and Unclaimed Property
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Taxpayers’ Situation
• More burdensome reporting requirements
– SOX 404
– FIN 48
• Constrained resources
• Planning more difficult
• Other?
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Perfect Storm?
• Taxpayers:
More detailed disclosure
+ Fewer in-house resources
+ Budget constraints on outside resources
• States:
More information from taxpayers
+ Available resources in-house
+ Hungry for revenue
+ Willing to take unreasonable positions
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What’s a Taxpayer to do?
Proactive
Reactive
• Model, model, model
• Defend audits diligently
• Protect workpapers
• Do not concede valid
positions
• Lobby
– Individually
– Trade groups
• Voluntary Disclosure
Agreements
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State Attacks
• Nexus
– Less than a physical
presence
– Slight presence
• Tax base
– Combination
– Sham
– Addbacks
• Apportionment
– Throwback
– Throwout
– Sourcing
– Right to apportion
• Disclosure
– FIN 48 workpapers
– Discovery
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Nexus Legislation
• MTC Proposal & OH Commercial Activities Tax
– $50,000 or 25% of property,
– $50,000 or 25% of payroll, or
– $500,000 or 25% of gross receipts.
• MI Business Tax
– Physical presence for more than one day or active solicitation
– $350,000 of gross receipts
• NH Economic Presence Legislation
– “Significant economic presence”
• NY Credit Card Bank “Economic Nexus”
– 1,000 or more NY customers or contracts with NY merchants
– NY customers and NY merchants combined total 1,000
– $1,000,000 or more NY receipts
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Nexus Regulations and
Interpretations
• OR “Substantial Nexus” Regulation
– “’Substantial nexus’ for corporate excise and
income tax jurisdiction purposes ... does not
require a taxpayer to have a physical
presence.”
• ME “Economic Nexus” Interpretation
– Interprets “full extent permitted by U.S.
Constitution” in regulation to mean “economic
nexus” may be sufficient.
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Nexus Litigation
• Economic Nexus
– Lanco and Praxair (NJ)
– MBNA (WV)
– Geoffrey and Capital One (MA)
– Geoffrey (LA)
• Attributional Nexus
– Barnesandnoble.com (CA)
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Other IHC Attacks
• The Classics Chicago (MD)
• Fleet Funding (MA)
• The TJX Companies (MA)
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Apportionment Issues
• Throwback
– Disney Enterprises (NY)
– Welch Packaging (IN)
• Throwout
– Pfizer (NJ)
• Sourcing
– Fluor Enterprises (MI)
• Right to apportion
– New Jersey Natural Gas (NJ)
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Taxpayer Lobbying Efforts
•
Business Activity Tax Simplification Act of 2007.
–
•
Sales Tax Fairness and Simplification Act
–
•
Allows SST complying states to require out-of-state sellers to
collect sales tax on remote sales.
Mobile Workforce State Income Tax Fairness and Simplification
Act
–
•
Modernizes P.L. 86-272
Limits employer’s withholding responsibility to states where
employee resides or is physically present performing duties for
more than 60 days.
Telecommuter Tax Fairness Act
–
Prohibits a state from taxing a non-resident who works from home.
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Taxpayer Litigation Efforts
•
Northwest Energetic Services (CA) – unapportioned LLC fee is
unconstitutional
•
PECO (PA) – state’s desire for more revenue does not trump plain
language of statute
•
Sand Lake Properties (KY) – limited partnership not subject to
retroactive legislation
•
Sasol North America (MA) – distributive share from partnership
apportionable
•
McKesson Water (NJ) - §338(h)(1) gain allocable
•
Sparks Nugget, Inc. (NV) – food purchased to prepare complimentary
meals not subject to sales tax
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What will we be talking about
next year???
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