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SALT Updates and Saving Opportunities – Income Tax and Credits & Incentives 1 1 SALT UPDATES AND SAVING OPPORTUNITIES – Income Tax and Credits & Incentives July 2017

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Page 1: SALT UPDATES AND SAVING OPPORTUNITIES – Income Tax and ... · SALT Updates and Saving Opportunities – Income Tax and Credits & Incentives. CPE and Support. CPE Participation Requirements

SALT Updates and Saving Opportunities – Income Tax and Credits & Incentives11

SALT UPDATES AND SAVING OPPORTUNITIES – Income Tax and Credits & Incentives

July 2017

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CPE and Support

CPE Participation Requirements ‒ To receive CPE credit for this webcast:

You’ll need to actively participate throughout the program.

Be responsive to at least 75% of the participation pop-ups.

Please refer the CPE & Support Handout in the Handouts section for more information about group participation and CPE certificates.

Q&A:

Submit all questions using the Q&A feature on the lower right corner of the screen. At the end of the presentation, the presenter(s) will review and answer all questions submitted.

Technical Support:

If you should have technical issues, please contact LearnLive:

Click on the Live Chat icon under the Support tab, OR call: 1-888-228-4088

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DEBORAH KOVACHICKPartner

[email protected]

JONATHAN LISSManaging Director

[email protected]

TIM SCHRAMManaging Director

[email protected]

With you today…

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4 SALT Updates and Saving Opportunities – Income Tax and Credits & Incentives

Income / Franchise TaxesDeborah Kovachick and Jonathan Liss

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OVERVIEW

Income/Franchise Taxes• Direct Tax Nexus Controversies• Apportionment Trends• Unitary Combined Reporting & Filing Options• Related Party Transactions, Intercompany Debt, and Economic Substance• Tax Base• Flow-Through Entities

Upcoming Amnesty Programs

Recently Enacted Legislation

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Direct Tax Nexus Controversies

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DIRECT TAX NEXUS CONTROVERSIESEconomic Presence NexusColoradoTarget Brands, Inc. v. Dept. of Revenue, No. 2015CV33831 (Colo. Dist. Ct., Jan. 27, 2017)• Intangible holding company licensing trademarks for use in Colorado (and other states) held to be

“doing business” in and having a substantial nexus with Colorado.• Quill physical presence requirement rejected.

OregonCapital One Auto Finance, Inc. v. Dept. of Revenue, T.C. 5197 (Ore. Tax Ct., Dec. 23, 2016)• As have state courts from Illinois, Indiana, Massachusetts, and West Virginia, the court adopted the

“significant economic presence test” and rejected a physical presence requirement for Oregon corporation excise tax and income tax purposes.

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DIRECT TAX NEXUS CONTROVERSIESEconomic/Factor Presence

States adopting factor presence nexus standards for income or gross receipts tax purposes:• Alabama• California• Colorado• Connecticut• Michigan• New York• Ohio (Commercial Activity Tax)• Tennessee• Virginia*• Washington (Business and Occupation Tax)

* Requires an income tax filing if any positive VA apportionment factor exists

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DIRECT TAX NEXUS CONTROVERSIESEconomic/Factor PresenceOhioCrutchfield Corp., et al. v. Testa, Slip Op. No. 2016-Ohio-7760 (Ohio Supr. Ct., Nov. 17, 2016)• $500,000 Ohio Commercial Activity Tax (“CAT”) sales-receipts nexus threshold upheld. • Ohio Supreme Court ruled a taxpayer’s physical presence is not required.• Court distinguished Quill Corp. v. North Dakota as limited to sales/use taxes and not direct taxes

measured on or by gross income or net income.• On April 14, 2017, the parties announced they had reached a settlement and the taxpayers will not

petition the U.S. Supreme Court for a writ of certiorari.

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DIRECT TAX NEXUS CONTROVERSIESPublic Law 86-272OregonCheng Shin Rubber USA, Inc. v. Dept. of Revenue, No. TC-MDC 150268D (Ore. Tax Ct., Mar. 31, 2017)• Taxpayer, a Georgia-based wholesale tire distributor, sold tires to an Oregon retail tire seller,

repairer, and installer. • Taxpayer’s tires carried a limited warranty. Purchasers of tires were required to have defective or

damaged tires covered by taxpayer’s warranty inspected by an authorized dealer/distributor. If the authorized dealer/distributor finds the tire defective or damaged and covered by taxpayer’s warranty, the dealer/distributor replaces the tire, issues a refund, or provides a discount toward a purchase of a new tire. Taxpayer may send a new tire to the dealer/distributor, but usually remits a monetary credit to the dealer/distributor.

• Taxpayer’s activities in Oregon were limited to those permitted by Public Law 86-272.• Oregon dealer/distributor was an independent contractor and not a representative of taxpayer.• However, Tax Court ruled that the performance of warranty repair services by the dealer/distributor

were not “entirely ancillary” to requests for purchases and the performance of services exceeded the protections of Public Law 86-272.

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Income/Franchise Tax Apportionment Trends

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSMarket-Based SourcingMarket-Based Sourcing

Where Benefit Received

Market-Based Sourcing

Where Service Received

Market-Based Sourcing

Where Service Delivered

Market-Based Sourcing

Where Customer Located

Arizona (election) Connecticut Alabama Georgia

California Illinois District of Columbia Maryland

Iowa Maine Louisiana Nebraska

Michigan Minnesota Massachusetts Oklahoma

Missouri (election) North Carolina (2018)

New York Pennsylvania

Rhode Island Tennessee

Utah

Wisconsin

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSMarket-Based Sourcing (cont’d)Variety of State Approaches to Market-Based Sourcing• 24 states now require or provide election to use market-based sourcing for corporate income tax

purposes.• General rules of sourcing services:

• “Delivered to a location” in the state• “Where benefit of the service is received”• “Where receipts derived”

• Hierarchy vs. Proportionate approach:• Proportionate – services receipts sourced in proportion to the benefit received by the recipient

in the state.• Hierarchy – apply cascading rule; if cannot comply with rule, move to next.• Examples of proportionate states: Georgia, Iowa, Michigan• Examples of hierarchy states: MTC, California, Illinois, Massachusetts

• Key differences in hierarchy approaches can result in inconsistent sourcing results.

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSMarket-Based Sourcing (cont’d)Variety of State Approaches to Market-Based Sourcing (cont’d)• Throw-out rules• “Look-thru rules” for sales of services to customers of, or through, the customer• Complex regulations vs. simple/general statutory standards

• Use of examples to illustrate (or implement) the rule• Due diligence

• Some states impose specific due diligence requirements (e.g., New York)• Contemporaneous record retention that explains the determination and method of sourcing

services• Document application of the hierarchy and determination to move to next priority rule• Systems may need to be implemented or modified to conform

• Limitations/disclosure requirements on taxpayers when changing sourcing on future returns

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSMarket-Based Sourcing (cont’d)The “MTC Model” Regulation • MTC Model market-based sourcing regulations approved by MTC Executive Committee on October 4,

2016; triggered survey of MTC member states.• Added amendment clarifying that interest and dividends are excluded from sales factor.• Added voluntary mediation provision proposed by the American Bar Association.

• MTC member states voted to approve the model regulation on February 24, 2017.• Serves as the model for the Massachusetts, Rhode Island, Tennessee and now North Carolina market-

based sourcing regulations.• General rule of sourcing services: “delivered to a location” in the state.• Throw-out rule.• Look-through rule.

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSMarket-Based Sourcing (cont’d)The “MTC Model” Regulation (con’t)• Uses complex set of cascading rules to source sales of services.

• In-person services• Professional services• Services delivered to the customer or on behalf of the customer, or delivered electronically

through the customer• Adoption pending in other states, including:

• Arkansas (H.B. 2100)• Montana (H.B. 511)• North Carolina (see below)• Oregon (H.B. 2048)

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSMarket-Based Sourcing (cont’d)California• Amended market-based sourcing regulations issued (18 Cal. Code Regs. § 25136-2)• Provides sourcing rules for dividends and interest, gross receipts from sales of goodwill, and gross

receipts from sales of marketable securities (for taxable years beginning on or after January 1, 2015).• Dividends and receipts from sale of goodwill (if not excluded under 18 Cal. Code Regs. § 25137):

• Distributing corporation or entity sold has 50% or greater tangible assets: source based on that entity’s average property and payroll factors.

• Distributing corporation or entity sold has 50% or greater intangible assets: source based on that entity’s sales factor.

- Interest:• Interest from investments other than loans source to where investment is managed.• Interest from loans secured by real property sourced to location of the property.• Interest from unsecured loans sourced to borrower’s location (commercial domicile?).

• Provides separate definitions and sourcing rules for sales of marketable securities by securities/commodities dealers and for non-dealers (assuming not excluded from sales factor by Cal. Rev. & Tax. Code § 25120).

• “Interested Parties Meeting Notice” (Dec. 22, 2016) and the FTB’s “Discussion Topic Paper” raised questions for discussion (on Jan. 20, 2017) on including/excluding dividends and sourcing of interest from business entity borrowers (commercial domicile?).

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSMarket-Based Sourcing (cont’d)California (con’t)• On Mar. 29, 2017, FTB issued Notice 2017-2 to provide late payment penalty relief due to the

amended regulations’ retroactive January 1, 2015 effective date.• FTB will presume reasonable cause and not wilful neglect if an underpayment results from the

retroactive effect of the amended regulations. • Taxpayers must request relief by filing form 2924 and including the following:

• Write “25136-2 Penalty Relief” on the top of form 2924; • Compute and explain the amount of the late payment attributable to the amended regulations; • Identify the amount of the late payment penalty imposed and attach a copy of the notice received

from the FTB showing the amount of the penalty imposed; and • Enter “zero” for the refund amount if the form is being filed for prepayment relief of the late

payment penalty.

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSMarket-Based Sourcing (cont’d)ConnecticutSpecial Notice 2017(1) (Apr. 17, 2017)• Guidance issued to address market-based sourcing (and SSF) apportionment changes that are effective

for taxable years beginning on or after Jan. 1, 2016.• General rule: gross receipts for sales of services or licenses/sales of intangibles are sourced based on

where the services/intangibles are used by the customer. • Individual customer

• Receipts from services that relate to property sourced to property location• Receipts from services that require physical presence of customer (i.e., in-person services)

sourced to where services are performed• Receipts from all other services sourced to billing address of customer

• Business customer – sourcing uses following hierarchy• Contract or taxpayer’s books/records show where service is used• Method of reasonable approximation• Place of order• Billing address

• “Look-through” rule applies for “intermediary transactions” with a business customer

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSMarket-Based Sourcing (cont’d)Connecticut (con’t)• License of intangibles

• Individual customer – billing address• Business customer

• Marketing intangibles – generally sourced based on where underlying goods or services are sold based on license contract or taxpayer’s books and records; may follow the business customer services sourcing hierarchy.

• Non-marketing or manufacturing intangibles – generally sourced to place of use based on license contract or taxpayer’s books and records; may follow the business customer services sourcing hierarchy.

• Mixed intangibles – if royalties/fees are separately stated, then apply marketing and manufacturing intangibles sourcing, above; if not separately stated, then apply marketing intangibles sourcing.

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSMarket-Based Sourcing (cont’d)North Carolina• On July 14, 2016, in uncodified legislation (H.B. 1030), the Department of Revenue was tasked to

adopt and submit market-based sourcing regulations to the North Carolina Rules Review Commission (“RRC”) by January 20, 2017.

• Proposed market-based sourcing regulations issued October 3, 2016, and final regulations adopted on January 4, 2017. Final regulations submitted to the RRC on January 18, 2017.

• RRC approved the final regulations on February 16, 2017.• Largely based on the MTC Model market-based sourcing regulations.

• Distinguish between in-person services, professional services, and services provided to, on behalf of, or electronically to, or through, a customer.

• Cascading rules applicable to services provide to an individual or business customer.• Throw-out rule applies if unable to ascertain source.• Look-through rule.• Contemporaneous record and documentation retention requirements.• Examples are not included in the regulations; Department of Revenue will separately publish over

time on its website.

• But see next Slide.

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSMarket-Based Sourcing (cont’d)North Carolina (con’t)• The final regulations are effective when published in the Administrative Code, but statutory language

STILL must first be enacted.• S.B. 325 – introduced to finally and formally enact market-based sourcing. If enacted would be

effective for tax years beginning on or after January 1, 2018.• Passed Senate on March 21, 2017• Pending in House (as of April 18, 2017)

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSSingle Sales Factor Formulas• Majority of corporate income/franchise tax states now require or provide an election to

apportion income using a single sales factor (“SSF”) formula.• Connecticut fully adopted starting 2016 (S.B. 1601).• Delaware phasing in 2016 and full SSF in 2020 tax year (H.B. 235).• North Carolina phasing in starting 2016 and full SSF 2018 tax year (S.B. 97).• Louisiana adopts single sales factor starting 2016 (except for oil and gas taxpayers) (H.B. 20,

2016 2nd Extra. Sess.).• Tennessee “IMPROVE” Act (H.B. 534) would provide SSF election for manufacturers effective

for taxable years beginning on or after January 1, 2017.• Passed House and Senate on April 19, 2017 (returned to House for reconciliation

concerning another unrelated tax provision).

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSSSF as the General Formula*Arizona (election) Indiana New York

California Iowa North Carolina

Colorado Louisiana Oregon

Connecticut Maine Pennsylvania

Delaware (2020) Michigan Rhode Island

District of Columbia Minnesota South Carolina

Georgia Missouri (election) Texas

Illinois Nebraska Wisconsin

Indiana New Jersey

*States may require SSF apportionment for specific industries (e.g., financial institutions, transportation companies, etc.). Maryland and Massachusetts require manufacturers to use SSF. Mississippi and Virginia require retailers to use SSF (Virginia provides an election to manufacturers to use SSF.

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSSSF DevelopmentsMassachusettsGenentech, Inc. v. Comm’r of Revenue, No. SJC-12083 (Mass. Supreme Jud. Ct., Jan. 12, 2017)• Biotechnology company treated as a “manufacturer” required to use the SSF.• Genetic transformation of living cells in order to extract desired proteins used in pharmaceuticals

qualified as “manufacturing.”• Because 25 percent or more of the taxpayer’s gross receipts were derived from products that it

manufactured, the taxpayer was a “manufacturer.”• Gross receipts calculation excluded taxpayer’s gross receipts from its cash management and treasury

investing activities.

Utah • S.B. 132: Effective for taxable years beginning on or after January 1, 2018, taxpayers with greater

than 50% of their total sales from automobile manufacturing (NAICS Code 336111) will be required to use the SSF for apportioning income to Utah.

• H.B. 61: “Optional sales factor weighted taxpayers” (computer and electronic product manufacturers under NAICS subsector code 334) having greater than 50% of total sales from such manufacturing may elect to use the SSF each taxable year. • The election must be made by the original or extended due date for the taxable year’s return.• Law change is effective for taxable years beginning on or after January 1, 2016.

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSAlternative Apportionment FormulasColoradoTarget Brands, Inc. v. Dept. of Revenue, No. 2015CV33831 (Colo. Dist. Ct., Jan. 27, 2017)• See economic presence nexus holding, above.• Trial court rejected Department of Revenue’s use of a single sales factor alternative apportionment

formula.• For tax years at issue (1999-2008), Colorado used a three-factor formula (two-factor could be

elected).• Party invoking alternative, must show (a) the standard formula does not fairly reflect in-state business

activity, and (b) the alternative formula is reasonable.• Zero apportionment established that standard formula did not fairly reflect business activity.• Sourcing receipts to location of use of intangibles, not costs of performance, also fairly reflected

business activity.• However, single sales factor formula was not reasonable, because the taxpayer’s property and payroll

made material contributions to the production of income.

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSAlternative Apportionment Formulas (con’t)MinnesotaAssociated Bank, N.A. v. Comm’r of Revenue, No. 8851-R (Minn. Tax Ct., Apr. 18, 2017)• From 2007 through 2013, Minnesota phased in a SSF, including for financial corporations.• Financial corporation property factor included loans and the sales factor included interest income;

general business corporation property factor did not include intangibles and sales factor did not include interest income.

• Bank created two LLCs (taxed as partnerships) to hold Minnesota loans and receive interest income from Minnesota borrowers.

• Bank filed Minnesota unitary combined report; each unitary group member’s factors computed separately according to formula applicable to that member.

• LLCs not allowed or required to use financial corporation apportionment formula. Therefore, loans were not included in LLCs’ property factors and interest income not included in LLCs’ sales factors that passed through to taxpayer and affiliated member of LLCs.

• The LLC structure reduced the combined group’s Minnesota apportionment and taxable income.• Citing HMN Financial, Inc. v. Comm’r of Revenue, 782 N.W. 2d 558 (Minn. 2010), the Tax Court held:

• Taxpayer’s Minnesota tax planning motivation insufficient to invoke alternative apportionment; and

• Despite the tax motivation, it was up to legislature to close the “loophole.”

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INCOME/FRANCHISE TAX APPORTIONMENT TRENDSAlternative Apportionment Formulas (cont’d)South CarolinaRent-A-Center West Inc. v. Dept. of Revenue, No. 2012-208608 (S.C. Oct. 26, 2016)• East – West Structure

• Taxpayer owned and operated retail stores in western states; owned and licensed intellectual property to “East Affiliate” that owned and operated retail stores in South Carolina and other eastern states.

• Taxpayer amended returns to use the statutory single gross receipts factor apportionment formula.• Department imposed alternative formula; argued including Taxpayer’s retail sales in its sales factor

denominator diluted the apportionment formula and only Taxpayer’s royalties should be included.• Carmax Auto Superstores West Coast, Inc. v. S.C. Dept. of Revenue (2014) – party seeking alternative

apportionment has burden to prove the standard statutory formula does not fairly reflect business activity in South Carolina, and that the alternative formula is reasonable.

• Court found most of Taxpayer’s gross receipts were from retail sales (unitary business activity) and only small amount of its receipts were from royalties. Excluding Taxpayer’s gross receipts from its unitary business activity did not fairly reflect Taxpayer’s business activity in South Carolina.

• The fact that the dilution was a part of a tax minimization strategy is not sufficient evidence to prove that the standard formula does not fairly reflect business activity in the state.

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Unitary Combined Reporting & Filing Options

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UNITARY COMBINED REPORTINGContinuing Trend• 26 of the corporate income/franchise tax states now mandate unitary combined

reporting.• Since 2006, 10 states have enacted mandatory unitary combined reporting (most of these

are east of the Mississippi River): Connecticut, District of Columbia, Massachusetts, Michigan, New York, Rhode Island, Texas, Vermont, West Virginia, and Wisconsin.

Alaska Idaho Montana Texas

Arizona Illinois Nebraska Utah

California Kansas New Hampshire Vermont

Colorado Maine New Mexico West Virginia

Connecticut Massachusetts New York Wisconsin

D.C. Michigan North Dakota

Hawaii Minnesota Rhode Island

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UNITARY COMBINED REPORTINGJudicial and Administrative Developments (cont’d)CaliforniaComCon Production Services I, Inc. v. Franchise Tax Board, No. B259619 (Cal. Ct. App., Dec. 14, 2016)• Parent (cable TV system operator) and subsidiary (cable TV network) held not engaged in a unitary

business.• Entities shared overlapping officers and directors, parent’s cable system carried subsidiary’s

programming, and parent received “service fee income” from the subsidiary.• Court of Appeal held centralized management was lacking, because subsidiary’s day-to-day operations

and strategic business decisions were made solely by subsidiary management.• Entities were not vertically integrated because programming and service fee income was pursuant to

standard contracts used by the parent with other unrelated cable TV networks. • On a separate issue, a merger termination fee received by the parent’s unitary group was held to be

apportionable, business income.

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UNITARY COMBINED REPORTINGJudicial and Administrative Developments (cont’d)MichiganLaBelle Management, Inc. v. Dept. of Treasury, No. 154016 (Mich. Supreme Ct., Jan. 24, 2017)• The Michigan Supreme Court declined to review the Court of Appeals’ decision in LaBelle

Management, Inc. v. Dept. of Treasury, No. 324062 (Mich. Ct. App. Mar. 31, 2016.)• Two brothers each owned no more than a 50% direct interest in taxpayer, another corporation,

and a partnership.• Michigan unitary business ownership requirement: Direct or indirect ownership of more than 50%.• Court of Appeals held “indirect” ownership does not mean “constructive” ownership; rather, it

means ownership of stock through an intermediary.• Taxpayer, other corporation, and limited partnership could not be unitary.

• The Court of Appeals’ decision had been stayed; now binding precedent.• On February 28, 2017, the Department of Treasury issued a Notice regarding LaBelle

• Department will apply LaBelle retroactively to all open tax years.• Decision eliminates constructive ownership or ownership by attribution as a means of satisfying

the unitary ownership and control test.• Applies to former Michigan Business Tax and current Corporate Income Tax.

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UNITARY COMBINED REPORTINGJudicial and Administrative Developments (cont’d)MinnesotaAshland Inc. v. Comm’r of Revenue, No. 08819-R (Minn. Tax Ct. June 6, 2016)• The income and apportionment factors of a foreign subsidiary that elected to be disregarded for

federal income tax purposes were properly included in unitary combined report.• State argued that the statute provided that net income and apportionment factors of foreign entities

that are a part of a unitary business cannot be included in unitary combined report.• As a result of making the disregarded entity election, the foreign subsidiary is deemed to have

distributed its assets and liabilities to its sole domestic shareholder and liquidated.• The election causes the foreign subsidiary to no longer be a foreign entity (or an entity at all), and its

income and apportionment factors were that of the domestic corporation.• Currently pending before the Minnesota Supreme Court.

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UNITARY COMBINED REPORTINGJoyce or Finnigan?Sales factor “throwback rules” are applied by some states, including most unitary combined reporting states, to sales of tangible personal property.

Appeal of Joyce, Inc., No. 66-SBE-070 (Cal. State Bd. Equal., Nov. 23, 1966)• Members of a unitary group are treated as separate entities.• Sales factor “throwback rule” avoided only if selling member has nexus with destination state.

Appeal of Finnigan Corp., No. 88-SBE-022-A (Cal. State Bd. Equal., Jan. 24, 1990)• Unitary group is treated as a single taxpayer.• Sales factor “throwback rule” avoided if any member of the unitary group has nexus with the

destination state.

Same reasoning applies to sourcing of inbound sales of tangible personal property to the sales factor numerator

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UNITARY COMBINED REPORTINGJoyce or Finnigan?Oregon

Capital One Auto Finance, Inc. v. Dept. of Revenue, T.C. 5197 (Ore. Tax Ct., Dec. 23, 2016)• Out-of-state financial institutions held to have nexus with Oregon under the “significant economic

presence test,” regardless of no physical presence with Oregon.• Entities (and their net income) were already included in an Oregon consolidated return filed by

another affiliate that had Oregon physical presence.• Why did the Department of Revenue want the out-of-state financial institutions to have Oregon nexus?

Answer: Joyce.• Successful assertion of economic presence nexus resulted in the out-of-state financial institutions’

gross receipts sourced to the Oregon consolidated group’s Oregon sales factor numerator.

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UNITARY COMBINED REPORTINGJoyce StatesAlaska New Hampshire

Colorado New Mexico

District of Columbia (throw-out rule) North Dakota

Hawaii Oregon

Idaho Texas

Illinois Vermont

Montana West Virginia

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UNITARY COMBINED REPORTINGFinnigan States

Arizona Massachusetts

California Rhode Island

Kansas Utah

Maine (throw-out rule) Wisconsin

Some unitary combined reporting states currently do not apply a throwback or throw-out rule to source sales of tangible personal property (including CT, IN, MI,

MN, NE, and NY), although they may have in prior years.

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WATER’S-EDGE UNITARY COMBINED REPORTING“Tax Havens”“Tax Haven” Rules• New: Alaska, Connecticut (2016), DC, Montana, Oregon, Rhode Island, and West Virginia.• “Blacklist” approach: State’s statute lists specific foreign countries as “tax havens” (MT, OR) and

depends on whether the foreign corporation is incorporated in that jurisdiction.• CT and DC eliminated their “blacklist” approach, but still include “tax haven” corporations in the

water’s-edge combined group.• “Criteria-based” approach: Foreign country has no or a nominal tax on net income and has laws that

prevent exchange of information, “lacks transparency,” substantive local presence not required, or has created a regime favorable for tax avoidance (CT, DC, RI, WV).• MTC Model Combined Reporting Statute.

• Alaska approach: Foreign country with no income tax or that imposes a rate that is 90% of the U.S. rate.

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WATER’S-EDGE UNITARY COMBINED REPORTING“Tax Havens” (con’t)Current Developments• Illinois: S.B. 1798 and H.B. 3419 would create a tax haven “blacklist”• Maine: H.P. 564 would create a tax haven “blacklist” (previous attempts have failed)• Minnesota: S.F. 1977 and H.F. 348 would create a tax haven “blacklist”• Oregon

• S.B. 155 and H.B. 2067 would remove Guatamala from the Oregon “blacklist”, but might also be used to add other foreign countries.

• H.B. 2672 would eliminate the Oregon “blacklist” and move the state to a criteria-based approach.

• S.B. 30 removes the prohibition on considering non-U.S. entities for Oregon unitary consolidated filing determinations – passed Senate.

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WATER’S-EDGE UNITARY COMBINED REPORTINGEconomic/Factor Presence Nexus ImpactCaliforniaFTB Notice 2016-02 (Sept. 9, 2016)• California taxpayers of a water’s-edge combined group must consent to the water’s-edge election;

failure to consent could terminate election.• Unitary foreign affiliates are generally excluded from the water’s-edge group (subject to certain

exceptions).• Notice provides guidance whether the water’s-edge election remains intact in situations where a

unitary foreign affiliate becomes subject to California Corporation Franchise or Income Tax after the enactment of the economic/factor presence nexus statute effective January 1, 2011.

• Generally, if certain conditions are met, the unitary foreign affiliate is deemed to have consented to the water’s-edge election, but only if the foreign affiliate became a California taxpayer in a taxable year ending on or before December 31, 2016.

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FILING OPTIONS

IowaMyria Holdings, Inc. & Subsidiaries v. Iowa Dept. of Revenue, No. 15-0296 (Ia. Supreme Ct., Mar. 24, 2017)• Parent corporation based in Texas held stock in several subsidiaries doing business in Iowa, an 80%

interest in an LLC doing business in Iowa, and the sole interest in a SMLLC doing business in Iowa. • Iowa provides an election to file a nexus consolidated return; an Iowa affiliate must have taxable

income from Iowa to join in the return. • Iowa Supreme Court held that the parent was not includible in the Iowa nexus consolidated return.

• Parent’s performance of management, administrative, and other corporate services in Texas did not constitute doing business in Iowa.

• Receipt of dividend income from subsidiaries was not income derived from Iowa sources.• Taxpayer apparently did not argue that flow-through Iowa nexus from the LLCs (one taxed as a

partnership for federal purposes and the other as a DRE for federal purposes) gave the parent nexus.• Court did not address flow-through nexus.

• Court distinguished KFC Corp. v. Iowa Dept. of Revenue, 792 N.W. 2d 308 (Ia. 2010) – parent did not receive royalties, license fees, “or other earned fees in connection with an integral aspect of the affiliated group’s business activities.”

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Related Party Transactions, Intercompany Debt, and Economic Substance

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RELATED PARTY TRANSACTIONS, INTERCOMPANY DEBT, AND ECONOMIC SUBSTANCEImpact of the IRC § 385 Regulations Overview of the Federal Regulations• Impose contemporaneous documentation requirements on intercompany debt issued by a “Covered

Member” (U.S. corporation) to another member(s) of the Covered Member’s “Expanded Group” (80% or more commonly owned U.S. and non-U.S. corporations).• If requirements not followed, debt recast as stock and principal/interest payments recast as

dividends.• Certain recast rules, funding rules, and anti-abuse rules automatically recast intercompany debt as

stock, even if documentation requirements followed.• Distribution of note, addition of joint obligor, distributions preceded/followed by intercompany

loan, etc.• Key exceptions:

• “One corporation exception”: Intercompany debt among federal consolidated group members• “Qualified short-term funding arrangements” (certain cash sweep and cash pooling arrangements)• Aggregate debt subject to recast reduced by an “expanded group earnings account”• S corporations, non-controlled REITs and RICs excluded

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RELATED PARTY TRANSACTIONS, INTERCOMPANY DEBT, AND ECONOMIC SUBSTANCEImpact of the IRC § 385 Regulations (con’t) States Could Independently Apply the Regulations• How does the state conform to the Internal Revenue Code?

• Fixed date, “as in effect,” or moving date (“as amended”) conformity?• Conformity only to specific IRC Sections?• Treasury regulations included?

• What is the state’s starting point to determine taxable income?• Does the state conform to the federal consolidated return rules?• “One corporation” exception may not apply• “As if” states (most separate return states and some unitary combined reporting states).• Reduction for the “expanded group earnings account” – expanded group earnings vs. separate

entity E&P calculation.

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RELATED PARTY TRANSACTIONS, INTERCOMPANY DEBT, AND ECONOMIC SUBSTANCEImpact of the IRC § 385 Regulations (con’t) Potential State Consequences • Disallowance of interest expense deduction to issuer of intercompany debt

• Potentially broader than existing state related party interest expense add-back statutes.• State income tax effect of principal and interest payments recast as dividends

• Sales factor treatment and differences in sourcing interest and dividends, if includible.• Potential factor presence/economic nexus consequences.• Associated water’s-edge combined reporting consequences.

• S corporations and states that don’t conform to their federal tax treatment• e.g., Tennessee: S corporation “net earnings” are federal taxable income “as if” no S election

made.• State Net Worth/Capital Franchise Taxes

• Recast of debt as equity could impact net worth/capital tax base.

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RELATED PARTY TRANSACTIONS, INTERCOMPANY DEBT, AND ECONOMIC SUBSTANCETransfer PricingIndianaColumbia Sportswear USA Corp. v. Indiana Dept. of State Revenue, No. 49T10-1104-TA-00032 (Ind. Tax Ct. Dec. 18, 2015)• Indiana Tax Court held that the Department lacked authority to recalculate the corporation’s income

tax base and found no evidence that standard sourcing rules failed to fairly represent income.• Under alternative apportionment provisions, the Department can only use methods that divide the

tax base, not methods that recalculate it.• Transfer pricing studies showed transactions were conducted at arm’s-length and the Department

did not provide evidence to show that they were invalid.

Letter of Findings 02-20150171 (Aug. 31, 2016)• In the Letter of Findings, the Department was also unable to show with sufficient specificity why the

taxpayer’s transfer pricing study should be rejected.• The authority to use alternative apportionment is “ambiguous” and such ambiguities are to “be

resolved against the Department.”

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RELATED PARTY TRANSACTIONS, INTERCOMPANY DEBT, AND ECONOMIC SUBSTANCETransfer Pricing (con’t)UtahSee’s Candies, Inc. v. State Tax Comm’n, No. 140401556 (Utah Dist. Ct., Oct. 6, 2016)• Trial court held that State Tax Commission’s discretion to adjust income or deductions resulting from

intercompany transactions is limited by IRC § 482 and the underlying Treasury Regulations.• Affiliated insurance company (excluded from the Utah unitary combined report) licensed intellectual

property to the taxpayer.• Taxpayer’s royalty rate was determined based on a transfer pricing study using the comparable profits

method of the IRC § 482 regulations.• MTC and Utah audit disallowed the taxpayer’s royalty expense deduction in its entirety.• Audit result was rejected by the trial court, because the intercompany transaction and royalties were

at arm’s length under the IRC § 482 regulations.• Utah’s Section 482-type statute has language nearly identical to that of IRC § 482, but no other state

issued guidance for interpreting and applying the State Tax Commission’s Section 482-type authority.

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RELATED PARTY TRANSACTIONS, INTERCOMPANY DEBT, AND ECONOMIC SUBSTANCERelated Party Expense Add-BackIndianaLetter of Finding No. 02-20150384 (Oct. 24, 2016)• Taxpayer’s related party interest expense did not qualify for an exception from IN add-back statute.• Interest rate based on underlying documentation was not at arm’s-length. • Evidence did not indicate an intent to repay the intercompany loan (and principal and interest was not

repaid).

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RELATED PARTY TRANSACTIONS, INTERCOMPANY DEBT, AND ECONOMIC SUBSTANCERelated Party Expense Add-Back (con’t)VirginiaKohl’s Department Stores, Inc. v. Dept. of Taxation, No. CL 12-1774 (Va. Cir. Ct. Feb. 3, 2016)• Virginia’s “subject to tax” exception to the related party intangible expense and interest expense

add-back statute requires that the related party recipient of the intangible/ interest income must actually pay an income tax to another state.

• Taxpayer paid intangible expenses to a related party that was included with the taxpayer in another state’s unitary combined report (the intangible income and intangible expense offset in the combined report).

• Circuit court noted that such interpretation of the “subject to tax” exception was consistent with uncodified legislation passed as part of the 2014 State Budget Act that was retroactive to 2004.

• On October 31, 2016, the Virginia Supreme Court agreed to review the Kohl’s decision.• Oral arguments held on April 21, 2017.

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State Income/Franchise Tax Base

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INCOME/FRANCHISE TAX BASENet Operating Losses CaliforniaTechnical Advice Memorandum, TAM 2017-03 (Apr. 6, 2017)• Provides guidance on the California application of IRC §§ 382, 383, and 384 for apportioning taxpayers.• The IRC § 382 NOL limitation is applied on a pre-apportionment basis.

• Note: Alabama, Georgia, Pennsylvania, and South Carolina have issued rulings that apply the IRC §382 limitation for those state purposes on a post-apportionment basis.

• Recognized BIG and BIL provided in IRC § 382(h)(2) and net unrealized BIG and BIL provided in IRC §382(h)(3) are determined on a post-apportionment basis.• Apportionment factor on date of ownership change applies.

• The IRC § 383 limitation on excess credits is applied on a pre-apportionment basis.• California corporate franchise tax rate is substituted for the applicable federal corporate income

tax rate referenced in the federal regulations.• Recognized BIG provided in IRC § 384(a)(2) are determined on a post-apportionment basis when

considered for purposes relating to pre-acquisition losses.

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INCOME/FRANCHISE TAX BASEDividends Received Deduction MississippiAT&T Corp. v. Mississippi Dept. of Revenue, No. 2015-CA-00600-SCT (Miss. Supreme Ct., Oct. 27, 2016)• Mississippi Supreme Court affirmed the Court of Appeals that Mississippi’s statute that allowed a

deduction for dividends received only from subsidiaries taxable Mississippi was unconstitutional, because it discriminated against interstate commerce.

• The Supreme Court struck the discriminatory language from the state statute to allow a DRD for

dividends received from earnings previously taxed by Mississippi or any other state.

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INCOME/FRANCHISE TAX BASEIRC § 338(h)(10) ElectionsCaliforniaChief Counsel Ruling 2016-05 (Sept. 16, 2016)• IRC § 338(h)(10) election made for sale of an insurance company target’s stock will be respected for

California tax purposes.• California imposes a tax on the gross premiums of an insurer not transacting title insurance in the

state in lieu of all other taxes, including corporate franchise and income tax.• Therefore, insurance company target will not be subject to California corporate franchise and income

tax on the gain or loss resulting from the deemed sale of its assets as a result of an IRC § 338(h)(10) election.

• Pursuant to Treas. Reg. § 1.338(h)(10)-1(d)(4)(i), after the target recognizes gain on the deemed sale of its assets, target is treated as if it distributed the proceeds from the deemed asset sale to the seller in a tax-free liquidation for which IRC §§ 332 and 337 apply.

• California Rev. & Tax. (“CRTC”) § 24465(h)(2)(B) provides that in the case of an IRC § 332 liquidation of an insurance company, the corporate shareholder/distributee must treat the liquidation as a dividend distribution by the liquidating insurance company.

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INCOME/FRANCHISE TAX BASEIRC § 338(h)(10) Elections (cont’d)CaliforniaChief Counsel Ruling 2016-05 (cont’d)• CRTC § 24410(a) provides an 85 percent DRD for dividends received from an 80 percent or more owned

insurance company.• CRTC § 24410(c) could increase the DRD to 100 percent (or reduce it), depending on the ratio of gross

premiums written for the preceding five year period over the insurance company’s total income for that period.

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INCOME/FRANCHISE TAX BASEOther State Tax Base Developments AlabamaThe Sherwin-Williams Company v. Dept. of Revenue, No. BIT 13-359 et al. (Ala. Tax Trib., Nov. 30, 2016)• Alabama taxpayer included in a federal consolidated return must use separate company taxable

income to calculate their Alabama IRC § 199 domestic production activities deduction. • Alabama is an “as if” state – federal taxable income starting point is determined “as if” separate

federal returns were filed.

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INCOME/FRANCHISE TAX BASEOther State Tax Base Developments (con’t)New JerseyTechnical Bulletin No. TB-80 (Mar. 15, 2017)• Provides guidance on the add-back for “other state taxes” under NJ CBT.• Following taxes are generally subject to add-back: taxes on or measured by income; taxes based on

business presence or activity; and taxes similar to the CBT.• Following state taxes that are subject to add-back include:

• California LLC fee and LLC tax• Michigan gross receipts tax• Ohio CAT• Texas franchise tax• Washington B&O tax

• Sales taxes, property taxes, excise taxes, payroll taxes, franchise taxes on net worth or capital, and gross receipts taxes (that are imposed on receipts, not profits) are not subject to add-back.

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Flow-Through Entities

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FLOW-THROUGH ENTITIESFederal Partnership Audit Rules• Bipartisan Budget Act of 2015 made significant changes to federal partnership audit

rules.• Technical Corrections Bill introduced in late 2016 in House and Senate to clarify certain

aspects of new audit rules; expected to be enacted in 2017.• Audit adjustment and underpayments of tax now assessed to and collected from the

partnership, subject to opt-out election for partnerships with fewer than 100 partners.• Effective for taxable years beginning on or after January 1, 2018, with early opt-in

election.• Under the Technical Corrections Bill there is (1) a “pull-in” option to reduce the

partnership’s imputed underpayment, and (2) a “push-out” option to shift the partnership’s tax assessment to partners.

• IRS partnership audit regulations issuance suspended under Executive Order “freezing” issuance of new federal regulations.

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FLOW-THROUGH ENTITIESFederal Partnership Audit Rules (con’t)State Issues• Conformity• Potential conflicts with non-resident partner withholding obligations or partnership composite return

Current State Reactions• Arizona (S.B. 1288) – enacted May 2016 (before Technical Corrections Bill was introduced)• Georgia (H.B. 283) – passed House and Senate• Minnesota (H.F. 1227) – introduced; only applicable to partnerships that elect early opt-in and only

effective for years prior to January 1, 2018.• Montana (H.B. 47) – “tabled in committee”• MTC Partnership Informational Project considering model statute for partnership audits

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Upcoming Amnesty Programs

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UPCOMING AMNESTY PROGRAMS

VirginiaH.B. 2246 enacted in 2017 requires Department of Taxation to establish a 60 to 75-day amnesty program between July 1, 2017 and June 30, 2018• Generally applies to all taxes that are delinquent as of December 31, 2015.• Provides for waiver of penalties and one-half of interest in exchange for payment of taxes and one-

half of interest otherwise due.• Taxpayer cannot be under investigation or the subject of an action related to tax fraud or evasion.• Tax assessments for which the date of assessment is less than 90 days prior to the beginning of the

amnesty program are ineligible.• Unfiled tax returns for which the due date of the return is less than 90 days prior to the beginning of

the amnesty program are ineligible.

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UPCOMING AMNESTY PROGRAMS

OklahomaH.B. 2380 enacted in 2017 provides for a tax amnesty program titled the Voluntary Disclosure Initiative (VDI) to run from September 1, 2017 through November 30, 2017.• Provides for complete waiver of penalties and interest.• Three year lookback for annually filed taxes or 36 months for non-annual filers.• Eligible taxes – beverage tax, gasoline tax, sales and use tax, income tax, and withholding tax.• Eligible taxpayers must:

- not have any outstanding tax liabilities besides those reported under the VDI program;- have been contacted by the OK Tax Commission;- have no collected and unremitted tax at the time of an application; and- not have participated in an OK VDA within the preceding 3 years for the type of tax owed.

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UPCOMING AMNESTY PROGRAMS

OhioH.B. 49 enacted in June 2017 provides for a tax amnesty program to run from January 1, 2018 through February 15, 2018.• Provides for complete waiver of penalties and ½ of any interest.• Applies to taxes due and payable as of May 1, 2017 which were unreported or underreported.• Eligible taxes – financial institutions tax, commercial activity tax, state income tax, excise tax

(alcohol, cigarettes, tobacco), sales/use tax, and school district income taxes.• Does not apply to any tax for which a notice of assessment or audit has been issued, for which a bill

has been issued has been issued relating to a still-open tax period, or for which an audit has been conducted or is pending.

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Recently Enacted Legislation

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RECENTLY ENACTED LEGISLATION Illinois – FY 2018 Budget includes the following corporate tax changes:• Income tax rate increased to 7% from 5.25%• Separate combination reporting for certain industries has been eliminated• Section 199 deduction has been eliminated by decoupling from federal regime• R&D credit will be reinstated and extended through January 1, 2022

North Carolina – S.B. 257 decreases the corporate tax rate from 3% to 2.5% (2019); franchise tax amended

Ohio – Am. Sub. H.B. 49 – municipal income tax reform continues, beginning in 2018: businesses can elect to file all of their municipal net profits tax return centrally on the Ohio Business Gateway instead of filing separate returns with each Ohio municipality; the sales factor throwback rule has also been eliminated

Tennessee – H.B. 534 allows taxpayers whose principal business in TN is manufacturing to elect single sales factor apportionment (2017)

Texas – H.B. 4002 amends the definition of “production” when determining COGS for franchise tax purposes to remove language that made the list open ended

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Credits & IncentivesTim Schram

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Agenda

Current trends impacting credit and incentive program compliance

Compliance process best practices and utilizing compliance software system

State tax credit program update

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GASB Statement #77

Requires government entities include details of all abatement/incentives granted to businesses

Issued August 14, 2015 Effective December 15, 2015 Included in Implementation Guide 2016-1

Disclosure includes:• Tax being abated;• Total dollar amount abated;• Types of commitments made by both the recipient and the government

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FASB Topic 832

Reporting to increase transparency about government assistance arrangements including the following:

Exposure draft issued November 12, 2015 Would require financial statement reporting on:

• The types of arrangements; • The accounting for government assistance; and • Their effect on an entity’s financial statements

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Why is FASB proposing this update?

Increase transparency about government assistance programs and their financial impact on organizations

No GAAP rule governing the accounting for government assistance programs

Diversity among organizations on the measurement, accounting, and recognition of government assistance programs

Consistent reporting will allow greater transparency and for those analyzing financial results and prospects for future cash flows for an organization

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What needs to be included in the reporting?

Information about the nature of the assistance, including the following: The value of the government assistance awarded, an the amount expected

to be awarded, to the extent practical A general description of the significant categories and the related

accounting policies adopted; or The method applied to account for government assistance

Which line items on the balance sheet and income statement are affected by government assistance and the amounts applicable to each line item

Significant terms and conditions of the agreement, including commitments and contingencies

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Issues identified during comment period

Materiality/Scope

Topic 832 requires a company to disclose material programs

Materiality threshold is largely determined by the company and its external audit

Confidentiality

Is any of the information contained in the Significant Terms and Conditions of the reporting that companies may consider confidential?

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Status Update

Tentative Board Decision issued June 8, 2016 Scope

• Board is performing further analysis on which nonmonetary assets to include in scope

• Not-for-profits are excluded• Employee benefit details are excluded from disclosure

• Disclosure• Board decided not to disclose amount of incentives received but not

recognized Restrictions

• If entity omits specific details because information is legally prohibited from being disclosed, the entity needs to include a general description of general nature of omitted information

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Transparency & public reporting

Most states require public status reporting for incentives granted Growing trend and more detailed reporting

• Common requirement of Agreed-Upon-Procedures review/report due in year 1

New trend in public accountability – states establishing committees to review program effectiveness• AL, MD, ND and OK

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What type of information is publically reported?

Company name Amount and type of award Number of new/retained jobs committed Estimated wages for each job category Update on how well your company is performing against

commitments Company attestation for meeting job commitments

• IL and IN – actual Taxpayer Agreement is publically available

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Reasons for incentive compliance process and system

Systematic process will help capture more up-front opportunities • Earlier identification of expansion/investment projects

There's $$ at stake• Most programs require detailed annual compliance reporting or

risk forfeit of benefits

There may be hundreds of long-life incentive programs• Can easily track compliance dates & requirements

Can measure incentives "awarded" vs. "utilized" Allows company to be pro-active when plans change

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Building a process and use of a database

Take inventory of all existing programs• Collect copies of all incentive agreements• Held by Tax, Plants, Legal, HR

Build cross-function team of Stakeholders Create proactive process to identify triggering events for incentive

opportunity Utilize software system to manage future compliance reporting

requirements

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Initial inputs for compliance

Identify and document all requirements in agreement Develop timeline for reporting

• Quarterly and annually

Identify responsibilities for each stakeholder Document start date for baseline calculations Develop process for collecting documentation

• Capital Investment• Employment/wages• Commitments vs. actual performance

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Development of a Database System

Modify existing software Utilize consultant's system Custom design (in-house vs. outside)

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Necessary functionality

Ability to track by:• Legal entity• Business segment• Location• Investment year• Program

Ability to import data Ability to export reports

• Internal and external options Ability to access data by multiple users Centralized depository for all agreements Compliance calendar

• Assign responsibilities and identify reporting dates

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What data is reported?

Commitments vs. performance Capital investment

• Annual and cumulative Full-time jobs created and maintained Average wages paid Calculation of benefits Qualified training expenses incurred

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Summary

Take inventory of all existing programs Build cross-function team of Stakeholders Create a process to identify and comply with incentive

programs Utilize software system for compliance reporting

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State Tax Credit Update

Arkansas – eliminated InvestArk sales tax incentive June 30, 2017.

California - California Competes Credit• Recent allocation of credits:

• July 24, 2017 – Aug, 21, 2017 = $75M• Jan. 2, 2018 – Jan. 22, 2018 = $100M• March 5, 2018 – March 26, 2018 = $55.4M (and remainder)

California – issued TAM 2017-03 – guidance for application of IRC Sec. 382/383 limitations on credits

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State Tax Credit Update

Colorado – HB1356 on May 24, 2017 converted some credits to allow transferability

Illinois - re-enacted the R&D credit retroactive to 2016 (through Jan. 1, 2022)

Illinois – created 12 new Enterprise Zones Illinois – EDGE expired but may be re-introduced in

some fashion

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State Tax Credit Update

Georgia – May 8, 2017, introduced HB 73 – Revitalization Credits• Income tax credits to promote revitalization of vacant, rural

downtown areas:• Credit based on new job creation ($2,000/new job up to $40,000

per tax year for five years);• Credit for acquiring qualified property and development activities

(25% of qualified investment up to $125,000); and• Credit for investing in qualified rehabilitation expenses (30% of

qualified investment up to $150,000)

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State Tax Credit Update

Georgia – Jan. 1, 2017, passed HB 265 – major changes to the Quality Jobs Tax Credit program• Hiring period is now over two years

• Must create at least 50 new, full-time (qualifying) jobs within a two-year period

• New investment requirement• Must invest at least $2.5M over the two-year period in qualified

investment

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State Tax Credit Update

Louisiana - Executive Order JBE 16-26 changes to claiming Industrial Tax Exemption Program (effective June 2016)

• No more exemptions on “miscellaneous” capital additions• Requires local taxing jurisdiction approval• Requires job creation commitment• Percentage of abatement and term of exemption are variable

up to 100% for 10 years

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State Tax credit update

Maryland – April 11, 2017, enacted “More Jobs for Marylanders Act 2017”• New & existing manufacturers in designated counties:

• Income tax credit based on new jobs;• Property tax credit;• Sales/use tax refunds for qualified purchases; and• Exemption from corporate filing fees

• Must notify Department of Commerce prior to starting expansion project

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State Tax credit update

Pennsylvania – HB 1198 (Sec. 1803-G)• New & existing manufacturers can apply for a credit based on

job creation and increase in payroll (must exceed base payroll by at least $1M in new payroll)

• Must apply prior to claiming the credit

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Questions?

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Deborah Kovachick, CPA, MT / PartnerState and Local Tax Services

Deborah leads the State and Local Tax practice for BDO’s Northeast Ohio offices. She has more than 30 years of experience in public and private tax and accounting environments.

Prior to joining BDO, she was a tax partner at SS&G and Deloitte LLP where she led the Cleveland/Northeast Ohio multistate tax practice and had extensive experience in state and local taxes, including both tax compliance and tax consulting engagements (e.g., state tax planning and structural analysis and implementation, return positions, income tax provision review, analysis of uncertain tax positions, audit assistance, merger and acquisition due diligence, reverse audits, credits and incentives, nexus studies, and negotiation of voluntary disclosure agreements).

Deborah also has experience as a tax director/division controller for a multistate private manufacturer with responsibility for all federal, state, and local tax (income, sales/use, excise, property, and payroll taxes), filing requirements, management of employee benefit plans, risk management, and accounting department functions. Her background in public accounting and private industry provides her with a practical, client-focused perspective related to serving her clients.

[email protected]: 234-466-4173Tel: 216-970-5454

301 Springside Drive Akron, OH 44333

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Jonathan Liss, MST / Managing DirectorState and Local Tax Services

Jonathan Liss has over 30 years of state and local tax experience, both in public accounting and private industry. Before joining BDO, Jonathan was a director in Grant Thornton LLP’s Philadelphia tax practice. He has extensive experience consulting with Fortune 500 and middle-market clients on multistate corporate tax minimization, controversies, and credits and incentives opportunities.

Jonathan also spent 21 years with Rohm and Haas Company of Philadelphia, a global manufacturer of specialty chemicals, plastics and salt, where he served as Director of State Tax Audits and Planning.

Jonathan is a member of the Philadelphia revenue commissioner tax advisory committee, the state and local tax committee, and the tax committee chamber of commerce. Jonathan is also a member of the Tax Executives Institute (TEI) where he has authored several articles. He is also a member of the Council of State Taxation (COST) and an Adjunct Professor at Drexel University, LeBow College of Business.

[email protected]: 215-636-5502Tel: 267-226-3112

1801 Market StreetSuite 1700Philadelphia, PA 19103

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Tim Schram / Managing DirectorState and Local Tax Services

Tim Schram is a managing director and the national leader of BDO’s Credit and Incentive practice. Tim has over 20 years of experience negotiating for state and local incentive packages on behalf of clients. Tim has successfully assisted clients secure millions of dollars’ worth of incentives, through programs such as: sales tax sharing agreements, cash grants, property tax abatements, utility rate reductions and refundable income tax credits. Tim has worked with clients representing a number of industry sectors and is one of BDO’s national leaders for the Food & Beverage industry group.

Prior to joining BDO, Tim was a Managing Director and founder of Grant Thornton’s Credit and Incentives practice. Tim helped lead a national practice of over a dozen Credit and Incentive professionals. Tim was also previously a supervisor in KPMG’s state and local tax practice focusing on credits and incentives.

Tim is a member of IAMC, the American Institute of Certified Public Accountants, the Illinois Society of Certified Public Accountants, and the Institute of Professionals in Taxation. Tim is a recognized leader in the area of state and local incentives. As such he is a regular speaker and contributor to articles for organizations such as TEI, ITP, Chicago Tax Club and CCH. Tim is also an Editorial Advisory Board Member representing credits and incentives for the Journal of State Taxation.

[email protected]: 312-730-1276Tel: 312-907-3765

330 N. WabashSuite 3200Chicago, IL 60611

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BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 60 offices and over 500 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 67,700 people working out of 1,400 offices across 158 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.

© 2017 BDO USA, LLP. All rights reserved. www.bdo.com