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Where Will the Cardinals Fly? Arizona Court Orders Refunds of Football Stadium TaxBy Stephen Burroughs and Amy Nogid
The Superior Court of Arizona, Maricopa County, rejected the Department of Revenue’s request that rental car companies be granted only prospective relief from the court’s earlier decision which declared the car rental charge illegal. The voter-approved surcharge was enacted for the Arizona Tourism and Sports Authority to finance the Arizona Cardinals’ football stadium and other tourism-related activities. The superior court, however, had declared it illegal because the Arizona Constitution requires that taxes relating to the operation or use of vehicles be used for highway-related purposes. Stadium financing and tourism promotion fell outside of this limitation. In its latest ruling, the superior court said that car rental companies are entitled to refunds under Arizona precedence interpreting McKesson v. Division. of Alcoholic Beverages & Tobacco. The court observed that refunds would result in a windfall to car rental companies because they generally pass the surcharge on to their customers. While the court noted that McKesson might permit prospective-only relief if retroactive application would result in a windfall to taxpayers, it also acknowledged that it was bound by two decisions of the Arizona court of appeals mandating retroactive relief when a tax is declared illegal.
The court did not address whether a car rental company must refund the illegal tax to its customers prior to claiming a refund for itself. This may be in response to dicta from the resolution of a 2007 class action suit brought by customers challenging the same tax. There the court of appeals stated that because the incidence of the car rental surcharge fell on car rental companies, if it were declared illegal car rental companies would receive the refund and not be required to pass the refund on to customers. This stands in contrast to several other jurisdictions which generally require that vendors, as a prerequisite to a valid refund request, first refund the contested amounts to their consumers. Saban Rent-A-Car LLC v. Ariz. Dep’t of Revenue, TX 2010-00189 (Sup. Ct. Maricopa Cnty. July 28, 2015).
(Vision)Stream of Commerce: Supreme Court of Missouri Denies Sales Tax Refund on Sales of Goods Shipped Out of StateBy Charles Capouet and Timothy Gustafson
August 2015SUTHERL AND
SALT SHAKER®
Shaking things up in state and local tax.
In This Issue
Current Developments 1
SALT Pet of the Month 2
Recently Seen and Heard 4
Come See Us 5
Please visit www.stateandlocaltax.com to subscribe to receive the
latest content!
The Supreme Court of Missouri denied a Missouri corporation’s sales tax refund claims on its sales of trade show displays shipped to out-of-state customers because it did not prove that the title to the goods transferred outside of Missouri. Missouri exempts from sales tax retail sales made in interstate commerce, looking at when title to the goods passes to the purchaser, rather than the ultimate destination of the goods, to determine whether the exemption applies or sales tax is owed. Thus, for the Court, whether sales tax was owed on the transactions depended solely on whether title to the displays transferred inside or outside of Missouri. The only documentary evidence the taxpayer provided of title passage, however, was a blank order form setting out standard terms
and conditions for purchase of displays, including a provision that delivery was “F.O.B. manufacturer.” Without evidence of a specific alternative agreement about title passage, the Court held the course of dealing as reflected in the display order governed. In this case, the terms of the display order evidenced that the title transferred to the purchaser upon delivery of the goods to the shipper, within Missouri, for shipment out of state to the customer. Accordingly, the Court concluded the taxpayer was not entitled to a sales tax refund for sales of goods shipped out of state. VisionStream, Inc. v. Dir. of Revenue, No. SC94441, 2015 WL 3978835 (Mo. Jun. 30, 2015) (en banc).
AUGUST 2015 SUTHERLAND SALT SHAKER® PAGE 2
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Meet Zander, the seven-year-old Great Pyrenees belonging to Sutherland SALT Associate Madison Barnett and his family. Already a proud dog owner of two handsome pups, Madison hadn’t planned on adding a third to the Barnett household. That plan changed abruptly four years ago when he nonchalantly showed his wife and daughters an email about a dog whose family had been killed in a tornado. Zander was the lone survivor. Madison explains, “One minute I was reading an email, the next minute my daughters were sobbing, and four hours later I had a new dog living with me. I’m still not sure what happened.”
Rescued through Great Pyrenees Rescue Atlanta, Zander is fiercely loyal and fiercely stubborn. If he thinks something is dangerous, he runs to the kids to guard them. If he thinks a command is ridiculous, he won’t bother to acknowledge it and does what he wants. There is no convincing him that he is not supposed to do things like lick birthday cakes.
Zander spends his time indoors and out. While outside, he enjoys adding his personal touch to the backyard landscape design. If he notices the plants looking too healthy, he immediately gets to work digging them up or trampling on them.
Zander is also a skilled escape artist. He can open any door in the house and let himself out, and according to Madison, privacy has become a thing of the past. The Barnetts have considered creating a YouTube channel for this canine Houdini to show him plotting and executing his escapes. Even an “escape proof” crate they bought online was no match for Zander. He managed to get out within 15 minutes.
Though he tips the scales at over 100 pounds, this sweet, sociable boy thinks he belongs on everyone’s lap. Guests stare at him in horror while he careens his body into them so he can climb up and get comfortable. He is honored to be August’s Pet of the Month!
SALT PET OF THE MONTHZander
SALT Pet of the Month: It’s Your Turn!!In response to many requests, the Sutherland SALT practice invites you to submit your pet (or pets) as candidates for SALT Pet of the Month. Please send us a short description of why your pet is worthy of such an honor, along with a picture or two. Submissions should be directed to Stephanie Fulps at [email protected].
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No Alternative to Nexus: Parent’s Royalty Addback Does Not Eliminate Licensing Subsidiary’s New Jersey Filing ObligationBy Nicole Boutros and Amy Nogid
The New Jersey Tax Court ruled that the Division of Taxation (“Division”) properly required a foreign (non-New Jersey domesticated) corporation to file corporation business tax (“CBT”) returns reporting licensing revenue from its parent attributable to New Jersey, based on New Jersey’s economic presence nexus standard, despite the parent’s royalty expense addback in computing its CBT liability. The licensing subsidiary filed CBT returns before New Jersey’s enactment of the addback provision; once the parent corporation became obligated to add back the royalty expenses to its income, the licensing subsidiary ceased filing CBT returns, asserting that the parent’s royalty expense addback captured the income. In rejecting the subsidiary’s position, the court explained that the subsidiary was taxable under New Jersey’s CBT subjectivity provisions (specifically, the economic presence nexus standard), and that such provision and the royalty addback provision do not operate in the alternative, as neither provision contains a cross-reference to or an exception with respect to the other provision. The court also rejected the argument that requiring the subsidiary to file a return when the parent had already added back the royalty payments it made to the subsidiary would result in unconstitutional double taxation. The court explained that statutory and regulatory mechanisms existed to eliminate the possibility of double taxation, including the payor’s ability to assert relief under the unreasonableness exception to the addback statute and the Division’s “subject to tax” exception, as well as the payee’s ability to request discretionary relief from the Division (“Section 8” relief). Failing to take advantage of any of the relief mechanisms made the subsidiary’s claim of unconstitutional double taxation “questionable.” The court, nevertheless, left open the possibility for Section 8 relief once the subsidiary filed the returns and emphasized that the Division must ensure that it taxes such income only once. Spring Licensing Grp., Inc. v. Dir., Div. of Taxation, No. 010001-2010 (N.J. Tax Ct. Aug. 14, 2015).
The Texas Court of Appeals held that a taxpayer was not entitled to elect the Multistate Tax Compact (MTC) three-factor formula because the Texas franchise (margin) tax is not an “income tax,” as defined in the MTC. Specifically, the court ruled that the franchise tax is not “imposed on or measured by net income.” Relying on the plain meaning, dictionary definition of “net income,” the court reasoned that all expenses must be deducted for a tax to qualify as an “income tax.” For franchise tax purposes, conversely, a taxpayer’s margin is computed by deducting a flat amount unrelated to expenses (e.g., 30%) or certain limited expenses (e.g., costs of goods sold). The court also rejected the taxpayer’s reliance on Int’l Bus. Machines Corp. v. Dep’t of Treasury, 852 N.W.2d 865 (Mich. 2014), which held that Michigan’s modified gross receipts tax was an “income
tax” under the MTC. Because the Michigan tax was a “variation of net income,” the court determined that the tax was not “sufficiently similar” to Texas’s franchise tax.
Because the MTC election applies only to an income tax, the court did not decide the taxpayer’s two other issues: (1) whether the single-factor formula repealed the election by implication; and (2) whether the MTC is a binding, interstate compact. However, the opinion indicates that the Legislature intended to exclude the three-factor formula election when it restructured the franchise tax in 2006.Graphic Packaging Corp. v. Hegar, No. 03-14-00197-CV (Tex. App.—Austin July 28, 2015, no pet. h.).
Three’s a Crowd: Texas Court of Appeals Denies Taxpayer’s MTC Three-Factor ElectionBy Olga Goldberg and Andrew Appleby
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RECENTLY SEEN AND HEARDAugust 6-7, 2015Georgetown SALT Institute Washington, DCJeff Friedman on Worth Your SALT: An Interview with COST and MTC
Madison Barnett on Risking Business: Understanding Tax Implications of Pass-through Entities
August 12, 2015Sutherland State Tax Ladies’ LunchNew York, NYLeah Robinson will host
August 18, 2015Sutherland Tax Education SeriesAtlanta, GAZachary Atkins and Suzanne Palms on State and Local Tax Updates
September 10, 2015Sutherland SALT Houston RoundtableHouston, TXMarc Simonetti and Andrew Appleby on the State Taxation of Commodities Trading Transactions
Amy Nogid and Olga Jane Goldberg on Salt Issues in Mergers and Acquisitions
Eric Tresh and Amy Nogid on Alterative Apportionment: Can Two Play that Game?
Madison Barnett and Olga Jane Goldberg on Credits and Incentives
September 16, 2015TEI Seattle ChapterBellevue, WAJeff Friedman and Michele Borens on Ecommerce Platform Sales Tax Collection
Amy Nogid and Wilson Barmeyer on Unclaimed Property in a Digital World
Jeff Friedman and Leah Robinson on Developing Nationwide Tax Strategies
Michele Borens and Todd Lard on Federal Legislation and Quill
September 17-19, 2015ABA Joint Fall CLE MeetingChicago, IL
Leah Robinson will moderate a State Tax Practitioner Roundtable
September 18, 2015COST Fall State Tax WorkshopLong Branch, NJPrentiss Willson on Worldwide Unitary Filings – New Threat of Old Methods
September 20-23, 2015BTI Annual ConferenceColorado Springs, COSutherland SALT will present
September 25, 2015TEI CarolinasCharlotte, NCRobert Chase and Maria Todorova on Legal Entity Rationalization
September 27-30, 2015NESTOA Annual ConferenceMystic, CTSutherland SALT will present
September 27-30, 2015IPT Sales Tax SymposiumIndian Wells, CACarley Roberts on The Year in Review and on Ask the Experts – West
Leah Robinson on Cutting Edge Concepts: Applying Sales Tax Rules to Evolving Businesses
COME SEE US
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COME SEE US (Cont’d)
October 1, 2015Sutherland SALT Financial Services RoundtableNew York, NYSutherland SALT will present
October 18-21, 2015TEI Annual ConferenceDallas, TXJeff Friedman on Transfer Pricing for State Tax
Marc Simonetti on What You Need to Know in SALT: A Legislative, Regulatory and Judicial Update
Charlie Kearns on Indirect Tax Trends in the Digital World
October 19, 2015NYC Department of Finance TaxRAPPNew York, NYLeah Robinson on New York Litigation – Best Practices
Amy Nogid on New York City Case Updates
October 20-23, 2015COST Annual Conference Chicago, ILCarley Roberts on the MTC ALAS Project on Transfer Pricing
Madison Barnett on Nebulous Nexus and Phantom Factors (or, perhaps, “Open Borders”)
October 27-29, 2015Paul J. Hartman SALT ForumNashville, TNJeff Friedman on 86-272 in a Digital Economy (Software, Economic Nexus)
Prentiss Willson on Unitary Groups – Who’s In and Who’s Out
Todd Lard on How Will the Little Piggy Ever Know Where the Market Is?
November 1-4, 2015IPT Income Tax ConferenceAustin, TXPrentiss Willson on My State Is Better than Your State
November 3-6, 2015IPT Credits and Incentives SymposiumAustin, TXMadison Barnett on a Regional Update – Southeast: New Developments from the Old South
November 4-7, 2015California Tax Policy Conference La Jolla, CAJeff Friedman on Exploring the Facts and Circumstances of “Nonbusiness” Income
Scott Wright on the Blue Light Special, Finding the Market in California’s New Market-based Sourcing Rules
Leah Robinson on 2015 SALT Litigation: Cliff ’s Notes
Maria Todorova on I Swear It Wasn’t Willful Neglect! Making the Case for Penalty Abatement in California
November 5, 2015ABA Tax Section Philadelphia Tax ConferencePhiladelphia, PAJeff Friedman on S&L Litigation
November 10, 2015Interstate Tax Advanced CourseStamford, CTAmy Nogid on Nexus
November 19, 2015TEI Baltmore-Washington ChapterBethesda, MDSutherland SALT will present
AUGUST 2015 SUTHERLAND SALT SHAKER® PAGE 6
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The Sutherland SALT Team
Michele [email protected]
Jonathan A. [email protected]
Jeffrey A. [email protected]
Todd A. [email protected]
Carley A. [email protected]
Leah [email protected]
Marc A. [email protected]
Eric S. [email protected]
W. Scott [email protected]
Douglas [email protected]
Prentiss [email protected]
Open Weaver [email protected]
Timothy A. [email protected]
Charles C. [email protected]
Maria M. [email protected]
Andrew D. [email protected]
Zachary T. [email protected]
Madison J. [email protected]
Nicole D. [email protected]
Stephen A. [email protected]
Charles C. [email protected]
Stephanie T. [email protected]
Jessica A. [email protected]
Ted W. [email protected]
Olga Jane [email protected]
Evan M. [email protected]
Michael J. [email protected]
Jonathan E. [email protected]
Chris M. [email protected]
Robert P. Merten [email protected]
Suzanne M. [email protected]
Michael [email protected]
