When Taxpayers Should Not Bear the Burden of Proof

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The impact of the burden of proof on state tax appeals cannot be overstated.  Taxpayers often lose tax appeals on the basis that they failed to satisfy the seemingly elusive burden of proof. Apart from limited instances in the arena of alternative apportionment, taxpayers bear the burden of proof in nearly every state tax appeal.  As the reasoning goes, taxpayers should bear the burden of proof because it is the taxpayers that possess the necessary information and, thus, are in the best position to establish the proper amount of state tax liability.  But should this always be the case? In [...]Read more

Plains All American Case Dismissed – Federal Court Determines Holder Must Develop Factual Record Before Challenging Kelmar Unclaimed Property Audit

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On August 16, 2016, the U.S. District Court for the District of Delaware granted Kelmar’s and Delaware’s motions to dismiss in Plains All American Pipeline, L.P., v. Cook, et al.[1]  The court determined that the Plaintiff (1) lacked standing to sue Kelmar, (2) had not demonstrated ripeness of declaratory relief against Delaware for any of its claims, except equal protection, and (3) failed to state a cause of action regarding its equal protection claim. Background In 2014, Delaware, through its third-party auditor, Kelmar, initiated an unclaimed property audit of Plains All American [...]Read more

Pennsylvania Amends IRA Provisions of Unclaimed Property Law and Adds Due Diligence Requirements

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The Pennsylvania General Assembly passed HB 1605 on July 13, 2016, and it was approved by Governor Tom Wolf on the same day.  Contained within this omnibus finance bill are two sections that significantly amend Pennsylvania's unclaimed property law: section 4, which revises the dormancy standard applicable to IRAs; and section 5, which imposes formal due diligence requirements on holders. In particular, section 4 of HB 1605 revises section 1301.8 of Pennsylvania's unclaimed property law to provide that the dormancy period for a retirement account is triggered when the holder “has lost [...]Read more

North Carolina Appellate Court Affirms that Taxation of Trust’s Income is Unconstitutional

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On July 5, 2016, the Court of Appeals of North Carolina affirmed the 2015 decision by the superior court in The Kimberley Rice Kaestner 1992 Family Trust v. N.C. Dep't of Revenue, which held that North Carolina was constitutionally prohibited from taxing the income of the plaintiff trust.  Essentially, the state asserted jurisdiction to tax the trust's income based solely on the fact that the beneficiaries of the trust were North Carolina residents (the trust had no other connection with the state).  The superior court rejected this assertion, concluding that the state could not impose the tax [...]Read more

The Treasury Department and the IRS Surprise Taxpayers with Proposed § 385 Debt-Equity Regulations

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For decades, the determination of whether debt issued between related parties should properly be characterized as equity has provided grounds for frequent disputes between taxpayers and the Treasury Department and the IRS (together, “the government”). Congress attempted to address this issue through the enactment of IRC § 385(a) (as part of the Tax Reform Act of 1969), which authorizes the Treasury Department to prescribe regulations as necessary or appropriate to determine whether an interest in a corporation should be treated as debt or equity. However, the government had not done so – [...]Read more

What Makes a Loophole? Prop 13 and Change in Ownership

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Few laws, if any, have had a bigger impact on a state’s taxing authority than California’s Proposition 13 (Prop 13). Famously passed in 1978 amidst a housing market boom, Prop 13 was intended to protect taxpayers from dramatic rises in their annual property tax bills by limiting the ad valorem taxes on real property to 1 percent of the full cash value of the property at acquisition, with a 2 percent annual cap on assessment increases. Perhaps the most friction-laden aspect of Prop 13 is the ‘‘change in ownership’’ requirement.  Prop 13 permits local assessors to reassess tax based [...]Read more

Sales Tax Nexus Roundup – Introducing Louisiana and Tennessee

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We have been closely following the rapid rise of state laws and regulations imposing sales tax nexus or reporting requirements on out-of-state sellers with no physical presence in the state. In the wake of decisions by the U.S. Supreme Court and the U.S. Court of Appeals for the Tenth Circuit in cases brought by the Direct Marketing Association (see prior coverage), states have felt emboldened to enact provisions that challenge the Supreme Court's holding in Quill v. North Dakota, which demands that a seller have physical presence in a state before the state can require the seller to collect [...]Read more

Retailers, Take Note: Connecticut Adds New Gift Card Cash-Back Requirements

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On June 9, Connecticut Governor Dan Malloy signed into law HB 5564, which adds Connecticut to the growing list of states that require gift card sellers or issuers to provide cash back to consumers in certain partial redemption situations.  In particular, HB 5564 (enacted as Public Act No. 16-140) requires a seller or issuer of a gift card to provide the purchaser with either a proof of purchase receipt or a gift receipt for the purchase of such card.  Once the card has been redeemed for goods or services and the remaining balance is less than $3.00, the redeeming seller or issuer must pay the [...]Read more

State-vs.-State Unclaimed Property Dispute May be Heading to the Supreme Court

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In March, we issued an advisory highlighting a lawsuit filed by the Pennsylvania Treasury Department against the State of Delaware in federal district court seeking to recover uncashed official checks escheated to Delaware by MoneyGram.  (http://www.alston.com/advisories/money-gram/).  Essentially, the dispute centers upon whether MoneyGram's official checks were subject to the Federal Disposition Act, in which case they would have been reportable to the state(s) in which they were issued rather than Delaware, the state of MoneyGram's domicile.  In our prior advisory, we pointed out that [...]Read more

Sprint Communications Inc. Asks the U.S. Supreme Court to Hear Bundling Issue

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On February 18, 2016, Sprint Communications Inc. filed a petition for a writ of certiorari asking the United States Supreme Court to review the New York Court of Appeals’ denial of Sprint’s attempt to dismiss the approximately $400 million sales tax case brought against it under New York’s False Claims Act (“FCA”). In its October 20, 2015, denial, the Court of Appeals held that: (1) the attorney general’s complaint sufficiently pleaded a cause of action under the state FCA that Sprint knowingly filed false tax records with the state, (2) New York tax law unambiguously imposes sales [...]Read more