Category Archives: State and Local Tax Incentives

State and Local Tax Advisory – California Voters Approve Proposition 39, but Significant Questions Remain Regarding How Corporate Taxpayers Can Apportion Their Income

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This advisory discusses the recently approved Proposition 39, a California ballot initiative that requires corporations conducting a multistate business to apportion their income using a single-sales factor apportionment formula beginning January 1, 2013. Two other recent developments in California raise significant questions regarding the effectiveness of Proposition 39’s single-sales factor apportionment requirement. In Gillette Co. v. Franchise Tax Board, the Court of Appeal of California held that a corporate taxpayer could elect to apportion its income using either the statutory formula [...]Read more

State & Local Tax Advisory – Significant Development in New York: New York Supreme Court Strikes Down MTA Payroll Tax

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This advisory discusses the New York Supreme Court’s recent holding that the Metropolitan Commuter Transportation Mobility Tax (“MTA payroll tax”) was passed unconstitutionally and thus is invalid. This decision potentially impacts all companies with operations in the New York City area and its development should be closely monitored. The advisory is provided in PDF on the Alston & Bird website: http://www.alston.com/advisories/salt-advisory-mta-payroll-tax  [...]Read more

State & Local Tax Advisory: Gillette: Not Exactly a Close Shave – California Court of Appeal Approves Taxpayers’ Compact Elections, Leaving FTB in a Lather

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It was perhaps viewed as a close shave prior to the California Court of Appeal’s issuance of its opinion in Gillette Co. & Subsidiaries v. Franchise Tax Board, No. A130803 (Ct. App., July 24, 2012), but in fact, the court soundly rejected the California Franchise Tax Board’s (FTB) arguments that taxpayers were not entitled to make a so-called “Compact election” and file California tax returns using the Uniform Division of Income for Tax Purposes Act’s (UDITPA) equally-weighted, three-factor apportionment formula. This advisory explains how the court’s decision [...]Read more

The MTC Section 482 Proposal

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A memorandum dated July 19, 2012, from the MTC Counsel to the chair of the MTC Income and Franchise Tax Uniformity Subcommittee proposes adoption of a uniform regulation akin to, or actually adopted under the states’ version of, I.R.C. Section 482. The proposal is posted on the MTC website. The regulation would authorize a forced combination of two affiliates that have engaged in a nonrecognition asset transfer that the state deems to separate income from related expenses. The proposal will be considered at the MTC meeting on July 29, 2012. The proposal has these unusual and questionable [...]Read more

“Technical” Revenue Laws Changes in North Carolina

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On June 21, 2012, the North Carolina General Assembly enacted its annual updates and so-called technical revisions of the revenue laws. Session Law 2012-79. Affiliated Corporations. GS 105-130.2(a) is amended to add a definition of “affiliate” for all corporate income tax purposes. Originally, the corporate tax part referred to affiliate in two places: GS 105-130.6, which authorized correcting non-arms-length pricing between affiliates, and GS 105-130.5, listing the North Carolina adjustments to federal taxable income. Two of those adjustments were and still are adjustments for pricing [...]Read more

Forced Combinations Suspended in North Carolina

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The Governor of North Carolina signed Session Law 2012-43, which suspends the authority of the NCDOR to force corporate combinations for years beginning on or after January 1, 2012 until the DOR issues and has approved an administrative rule defining the standards for forced combinations. The new law is the most recent of a long chain of events that began when the NCDOR realized that its 1992 administrative rule creating nexus for intellectual property holding companies would not solve all perceived problems with multistate corporation tax planning in a single entity taxing state. By the end of [...]Read more

Tax Equal Protection

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Armour v. City of Indianapolis, 132 S. Ct. 2073 (2012) ruled that a city did not violate the Equal Protection Clause of the Fourteenth Amendment when it chose to forgive remaining unpaid installments of a special assessment for sewage improvements but not to refund those taxpayers who had paid in full without choosing to pay in installments. The Chief Justice and Justices Alito and Scalia dissented. Therefore, the “liberal” Justices plus Justice Thomas ruled in favor of maximum discretion for the taxing authority, and three fourths of the “conservative” Justices would have [...]Read more

NCDOR Appeals Still Slow

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In what is hopefully one of the last of the old modifiable decisions in tax cases by North Carolina Administrative Law judges, the NCDOR allowed the ALJ to relieve a shareholder of transferee tax liability, but still modified the ALJ opinion. 10 REV 04058; Cherry v. Dep’t of Revenue (May 16, 2012). The Case: The DOR wanted to collect a corporation’s sales taxes from one of its shareholders. The corporation had operated a restaurant that closed. The DOR auditor caused the petitioner Cherry to sign sales and use tax forms after the fact. When the taxes were not paid the DOR attempted [...]Read more

Erroneous Sales Tax Collections in North Carolina

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Technocom Business Systems Inc. v. North Carolina Dep’t of Revenue; No. COA11-655 (NCAPP 2/21/2012). Taxpayer sold and leased equipment. It also serviced the equipment sold and leased and charged customers for the maintenance service. It also bought property to use in performing its service agreements. It did not pay use tax on the purchases of that property. A final determination was made that taxpayer owed use tax on its purchases of such property. Taxpayer also erroneously collected sales tax on the charges for its maintenance agreements, which were services and not taxable sales of property. [...]Read more

California Proposes to Create New Corporate Entity for Environmentally/Socially Conscious Companies

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The two bills have just passed the California Legislature that would allow companies to become a benefit corporation (AB 361) or a flexible purpose corporation (SB 201), fundamentally changing California’s Corporations Code. Under either law, California would allow a new type of corporation if part of its mission is to improve society and the environment, and the corporation creates a “general public benefit” or “material positive impact on society and the environment.” According to advocates of the proposed legislation, the new corporate entity is necessary because [...]Read more