McDermott extended its popular Tax in the City® program to Seattle, with a meeting on October 12 at the Amazon headquarters. McDermott established Tax in the City® in 2014 as a discussion and networking group for women in tax aimed to foster collaboration and mentorship, and to facilitate in-person connections and roundtable events around the country. The Seattle program was one of the best attended Tax in the City® events to date, featuring a CLE/CPE presentation about Privilege and the Ethics of Social Media by Cate Battin, Kristen Hazel and Jane May, followed by a roundtable discussion in which Elizabeth Chao and Sandra McGill discussed international issues related to income from digital products. Britt Haxton and Kristen Hazel discussed planning considerations related to federal tax reform, and Diann Smith provided the state and local tax considerations related to both issues. Continue Reading
On October 1, 2017, the Delaware Department of Finance published final regulations in the Register of Regulations repealing its former unclaimed property regulations and promulgating a new reporting and examination manual. See 21 DE Reg 336 (Oct. 1, 2017). The final reporting and examination regulation contains no substantive changes from the revised version that was re-proposed on August 1, 2017. As published, the regulations are set to be adopted and take effect on October 11, 2017. Continue Reading
Wrapping Up September – and Looking Forward to October
Upcoming McDermott Will & Emery SALT Activities in October:
October 12, 2017: Cate Battin, Kristen Hazel, Britt Haxton, Jane May, Sandra McGill, Diann Smith and Elizabeth Chao are hosting and presenting at the inaugural Tax in the City® event in Seattle, Washington. They will cover topics such as attorney-client privilege and the ethics of social media (CLE/CPE), recent developments around US Tax Reform, and updates on state and local tax issues for Seattle and the surrounding areas.
October 20, 2017: Peter Faber will present on “State and Local Tax Aspects of Acquisitions” at PLI’s Conference on the Taxation of Mergers & Acquisitions in New York.
October 27, 2017: Arthur Rosen will be moderating numerous panels at the National Association of State Bar Tax Sections 38th Annual Meeting in Washington, DC: “State and Local Tax Issues before Congress” and “International Tax Proposals – What They Are All About.”
October 28, 2017: Alysse McLoughlin will be speaking at the National Association of State Bar Tax Sections 38th Annual Meeting in Washington, DC about “Apportionment & Market Based Sourcing – Where Are We Now?” Additionally, Peter Faber will speak at this same conference about the “Top 10 Tax Issues,” with Arthur Rosen moderating that presentation.
Wrapping up September:
Our September 2017 blog posts are available on insidesalt.com, or read each article by clicking on the titles below. To receive the latest on state and local tax news and commentary directly in your inbox as they are posted, click here to subscribe to our email list.
September 14, 2017: Illinois DOR Proposes Use Tax Nexus Standards for Trade Show Retailers
September 28, 2017: Republican Leaders Release Tax Reform Framework
September 29, 2017: State and Local Tax Aspects of Republican Tax Reform Framework
September 29, 2017: Holders Beware: Delaware Department of State Notices to be Mailed in Two Weeks!
In two weeks, the Delaware Secretary of State (SOS) will begin mailing notices to holders who have been identified as likely being out of compliance with Delaware unclaimed property law. Holders that do not enroll in the SOS Voluntary Disclosure Agreement Program (VDA Program) within 60 days of the mailing of this notice will be referred to the State Escheator for examination. Once an audit notice is issued, the SOS will have no legal ability to accept a holder into its VDA Program.
The VDA Program was put in place to respond to concerns about Delaware’s audit program and allow holders to come into compliance through a “self-audit” that is administered by the holder, as opposed to the State Escheator. The audit is overseen by a third-party provider that must approve the steps taken by the holder, but allows more flexibility in terms of the details and deadlines than a traditional audit. Delaware law requires that every company be provided with an opportunity to voluntarily comply prior to being issued an audit notice. For holders that receive a notice from the SOS in a little over two weeks, this letter will be their one opportunity to voluntarily come forward and enroll in the VDA Program and requires prompt decision making and evaluation, given the 60 days deadline and potentially significant implications.
It is still expected that the final Department of Finance (DOF) regulation required by SB 13 will be included in the October 1, 2017 Register of Regulations. If this holds true, companies currently under a Delaware audit authorized by the State Escheator on or before July 22, 2015, will have 60 days from October 1 (i.e., until November 30, 2017) to convert to the SOS VDA Program. Again, the same analysis and implications are at stake.
There is a lot for holders to consider in a very short period of time. Holders should be aware that there are may be more than the single, historic third-party provider in charge of administering the SOS VDA Program. Adding new providers creates uncertainty in the process and it is not clear how holders will be assigned to each provider.
Holders in need of advice on whether to enroll in the SOS VDA Program should reach out to the authors to discuss their options. Stay tuned for our analysis of the final DOF regulation, which will be posted shortly after publication.
The White House and Republican congressional leadership released an outline this week to guide forthcoming legislation on federal tax reform. The states conform to the federal tax laws to varying degrees and the extent to which they will adopt any federal changes is uncertain. This memorandum outlines some of the key areas—individual taxation, general business taxation and international taxation— with which the states will be concerned as details continue to unfold.
The White House and Republican congressional leadership released an outline this week to guide forthcoming legislation on tax reform. This outline will serve as a useful framework in structuring what will be an active, and likely contentious, phase of reform activity.
Yesterday, the South Dakota Supreme Court released its much-anticipated opinion in the Wayfair litigation, affirming a March 2017 trial court decision granting the remote retailer’s motion for summary judgment on the basis that the economic nexus law enacted in 2016 (SB 106) is unconstitutional and directly violates the US Supreme Court’s dormant Commerce Clause precedent in Quill Corp. v. North Dakota.
The South Dakota litigation remains at the front of the pack of a host of state court cases challenging similar state economic nexus laws across the United States. The expedited review (and decision) by the South Dakota Supreme Court here is significant, and puts the litigation well within the range of cases that would be decided by the end of the October 2017 Term (i.e., by July 2018), assuming cert is granted—which is by no means a guarantee. The state has 90 days to file a cert petition with the US Supreme Court, which can be extended upon request. Stay tuned, as this litigation is far from over and the sitting US Supreme Court will be tasked with deciding whether they will honor Justice Kennedy’s request to bring a case before the Court in DMA v. Brohl.
The full South Dakota Supreme Court opinion is available here.
The Illinois Department of Revenue (Department) has issued a proposed new administrative rule addressing the nexus implications for out-of-state retailers attending trade shows in Illinois. The proposed rule, linked here, reaffirms the Department’s long-standing position that all sales made at an Illinois trade show are subject to Illinois Retailers Occupation Tax and any applicable local taxes. In a move welcomed by taxpayers, the proposed rule goes on to delineate a “safe harbor” of activities that will not create nexus for out-of-state retailers with respect to their other Illinois sales.
Under the safe harbor provision, an out-of-state retailer’s presence at an Illinois trade show will not create nexus for its other Illinois sales if each of the following conditions is met:
- The retailer attends no more than two trade shows per calendar year;
- The retailer is physically present at the two trade shows for an aggregate total of no more than eight days during any calendar year; and
- Combined gross receipts from sales made at the two trade shows during any single calendar year do not exceed $10,000.
On August 31, 2017, in a 4-3 split decision, the Virginia Supreme Court (Court) affirmed a circuit court’s ruling that in order for income to qualify for the “subject-to-tax” exception to its addback statute, the income must actually be taxed by another state. Kohl’s Dep’t Stores, Inc. v. Va. Dep’t of Taxation, no. 160681 (Va. Aug. 31, 2017). A copy of the Opinion (Op) is available here. The Court, however, did find for the taxpayer on its alternative argument, concluding that the determination of where income was “actually taxed” includes combined return and addback states, in addition to separate return states, and includes income subject to tax in the hands of the payor, not just the recipient. For our prior coverage of the subject-to-tax exception, see here.
The issue here was whether Kohl’s Department Stores, Inc. (Kohl’s), which operates retail stores throughout the United States (including Virginia), was required to “add back” to its income royalties it paid to a related party for the use of intellectual property owned by that party. Kohl’s deducted the royalty payments as ordinary and necessary business expenses in the computation of its federal income, and the recipient related party included the royalty income in its taxable income calculations in the states in which it filed returns, including both separate and combined reporting states. The Court considered whether the royalty payments paid by Kohl’s must be “added backed” to Kohl’s taxable income under Virginia law, or whether the royalties fell within Virginia’s “subject-to-tax” exception. Continue Reading