Litigation Alert | Third Circuit Reaffirms Scope of Federal Priority Rules

On December 4, 2017, the US Court of Appeals for the Third Circuit issued its much-anticipated precedential opinion in Marathon Petroleum Corp. et al., v. Secretary of Finance et al., No. 16-4011. The opinion affirms the Third Circuit’s existing view (described in its 2012 New Jersey Retailers Association decision) that US Supreme Court precedent permits a private cause of action to enforce the federal priority rules, overruling the federal district court’s conclusion (in this case and Temple-Inland) that the priority rules only apply to disputes between states. Continue Reading

Wrapping Up November – and Looking Forward to December

You can view all of the topics we discussed over the last month here. Our lawyers appear at the following State and Local Tax events in December:

December 4–5, 2017: Peter Faber, Arthur Rosen and Diann Smith spoke at the 36th Annual NYU Institute on State and Local Taxation.

December 14, 2017: Catherine Battin, Mary Kay Martire and Jane May are presenting about the SALT aspects of Tax Reform at the Tax in the City® – Year in Review, which will focus on tax reform.

State Income Tax Implications of Base Broadening Components of House and Senate Tax Reform Bills

While there are differences between the House and Senate tax reform bills that remain to be worked out between the two chambers, both bills are positioned to broaden the tax base and reduce the tax rate. This article highlights the possible impact on state income tax liabilities stemming from the base broadening provisions.

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Illinois Franchise Tax Relief on the Horizon

For Illinois corporate clients who pay significant Illinois corporate franchise tax, relief may be on the way.

Illinois is on the verge of joining Delaware and many other jurisdictions that permit simple conversions from corporate to limited liability company (LLC) form, by enacting the “Entity Omnibus Act” as part of House Bill 2963, passed by the Illinois General Assembly and sent to the governor’s office last week. Assuming the governor signs the Bill, the effective date of the new law would be July 1, 2018.

Corporations formed under the Illinois Business Corporation Act often face impediments to conversion to an LLC to be free of the franchise tax. The new Act should make planning and execution considerably easier.

McDermott Launches Tax Reform Resource Center

As details of tax reform take shape, our team continues to evaluate proposed legislation and to provide critical, real-time guidance on the likely impacts to our clients.

McDermott has always partnered with our clients to design strategies that are both creative and sound—to effectively plan for long-term business success. Access our new Tax Reform Resource Center for strategies and tools that will continue to help you lead your organization through the opportunities and risks brought about by proposed tax reform. You can also subscribe to stay on top of McDermott’s latest take on tax.

Access the Tax Reform Resource Center.

New SALT Implications in Proposed House and Senate Tax Reform Bills

The federal tax reform legislation is a work in progress, and its final form will undoubtedly be affected by political considerations and lobbying by interested parties. Both the House and Senate bills deserve careful study by taxpayers and their representatives, as many of the provisions will have an effect on state and local taxes.

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Preparing for the Repeal of Cook County’s Beverage Tax: Requesting Credits and Refunds

Earlier this fall, the Cook County Board voted to repeal its constitutionally suspect, politically unpopular one cent per ounce sweetened beverage tax (Tax). The short-lived Tax will expire at the end of the County’s fiscal year on November 30, 2017.

Having been tasked with implementing the Tax, the Cook County Department of Revenue (Department) is now charged with unwinding it. Distributors and retailers who have paid the Tax are entitled to credits or refunds on their unsold inventory at month’s end. The Department recently issued guidance on the credit/refund procedure.

Retailers that have paid Tax to their distributors may claim a credit/refund from their distributors for Tax paid on their unsold inventory by completing the Department form entitled “2017 Sweetened Beverage Retailer Inventory Credit Request Form and Schedule A.” Retailers should complete and submit the form to their distributors, not the Department.

Distributors must file a final Tax return with the Department on or before December 20 (Final Return). To the extent a distributor already has refunded or credited Tax to its retailers, the distributor may claim a credit for the amount refunded on the “other deductions” line of its Final Return. Distributors must file the Department’s standard refund application, found on the Department’s website, to claim refunds for amounts refunded or credited to retailers after December 20. The Department has issued a new form (the “Sweetened Beverage Tax Distributor Credit Form Schedule”) to be submitted by distributors to the Department in support of any credit or refund claims. The form requires distributors to identify the retailers to which it has provided credits/refunds and the amounts thereof.

Retailers who self-remit the Tax may take a credit on their Final Return with supporting documentation. In addition, retailers that have unsold inventory as of December 1, on which they previously remitted floor tax, may obtain a refund of the floor tax through the Department’s standard refund procedure.

Practice Notes:

  1. To the extent possible, Taxpayers should take advantage of the opportunity to claim a credit on their Final Returns in order to avoid the time and expense associated with the County’s standard refund procedure.
  2. Since the Tax was repealed, enthusiasm has waned for various Illinois House Bills (HB 4082-84) proposing to limit the authority of localities to impose beverage taxes. It’s difficult to predict whether the bills will be enacted.
  3. However, the State of Michigan has passed legislation, signed into law by Governor Snyder on October 26, 2017, which prohibits municipalities from levying local taxes on food or beverages.

New California Office of Tax Appeals Discusses Emergency Regulations

The New California Office of Tax Appeals (OTA) on November 6, 2017, held an interested parties meeting in Sacramento to discuss the contents of a draft of emergency regulations to guide both income tax appeals from the California Franchise Tax Board and sales and use tax appeals from the California Department of Tax and Fee Appeals (CDTFA). The meeting was chaired by Kristen Kane, the newly appointed Chief Counsel and Acting Director of the OTA, and by Zack Morazzini, the Director and Chief Administrative Law Judge (ALJ) in the Office of Administrative Hearings.  Ms. Kane and Mr. Morazzini provided helpful insight on how the new OTA will operate, including the following:

  • The OTA is in the process of hiring 18 new ALJs.
  • Hearings will be held in Sacramento, Los Angeles and Fresno.
  • Hearings are expected to commence in late January, after a crash training program for the new ALJs.
  • Both Ms. Kane and Mr. Morazzini stressed the intention that the hearings be as informal and conversational as possible, bearing in mind that many, if not most, taxpayers will either appear pro per or be represented by non-attorneys.
  • Taxpayers will open the process by making a written submission, and the agencies will file a written brief in response. The procedures may be similar to the current practice before the State Board of Equalization, where the taxpayer submits a statement of facts and discussion of the law, and the facts as stated by the taxpayer are accepted unless the tax agency objects.
  • Where there is a disagreement on the facts, the burden will be on the taxpayer to come forward with supporting evidence.

In an informal discussion after the conclusion of the meeting, Mr. Morazzini said that the Office of Administrative Hearings is proud of their long and successful run at conducting fair hearings in many contexts with flexibility being a paramount concern. At least at the outset, there will be no written rules on the presentation of evidence. Mr. Morazzini said that the Administrative Procedures Act and, generally, the rules of evidence allow ALJs to fashion orders responsive to discovery requests by either or both of the taxpayer or the agency, as required under the circumstance. Either party will have the right to request a preliminary meeting with an ALJ, or the ALJ can order a preliminary meeting. The preliminary meeting is intended to be informal, and will give taxpayers the opportunity to request the production of documents, stipulations and admissions. Note that OTA anticipates that the preliminary meeting will be attended by only one ALJ, although A.B. 102, the authorizing legislation, calls for a panel of three ALJs.

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SALT Implications of the House and Senate Tax Reform Bill

Many provisions of the House and Senate tax reform proposals would affect state and local tax regimes. SALT practitioners should monitor the progress of this legislation and consider contacting their state tax administrators and legislative bodies to voice their opinions.

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Finishing SALT: Inside SALT’s Monthly Recap

Wrapping Up October – and Looking Forward to November

As we wrap up October, you can view all of the topics we discussed over the last month and take a look at the State and Local Tax events where our lawyers will be speaking in November.

SALT Activities in November:

November 1, 2017: Jane May presented “State Conformity with Federal Income Tax Laws — Especially in Light of Possible Sweeping Federal Income Tax Legislation?” at the 2017 Annual Meeting of the California Tax Bar and California Tax Policy Conference.

November 2, 2017: Peter Faber presented an Update on SALT Developments at the Philadelphia Tax Conference. Continue Reading

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