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Eric D. Carstens focuses his practice on state and local tax matters, assisting clients with state tax controversy, compliance and multistate planning across all states for a variety of tax types and unclaimed property. Eric engages in all forms of taxpayer advocacy, including litigation, legislative monitoring and audit defense. He works closely with several of the Firm's taxpayer coalitions focused on specific state tax policy issues such as the taxation of digital goods and services and unclaimed property. Read Eric D. Carstens' full bio.

Minnesota has several bills pending that would address the Minnesota state tax implications of various provisions of the federal tax reform legislation (commonly referred to as the Tax Cuts and Jobs Act).

HF 2942

HF 2942 was introduced in the House on February 22, 2018. This bill would provide conformity to the Internal Revenue Code (IRC) as of December 31, 2017, including for corporate taxpayers. The bill makes clear that, with respect to the computation of Minnesota net income, the conformity to the Internal Revenue Code as amended through December 31, 2017, would be effective retroactively such that the federal provisions providing for the deemed repatriation of foreign earnings could have implications in Minnesota. Continue Reading Overview of Minnesota’s Response to Federal Tax Reform

This morning, Indiana Governor Eric Holcomb signed a bill into law that will exempt cloud-based software transactions from State Gross Retail and Use Taxes, effective July 1, 2018. The signing took place at the headquarters of Indiana-based cloud service provider DemandJump, Inc.

Specifically, Senate Enrolled Act No. 257 (which was unanimously passed by both chambers of the General Assembly) will add a new section to the Indiana Code chapter on retail transactions that specifically provides that “[a] transaction in which an end user purchases, rents, leases, or licenses the right to remotely access prewritten computer software over the Internet, over private or public networks, or through wireless media: (1) is not considered to be a transaction in which prewritten computer software is delivered electronically; and (2) does not constitute a retail transaction.” The new law will also clarify that the sale, rental, lease or license of prewritten computer software “delivered electronically” (i.e., downloaded software) is subject to the Gross Retail and Use Taxes. Continue Reading BREAKING: Indiana Enacts Cloud Software Tax Exemption

On January 10, 2018, a bill was introduced in the Washington State Legislature that would substantially enact the Revised Uniform Unclaimed Property Act (RUUPA) finalized by the Uniform Law Commission (ULC) in late 2016. The bill, House Bill (HB) 2486, is sponsored by Representative Paul Graves at the request of the ULC and would be effective beginning January 1, 2019. The House Committee on Finance conducted a public hearing on the bill on January 16, 2018, but only the sponsor testified and the bill was held for further consideration. While similar (or identical) to RUUPA in most respects, the bill contains a number of significant deviations. Below is a brief summary of several provisions that we flagged in our initial review and the potential impact on Washington holders. Continue Reading Washington Legislature Introduces Revised Uniform Unclaimed Property Act

On December 19, 2017, DC Councilmember Mary Cheh introduced the District Tax Independence Act of 2017 (Act), which would require the Chief Financial Officer (CFO) to submit a report outlining the steps and amendments necessary to decouple the District’s tax deduction laws from federal law. As introduced, the Act would require this report by no later than April 30, 2018. The Act was referred to the Committee on Finance and Revenue the same day it was introduced and has not been taken up by the committee, which has been dormant since and is not currently scheduled to meet again until the Council returns in late January. The legislation is co-sponsored by Councilmembers Allen, Evans, McDuffie, Bonds, Gray, Nadeau, R. White, Grosso, Silverman, T. White, and Chairman Mendelson. Notably, all members of the Committee on Finance and Revenue—including Chairman Evans—are co-sponsors. Practice Note The introduction of the Act signals the Council’s overwhelming disapproval of the federal tax reform enacted by Congress and signed by President Trump on December 22, 2017. This is a process that is likely to take place across the country as states begin to assess the revenue impact of the federal tax reform legislation on their state corporate income and franchise tax regime. The District currently conforms to many federal deductions on a rolling basis for purposes of the Franchise Tax, which is imposed on both corporations and unincorporated entities. See generally DC Code Ann. § 47-1803.03. As part of the decoupling process, the CFO and Council will need to determine which deductions to alter to avoid a significant revenue loss and what the DC treatment should be. Furthermore, the CFO and Council should consider which deductions are necessary to retain due to related increases to the federal tax base, which DC utilizes as the starting point for Franchise Tax purposes. The effective dates and relation to 2017 return deadlines will be critical to monitor as this process moves forward, as several portions of the federal tax reform are effective for the 2017 tax year—meaning the corresponding District changes (if any) will need to be retroactive since returns (absent extensions) are due before the CFO’s report to the Council is. DC taxpayers with specific questions on how this process may impact their Franchise Tax liability in 2017 and going forward are encouraged to contact the authors.

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 Litigation Alert | Third Circuit Reaffirms Scope of Federal Priority Rules

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 Get Ready for the Countdown: Final Delaware Unclaimed Property Regulations Published

On October 2, 2017, the State of South Dakota (State) filed its petition for a writ of certiorari with the United States Supreme Court (Court). A copy of the cert petition is available here and the case, South Dakota v. Wayfair, Inc. et al., is expected to be docketed on October 3, 2017. The State is asking the Court to overturn its physical presence standard used to determine whether an entity has substantial nexus under the dormant Commerce Clause. This comes only a few weeks after the South Dakota Supreme Court ruled against the State in favor of the online retailer defendants, citing the Court’s physical presence standard upheld in Quill on stare decisis grounds.

Practice Note

This development comes as no surprise to the state and local tax community, and begins what is likely to be one of the most closely watched cert petitions in years. Going forward, the online retailers have three options: (1) acquiesce that the Court should grant cert; (2) waive their right to file a response to the cert petition; or (3) file a brief in opposition. If the online retailers choose the third option, they will have 30 days from today (if the case is in fact docketed today) to file their brief in opposition. This deadline is subject to extensions, upon request (the first of which is always granted as a matter of right). We expect a number of groups to file amicus curiae briefs regarding this cert petition given the significance of the issue raised. If the online retailers do file a brief in opposition, the State will be given an opportunity to file a reply brief, rebutting the points made by the online retailers and reiterating the arguments made in the State’s cert petition. Unlike the cert petition and the brief in opposition, which must be filed with the Court under strict deadlines, the exact timing of the reply brief varies. As a general rule of thumb, a reply brief is usually filed approximately 10 days after filing of the brief in opposition.

While this dispute is a long way from being heard by the Court on the merits (if at all), the cert petition is a critical first step that will have implications to Congress, the courts, state legislatures, taxpayers, and revenue departments across the country. Stay tuned for more coverage of this cert petition and the developments that follow.

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.

Practice Note

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.

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.

Yesterday, the application period opened for the limited-time MTC Marketplace Seller Voluntary Disclosure Initiative opened and it will close October 17, 2017. Since our last blog post on the topic detailing the initiatives terms, benefits and application procedure, six additional states (listed below) have signed on to participate in varying capacities. The lookback period being offered by each of the six states that joined this week is described below.

  1. District of Columbia: will consider granting shorter or no lookback period for applications received under this initiative on a case by case basis. DC’s standard lookback period is 3 years for sales/use and income/franchise tax.
  2. Massachusetts: requires compliance with its standard 3-year lookback period. This lookback period in a particular case may be less than 3 years, depending on when vendor nexus was created.
  3. Minnesota: will abide by customary lookback periods of 3 years for sales/use tax and 4 years (3 look-back years and 1 current year) for income/franchise tax. Minnesota will grant shorter lookback periods to the time when the marketplace seller created nexus.
  4. Missouri: prospective-only for sales/use and income/franchise tax.
  5. North Carolina: prospective-only for sales/use and income/franchise tax. North Carolina will consider applications even if the entity had prior contact concerning tax liability or potential tax liability.
  6. Tennessee: prospective-only for sales/use tax, business tax and franchise and excise tax.

Practice Note

The MTC marketplace seller initiative is now up to 24 participating states. It is targeting online marketplace sellers that use a marketplace provider (such as the Amazon FBA program or similar platform or program providing fulfillment services) to facilitate retail sales into the state. In order to qualify, marketplace sellers must not have any nexus-creating contacts in the state, other than: (1) inventory stored in a third-party warehouse or fulfillment center located in the state or (2) other nexus-creating activities performed by the marketplace provider on behalf of the online marketplace seller.

While Missouri, North Carolina and Tennessee have signed on to the attractive baseline terms (no lookback for sales/use and income/franchise tax), Minnesota and Massachusetts are requiring their standard lookback periods (i.e., 3+ years). Thus, these two states (similar to Wisconsin) are not likely to attract many marketplace sellers. The District of Columbia’s noncommittal case-by-case offer leaves a lot to be determined, and their ultimate offer at the end of the process could range from no lookback to the standard three years.