INSIDE SALT
INSIDE SALT
In-Depth Coverage of Issues Surrounding State and Local Tax
INSIDE SALT
In-Depth Coverage of Issues Surrounding State and Local Tax
Local Tax
Subscribe to Local Tax's Posts

House Judiciary Subcommittee to Consider Sensenbrenner Bill Tomorrow

by , and | Jul 24, 2017 | , , , , , , ,

The No Regulation Without Representation Act of 2017 (NRWRA) is scheduled for a hearing before the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law on Tuesday, July 25 at 10:00 am EDT in 2141 Rayburn House Office Building. The bill was introduced by Congressman Jim Sensenbrenner (R-WI) last month with House Judiciary Chairman Bob Goodlatte (R-VA) as one of seven original co-sponsors. As described in more detail below, the bill would codify the Bellas Hess “physical presence” requirement upheld by the US Supreme Court in Quill and make that requirement applicable to sales, use and other similar transactional taxes, notice and reporting requirements, net income taxes and other business activity taxes. Extending the concept to an area far beyond state taxation, the bill would also require the same physical presence for a state or locality to regulate the out-of-state production, manufacturing or post-sale disposal of any good or service sold to locations within its jurisdictional borders.

In the last Congress, the Business Activity Tax Simplification Act of 2015 (BATSA) would have codified a physical presence requirement in the context of business activity taxes (e.g., net income and gross receipts taxes). However, the scope of NRWRA’s limitations on interstate regulation and tax differs from the standard set forth in BATSA. Specifically, under BATSA, assigning an employee to a state constitutes physical presence, whereas under NRWRA a company does not have physical presence until it employs more than two employees in the state (or a single employee if he or she is in the state and provides design, installation or repair services or “substantially assists” in establishing or maintaining a market). Under NRWRA, activities related to the potential or actual purchase of goods or services in the state or locality are not a physical presence if the final decision to purchase is made outside of the jurisdiction. (more…)



read more

Beverage Tax Wars Continue as Parties Head Back to Court for a Preliminary Injunction Hearing on the Cook County, Illinois Tax

by | Jul 12, 2017 | , , , ,

A legal challenge to Cook County Illinois Sweetened Beverage Tax (Tax) heads back to circuit court today for a hearing on the plaintiffs’ motion for preliminary injunction. On June 30, Circuit Judge Daniel Kubasiak issued a temporary restraining order (TRO), halting Cook County, Illinois’ imposition of the Tax, which was to take effect on July 1. Judge Kubasiak found that the “Plaintiffs have persuaded the Court that a fair question exists as to the constitutionality” of the Tax.

Earlier this week, the plaintiff group, which includes the Illinois Retail Merchants Association and a group of retail food markets, successfully opposed the county’s emergency appeal of the TRO. In a ruling issued on Monday, July 10, the Illinois appellate court declined to set aside the TRO. While the fight is far from over, the Illinois rulings are a positive development for retailers, who have not succeeded to date in their efforts to defeat the Philadelphia sweetened beverage tax. See Opinion, Williams v. City of Phila., Nos. 2077 C.D. 2016, 2078 C.D. 2016 (Pa. Commw. Ct. June 14, 2017).

(more…)



read more

Tax Highlights of Proposed Illinois “Grand Bargain”

by | Mar 14, 2017 | , , , ,

In an effort to resolve Illinois’ 20-month budget impasse, the Illinois Senate leadership (Senate Majority Leader John Cullerton and Senate Minority Leader Christine Rodogno) have jointly proposed a series of bills to increase revenue, reduce spending, and respond to the Illinois Governor’s concerns regarding pension reforms, workers compensation reform and property tax relief.  A series of twelve bills have been introduced, all of which are interlinked for passage.  The bills are termed the Illinois “Grand Bargain.”  Most of the tax-related changes are found in Senate Bill 9.  The current version of the Senate Bill 9 (Amendment 3) (“Bill”) was submitted on March 3 and includes the following proposed changes: (more…)



read more

Illinois Supreme Court Holds City of Chicago Went Too Far in Taxing Cars Rented Outside Its Borders

by | Jan 25, 2017 | , ,

The Illinois Supreme Court, in Hertz Corp v. City of Chicago, 2017 IL 119945 (Jan. 20, 2017) , held that the City of Chicago’s ruling requiring rental car companies located within three miles of the City to collect tax on vehicle rentals is unconstitutional under the home rule article of the Illinois Constitution. Hopefully, the court’s ruling will stymie the City’s expansive interpretation of its taxing powers.

The tax at issue is the City’s Personal Property Lease Transaction Tax (Lease Tax), which is imposed upon “(1) the lease or rental in the city of personal property or (2) the privilege of using in the city personal property that is leased or rented outside of the city.” Mun. Code of Chi. § 3-32-030(A). While the Lease Tax is imposed upon and must be paid by the lessee, the lessor is obligated to collect it at the time the lessee makes a lease payment and remit it to the City. Mun. Code of Chi. §§ 3-32-030(A), 3-32-070(A).

The subject of this litigation is the City’s application of the Tax in its Personal Property Lease Transaction Tax Second Amended Ruling No. 11 (eff. May 1, 2011) (Ruling 11). The plaintiffs argued that Ruling 11 extends the reach of the tax ordinance beyond Chicago’s borders in violation of the home rule provision of the Illinois Constitution and violates the federal due process and commerce clauses. The Ruling “concerns [short-term] vehicle rentals to Chicago residents, on or after July 1, 2011, from suburban locations within 3 miles of Chicago’s border … [excluding locations within O’Hare International Airport] by motor vehicle rental companies doing business in the City.” Ruling 11 § 1.  The Ruling explains that “‘doing business’ in the City includes, for example, having a location in the City or regularly renting vehicles that are used in the City, such that the company is subject to audit by the [City of Chicago Department of Finance] under state and federal law.” Ruling 11 § 3. As for taxability of leased property, the Ruling cites the primary use exemption, exempting from Tax “[t]he use in the city of personal property leased or rented outside the city if the property is primarily used (more than 50 percent) outside the city” and stating the taxpayer or tax collector has the burden of proving where the use occurs.  Ruling 11 § 2(c) (quoting Mun. Code of Chi. § 3-32-050(A)(1)).

Ruling 11 contains a rebuttable presumption that motor vehicles rented to customers who are Chicago residents from the suburban locations of rental companies that are otherwise doing business in Chicago are subject to the Lease Tax. The Ruling applies to companies with suburban addresses located within three miles of the City. The presumption may be rebutted by any writing disputing the conclusion that the vehicle is used more than 50 percent of the time in the City. The opposite is assumed for non-Chicago residents. Ruling 11 § 3. The Ruling provides that such a writing can be as simple as a customer’s [...]

Continue Reading



read more

SALT Implications of Final Section 385 Debt-Equity Regulations

by | Oct 26, 2016 | , , ,

The recently released final regulations under Internal Revenue Code Section 385, addressing the circumstances under which related company debt will be classified as equity for federal income tax purposes, will have a significant impact on state and local taxes. Federal tax practitioners, as well as state and local tax practitioners, must address their implications.

Read the full article here.



read more

Digital Tax Update – Local Edition

by , and | Oct 20, 2016 | , , , , , , , ,

After the highly publicized administrative lease transaction and amusement tax expansions in Chicago last year, more cities around the country are taking steps to impose transaction taxes on the sale or rental of digital content. Unlike tax expansion efforts at the state level (such as the law recently passed in Pennsylvania), which have almost all been tackled legislatively, the local governments are addressing the issue without clear legislative authority by issuing administrative guidance and taking aggressive positions on audit. As the local tax threat facing digital providers turns from an isolated incident to a nationwide trend, we wanted to highlight some of the more significant local tax developments currently on our radar.

(more…)



read more

SALT Implications of Proposed Section 385 Debt/Equity Regulations

by | May 18, 2016 | , , , , ,

On April 4, 2016, without warning, the US Department of the Treasury proposed a new set of comprehensive regulations under section 385. There had been no advance indication that regulations were even under consideration. Although the Treasury indicated that the proposed regulations were issued in the context of addressing corporate inversions, their application went well beyond the inversion space and they apply to inter-corporate debt regardless of whether it occurs in an international context. The following is a discussion of the state and local tax consequences of the proposed regulations; for a detailed discussion of the proposed regulations themselves, see this previous article.

Read the full article.



read more

Michigan Department of Treasury’s New Acquiescence Policy: A Model for Other States

by | Apr 20, 2016 | , ,

On February 16, 2016, the Michigan Department of Treasury announced its new acquiescence policy with respect to certain court decisions affecting state tax policy. The Treasury’s acquiescence policy is similar to the Internal Revenue Service’s (IRS) policy of announcing whether it will follow the holdings in certain adverse, non-precedential cases.

In Michigan, while published decisions of the Michigan Court of Appeals and all decisions of the Michigan Supreme Court are binding on both the Treasury and taxpayers, unpublished decisions of the Court of Appeals and decisions of the Court of Claims and the Michigan Tax Tribunal are binding only on the parties to the case and only with respect to the years and issues in litigation. Nonetheless, the Treasury has determined that a particular decision, while not binding, may constitute “persuasive authority in similar cases.” The Treasury may therefore decide to follow a non-precedential decision that is adverse to the Treasury in other cases, a policy known as acquiescence. Beginning with its May 2016 quarterly newsletter, the Treasury will publish a list of final (i.e., unappealed), non-binding, adverse decisions, and announce its acquiescence or non-acquiescence with respect to each. The Treasury points out that an indication of acquiescence does not necessarily mean that the Treasury approves of the reasoning used by the court in its decision. (more…)



read more

Illinois Department of Revenue Further Revises its Proposed Amendments to Shipping and Handling Regulations

by | Feb 19, 2016 | , , ,

The Illinois Department of Revenue (Department) has further revised its recently proposed amendments to the regulations governing the taxability of shipping and handling charges. See our prior coverage here. The revisions to the Proposed Amendments to 86 Ill. Admin. Code §§ 130.415 and 130.410 (Revised Proposed Amendments) were made in response to particular comments and concerns raised by industry groups, as explained by the Department in its Second Notice of Proposed Rulemaking. The Revised Proposed Amendments address the following topics:

  • Retroactivity of the Revised Proposed Amendments to November 19, 2009, the date of the Kean decision: The Department added a “safe harbor provision” for taxpayers that have complied with the existing regulation for time periods prior to the effective date of the Revised Proposed Amendments. Prop. 86 Ill. Admin. Code § 130.415(b)(1)(A)(i).  Taxpayers fitting within the safe harbor will be considered to be in compliance with Illinois law regarding the taxability of delivery charges.
  • Clarification of taxpayers subject to the Revised Proposed Amendments: The Department clarified that all persons making taxable sales or collecting or self-assessing Illinois use tax are subject to the Revised Proposed Amendments. Prop. § 130.415(b)(1)(A)(ii).
  • Free shipping option: The Department has added language expressly stating that when a seller offers customers free standard shipping or “qualified” free shipping (i.e., free shipping for purchases totaling at least a certain amount), any other separately stated shipping service for which a seller charges customers (i.e., expedited shipping) are separately contracted for and thus nontaxable. Rev. Prop. § 130.415(b)(1)(B)(ii), (C). For delivery charges to qualify as nontaxable because a seller offers “qualified” free shipping, the customer’s purchase must actually be eligible for free shipping (i.e., must total at least a specified dollar threshold). Rev. Prop. § 130.415(b)(1)(D)(v).
  • Taxability of delivery charges where taxability or tax rate of underlying property differs: The Revised Proposed Amendments also provide that sellers can elect to itemize delivery charges on sales of taxable and tax exempt items and low and high rate items and pay the associated tax on shipping charges as determined by the underlying item. Rev. Prop. 130.415(b)(1)(F)(i). In the absence of separately identifying the delivery charges, the “lump sum” rules as set forth in the original version of the Proposed Amendments will apply. Rev. Prop. § 130.415(b)(1)(F)(i).
  • Taxability of delivery charges where taxability of charges themselves differ: The Department also added a similar rule based on taxability of the delivery charges themselves, in a circumstance, for example, where some charges are taxable and others are not. The Revised Proposed Amendments mirror the rule expressed above, stating that that a seller can separately state delivery charges for each item sold and pay the associated tax as determined per item. Rev. Prop. 130.415(b)(1)(E)(i). If the invoice contains a lump sum of total delivery charges, the sum will not be taxable if the selling price of items with nontaxable delivery charges is greater than the selling price of items with taxable delivery charges. [...]

    Continue Reading


read more

Massachusetts Department of Revenue Introduces Pilot Voluntary Disclosure Program

by and | Feb 8, 2016 | , , , , ,

The Massachusetts Department of Revenue (the Department) released a draft administrative procedure introducing a pilot Voluntary Disclosure Program (the Program) for the settlement of uncertain tax issues for business taxpayers on January 19. The Department introduced this Program in response to a suggestion made by Scott Susko, an author of this article, and another practitioner, both of whom serve as taxpayer professional representatives on the Department’s Advisory Council. We commend the Department for reacting to this suggestion in such a proactive manner.

The Program will provide “a process through which uncertain tax issues may be resolved on an expedited basis, generally within four months” (All quotations in this post are from the Department’s draft administrative procedure).

We think this Program will be particularly helpful to public companies in resolving issues related to their financial statement reserves.

The Program defines an “uncertain tax issue” as an issue “for which there is no clear statutory guidance or controlling case law, and which has not been addressed by the Department in a regulation, letter ruling, or other public written statement,” and “for which a taxpayer would be required to maintain a reserve in accordance with ASC 740: Accounting for Uncertainty in Income Taxes (formerly Fin 48).” The issue also “must not have been addressed as part of a prior audit of the taxpayer, a prior application for abatement or amended return filed by the taxpayer, or a prior ruling request made by the taxpayer.”

To qualify for the Program, “any potential tax liability attributable to the uncertain tax issue(s) must be $100,000 or more, exclusive of interest and penalties.” A taxpayer that is under audit or has received notice of an impending audit is not eligible for the Program. The Department has the “discretion to determine that the Program is not appropriate for specific cases.”

The Department “will consider settlement of an uncertain tax issue(s) where: (1) the taxpayer has presented its position on the issue(s) and the Department agrees that the tax treatment of the issue(s) is uncertain; and (2) the taxpayer has fully disclosed and documented the issue(s) and the facts associated with that issue(s).”

A taxpayer may initiate the process by submitting an anonymous letter to the Department, which will respond to the taxpayer within 30 days. If the Department accepts the taxpayer into the Program, the taxpayer may submit an application, including a settlement proposal and identifying the taxpayer, within 45 days of receiving the Department’s acceptance letter.

The Department will waive penalties related to the uncertain tax issue for a taxpayer that reaches an agreement with the Department pursuant to the Program, as well as for a taxpayer that does not reach an agreement with the Department “provided the taxpayer acted in good faith.”

The Department requested practitioner comments on the draft administrative procedure by February 1, and MWE submitted two technical comments.

Our first comment was that following the initial evaluation, the Department should issue to the taxpayer a one-page technical position explaining whether it does or [...]

Continue Reading



read more

BLOG EDITORS

Stephen P. Kranz

Mary Kay McCalla Martire

Richard C. Call

STAY CONNECTED

Subscribe

TOPICS

ARCHIVES

jd supra readers choice top firm 2023 badge