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BREAKING NEWS: More States Opt Not to Tax GILTI

This has been an eventful and exciting week for those interested in the states’ taxation of global intangible low-taxed income (GILTI). On Monday, taxpayers received the good news that New York Governor Cuomo signed S. 6615—a bill that excludes 95% of GILTI from the New York State corporate income tax base. By passing this bill, New York joins many other states—including neighboring states Massachusetts, Connecticut and Pennsylvania—that chose not to tax a material portion of GILTI. The New York law instructs taxpayers that have GILTI to include the 5% of GILTI that is taxed in the denominator of the apportionment formula (no portion of GILTI is included in the numerator of the apportionment formula). Perhaps not surprisingly, after the New York news broke, the Florida legislature presented its GILTI exclusion bill (HB 7127) to Governor DeSantis. HB 7127 passed the legislature back in May but had not been transmitted to the governor until yesterday. Those on...

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Court Strikes Down New York Opioid Surcharge on Manufacturers and Distributers

On December 19, 2018, the US District Court for the Southern District of New York ruled in favor of McDermott’s client, the Healthcare Distribution Alliance (HDA), the trade association for pharmaceutical distributors. In Healthcare Distribution Alliance v. Zucker, the court granted summary judgment and enjoined enforcement of the New York Opioid Stewardship Act, which imposed a $600 million surcharge on manufacturers and distributors of opioid pharmaceutical products. The first $100 million installment was due on January 1, 2019. McDermott prevailed on its argument that the Tax Injunction Act (TIA) did not bar federal jurisdiction over HDA’s challenge to the surcharge. While the surcharge raised $600 million in revenue, the court held that for the TIA’s purposes, it was a regulatory fee, not a tax, in part because its proceeds were dedicated to specific opioid-related funds and segregated from general state revenues, and in part because the New York...

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McDermott Defeats New York False Claims Act Case Alleging Starbucks Failed to Collect and Remit Sales Tax

On April 9, 2018, the New York State Supreme Court granted Starbucks’ motion to dismiss claims that it had failed to collect more than $10 million of sales tax at its New York stores. Lawyers from McDermott’s State and Local Tax (SALT) group and its White Collar and Securities Defense team handled the matter. A unique feature of New York law is that the attorney general and private qui tam plaintiffs are permitted to bring New York False Claims Act (NYFCA) actions under New York Financial Law for “claims, records, or statements made under the tax law.” Fin. L. 198(4)(a)(i)-(iii). Under federal law and the law of most states, there is no False Claims Act liability for tax issues. But in New York, the attorney general and private plaintiffs can pursue False Claims Act cases for failure to comply with tax law. There have been numerous large settlements and judgments issued against major companies under the NYFCA, including one settlement for $40 million. See...

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More States Respond to Federal Tax Reform

It’s been nearly three months since the federal tax reform bill (commonly referred to as the Tax Cuts and Jobs Act, or “TCJA”) was enacted and states continue to respond to the various provisions of the TCJA. Recently, there have been notable legislative efforts in New York, Idaho, Iowa and Minnesota. New York Starting with the release of the Governor’s Budget Bill in January 2018, the 30-day amendments to that Bill on February 15, and the amendments to the Assembly Bill and Senate Bill this month, there has been much action this legislative session concerning the potential response to federal tax reform. The proposed response in the two latest bills—the Assembly Bill (AB 9509) and the Senate Bill (SB 7509)—is discussed below. Repatriated Earnings: Both the Assembly and the Senate Bills contain the changes originally suggested in the 30-day amendments to the Governor’s Budget Bill with respect to the deemed repatriated earnings under IRC § 965. This language...

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Finishing SALT: March State Focus & February Wrap-Up

A Grain of SALT: March State Focus – New York On January 19, a New York qui tam complaint was unsealed.  This was unremarkable in and of itself, as there are many qui tam complaints progressing through the courts.  However, what was remarkable was the nature of the suit.  The suit, State of New York ex. rel. Doreen Light v. Myron Melamed, et al., involves a relator alleging that a decedent and his family structured the decedent’s estate to avoid New York personal income and estate taxes.  This is apparently the first estate tax qui tam suit that has been unsealed.  The attorney general declined to intervene in the case.  As per usual, the attorney general declined to comment as to why it did not intervene. Although an unsealed case where the attorney general declined to intervene is not otherwise remarkable, the case is notable.  It shows that potential relators and their attorneys are looking to expand the tax provisions of the False Claims Act as much as...

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Governor Cuomo’s Amended Budget Bill Would Address the Deemed Repatriation Dividend Provisions

New York is the latest state to address certain state tax implications of the 2017 federal tax reform bill, the Tax Cuts and Jobs Act. Governor Andrew Cuomo’s 30-day amendments to the Governor’s Budget Bill were released on February 15 and one piece of the amended Bill explicitly addresses the foreign-earnings, deemed federal repatriation provisions in the new section 965 of the Internal Revenue Code (IRC). Even before the release of the 30-day amendments, we expected the amount of foreign earnings deemed repatriated and brought into the federal income tax base under IRC § 965 would be considered “other exempt income” under the New York Tax Law and, thus, not subject to tax in New York as long as received from a unitary subsidiary. However, the Governor’s 30-day amendments make it clear that any amount included in the federal tax base under the repatriation transition provisions would be excludable from income, even if such amounts were received from a...

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Not One but TWO Tax Events Coming Up this Week!

Inside SALT: Significant State Tax Developments and Opportunities June 8, 2017 – New York, NY Lawyers in McDermott Will & Emery’s State and Local Tax Group present an informative half-day program. A wide range of topics will be discussed, including: New York developments, including false claims and budget provisions Nexus updates and developments in digital taxation New developments in apportionment, transfer pricing developments and unclaimed property You can still register! Click here to view more details and register for the event. Tax in the City®: A Women's Tax Roundtable June 8, 2017 – Chicago, IL McDermott Will & Emery’s Tax in the City® is a discussion and networking group for women in tax that facilitates in-person connections and roundtable study group events around the country. At this year’s second edition of Tax in the City®, we will host a CLE/CPE discussion focusing on current developments in professional responsibility and ethics,...

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New York State FY 2018 Budget Bill: Sales Tax Highlights

On January 16, Governor Cuomo introduced the 2018 New York State Executive Budget Legislation. The bill proposes a number of changes to the New York State sales tax law. Below is a summary of the highlights. Sales and Use Tax “Marketplace Providers” The governor’s bill proposes to impose sales tax registration and collection requirements, traditionally imposed on vendors, on “marketplace providers.” This provision is essentially an effort to obtain sales tax on sales to New York customers that make purchases over the internet from companies that have no physical presence in New York and do not collect sales tax in New York when those companies make sales through online marketplaces. In the governor’s Memorandum of Support of this bill, he affirmatively states that “the bill does not expand the rules concerning sales tax nexus”. Although, as noted below, this claim may not be true. The bill effectively shifts the sales tax collection burden from the...

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SALT Implications of Proposed Section 385 Debt/Equity Regulations

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.

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