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Unclaimed Property Hunger Games: States Seek Supreme Court Review in ‘Official Check’ Dispute

Background

As detailed in our blog last month, MoneyGram Payment Systems, Inc. (MoneyGram) is stuck in between a rock and a hard place as states continue to duel with Delaware over the proper classification of (and priority rules applicable to) MoneyGram’s escheat liability for uncashed “official checks.”  The dispute hinges on whether the official checks are properly classified as third-party bank checks (as Delaware directed MoneyGram to remit them as) or are more similar to “money orders” (as alleged by Pennsylvania, Wisconsin and numerous other states participating in a recent audit of the official checks by third-party auditor TSG). If classified as third-party bank checks, the official checks would be subject to the federal common law priority rules set forth in Texas v. New Jersey, 379 U.S. 674 (1965) and escheat to MoneyGram’s state of incorporation (Delaware) since the company’s books and records do not indicate the apparent owner’s last known address under the first priority rule. However, if the official checks are classified as more akin to money orders under the federal Disposition of Abandoned Money Orders and Traveler’s Checks Act of 1974 (Act), as determined by TSG and demanded by Pennsylvania, Wisconsin and the other states, they would be subject to the special statutory priority rules enacted by Congress in response the Supreme Court of the United States’ Pennsylvania v. New York decision and escheat to the state where they were purchased. See 12 U.S.C. § 2503(1) (providing that where any sum is payable on a money order on which a business association is directly liable, the state in which the money order was purchased shall be entitled exclusively to escheat or take custody of the sum payable on such instrument).

In addition to the suit filed by the Pennsylvania Treasury Department seeking more than $10 million from Delaware covered in our prior blog, the Wisconsin Department of Revenue recently filed a similar complaint in federal district court in Wisconsin, alleging Delaware owes the state in excess of $13 million. Other states participating in the TSG audit (such as Arkansas, Colorado and Texas) also recently made demands to MoneyGram and Delaware.

It is interesting to note that in 2015, Minnesota (MoneyGram’s former state of incorporation) turned over in excess of $200,000 to Pennsylvania upon its demand for amounts previously remitted to Minnesota for MoneyGram official checks. Apparently not only do the states in which the transaction occurred disagree with but even a former state of incorporation took the majority path.   (more…)




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Tax Amnesty Hits the Midwest (and Beyond)

With many state legislatures wrapping up session within the past month or so, there has been a flurry of last-minute tax amnesty legislation passed. Nearly a half-dozen states have authorized upcoming tax amnesty periods. These tax amnesties include a waiver of interest and, in some circumstances, allow taxpayers currently under audit or with an appeal pending to participate. This blog entry highlights the various enactments that have occurred since the authors last covered the upcoming Maryland amnesty program.

Missouri

On April 27, 2015, Governor Jay Nixon signed a bill (HB 384) that creates the first Missouri tax amnesty since 2002. The bill creates a 90-day tax amnesty period scheduled to run from September 1, 2015, to November 30, 2015. The amnesty is limited in scope and applies only to income, sales and use, and corporation franchise taxes. The amnesty allows taxpayers with liabilities accrued before December 31, 2014, to pay in full between September 1, 2015, and November 30, 2015, and be relieved of all penalties and interest associated with the delinquent obligation. Before electing to participate in the amnesty program, taxpayers should be aware that participation will disqualify them from participating in any future Missouri amnesty for the same type of tax. In addition, if a taxpayer fails to comply with Missouri tax law at any time during the eight years following the agreement, the penalties and interest waived under the amnesty will be revoked and become due immediately. Finally, taxpayers who are the subject of civil or criminal state-tax-related investigations, or are currently involved in litigation over the obligation, are not eligible for the amnesty.

According to the fiscal note provided in conjunction with the bill, the state estimates that 340,000 taxpayers will be eligible for the amnesty and that the program will raise $25 million.

Oklahoma

On May 20, 2015, Governor Mary Fallin signed a bill (HB 2236) creating a two-month amnesty period from September 14, 2015, to November 13, 2015. The bill allows taxpayers that pay delinquent taxes (i.e., taxes due for any tax period ending before January 1, 2015) during the amnesty period to receive a waiver of any associated interest, penalties, fines or collection costs.

Taxes eligible for the amnesty include individual and corporate income taxes, withholding taxes, sales and use taxes, gasoline and diesel taxes, gross production and petroleum excise taxes, banking privilege taxes and mixed beverage taxes. Notably, franchise taxes are not included in this year’s amnesty (they were included in the 2008 Oklahoma amnesty).

Indiana

In May, Governor Mike Pence signed a biennial budget bill (HB 1001) that included a provision authorizing the Department of Revenue (Department) to implement an eight-week tax amnesty program before 2017. While the Department must promulgate emergency regulations that will specify exact dates and procedures, several sources have indicated that the amnesty is expected to occur sometime this fall. The upcoming amnesty will mark the second-ever amnesty offered by Indiana (the first occurred in 2005). Taxpayers that participated in the 2005 program [...]

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Oklahoma Supreme Court KOs the Constitution

On April 22, the Supreme Court of Oklahoma released its opinion in CDR Systems Corp. v. Oklahoma Tax Commission.  Case No. 109,886; 2014 OK 31.  The Oklahoma Supreme Court, overturning the decision of the Court of Civil Appeals, held that an Oklahoma statute, which grants a deduction for income from gains that result from the sale of all or substantially all of the assets of an “Oklahoma company,” is constitutional under the Commerce Clause.  “Oklahoma company” is defined as an entity that has had its primary headquarters in Oklahoma for at least three uninterrupted years prior to the date of the taxable transaction.

In a 5-4 decision, the Oklahoma Supreme Court determined that there was no discrimination against out-of-state commerce.  Even if there was discrimination, the Oklahoma Supreme Court held that the statute does not facially discriminate against interstate commerce, does not have a discriminatory purpose and has no discriminatory effect on interstate commerce.  The Oklahoma Supreme Court’s reasoning was based in part on the conclusion that the statute treated all taxpayers the same.

In his dissent, Justice Combs reached the opposite conclusion and wrote that the deduction is unconstitutional because the primary headquarters requirement is based upon the level of business a company conducts in Oklahoma, and therefore it discriminates against out-of-state taxpayers.  The dissent concluded that the statute effectively creates a tax on taxpayers with an out-of-state headquarters.

Although the majority ably walked through the existing case precedent on these issues, it misunderstood the practical effect of the statute.  First, the majority concluded that the statute did not discriminate against any particular market because all markets are treated the same.  This conclusion ignores the fact that under the statute, in-state markets are treated differently than out-of-state markets.  The majority stated that “[w]ithout any actual or prospective competition in a single market, there is no negative impact on interstate commerce that results from the application of this deduction and no discrimination against interstate commerce . . . .”  (Majority Opinion, p. 14).  However, there is competition between in-state companies and out-of-state companies, not just in a single market but in all markets.

In reaching this conclusion, the majority relied upon Gen. Motors Corp. v. Tracy, 519 U.S. 278 (1997), which upheld the constitutionality of a tax that discriminated across markets (in other words, the statute benefited an in-state entity not because the entity was in-state but because it was in a different market and sold different products than an out-of-state entity).  The dissent specifically took exception to the majority’s reliance on Gen. Motors, for good reason.  The Tracy case does not appear to be applicable here, because the in-state and out-of-state entities are competing in the same markets under the Oklahoma statute.

Second, the majority concluded that the statute did not facially discriminate against interstate commerce because “[t]he degree to which the entity generating the gains participated in out-of-state activity, i.e. interstate commerce, is not relevant to whether the entity qualifies for the deduction”  (Majority Opinion, p. 17).  The [...]

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