Ohio Tax Major National Issues in Business Taxation Conference - - PDF document

27th Annual

Tuesday & Wednesday, January 23‐24, 2018

Hya Regency Columbus, Columbus, Ohio

Ohio Tax

Major National Issues in Business Taxation

Conference EMCEE: Eleanor J. Palmer, Associate Vice President & Associate General Counsel, Nationwide Insurance Co., Columbus

• G. Brint Ryan, Chairman & CEO,

Ryan LLC, Dallas Douglas L. Lindholm, President & Executive Director, Council on State Taxation, Washington, DC Ian Boccaccio, Principal & Income Tax Practice Leader, Ryan LLC, Dallas

Tuesday, January 23, 2018 8:40 a.m. to 9:45 a.m.

Biographical Information

Eleanor Palmer, Associate Vice President, Associate General Counsel, Corporate Tax Office of General Counsel, Nationwide Insurance One Nationwide Plaza, Mailstop 1-32-102, Columbus, Ohio 43215 Phone: 614-677-6330 palmere5@nationwide.com Eleanor Palmer is a tax attorney in the Office of General Counsel at Nationwide Insurance. She is responsible for identifying and managing Nationwide’s tax exposure and providing counsel on tax matters related to business initiatives. Eleanor has assisted with mergers and acquisitions, tax controversies, investment structuring, employee health & welfare and fringe benefits, agent and executive compensation and various projects presenting unintended tax consequences. In coordination with the Government Relations Team, Eleanor keeps abreast of federal, state and local tax legislation affecting the enterprise, its insurance agents and policyholders and advises the business units on the appropriate course of action. Prior to joining Nationwide, Eleanor was a Manager in Ernst & Young’s State and Local Tax Group. Eleanor is a graduate of The Ohio State University, where she received a Juris Doctor and a Master of Business Administration. She received a Bachelor of Science in Accounting from Oakwood University, and now serves on its National Alumni Association Board of Directors. Eleanor is admitted to the Ohio Bar and is most active with the Columbus Bar Association’s Business Tax Committee and the John Mercer Langston Bar Association. She has been a speaker on tax matters at the Ohio Tax Conference, the Columbus Bar Association, and the Association of Corporate Counsel. Eleanor is currently the chairperson of the Ohio Chamber of Commerce’s Taxation and Public Expenditures Committee.

• G. Brint Ryan, Founder, Chairman & CEO, Ryan LLC

13155 Noel Road, Suite 100, Dallas, Texas 75240 972-934-0022 brint.ryan@ryan.com

• G. Brint Ryan is Founder, Chairman and CEO of Ryan LLC, an award-winning global tax

services and software provider, and the largest firm in the world dedicated exclusively to business taxes. With global headquarters in Dallas, Texas, the Firm provides an integrated suite

• f federal, state, local, and international tax services on a multi-jurisdictional basis, including tax

recovery, consulting, advocacy, compliance, and technology services. Ryan’s multi-disciplinary team of more than 2,200 professionals and associates serves over 14,000 clients in more than 45 countries, including many of the world’s most prominent Global 5000 companies.

• Mr. Ryan was named the 2017 Distinguished Business Leader by the Texas Association of

Business and is designated among the Top 25 Most Powerful People in the State of Texas by Texas Monthly magazine. He was appointed to the Tax Policy Advisory Board by Texas Lieutenant Governor Dan Patrick in 2015 and currently serves as Chairman. Mr. Ryan won the Employees’ Choice Award recognizing the Highest Rated CEOs for 2017 by Glassdoor, one of the world’s largest and fastest-growing job sites. He ranked number 44 out of the 100 chief executives, making him the highest ranked CEO in Dallas-Fort Worth and the second highest rated CEO in the entire state of Texas.

Biographical Information

Douglas L. Lindholm, President & Executive Director, Council on State Taxation 122 C Street NW, Suite 330, Washington, D.C. 20001 dlindholm@statetax.org 202.484.5212 Fax 202.484.5229 Douglas L. Lindholm, Esq. is President and Executive Director of the Council On State Taxation (COST). COST, with a membership of nearly 600 multistate corporations, is dedicated to preserving and promoting equitable and nondiscriminatory state taxation of multi-jurisdictional

• entities. Prior to taking the helm at COST, Mr. Lindholm served as Counsel, State Tax Policy

for the General Electric Company in Washington, DC. Mr. Lindholm also served for three years as Legislative Director for COST, successfully directing COST’s legislative advocacy function, including development and management of member coalitions active on issues in numerous states. Prior to his service with COST, Mr. Lindholm worked in the Washington National Tax Services Office of Price Waterhouse LLP. He has written numerous articles on federal, state and local tax issues in a wide variety of publications; testifies frequently before state legislatures and Congress on state tax issues; and is a frequent speaker at national tax conferences and seminars.

• Mr. Lindholm serves on the NYU State and Local Taxation Advisory Board; the Advisory Board
• f the Paul J. Hartman State and Local Tax Forum; the Editorial Advisory Board of Tax

Management, Inc. He is a former member of the National Tax Association’s Board of Directors and the Advisory Board of the Georgetown University Law Center State and Local Tax Institute. He is a member of the US Supreme Court and District of Columbia Bars. In 2006, Mr. Lindholm was named to the Tax Business 50 list of most influential tax professionals on the globe, and is the recipient of the 2009 New York University Award for Outstanding Achievement in State and Local Taxation. He is a graduate of American University’s Washington College of Law in Washington, DC, and Lynchburg College (BA in Accounting) in Lynchburg, Virginia.

Biographical Information

Ian Boccaccio, Principal, Ryan LLC 13155 Noel Road, Suite 100, Dallas, Texas 75240 ian.boccaccio@ryan.com 469.399.4545 Ian Boccaccio is Principal and Income Tax Practice Leader at Ryan, Dallas office focused on increasing shareholder value through creative, quantitative tax solutions, including:  U.S. Tax Reform Planning and Optimization  Manufacturing incentives [Interest Charge – Domestic International Sales Corporation (IC-DISC) and Domestic Production Activities Deduction]  Cost reduction through technology and process-based tax controllership, including compliance, ASC 740 tax accounting and deferred tax analysis  Withholding tax risk and recovery services Foreign Tax Credit optimization  Foreign currency analysis Previously, he was a Partner for a global tax service firm in New York where he developed and implemented complex quantitative international tax services to the Fortune 500; supervised global international tax summit, drawing numerous tax directors from client and target firms for roundtable discussions about emerging international tax issues; and authored comprehensive international tax compliance training program.

• Mr. Boccaccio lectures on various tax topics for Ryan clients. Additionally, he has appeared as a

speaker for the following organizations: BNA – CITE; Financial Innovation Forum Moscow; New York State Society of Certified Public Accountants: Tax Executives Institute; and Tax Officers Summit He’s a member of the International Fiscal Association and Chicago Tax Club. Recent publications include:  October 26, 2017 - “What’s That Thumping? The Repatriation Boogeyman is Back!” published by Global Tax Weekly  March 24, 2016 - “Repatriation Readiness: Now is the Time” published by Global Tax Weekly  October 15, 2015 - “A Blind Spot for CFOs: How Global Companies Can Successfully Address Threats to Withholding Tax Compliance” published by Global Tax Weekly

27 27th

th Annual

Annual Ohio T Ohio Tax Conf x Conference erence

• G. Brint Ryan, Chairman and CEO, Ryan LLC

Ian E. Boccaccio, Global Income Tax Practice Leader, Ryan LLC Douglas L. Lindholm, President, Council On State Taxation (COST)

Major National Issues in Business Taxation

Ag Agenda

National Trends in State Taxation

• Federal Tax Reform Overview
• State Reactions to Federal Tax Reform
• National SALT Trends
• More Gross Receipts Tax Proposals: Really?
• Nexus, Nexus, Nexus – Still an Issue
• Transfer Pricing at the State Level
• Base Broadening for Sales & Use Taxes
• Unclaimed Property: Battle of Competing Acts

Federal T deral Tax R ax Reform rm Ov Over ervie view

Key Tax Law Changes in the Tax Cuts and Jobs Act

• Lower Tax Rates
• FTR includes a reduction in individual income tax rates as well as in corporate tax

rates (40 percent cut).

• Base Broadening
• Lower rates are significantly (although not wholly) offset by a wide range of base

broadeners extending to both individual and business taxation.

• International Tax Reform
• FTR shifts the U.S. from a worldwide residence-based tax system toward a

territorial tax system. It imposes a one-time transition tax on previously untaxed accumulated foreign earnings. Finally, it adds significant new base erosion measures.

Key Business Tax Provisions

• Corporate tax rate reduction from 35% to 21%.
• Eliminate corporate AMT
• 20 percent deduction for certain pass-through entity income
• Allow 100% expensing of investments for five years (up from 50% bonus

depreciation) with a phase down in later years.

• Increase Section 179 full expensing from $1 million to $2.5 million.
• Limit interest expense deductions that exceed 30% of adjusted taxable

income (ATI).

• Net operating losses limited to 80% of taxable income with an indefinite

carry forward (but no carryback).

Key Business Tax Provisions

• Amortization of research and experimental expenditures with R&D Credit

preserved.

• Repeal the domestic production deduction (Section 199)
• Eliminate many other corporate deductions and credits.
• Deduction for Entertainment Expenses Repealed
• New Market Tax Credits, Historic Tax Credit, and WOTC NOT repealed

Key International Tax Provisions

• Allow a 100% dividend-received deduction for dividends from foreign subsidiaries.
• Impose a transition tax on previously untaxed accumulated foreign earnings (15.5%

rate on cash and cash equivalents; and 8% rate on the rest).

• Base erosion measures:
• Impose a reduced rate tax on global intangible low-taxed income (GILTI) earned by controlled foreign

corporations.

• Allow a reduced rate tax for the foreign-derived intangible income (FDII) of a domestic company.
• Impose a base erosion anti-avoidance tax (BEAT).
• Disallow deductions for certain payments involving hybrid transactions and hybrid entities.
• Deny certain tax benefits to companies that invert within 10 years.
• Impose longer amortization periods for research and experimental expenditures attributable to research

conducted outside the U.S.

Other Key Tax Provisions

• Limit previously “untouchable” itemized deductions
• Limit the state and local deduction for income and property taxes to $10,000.
• Lower the home mortgage interest deduction cap from $1million to $750,000 of principal value on

new home purchases

• Lower the personal income tax rates and revise the personal income tax brackets.
• Increase the standard deduction and eliminate the personal exemptions (seven states

conform to both provisions).

• Expand the child tax credit.
• Raise the minimum estate tax exemption to $11.2 million.
• Impose additional taxes on certain tax-exempt institutions.

Stat State R e Reactions t actions to Fe Federal Ta Tax R Reform

State IRC Conformity Provisions

State Impact - Current Approaches to Conformity

• “Moving” or “rolling” conformity states
• These states adopt the current IRC for the tax year in question
• “Fixed-date” or “static” conformity states
• These states conform to the IRC as of a specific date
• “Conform to specific IRC Sections”
• These states pick specific IRC sections to follow
• “Federal Taxable Income” – No Reference to IRC
• State taxable income starts with federal taxable income
• Not affected
• Gross receipts tax states (Nevada, Ohio, Washington) do not follow IRC conformity

State Income Tax Conformity Provisions

AK HI ME VT NH MA NY CT PA WV NC SC GA FL IL OH IN MI WI KY TN AL MS AR LA TX OK MO KS IA MN ND SD NE NM AZ CO** UT WY MT WA OR ID NV CA VA MD

Key: January February March Not in session

As of January 3, 2018

RI NJ DE DC

2018 State Regular Legislative Sessions: Start Dates

Source: National Conference of State Legislatures

The Political Road Map: 2016 Post- Election State Legislative Control

Federal States

Corporate tax rate reductions States have own rates Special pass through entity deduction Impacts minority of states (seven) tied to federal “taxable income” for PIT purposes Limitation of net interest deductions State conformity/ application to state filing groups Fully expensed investments 2/3 of states opted out of bonus depreciation Broadened tax base including repeal of Sec. 199 domestic production deduction State Conformity (although many states already opted out of the domestic production deduction) Limit NOL deductions Most states have their own NOL provisions Amortization of research and experimental expenditures Likely state conformity

15

Potential State Impact of Business Tax Reform Provisions

State conforms to bonus depreciation (Alaska) No general corporate income tax State does not conform to bonus depreciation (Hawaii)

Source: Thomson Reuters

16

States Decoupled from Bonus Depreciation

Federal States

100 percent dividends-received deduction Most states have their own DRDs Transition tax on “deemed” repatriated earnings Minority of states tax some portion of Subpart F income and/or foreign dividends. Reduced rate tax on global intangible low-taxed income (GILTI) earned by CFC Likely state conformity Reduced tax on foreign-derived intangible income (FDII) of U.S. corporation Likely state conformity Base erosion anti-avoidance tax (BEAT) Separate tax not in federal taxable income

17

Potential State Impact of International Tax Reform Provisions

As of October 11, 2017

AK HI ME VT

NY

PA WV NC SC GA FL IL OH IN MI WI KY TN AL MS AR LA TX OK MO KS IA MN ND SD NE NM AZ CO UT WY MT WA OR ID NV CA VA

RI NJ DE D C

18

State Income Tax: State Law Modifications for Subpart F Income

COST Principles for State Conformity

• Manage Conformity to Achieve Revenue Neutrality
• Do Not Selectively Conform to Revenue-Increasing Provisions

Only

• Do Not Expand the State Tax Base by Linking to New

Categories of Foreign Source Income

• Prepare for Additional Complexities in SIT Compliance Caused

by Conformity/ Non-conformity with FTR

National SAL National SALT T Trends: ends:

More Gross Receipts Tax Proposals: Really?

2017 Gross Receipts Tax Proposals

• Oregon
• 2016 ballot initiative (Measure 97) defeated
• 2017 Legislative proposals (SJR 41; HB 2230; amendments to HB 2830) all died
• 2018 ballot initiative (IP 27; aka “son of 97”) withdrawn
• Louisiana – Gov. considered a 1% to 3% Ohio-style “CAT” GRT
• West Virginia – Ohio-style “CAT” GRT discussed
• Oklahoma – Ohio-style “CAT” GRT studied
• Wyoming – members of the Joint Revenue Committees considered gross receipts

proposals with rates of about 0.5%

• One proposal would have imposed the GRT on foreign corporations only – concluded likely

unconstitutional

• Missouri – Testimony before the Governor’s Tax Reform Commission

2017 Gross Receipts Tax Proposals

2016/2017 proposals States with gross receipts taxes

National SAL National SALT T Trends: ends:

Nexus, Nexus, Nexus – Still an Issue

Nexus is Still an Issue

Economic Presence Nexus - Colorado

Target Brands, Inc. v. Dept. of Revenue, District Court, 2nd Judicial District (Colorado), Dkt. 2015CV33831, (January 27, 2017) Nexus

▪ The court determined that Colorado had the authority to tax the income of TBI, Target’s wholly owned

subsidiary and IP holding company, because TBI was “doing business” in the state and because Colorado’s assertion of authority over TBI did not violate the Commerce Clause of the United States Constitution.

▪ The court concluded that TBI was doing business in the state by choosing to license its IP for use by

Target in Colorado; relying on Target to present TBI’s IP in the best possible light in the state; and receiving hundreds of millions of dollars in income related to the use of its IP in Colorado. Apportionment

▪ The Court held that the Colorado Department of Revenue satisfied the statutory and regulatory

standards to invoke Section 18 of UDITPA but concluded that the Department was unable to demonstrate that its alternative apportionment formula was reasonable and equitable under the circumstances since it gave no consideration to TBI’s efforts and activities that helped Target’s sales in Colorado (the Department’s formula instead relied on the sales factor of its parent, Target).

Physical Presence Nexus: Iowa

Myria Holdings Inc. & Subs. (Iowa, Mar. 24, 2017)

• A holding corporation’s sole connection with Iowa was its interest in two limited liability companies

(“LLCs”) that operated and owned a major natural gas transmission and storage system in the State.

• The LLCs elected to be taxed as corporations for federal tax purposes and filed a consolidated Iowa

return that included their holding corporation parent.

• Under Iowa law, a corporation that does not have nexus with Iowa cannot be included in a consolidated

return.

• The Iowa Supreme Court rejected the argument, finding that the holding corporation’s activities were

“routine features of a parent corporation’s ownership and control of its subsidiary entities.”

• The court further held that the holding company’s ownership of intangible property used in Iowa—i.e.,

its interests in the LLCs—were insufficient to create nexus for corporate income tax purposes.

National SAL National SALT T Trends ends

Transf ansfer Pricing at the Stat er Pricing at the State Le e Level

Transfer Pricing: MTC Efforts

• A committee of the Multistate Tax Commission has developed a transfer-pricing program

that would be available to the states.

• May, 2015, the MTC Executive Committee approved the program, originally called ALAS

(Arm-Length Adjustment Service); now called SITAS (State Intercompany Transactions Advisory Service).

• SITAS is designed to (1) provide training for state staff to identify distorting intercompany

transactions and (2) provide third-party support to combat transfer-pricing studies provided by taxpayers.

• The program was designed to launch with the support of 10 states, although only 5 states

(down from 6) have signed on.

• Recent cases have been cited as a “need” for the multistate program.

Transfer Pricing: Indiana

• Rent-A-Center East, Inc. v. Ind. Dep’t of Revenue, 42 N.E. 3d 1043 (Ind. Tax Ct. 2015)
• Rejected the DOR’s long-standing position that transfer pricing studies are not relevant to

whether a separate return fairly reflects Indiana source income because Indiana’s transfer pricing statute mirrors the language of § 482

• Held that RAC East did not have to file a combined return with its out-of-state affiliates RAC West

and RAC Texas because the record did not show that RAC East engaged in any tax avoidance measures and its intercompany transactions were at arm’s length rates as determined by an independent transfer pricing study

• Columbia Sportswear USA Corp., v. Ind. Dep’t of Revenue, 45 N.E.3d 888 (Ind. Tax Ct. 2015)
• Concluded that because Columbia’s transfer pricing studies demonstrated that its intercompany

transactions were conducted at arm’s length rates, its Indiana income was fairly reflected for purposes of Indiana’s transfer pricing statute

Transfer Pricing: Utah

See’s Candies, Inc. v. Utah State Tax Comm’n, No. 140401556 (Utah Dist. Ct.,

• Oct. 6, 2016)
• See’s Candies deducted IP royalty payments made to an insurance company also owned by

Berkshire Hathaway.

• The Tax Commission argued that it could adjust See’s income for the royalty payments based
• n the state’s 482-style adjustment statute without reference to federal rules on related-

company adjustments.

• The court held that the Commission abused its discretion in failing to consider federal 482

guidance and, therefore failing to look at See’s transfer-pricing study.

• The court approved the deduction, minus a 10% adjustment determined after an MTC audit.
• The Commission has appealed the decision to the Utah Court of Appeals.

National SAL National SALT T Trends ends

Base Broadening for Sales & Use Taxes

Base Broadening for Sales / Use Taxes

• Remote Seller Collection Authority
• SSUTA
• Marketplace Provider Laws
• Sales Factor / Transactional Nexus
• Notice & Reporting Requirements
• Taxation of Digital Goods and Services
• Watch States: AL & AZ
• Base Expansion to Services/B2B Transactions
• Daily Sales Tax Remittance
• Sugary Beverage Taxes

National SAL National SALT T Trends ends

Unclaimed Property: Battle of the Competing Uniform Acts

Unclaimed Property: Competing Model Acts

• Uniform Law Commission Process
• Adoption by full ULC – July 2016
• Withdrawn from vote and approval by ABA
• Roll out to states: DE, IL, TN, UT
• American Bar Association Process
• Working on draft model act prior to ULC process
• Ceased work during ULC process
• Resumed work after RUUPA withdrawn from ABA vote
• Currently on fifth draft (Nov. 18) of model act
• Final draft anticipated for 2018 legislative sessions

ULC vs. ABA:

Differences in ULC v. ABA: Examples

• B2B Exemption
• RUUPA: No statutory provision; comments indicate state has option
• ABA: Exempt
• Statute of limitations
• RUUPA: 5 years for non-fraudulent report, 10-year catch all
• ABA: 4 years for non-fraudulent report, 7-year catch all
• Beware of limitation of SOL to “items specifically identified on a report” – effectively no

SOL

• Contingent-fee auditors
• RUUPA: Specifically allowed
• ABA: Prohibited
• Gift certificates
• RUUPA: Option to exempt
• ABA: Exempt

Thank Y Thank You