State Tax Litigation State Tax Litigation Landscape Landscape - - PowerPoint PPT Presentation

State Tax Litigation State Tax Litigation Landscape Landscape Landscape Landscape

Helen Hecht, Tax Counsel Helen Hecht, Tax Counsel Federation of Tax Administrators Federation of Tax Administrators

Where is the forest? Where is the forest?

Big picture. Big picture.

Worst period on record for state revenues. Worst period on record for state revenues. Revenues not expected to recover to 2008 levels until 2013. States were not prepared. Majority states had to revise revenue estimates in 2009 and 2010 – downward – more than once. Reluctance to increase taxes during difficult economic times.

What can we see? What can we see?

Big policy trends-- Increases in personal income tax rates – especially at the high income levels – usually temporary Increases in sales tax rates – with some, but not much expansion of the base. Talk – but not much action – on raising business and corporate income taxes. Mandatory combined Mandatory combined – Single sales-factor Tobacco tax increases

More details. More details.

Other approaches – Amnesties (both carrots and sticks) Targeted credits for jobs, renewable energy, economic investment, etc. Targeted credits for jobs, renewable energy, economic investment, etc. Talk – but not much action – on tax reform. S b i l b d i i d i Substantial budget contraction – cuts in programs and services. Talk of further tax increases.

Recent Litigation* Recent Litigation*

• Sales & Use Taxes

Sales & Use Taxes – – emerging transactions & nexus emerging transactions & nexus

• Property Tax

Property Tax – – charitable exemptions charitable exemptions

• Personal Income Tax

Personal Income Tax – – domicile (the tax haven problem) domicile (the tax haven problem)

• Business & corporate

Business & corporate income tax income tax – – stemming stemming the tide of tax planning the tide of tax planning

• Cigarette tax avoidance

Cigarette tax avoidance

• Online travel companies

Online travel companies – lodgers tax lodgers tax

• Retroactive taxes

Retroactive taxes

* With tax policy implications.

Lessons from other states Lessons from other states

Tax policy Tax policy

P i i l P i i l

• Principles:

Principles:

• Adequacy

Adequacy

• Low

Low-rates broad bases rates broad bases

• Low

Low-rates, broad bases rates, broad bases

• Fair and equitable toward similar taxpayers

Fair and equitable toward similar taxpayers

• Easy to administer and comply with

Easy to administer and comply with

Sales & use taxes Sales & use taxes

E ’ i i f h E ’ i i f h A d i i ( d h d i i ( d h

• Everyone’s waiting for the

Everyone’s waiting for the Amazon.com Amazon.com decision (and the decision (and the next appeal) next appeal) A

• Amazon.com

Amazon.com v

• v. Lay

. Lay

• Sales tax

Sales tax – – where there’s a line, there’s litigation. where there’s a line, there’s litigation.

• The fewer lines, the less litigation.

The fewer lines, the less litigation.

• Even courts have problems

Even courts have problems

Cases Cases

N N t l ti l (N J ) t l ti l (N J )

• Nexus

Nexus – telecommuting employee (New Jersey case) telecommuting employee (New Jersey case)

• Mixed transactions

Mixed transactions – – goods and services taxed differently goods and services taxed differently Examples: Examples: – Examples: Examples:

• Noble Energy Inc.

Noble Energy Inc. v

• v. Dep't of Revenue,

. Dep't of Revenue, Colorado Court of Colorado Court of Appeals, 09CA0426, 4/15/2010. Appeals, 09CA0426, 4/15/2010. W Bl P C W Bl P C D f R D f R S C f S C f

• Western Blue Print Co.

Western Blue Print Co. v. Dir. of Revenue, . Dir. of Revenue, Supreme Court of Supreme Court of Missouri, No. SC 90172, 4/20/2010. Missouri, No. SC 90172, 4/20/2010.

• Midwest Bus Corporation

Midwest Bus Corporation v

• v. Dep’t of Treasury

. Dep’t of Treasury, Michigan Court , Michigan Court f A l 288686 3/16/2010 f A l 288686 3/16/2010

• f Appeals, No. 288686, 3/16/2010.
• f Appeals, No. 288686, 3/16/2010.
• Combs

Combs v

• v. Chevron USA, Inc., Court of Appeals of Texas,

. Chevron USA, Inc., Court of Appeals of Texas, Third Third District, Austin, No. 03 District, Austin, No. 03-

• 07

07-

• 00127

00127-

• CV

, 2/5/2010. CV , 2/5/2010.

• Indiana

Indiana – – online access software is a taxable good

• nline access software is a taxable good

Policy questions: Policy questions: q

C i ll h i l l ? C i ll h i l l ?

• Can states continue to collect the typical sales tax?

Can states continue to collect the typical sales tax?

• Quill

Quill – – USSC said USSC said – – sales and use taxes are burdensome sales and use taxes are burdensome

• What’s the solution

What’s the solution – Simplification Simplification

• What s the solution

What s the solution Simplification. Simplification.

• How many lines do you want to draw

How many lines do you want to draw – – considering considering that line drawing creates litigation issues? that line drawing creates litigation issues? that line drawing creates litigation issues? that line drawing creates litigation issues?

• Do you want a form driven tax or one that treats all

Do you want a form driven tax or one that treats all similar transactions and businesses equitably? similar transactions and businesses equitably? similar transactions and businesses equitably? similar transactions and businesses equitably?

Property tax Property tax

• Lots of smaller cases

Lots of smaller cases – because of the change in values because of the change in values Lots of smaller cases Lots of smaller cases because of the change in values because of the change in values resulting from the housing bubble. resulting from the housing bubble.

• Big cases are in

Big cases are in – Big cases are in Big cases are in

• Charitable exemption

Charitable exemption – – charitable use of property charitable use of property

• Definition of charity

Definition of charity

Cases Cases

• Examples of charitable use exemption denied:

Examples of charitable use exemption denied: p p p p

• In the Matter of Lake Forest Senior Living Community, Inc.

In the Matter of Lake Forest Senior Living Community, Inc. v

• v. Assessor

. Assessor

• f the City of Plattsburgh,
• f the City of Plattsburgh, N.Y

. Appellate Division, 4/15/2010. (See N.Y . Appellate Division, 4/15/2010. (See also PA case also PA case CHF CHF-Kutztown LLC. Kutztown LLC.) so c se so c se C C )

• International Schools Services, Inc.

International Schools Services, Inc. v

• v. West Windsor Township

. West Windsor Township, Superior , Superior Court of New Jersey, Appellate Division, Docket No. A Court of New Jersey, Appellate Division, Docket No. A-

• 4911

4911-

• 08T1, 4/20/2010.

08T1, 4/20/2010. 08T1, 4/20/2010. 08T1, 4/20/2010.

• Provena

Provena Covenant Medical Center Covenant Medical Center v

• v. Dep’t of Revenue,

. Dep’t of Revenue, Supreme Court Supreme Court

• f Illinois, Docket No. 107328, 3/18/2010.
• f Illinois, Docket No. 107328, 3/18/2010.
• Other:

Other:

• Louisiana case

Louisiana case – – Transcontinental Gas Pipeline Transcontinental Gas Pipeline – – discrimination discrimination

• Oklahoma case

Oklahoma case – Missouri Gas Energy Missouri Gas Energy – Commerce Clause (cert Commerce Clause (cert

• Oklahoma case

Oklahoma case Missouri Gas Energy Missouri Gas Energy Commerce Clause (cert Commerce Clause (cert denied) denied)

Policy questions: Policy questions: q

I h i b l d l f h I h i b l d l f h

• Is the tax going to be related to value of the property or

Is the tax going to be related to value of the property or not? (Residential property issue.) not? (Residential property issue.) h j ifi h i bl i h j ifi h i bl i i i b i i i b i

• What justifies a charitable use exemption

What justifies a charitable use exemption – is it being is it being applied equitably? applied equitably?

Personal income tax Personal income tax

• States increasing audits of “non

States increasing audits of “non-

• g

resident” filers resident” filers

• If the claimed state of residence is a

If the claimed state of residence is a non non tax state tax state non non-tax state tax state

• Federal legislation

Federal legislation

Milit Milit

• Military spouses

Military spouses

• Mobile workforce issue

Mobile workforce issue

L ki i ( L ki i (

• Looking at oversees income (tag

Looking at oversees income (tag-

• along to IRS efforts).

along to IRS efforts).