Archive for the ‘SALT Update’ category

H.R. 327 Passes – Pennsylvania Creates New Tax Modernization Subcommittee

June 21, 2017

By: Jennifer Weidler Karpchuk

On June 19, the House unanimously voted to approve H.R. 327, thereby establishing a subcommittee on tax reform and modernization.  You can see our previous discussion of H.R. 327 here.

Since H.R. 327 was a House Resolution, it does not need to be approved by the Senate.  The subcommittee will have nine Finance Committee members who will be responsible for submitting their findings and recommendations by November 30, 2018.

Resolution Proposes Establishing Pennsylvania Subcommittee on Tax Modernization and Reform

June 13, 2017

By: Jennifer Weidler Karpchuk

During May 2017, H.R. 327 was introduced and reported as committed by the House on June 13, 2017.  H.R. 327 would establish a select subcommittee on tax modernization and reform to investigate, review, and make recommendations concerning the process, rates, and methods by which revenue in Pennsylvania is collected and assessed on taxpayers.

The purpose of the Resolution is to examine and review Pennsylvania’s system of taxation to ensure an equitable and efficient means by which taxes are assessed and collected and to facilitate a fair and competitive marketplace in an ever-changing global economy.

The subcommittee would investigate, review, and make findings and recommendations regarding: (1) the rates and means by which taxes are assessed and collected; (2) whether certain taxes are outdated or could be modernized to reflect the current economy; and (3) how to maintain competitiveness and reduce the overall burden on taxpayers without jeopardizing the stability of overall revenue. The subcommittee would also review other states’ best practices and methods for levying and collecting various taxes.  Finally, the subcommittee would develop recommendations which: (1) encourage equitable and fair tax policy; (2) provide certainty and uniformity for taxpayers; (3) facilitate cost-effective and economic tax collection practices; and (4) promote transparency and simplicity to aid taxpayer understanding of Pennsylvania’s tax policies.

The subcommittee would be responsible for submitting a report of its findings by November 30, 2018.

H.R. 327 is a step in the right direction. Whenever a state is willing to reconsider its own practices and to analyze what other states are doing well and use that knowledge to reevaluate its own system, there is great potential that both taxpayers and the taxing state can benefit.

You can follow the progress of the Resolution here.

Crutchfield Settles; Eyes Turn to South Dakota and Alabama for Challenge to Quill

April 26, 2017

By: Jennifer Weidler Karpchuk

As our previous post explains, the U.S. Supreme Court had extended the time to file petitions for certiorari in Crutchfield Corp. v. Joseph W. Testa, Tax Commissioner of Ohio (U.S. Supreme Court Docket No. 16A774), involving the Ohio Commercial Activity Tax (“CAT”).  However, prior to the deadline, the parties agreed to forego further litigation and entered into an undisclosed settlement agreement.  As such, the Ohio Supreme Court’s decision upholding the Ohio CAT stands. See Crutchfield Corp. v. Joseph W. Testa, Tax Commissioner of Ohio, 2016 WL 6775765 (2016).

Those hoping the U.S. Supreme Court would revisit Quill through Crutchfield may be disappointed by this settlement, but should look to South Dakota and Alabama as their respective test cases challenging Quill make their way through the courts. See South Dakota v. Wayfair, Inc., et al., S.D. Cir. Ct., 6th Jud. Dist., Dkt. No. 32CIV16-000092, 03/06/2017; Newegg Inc. Notice of Appeal, Alabama Tax Tribunal.

Don’t Delay – Pennsylvania’s 2017 Tax Amnesty Program Starts Today

April 21, 2017

By Jennifer Weidler Karpchuk

As of today, April 21, 2017, Pennsylvania’s 2017 Tax Amnesty Program has officially commenced.  Those individuals with potential Pennsylvania tax liabilities should consider taking advantage of the program, which is slated to run through June 19, 2017.  During those sixty (60) days, the Pennsylvania Department of Revenue will waive all penalties and half of the interest for anyone who participates.  For more information, see our previous blog post hereContact us to find out if amnesty is the right choice for you.

Update on Supreme Court Retroactivity Litigation

April 6, 2017

By Adam Koelsch

As previously reported on the SALT Blawg, Chamberlain Hrdlicka attorneys Stewart M. Weintraub and Adam M. Koelsch, together with Peter L. Faber of McDermott, of Will & Emery LLP, filed in the U.S. Supreme Court an amicus brief on behalf of the American College of Tax Counsel in support of the petitioners challenging a retroactive repeal of tax legislation by the state of Michigan.  Although the petitioners and the amici had asserted various reasons for granting certiorari, the most prominent of those assertions was that the repeal, stretching seven years into the past, violates the Due Process Clause of the U.S. Constitution.

Subsequent to those submissions, the Supreme Court removed from its conference calendar the petition submitted in another pending retroactive tax legislation case from Washington state (Dot Foods, Inc. v. State of Washington), presumably to consider it jointly with the Michigan cases at a later date, and also ordered Michigan to submit a response to the petitions filed — moves widely seen as signaling that the Court is interested in addressing Due Process issue.

Michigan has since submitted its response, setting forth a novel basis for denying cert.:  that the 2014 legislation challenged by the petitioners — which repealed retroactive to 2008 a statute authorizing a three-factor apportionment election that had existed since 1970 — was a “legislative clarification” of a 2008 Business Tax statute that had supposedly mandated single-factor apportionment for all prospective years, and was therefore not retroactive at all.  Thus, according to Michigan, application of that principle of state statutory-construction law constitutes an adequate and independent state law ground to uphold the decision of the Michigan state court, thereby depriving the Supreme Court of jurisdiction to review the issue.

Not so, replied the petitioners.  IBM and Skadden Arps submitted reply briefs on March 24 and 27, respectively.  IBM’s brief challenged the assertion that the doctrine of “legislative clarification” in fact exists, and asserted that the any new law that applies to activities (or tax years) in the past is, by definition, retroactive.  Skadden Arps, in its brief, added that the Michigan Court of Appeals had never mentioned the doctrine in its decision, while explicitly acknowledging the statute’s retroactive effect, and that, in any event, “the Supremacy Clause does not allow federal retroactivity doctrine to be supplanted by the invocation of a contrary approach to retroactivity under state law.”  On March 28, a brief filed on behalf of Goodyear Tire, Deluxe Financial Services, and Monster Beverage reiterated the arguments of IBM and Skadden Arps.

The briefs for the Michigan petitioners and for the petitioners in Dot Foods will all be considered during the Court’s conference on April 13, and the Court’s decisions could be announced as early as April 17.

Here, you can find copies of:  the Michigan response briefthe IBM reply briefthe Skadden Arps reply brief, and the Goodyear et al. reply brief.

Start of Pennsylvania 2017 Tax Amnesty Program Draws Near – Do You Qualify?

February 24, 2017

By Jennifer Weidler Karpchuk

In less than two (2) months, Pennsylvania’s 2017 Tax Amnesty Program will commence.  Those individuals with potential Pennsylvania tax liabilities should consider taking advantage of the program, which is slated to run from April 21, 2017 through June 19, 2017.  During those sixty (60) days, the Pennsylvania Department of Revenue (“Department”) will waive all penalties and half of the interest for anyone who participates.

The program applies to delinquencies existing as of December 31, 2015 – whether or not the delinquency is known to the Department.  The litany of taxes eligible for the program includes:

  • Agriculture Cooperative Tax;
  • Bank and Trust Company Shares Tax;
  • Capital Stock or Foreign Franchise Tax;
  • Cigarette Tax;
  • Corporate Loans Tax;
  • Electric Cooperative Tax;
  • Employer Withholding Tax;
  • Financial Institutions/Title Insurance Company Shares Tax;
  • Fuel Use Tax;
  • Gross Premiums Tax;
  • Gross Receipts Tax;
  • Hotel Occupancy Tax (including state administered 1% local Hotel Occupancy Tax for Philadelphia and Allegheny);
  • Inheritance and Estate Tax;
  • Liquid Fuels Tax;
  • Malt Beverage Tax;
  • Marine Underwriting Profits Tax;
  • Motor Carriers Road Tax, for IFTA vehicles, PA portion only;
  • Motor Vehicle Carriers Gross Receipts Tax;
  • Mutual Thrift Institutions Tax;
  • Oil Company Franchise Tax;
  • Parimutuel Wagering and Admissions Tax;
  • Personal Income Tax;
  • Public Transportation Assistance (“PTA”);
  • Public Utility Realty Tax;
  • Realty Transfer Tax, including Local Realty Transfer Tax;
  • Sales and Use Tax, including Local Sales and Use Tax for Philadelphia and Allegheny;
  • Surplus Lines Tax;
  • Unauthorized Insurance Tax; and
  • Vehicle Rental Tax.

Notably, the 2017 Tax Amnesty Program does not include Unemployment Compensation (which is administered by the Department of Labor and Industry), nor does it include any tax administered by another state, local government, or the Federal government.

Pursuant to the program, the taxpayer is responsible for paying the principal tax due, plus one-half interest.  The Department will, in turn, rescind any liens or other enforcement actions for that debt; waive all penalties associated with the debt; waive one-half interest; and waive any fees (ex. lien filing fees or collection agency fees).

Along with the payment for all taxes and one-half of the interest, all missing tax returns or reports must be filed no later than June 19, 2017.  However, a taxpayer with unknown liabilities reported and paid pursuant to the Tax Amnesty Program is eligible for a limited look-back period whereby the taxpayer will not be liable for any taxes of the same type due prior to January 1, 2011.

Those taxpayers who are eligible for the 2017 Tax Amnesty Program, but do not participate will be subject to a five-percent (5%) non-participation penalty.  Generally speaking, individuals, businesses and other entities with state tax delinquencies as of December 31, 2015 (whether known or unknown to the Department) are eligible to participate in the program.  However, any taxpayer who participated in the Department’s 2010 Tax Amnesty Program is ineligible to participate in the 2017 program.  Taxpayers who have entered into Voluntary Disclosure Agreements with the Department are likewise ineligible to participate.  Nevertheless, taxpayers who have entered into deferred payment agreements with the Department are eligible for the 2017 Tax Amnesty Program.  Notably, a taxpayer who applies for tax amnesty forfeits all future appeal rights for liabilities paid through the program.

Business taxpayers may request a statement of account that shows all liabilities by visiting e-TIDES at http://www.etides.state.pa.us.  Individual taxpayers may review account information, including all liabilities, by visiting the Personal Income Tax e-Services Center at http://www.doreservices.state.pa.us.  Please contact us if you need assistance in determining whether you qualify for the 2017 Tax Amnesty Program and whether participation in the program is the right choice for you.

U.S. Supreme Court Extends Time to File Petitions for Certiorari in Ohio Commercial Activity Tax Case

February 22, 2017

By Jennifer Weidler Karpchuk

By Order dated January 31, 2017, the United States Supreme Court granted Crutchfield Corporation (“Crutchfield”) an extension of time until April 16, 2017 to file a petition for certiorari for what could be a precedential decision if the Court decides to grant it. See Crutchfield Corp. v. Joseph W. Testa, Tax Commissioner of Ohio (U.S. Supreme Court Docket No. 16A774).  During November 2016, the Ohio Supreme Court ruled for the State, upholding its commercial activity tax (“CAT”). See Crutchfield Corp. v. Joseph W. Testa, Tax Commissioner of Ohio, 2016 WL 6775765 (2016). The CAT is a gross receipts tax that replaced Ohio’s corporate income tax. Pursuant to the CAT, a company with more than $500,000 of Ohio sales has nexus with the state such that it is subject to the tax.

Crutchfield appealed from imposition of the CAT upon revenue it earned from sales of electronic products within Ohio. Crutchfield is based outside of Ohio, maintains no employees in Ohio, and maintains no facilities in Ohio. The sole business that Crutchfield conducts in Ohio is via the shipment of goods from outside the state to consumers within the state using the United States Postal Service or common-carrier delivery services. Crutchfield contested the issuance of CAT assessments contending that substantial nexus within a state is a necessary prerequisite to imposing the tax pursuant to the United States Constitution’s dormant Commerce Clause and that Crutchfield lacked substantial nexus with Ohio since it did not maintain a “physical presence” within the state.

Responding, the State advanced two (2) arguments. First, it argued that the Commerce Clause does not impose a physical presence requirement and, thus, the $500,000 sales-receipts threshold set forth by the statute satisfies the Commerce Clause’s requirement of substantial nexus. Second, the State argued that assuming arguendo the Commerce Clause does impose a physical presence standard, Crutchfield’s computerized connections with Ohio consumers involves the presence of tangible personal property in Ohio and the presence of that property on computers located in the state constitutes physical presence. The Ohio Supreme Court found in favor of the State based upon its first argument and therefore it did not address the State’s secondary argument.

At first glance, the Ohio Supreme Court’s decision stands in stark contradiction to the United States Supreme Court’s decision in Quill v. North Dakota, 504 U.S. 298 (1992), which held that for a state to subject a company to a use tax collection obligation, it must have a physical presence in the taxing state. However, the Ohio Supreme Court distinguished Quill in a number of ways. Primarily, the tax at issue in Quill was a sales and use tax, whereas the tax at issue in Crutchfield was a business privilege tax. The Ohio Supreme Court found that Quill’s holding does not apply to business privilege taxes. This is not the first time a court has drawn such a distinction. See Couchot v. State Lottery Comm., 659 N.E.2d 1225 (Ohio 1996) (“There is no indication in Quill that the Supreme Court will extend the physical-presence requirement to cases involving taxation measured by income derived from the state”); Capital One Bank v. Commr. of Revenue, 899 N.E.2d 76 (Mass. 2009) (declining to “expand the [United States Supreme] Court’s reasoning [in Quill] beyond its articulated boundaries” and upholding imposition of tax on out-of-state banks in relation to in-state servicing of credit cards based on the volume of business conducted and profits realized); MBNA Am. Bank, N.A. v. Indiana Dept. of State Revenue, 895 N.E.2d 140 (Ind. Tax 2008) (“Based on [Quill] and a thorough review of relevant case law, this Court finds that the Supreme Court has not extended the physical presence requirement beyond the realm of sales and use taxes”); KFC Corp. v. Iowa Dept. of Revenue, 792 N.W.2d 308 (Iowa 2010) (“We * * * doubt that the United States Supreme Court would extend the ‘physical presence’ rule outside the sales and use context of Quill ”).

The United States Supreme Court has not addressed the physical presence nexus standard issue since its landmark decision in Quill twenty-five (25) years ago. Many argue that the Supreme Court in Quill could not and did not anticipate the internet boom and, with it, the vastly different way that business would be conducted. Since then, the Court has denied certiorari for every case since Quill where nexus was at issue, e.g., Tax Com’r of State v. MBNA America Bank, N.A. 640 S.E.2d 226 (W. Va. 2006), cert. denied, 551 U.S. 1141 (2007); Capital One Bank v. Commissioner of Revenue, 9 N.E.2d 76 (Mass. 2009), cert. denied, 557 U.S. 919 (2009); Geoffrey, Inc. v. South Carolina Tax Com’n, 37 S.E.2d 13 (S.C. 1993), cert. denied, 510 U.S. 992 (1993); Lanco, Inc. v. Director, Div. of Taxation, 908 A.2d 176  (2006), cert. denied, 551 U.S. 1131 (2007); see also, Direct Marketing Ass’n v. Brohl, 135 S.Ct. 1124, 1134-1135 (2015) (Kennedy, J., concurring) (“The Internet has caused far-reaching systemic and structural changes in the economy, and, indeed, in many other societal dimensions. Although online businesses may not have a physical presence in some States, the Web has, in many ways, brought the average American closer to most major retailers. A connection to a shopper’s favorite store is a click away—regardless of how close or far the nearest storefront…Today buyers have almost instant access to most retailers via cell phones, tablets, and laptops. As a result, a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the term. Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill.”). If the United States Supreme Court grants Crutchfield’s petition for certiorari, we might finally receive an answer to Quill’s application in the age of the internet.