Archive for the ‘Washington’ category

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setting forth a novel basis for denying cert.:  that the 2014 legislation challenged by the petitioners — which repealed retroactive to 2008 a statute authorizing a three-factor apportionment election that had existed since 1970 — was a “legislative clarification” of a 2008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.

Weekly Update for 3/2: Georgia Considers “Amazon” Law; Verizon Challenges Statute of Limitations in Florida Assessment; Maryland Rules on Statute of Limitations for Refund…and more.

March 5, 2012

 by Jennifer Weidler

COLORADO

Colorado DOR Issues Letter Ruling Discussing Tax Exempt Status of Photovoltaic Energy Systems

The Colorado Department of Revenue issued a letter ruling explaining the sales exempt status of photovoltaic energy systems.  The letter ruling clarified that a company or customer who purchases photovoltaic energy systems is exempt from sales tax because all sales and uses of qualifying renewable energy components are entitled to the renewable component exemption.

FLORIDA

Verizon Business Purchasing, LLC Challenges Florida Sales and Use Tax Assessment

Verizon Business Purchasing, LLC has filed a complaint challenging a $3 million Florida sales and use tax assessment, claiming that the statute of limitations expired prior to the proposed assessment becoming final.  The complaint alleges that the final assessment was invalid because although the parties agreed to extend that statute of limitations until March 31, 2011, the notice of proposed assessment was issued with less than sixty days left in the statute of limitations period. Therefore, the complaint contends, it did not become a final assessment until the expiration of the sixty days, on April 11, 2011, which was after the statute of limitations had lapsed.

GEORGIA

Georgia House Considers “Amazon” Law

The Georgia House of Representatives is considering legislation, HB 993, which would implement click-through nexus and similar provisions, aimed at requiring out-of-state online retailers to collect state sales tax.  The legislation contains a threshold that must be met: an out-of-state online retailer must have at least $10,000 in annual sales through in-state affiliates receiving a commission in order to be subject to collecting the tax.


HAWAII

Hawaii Senate Committee Passes Streamlined Sales and Use Tax Legislation

The Hawaii Senate Ways and Means Committee passed legislation, SB 2226, which would bring the state into conformity with the Streamlined Sales and Use Tax Agreement.

INDIANA

U.S. Supreme Court Hears Oral Arguments in Armour v. Indianapolis

The United States Supreme Court heard oral arguments in Armour v. Indianapolis, which tackles an equal protection challenge.  During 2001, Indianapolis gave taxpayers the option of paying upfront or in monthly installments for special assessments related to the connection of their properties to city sewers.  The case challenges the city’s decision not to provide refunds to taxpayers who paid a sewer special assessment in lump sum, while forgiving outstanding balances for those taxpayers who entered into installment plans.  The Indiana Supreme Court held that the Board had a rational basis for its decision to deny refunds while eliminating outstanding balances.

Indiana House Approves Legislation to Phase-Out Inheritance Tax

The Indiana House approved legislation, SB 293, which would phase-out Indiana’s inheritance tax by increasing the exemption for children and grandchildren from $100,000 to $250,000.  The increase would apply to decedents dying after July 1, 2012.


MARYLAND

Maryland Rules on Statute of Limitations for Refund

The Maryland Court of Appeals ruled that the one-year statute of limitations for the filing of a limited partner’s state income tax refund claim pursuant to a federal adjustment of the partnership return began to run on the date that the Internal Revenue Service issued its final adjustment report to the limited partner.  Since the taxpayer filed its claim for refund more than one year after the date that the Internal Revenue Service issued its final adjustment report, the taxpayer’s refund was denied.

MINNESOTA

Minnesota Considers Legislation to Classify Jurisdictions as Tax Havens

Two separate bills, HF 2480 and SF 2029, currently under consideration by the Minnesota legislature would classify 34 foreign jurisdictions as tax havens, thereby terminating the ability of corporations to shelter their earnings in those areas. The legislation would also repeal the state’s foreign royalty exclusion, eliminate the state’s preferences for foreign-source income, and eliminate the state’s transition to single-sales-factor, instead re-implementing the three-factor formula.

NEVADA

Nevada Supreme Court Reverses Dismissal of Property Tax Petition for Board’s Failure to Conduct Public Hearings

The Nevada Supreme Court reversed the dismissal of property taxpayers’ petition for writ of mandamus directing the State Board of Equalization to equalize property valuations throughout the state, because the Board failed to conduct public hearings thereby denying the taxpayers an adequate remedy at law.

NEW YORK

New York Issues Guidance on Application of Sales Tax to Gratuities and Service Charges

The New York Department of Taxation and Finance issued guidance explaining how sales tax applies to gratuities and service charges.  The guidance clarifies that mandatory gratuities and service charges are exempt if: (1) the charges are shown separately on a bill; (2) identified as gratuities; and (3) the entire gratuity amount is given to the employees.

OKLAHOMA

Federal Court Rules Against Oklahoma Indian Tribe’s Tobacco Tax Claims

A Federal Court held that an Indian tribe located in Oklahoma had failed to state a claim upon which relief could be granted in its complaint.  The complaint alleged that Oklahoma’s tobacco tax laws violated various constitutional rights and federal laws.  However, the court found that the claims were not valid either on grounds of preemption or on infringement of the tribe’s right to self-government.

WASHINGTON

Washington Legislation Would Abolish Sales and Use Tax Exemption for Some Out-of-State Shoppers

Legislation, HB 2791, currently under review by Washington’s House would abolish the sales and use tax exemption for certain out-of-state shoppers.  The exemption would no longer be available for residents of the U.S. and Canada whose province or state assesses consumption taxes of less than three percent.

2011 Year-End SALT Update

January 6, 2012

 by Jennifer Weidler

ARIZONA

Arizona DOR Finds Nexus for Sales Representatives Providing Customer Support and Training

Of course it had nexus: Arizona DOR rules that corporation has substantial nexus due to presence of sales representatives who provide customer support and training.

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Weekly SALT Update – Nov. 3, 2011

November 3, 2011

 By Paul Masters with contributions by Jennifer Weidler in Chamberlain’s Philadelphia office.

State DOR Letters and Policy Rulings

But where’s your paper … New Mexico hearings officer rules that a taxpayer does not qualify for a gross receipts tax deduction merely because the taxpayer did not possess any nontaxable transaction certificates as required by NMSA 1978, Section 7-9-43 (2001). Other states have similar requirements for certificates, but merely because they are “required” does not necessarily mean the courts agree.

Virginia Tax Commissioner rules that an egg tray washer was not “processing” as defined by Virginia Code § 58.1-609.3(2)(iii) as it was used between the processing to maintain cleanliness. Even though the equipment was necessary to operate the actual processing, the equipment itself was not involved in the processing of the eggs for sale. Similarly, a “honey wagon” that was used to collect the bird droppings and then spray the droppings as fertilizer on fields was not part of the processing, even though the droppings came from the waste resulting from the cleaning of the eggs. Finally, the Commissioner rules that pit fans used to dry bird droppings that are then sold to farmers as fertilizer are not processing, but do qualify for the agricultural exemption at Virginia Code § 58.1-609.2(1). Different result should apply in Texas, as drying an item is a physical change, thus processing.

State Regulations and Public Notices

North Carolina updates its taxability matrix for the SSUTA.

The New Jersey Division of Taxation has published answers to frequently asked questions relating to the NJ-1040 e-filing mandate. For the 2011 taxable year forward, tax preparers expecting to prepare eleven (11) or more New Jersey individual income tax returns must electronically file those returns for which an electronic filing option is available.  Those returns not included in the e-filing mandate are New Jersey nonresident, part-year resident, amended and prior year returns.

The Connecticut Department of Revenue issued an Informational Publication (IP 2011(15)) answering frequently asked questions regarding the Connecticut individual use tax.  The Informational Publication addresses changes in legislation affecting Connecticut use tax filing and payment obligations, which occurred during 2011.

Starting January 1, 2011, those tax preparers filing more than five (5) returns per year with New York are now required to e-file.  The New York Department of Taxation may impose a penalty on both the preparer and the taxpayer for a failure to electronically file returns.  Additionally, beginning with the return due on March 20, 2012, sales tax returns for annual filers must be filed electronically.

State Legislative Affairs

Economic nexus comes into play again. Michigan signs into law SB 650 which defines nexus for a financial institution as any of the following: (i) physical presence, (ii) Michigan source receipts of at least $350,000 or (iii) has an ownership interest in a flow through entity.

Judicial and Administrative Decisions and Pleadings

A coalition of public school districts in Texas files suit against the State of Texas on constitutional grounds, arguing that the state tax system funding public schools is unfair, and does not provide the schools with sufficient funding to provide a free education to students.

In another school funding case, a federal district court rules against Lynch, who argued that Alabama’s property tax rates, among the lowest in the country, violate the Civil Rights Act of 1964 and the Equal Protection Clause of the Fourteenth Amendment. How? The tax scheme limits the ability of rural counties to tax wealthy white landowners. The opinion is looooong – really long. In the end, the court focused on its view that the tax structure was based on economics, not race, and therefore passed muster under the rational basis standard.

On further thought … Washington Court of Appeals reverses its decision on remand and finds that a hospital was not entitled to an exemption for amounts collected and paid to a third-party service provider. In its initial decision, the Court of Appeals determined that the payments did not qualify as gross income subject to business and occupation (B&O) tax. But the Supreme Court reversed the Court of Appeals’ ruling in Washington Imaging Services, LLC v. Wash. Dept. of Rev., 252 P3d 885 (Wash. 2011). Because there was no independent obligation for its patients to pay the third-party service provider for services rendered, the hospital did not make payments on behalf of its patients as their agent, the payments made constituted gross income. The exemption under Wash. Admin. Code § 458-20-111 did not apply as they payments were not customary reimbursements or advances made in the ordinary course of business.

NY Division of Tax Appeals rules against the estimated assessment made by an auditor for sales tax. While the taxpayer lacked the records necessary to avoid an estimated audit, the auditor made assumptions not based on reality, used information limited to only one quarter and extrapolated over a multi-year period. Thus the assessment was arbitrary.

Illinois Court of Appeals affirms decision to use income valuation approach because the sales comparison method provided unreliable. The government had used comparisons that included sales resulting from Department of Justice divestiture orders. Such sales necessarily are not defined as arm’s length transactions.

The Texas Court of Appeals for the 14th District (Houston) rules that Hotels.com and other similar online companies need not remit occupancy tax on the full amount received by online customers for the purchase of hotel space through the web site. Rather, the hotel occupancy tax is levied solely on the amount received by the hotel.

Other Documents

None noted.

Washington Case Involving Retroactive Refund Amendment Spurs COST Amicus Brief

October 18, 2011

  by Stewart Weintraub and Jennifer Weidler

The Washington Supreme Court is currently considering the legality of the state legislature’s attempt to create a statutory amendment barring the granting of twenty-four (24) years of tax refund claims.  Tesoro Refining & Marketing Co., No. 39417-1-II (Wash. Ct. App. Dec. 21, 2010).  Tesoro Refining and Marketing Company (“Tesoro”) is a manufacturer of bunker fuels.   Prior to 2009, Washington law permitted companies that manufacture and sell a qualifying fuel (e.g. bunker fuel) to deduct the amount derived from the sale of the fuel against its manufacturing business and occupation (B&O) tax liability.  Tesoro failed to take the deduction on its originally filed returns and later filed a claim for refund.  The Washington Department of Revenue (“Department”) denied the refund claims, asserting that the deduction applied only to wholesaler and retailer B&O tax, not to manufacturer B&O tax.  Tesoro appealed to the Washington Superior Court.  During 2009, while the appeal was pending, the Washington legislature amended the statute to limit the applicability of the B&O tax deduction to retailers and wholesalers both prospectively and retroactively.  The Superior Court granted summary judgment to the Department and Tesoro appealed.

Reversing the lower court’s decision, the Washington Court of Appeals held that pursuant to the plain language of the pre-2009 B&O tax statute, no restriction existed for the applicability of the deduction.    As such, the Department could not alter the plain language of the statute to resolve an ambiguity that did not exist on its face.  Furthermore, the court found the retroactive application of the 2009 amendment violated Tesoro’s due process rights because it impermissibly attempted to look back twenty-four (24) years.

An appeal was filed with the Washington Supreme Court.  The Council On State Taxation (“COST”) filed an amicus brief urging the Washington Supreme Court to uphold the decision of the Washington Court of Appeals.  COST argues that the twenty-four (24) year period of retroactivity greatly exceeds that which has previously been permitted by the United States Supreme Court.  Furthermore, COST argues that the retroactive amendment is a violation of the due process clause and is an unconstitutional “bait and switch” tactic.

Notably, this is not the first time a state attempted to retroactively deny refunds.  Since May 2010, the U.S. Supreme Court declined to review three (3) state tax cases involving similar retroactivity issues. See Asworth LLC v. Kentucky Department of Revenue, Finance and Administration Cabinet, U.S. No. 10-662 cert. denied (Jan. 24, 2011); Ford Motor Credit Co. v. Michigan Dept. of Treas., U.S., No. 10-481, cert. denied (Jan. 18, 2011); and Johnson Controls, Inc. v. Miller, U.S. No. 09-981, cert. denied. (May 24, 2010).

Johnson Controls was a Kentucky case in which the state courts upheld legislation that retroactively disallowed a corporate income tax refund.  COST filed an amicus brief supporting Johnson Controls’ petition for certiorari to the U.S. Supreme Court.  COST urged the Court to hear the case, arguing, somewhat prophetically, that numerous states would be inclined to follow suit and enact similar retroactive refund legislation, which deprives taxpayers of their due process rights.

Subsequently, the U.S. Supreme Court denied certiorari in Ford Motor Credit Co., in which Ford Motor Credit Co. claimed that a Michigan sales tax law that retroactively barred refund suits related to bad debt deductions violated the Due Process Clause of the U.S. Constitution.  COST again filed an amicus brief supporting Ford Motor Credit Co.’s petition for certiorari to the U.S. Supreme Court.

Most recently, the United States Supreme Court denied certiorari in another Kentucky case, Asworth, which involved a claim for a corporate income tax refund, plus interest.  However, prior to the resolution of the case, the Kentucky legislature amended a law, which retroactively changed the date for the accrual of interest on a refund claim, thereby effectively extinguishing the taxpayer’s claim to the interest.  The Kentucky courts denied the claim that the amended retroactive law violated the taxpayer’s due process rights, and for that reason – as well as for other additional grounds not applicable to this discussion –  denied Asworth’s claim.

Because of the state of the economy, it would not be surprising if more states enacted similar legislation attempting to curtail the payment of refunds otherwise due.  With the United States Supreme Court’s continuous denial of certiorari, taxpayers’ pleas for relief have largely gone unheard.  While Tesoro has, for the time being, found court approval for its position, many other taxpayers are left without recourse when a state retroactively amends its statutes denying a refund.