Posted tagged ‘New Jersey Superior Court’

Weekly Update for 3/9: Arizona Rejects Amazon Legislation, While New Jersey Considers Implementing Amazon Law; Missouri Considers Amnesty Legislation; Pennsylvania Considers Closing the “Delaware Loophole”…and more.

March 12, 2012

 by Jennifer Weidler

ARIZONA

Arizona Senate Rejects Proposed Amazon Legislation

The Arizona Senate rejected proposed Amazon legislation, SB 1338, which would have broadened Arizona’s definition of retailer to include any company with a warehouse in the state.

CALIFORNIA

California Revises Publication on Internet Sales, Incorporating eBooks and Apps

The California State Board of Equalization revised Publication 109 regarding Internet Sales, in order to provide guidance on the tax treatment of eBooks and apps.  According to the Publication, the transfer of a downloadable file such as an eBook or app is not a taxable transaction, without purchasing any physical storage medium.

GEORGIA

Georgia House Approves Legislation to Establish Tax Tribunal

The Georgia House of Representatives approved legislation, HB 100, which would establish a state Tax Tribunal in the state’s judicial branch.

ILLINOIS

Illinois Releases Information Letter of “Deal-of-the-Day” Transactions

The Illinois Department of Revenue issued an Information Letter providing guidance on the treatment of “Deal-of-the-Day” transactions.  For more detailed information, see the Information Letter.

IOWA

Iowa Court Grants Refund Relief for Illegal Taxation

The Iowa District Court ordered a refund of franchise fees that were collected in excess of the amount determined to be allowable for which the City of Des Moines could impose.  The court found that the refund was a constitutional remedy for the illegal taxation of the city’s residents.  The fact that the funds gathered from the illegal taxation were used wisely, legally and with the best intentions was not a defense.

MISSOURI

Missouri House Approves Amnesty Legislation

The Missouri House has approved legislation, HB 1030, which would offer a tax amnesty period, slated to run from August 1 to October 31, 2012.  The amnesty program would cover all taxes administered by the Department of Revenue and would waive penalties.  The amnesty program is projected to raise $75 million for the state.

NEW JERSEY

New Jersey Finds Nexus Based on Telecommuting Employee

The New Jersey Superior Court upheld a Tax Court ruling, which found that a foreign corporation was subject to the New Jersey Corporate Income Tax because it regularly and consistently permitted one of its employees to telecommute from her New Jersey residence.  Her full-time telecommuting was viewed as doing business in the state, thereby requiring the payment of the tax as well as the filing of corporate income tax returns in New Jersey.

New Jersey Introduces Amazon Legislation

Legislation, S 1762, has been introduced in New Jersey that would grant Amazon.com a temporary state sales tax collection exemption if it builds warehouses within the state.   Pursuant to the bill, distribution facilities built in the state after January 1, 2012 would not create nexus with the state until July 1, 2013, provided that Amazon.com creates at least 1,500 full-time jobs in the state and makes a capital investment exceeding $130 million.

New Jersey Court Affirms Value of Residential Property Where Owner’s Evidence was Insufficient

The New Jersey Tax Court affirmed the value of a residential property established by the assessment after finding that the owner’s evidence regarding comparable sales was insufficient to establish the true market value of the property.  Although the owner overcame the presumption of validity attached to the assessment of his property, he was unable meet his burden of proof with regard to establishing the true market value of the property.

NEW MEXICO

New Mexico Governor Vetoes Combined Reporting Legislation

New Mexico’s Governor vetoed legislation, SB 9, which would have established combined reporting in the state.  The bill would have required combined reporting for multistate retailers with a 30,000 square feet or large facility in New Mexico.  Additionally, it would have lowered the top corporate income tax rate from 7.6 percent to 7.5 percent.

PENNSYLVANIA

Pennsylvania Considers Legislation to Allow Counties to Institute Local Taxes to Reduce or Eliminate Property Tax

The Pennsylvania legislature is considering legislation, HB 2230, which would allow counties in the state to institute a local sales or income tax in order to reduce or eliminate the property tax.  Pursuant to the bill, county governments could ask voters to approve a sales or income tax, which would ultimately provide property tax relief.

Pennsylvania Considers Competing Legislation to Close “Delaware Loophole”

During January, legislation, HB 2150, was introduced that suggested a close to the “Delaware loophole.” For previous coverage of that bill, please click here.  Competing legislation is currently being drafted that will seek to create a broader add-back provision than that contained in HB 2150.

VIRGINIA

Virginia Governor Approves Legislation Phasing in Single-Sales-Factor

Virginia’s Governor has approved legislation, HB 154, which creates a phase-in of single-sales-factor apportionment for retailers.  The bill requires retailers to begin utilizing a triple-weighted sales factor beginning July 1, 2012 and a quadruple-weighted sales factor beginning July 1, 2012.  Finally, a single-sales-factor would be implemented beginning July 1, 2015.

WISCONSIN

Wisconsin Rules that Individual is Responsible for Portion of Company’s Tax Liabilities

The Wisconsin Tax Appeals Commission held that an individual was responsible for a portion of a company’s sales tax and withholding tax liabilities.  The Commission reasoned that the evidence established that the individual maintained the title of president of the company, retained check-writing authority and participated on the board of directors.  As such the Commission found the individual to be a “responsible” person.

New Jersey Issues Decision Finding a Lack of Nexus Regarding a Partnership Distribution to a Foreign Limited Partner

August 29, 2011

  by Stewart Weintraub and Jennifer Weidler

Earlier this week, the New Jersey Superior Court, Appellate Division, affirmed a decision of the Tax Court of New Jersey finding that a lack of nexus existed for distributions made to a foreign limited liability partner from a partnership with an in-state presence. See, BIS LP Inc. v. Division of Taxation, Docket No. A-1172-09T2 (NJ Super. Ct. 2011).

BIS, the taxpayer at issue, was a foreign corporation with no place of business, property, employees or agents in the state of New Jersey.  Its only interest was its ninety-nine percent (99%) limited partnership interest in BISYS Information Solutions (“Solutions”), which conducted business in New Jersey.  As a result of restructuring, BIS became a wholly owned subsidiary of a holding company, BISYS, Inc. (“BISYS”).  Pursuant to a partnership agreement, BISYS was a one percent general partner of Solutions and BIS was a ninety-nine percent (99%) limited partner of Solutions.  Furthermore, the partnership agreement gave exclusive control of Solutions to the general partner, and made clear that BIS would not have a right to partake – directly or indirectly – in the active management of Solutions.

BIS filed its 2003 New Jersey corporation business tax (“CBT”) return and contended that it owed no CBT because it did not have the nexus necessary to subject it to taxation in New Jersey.  The director rejected this assertion, claiming that CBT was owed because BIS had a unitary relationship with the business conducted by Solutions in New Jersey.

The Superior Court affirmed the Tax Court and held BIS lacked sufficient New Jersey nexus to subject it to CBT.  When so holding, the Court found:

The partnership interest was BIS’ only or most substantial asset, and it produced BIS’ income.  However, BIS was not in the same line of business as Solutions.  Nor, as we have stated, was there a ‘substantial’ overlapping of officers, and there was no sharing of offices, operational facilities, technology, or know-how.

The court found that while the two entities shared some corporate officers, that was insufficient, particularly compiled with the fact that BIS was not in the same line of business as Solutions and did not control Solutions.

The rationale behind the New Jersey Superior Court’s reasoning is in stark contradiction to a Kentucky court’s decision last year involving the same issue.  In Revenue Cabinet v. Asworth Corp., Docket No. 2007-CA-002549-MR (Kentucky Ct. Appeals 2010), Asworth owned a ninety-nine percent (99%) limited partnership interest in Conwood Company, LP, a Delaware limited partnership which conducted business in Kentucky.  Apart from its limited partnership interest in Conwood, Asworth had no other connection to Kentucky.  Based upon an audit of Asworth, the Revenue Cabinet determined that Asworth owed additional taxes.  Asworth appealed arguing that it lacked the requisite nexus with the state of Kentucky to be subject to tax.  The court found that:

While the Corporations do no business in Kentucky, at various times they have owned up to a 99% limited and/or general partnership interest in, and have received distributive shares of partnership income from the profits of, a partnership which does business in Kentucky.  Such a partnership unquestionably has received protection and benefits from Kentucky, thereby enabling the distribution of income to the Corporations.  We hold that this connection gives rise to a substantial nexus with, and/or a physical presence within, Kentucky.

Earlier this year, the United States Supreme Court denied Asworth’s petition for certiorari.

Thus, while based upon similar facts, the courts in New Jersey and Kentucky came to strikingly different conclusions.  However, upon closer analysis, this apparent contradiction appears to be primarily due to the statutory language enacted in each state to address the facts at issue.  In New Jersey, a foreign corporate limited partner is only considered to be doing business in the state and, therefore, subject to CBT, if:

  1. The limited partner is also a general partner of the limited partnership;
  2. The foreign corporation limited partner, in addition to the exercise of its rights and powers as a limited partner, takes an active part in the control of the partnership business;
  3. The  foreign corporate limited partner meets the criteria set forth in N.J.A.C. 18:7-1.9 or 1.6 (relating to criteria assessed for “doing business” in the state); or
  4. The business of the partnership is integrally related to the business of the foreign corporation.

N.J.S.A. 18:7-7.6.

Because the New Jersey Superior Court found that BIS did not meet any of the aforementioned criteria, liability for the tax was not imposed on the foreign limited partner.

Conversely, in Kentucky, the statute expressly provides for liability for a nonresident limited partner receiving distributions from a partnership with an in-state presence.  Specifically, the statute states:

Nonresident individuals and corporations which are partners in a partnership or shareholders in an S corporation which does business within and without Kentucky are taxable on their proportionate share of the distributive income passed through the partnership or S corporation attributable to business done in Kentucky. KRS 141.206(3)(b).

As such, in New Jersey and Kentucky, based upon each state’s statute addressing almost identical facts, the courts reached different conclusions; the New Jersey court holding the taxpayer lacked sufficient nexus with New Jersey to be subject to CBT while the Kentucky court held the taxpayer had sufficient nexus with Kentucky to be subject to Kentucky corporate income tax.