Income and franchise tax

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  Numerous states have recently acted to renounce membership in the Multistate Tax Compact or departed from significant provisions in the compact. The states’ sudden shift away from the dompact may have major reverberations for taxpayers with significant corporation income tax liabilities in compact states and may even threaten the viability of the compact.

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•   Kentucky enacts legislation amending intercompany management fee addback, imposing remote seller notification requirement - April 23, 2013

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•   New York enacts budget legislation amending royalty expense addback provisions, lowering tax rates for qualified manufacturers - April 16, 2013

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•   Tennessee releases franchise and excise tax administrative rulings covering variety of topics, including not-for-profit entities, nexus and intangible expense - April 12, 2013

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•   Utah to withdraw from and partially reenact Multistate Tax Compact - April 11, 2013

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•   New Mexico enacts omnibus tax and administrative procedures legislation - April 11, 2013

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•   Alabama Department of Revenue promulgates market-based sourcing regulation - April 10, 2013

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•   Oregon Supreme Court holds gain from sale of public utilities'assets constitutes apportionable business income - April 3, 2013

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•   Alabama ALJ clarifies affiliated group can exist prior to filing consolidated return for purposes of NOL limitations - March 22, 2013

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•   Washington Supreme Court holds requirement that supermajority of legislature approve tax increases is unconstitutional - March 20, 2013

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•   U.S. Bankruptcy Court rules imposition of Oregon corporate excise tax on out-of-state holding company was unconstitutional - March 8, 2013

  The U.S. Bankruptcy Court has held that imposition of the Oregon corporate excise tax upon a parent holding company violated the Due Process and Commerce Clauses of the U.S. Constitution as the parent had no property or employees in Oregon and had no sales or other revenue directly attributable to Oregon sources.

•   Illinois Appellate Court holds refund request for portion of estimated payment made under amnesty program rules was timely - March 6, 2013

  The Illinois Appellate Court has held that a taxpayer’s refund request of a good faith estimated payment made to the Department of Revenue through its participation in the 2003 amnesty program was within the applicable statute of limitations.

•   Kentucky requires filing of disclosure schedule for related-party costs - March 1, 2013

  The Kentucky Department of Revenue has announced that for tax years beginning on or after Jan. 1, 2012, corporations and pass-through entities are required to file and attach a Related Party Costs Disclosure Statement (RPC) to their Forms 720, 720S, 765 or 765-GP. 

•   Puerto Rico Treasury Department issues regulations for controlled groups of corporations and related entities - Feb. 20, 2013

  The Puerto Rico Treasury Department has released regulations to provide guidance on the application of the new rules for controlled groups of corporations and related entities included in the Internal Revenue Code for a New Puerto Rico.

•   Maryland Court of Special Appeals holds intangible holding companies have corporate income tax nexus - Feb. 20, 2013

  On Jan. 24, the Maryland Court of Special Appeals held that two out-of-state intangible holding companies had corporate income tax nexus with Maryland because they were in a “unitary business” relationship with their Maryland parent company.

•   Illinois Appellate Court holds department improperly 'corrected' taxpayer’s apportionment formula as 'mathematical error' - Feb. 19, 2013

  The Illinois Appellate Court recently addressed the Department of Revenue’s ability to assess additional tax through a correction of a “mathematical error” when the department has a substantive dispute with the taxpayer’s position on its return. The Court held that the Department’s treatment of the taxpayer’s use of a certain apportionment factor formula as a “mathematical error” was improper, and that the use of a proper formula was substantive in nature, necessitating the issuance of a “notice of deficiency.”

•   Oklahoma Court of Appeals holds capital gains deduction statute violates commerce clause - Feb. 13, 2013

  On Jan. 17,  the Oklahoma Court of Appeals determined that the state’s capital gains deduction statute impermissibly violated the commerce clause of the U.S. Constitution by facially discriminating against non-Oklahoma companies or companies without headquarters located in the state.

•   Texas comptroller limits telecommunications company’s COGS deduction - Feb. 7, 2013

  The Texas comptroller of public accounts recently upheld a decision by the administrative law judge to limit a telecommunications company’s cost of goods sold (COGS) deduction for purposes of the revised Texas franchise tax to those costs incurred in purchasing certain telephone equipment that was sold to its customers in the regular course of business.

•   Virginia tax commissioner issues guidance on single-sales-factor apportionment election for manufacturers - Feb. 5, 2013

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•   New York State Department of Taxation and Finance substantially amends combined reporting regulations - Jan. 30, 2013

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•   North Carolina Department of Revenue adopts regulations outlining discretionary authority powers - Jan. 29, 2013

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•   SALT legislative outlook, trends and predictions for 2013 - Jan. 17, 2013

  This year promises to be one in which states consider innovative and potentially dramatic changes to their state tax systems. There will be significant shifts in the political composition of state legislatures as well as uncertainty about the effect of the fiscal cliff and the amount of funding that will be available from federal sources.

•   North Carolina Department of Revenue issues notice regarding computation of net economic loss - Jan. 21, 2013

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•   New York releases guidance on lower corporation franchise tax rates for eligible qualified manufacturers - Jan. 21, 2013

  The New York State Department of Taxation and Finance has issued guidance providing the requirements that a taxpayer must meet to be classified as an “eligible qualified New York manufacturer” that is allowed to use lower corporation franchise tax rates.

•   California Court of Appeal holds right to replicate and install software is license of intangible property for apportionment purposes - Jan. 15, 2013

  On Dec. 18, the California Court of Appeal reversed a trial court’s ruling and determined that a taxpayer’s license of proprietary software, which transferred the right to replicate and install the software, but not the right to use the software, constituted the license of “intangible property” for apportionment purposes.

•   Ohio adopts changes to bonus depreciation addback for owners of pass-through entities - Jan. 4, 2013

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•   Indiana Department of Revenue applies market-based sourcing to taxpayer selling audience profile information - Jan. 3, 2013

  In a letter of findings, the Indiana Department of Revenue applied a market-based sourcing method and required an out-of-state taxpayer to include receipts from audience profile information that it sold to Indiana customers in its sales factor.

•   Oregon enacts legislation ensuring taxpayers that make qualifying investments may continue to use single sales factor apportionment - Jan 2, 2013

  On Dec. 18, as a result of a recent one-day special legislative session, Oregon Gov. John Kitzhaber signed the Economic Impact Investment Act to encourage Nike Corporation, and potentially other large companies, to expand operations and invest in the state.

•   SALT top stories of 2012 - Dec. 19, 2012

  In 2012, state and local taxation focused on regulatory developments and court cases interpreting groundbreaking legislation. Marking the landscape were new combined reporting rules in the District of Columbia, challenges to the revised Texas franchise tax and the New York payroll tax, and novel market-based sourcing provisions.

  The case of Gillette Co. v. Franchise Tax Board was the most significant SALT development of the year. The case interpreted whether a taxpayer could elect to apportion income under a standard equally weighted apportionment formula consisting of property, payroll and sales factors under the Multistate Tax Compact. The election to use the equally weighted apportionment formula affects nearly 20 other states that have adopted the Compact. 

•   Illinois Appellate Court explains allocation of capital losses carried back by unitary group members - Dec. 21, 2012

  The Illinois Appellate Court has upheld the Illinois Department of Revenue’s partial denial of a taxpayer’s claim for a refund based on the carryback of a capital loss.

•   California FTB clarifies economic nexus principles do not apply to throwback rule for tax years before 2011 - Dec. 21, 2012

  The California Franchise Tax Board has issued a technical advice memorandum to explain that economic nexus standards do not apply to the throwback rule for tax years beginning before Jan. 1, 2011.

•   Illinois Appellate Court holds natural gas pipeline flow through miles must be included in apportionment factor numerator - Dec. 21, 2012

  On Dec. 7, the Illinois Appellate Court held that the apportionment factor numerator of pipeline companies must include miles traveled by natural gas in pipelines through Illinois even if the natural gas did not originate or terminate in the state (flow-through miles).

•   San Francisco voters approve new gross receipts tax - Dec. 7, 2012

  On Nov. 6, San Francisco voters approved Measure E, which imposes a gross receipts tax on people engaged in business activities in San Francisco. The measure will phase out the payroll expense tax in increments consistent with the phase-in of the gross receipts tax over a five-year period starting in tax years beginning on or after Jan. 1, 2014.

•   Oklahoma voters approve expiration of business activity tax - Dec. 7, 2012

  On Nov. 6, Oklahoma voters approved a ballot measure that exempts all intangible personal property from state property taxes beginning with tax years after 2012. As a result, the Oklahoma Business Activity Tax (BAT), which has been in effect for nearly three years, will expire for tax years after 2012 unless the Oklahoma legislature takes action to restore it.

•   Missouri Administrative Hearing Commission holds intercompany dividends are excluded from sales factor denominator - Dec. 6, 2012

  On Oct. 17, the Missouri Administrative Hearing Commission (AHC) held that dividends paid to a parent corporation and its subsidiaries by affiliates that were part of the same consolidated group were required to be excluded from the sales factor denominator because the facts failed to determine the amount of dividends that arose from operations in Missouri, and the inclusion of dividends only in the sales factor denominator would prevent the fair operation of the apportionment formula.

•   California voters approve two significant tax propositions - Dec. 5, 2012

  On Nov. 6, 2012, California voters approved Proposition 30, “The Schools and Local Public Safety Protection Act of 2012,” and Proposition 39, “Income Tax Increase for Multistate Businesses.” Voter approval of Proposition 30 retroactively increased 2012 personal income tax (PIT) rates and increases PIT rates for the 2013 through 2018 tax years.

•   Lower revised Texas franchise tax rate applicable to seller and installer of automobile parts - Nov. 30, 2012

  The Texas Comptroller of Public Accounts has affirmed an administrative law judge decision holding that a taxpayer that sold and installed automobile parts and accessories was eligible for the lower revised Texas franchise tax rate that applies to retailers and wholesalers.

•   District of Columbia enacts temporary legislation to amend and clarify mandatory combined reporting - Nov. 27, 2012

  On Nov. 16, the District of Columbia enacted temporary legislation that amends and clarifies the combined reporting statutes that are effective for tax years beginning after Dec. 31, 2010.The clarifying legislation transfers enforcement of the combined reporting requirements from the mayor to the chief financial officer, and amends statutory provisions concerning key definitions, treatment of partnerships and their unincorporated business (UB) entities, composition of the water’s-edge group,automatic extension of the worldwide election and the Financial Accounting Standard No. 109 (FAS 109) deduction.
  

•   New Jersey Tax Court holds out-of-state corporate limited partner that lacked nexus is entitled to CBT refund - Nov. 20, 2012

  On Oct. 25, the New Jersey Tax Court held on remand that an out-of-state limited partner of a New Jersey limited partnership was entitled to a refund of corporate business tax (CBT) paid on its behalf by the limited partnership. In prior decisions, the New Jersey Tax Court and the Appellate Division of the New Jersey Superior Court held that the out-of-state limited partner did not have nexus with New Jersey and was not subject to the CBT.

•   New Mexico rules Web-based services constitute licensing property subject to gross receipts tax - Nov. 16, 2012

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•   California FTB chief counsel ruling applies new economic nexus principles to use of throwback rule - Nov. 15, 2012

  The California Franchise Tax Board (FTB) has issued a chief counsel ruling that applies California’s new economic nexus standard, the Finnigan rule, and market-based sourcing to determine when the throwback rule will apply to sales of tangible personal property shipped from California to another jurisdiction.

•   Massachusetts Appellate Tax Board holds publisher is manufacturing corporation for apportionment purposes - Nov. 14, 2012

  The Massachusetts Appellate Tax Board has held that a book publisher was a “manufacturing corporation” required to apportion its income using a single-factor sales formula to compute its corporate excise tax liability.

•   Texas Supreme Court upholds constitutionality of revised Texas franchise tax - Nov. 14, 2012

  The Texas Supreme Court has upheld the revised Texas franchise tax (RTFT) against a constitutional challenge under both the Texas and U.S. Constitutions. The court found that the RTFT did not violate the Equal and Uniform Clause of the Texas Constitution because the structuring of the RTFT classifications was reasonably related to the object of the tax, or the privilege of doing business in Texas.

•   Oregon Tax Court rules on apportionment treatment of receipts from electricity and natural gas - Oct. 17, 2012

  On Sept. 17, the Oregon Tax Court held that the sale of electricity did not constitute the sale of tangible personal property for corporation income tax apportionment purposes for the taxpayer’s tax years ending March 31, 2002, through March 31, 2004. As such, for purposes of sourcing the taxpayer’s sales of electricity, the cost of performance rule was applied rather than sourcing sales according to the ultimate destination location.

•   Indiana Department of Revenue requires taxpayer to use “stacking” method to apportion income on consolidated return - Oct. 11, 2012

  In a letter of findings, the Indiana Department of Revenue required a taxpayer that filed an Indiana consolidated corporate income tax return to use an alternative apportionment method to fairly reflect Indiana income. In requiring alternative apportionment, the department determined that the use of a “stacking” method to apportion income was appropriate.

•   Maryland enacts income tax credit for federal security clearance and SCIF construction expenses - Oct. 10, 2012

  Maryland has enacted a corporate and personal income tax credit that is available for certain costs relating to (i) federal security clearances for employees in the state or (ii) the construction or renovation of certain sensitive compartmented information facilities (SCIFs) in the state.

•   California Court of Appeal issues revised Gillette opinion concerning Multistate Tax Compact apportionment election - Oct. 5, 2012

  On Oct. 2, the California Court of Appeal issued a revised opinion in Gillette ruling in favor of a group of taxpayers electing to use the equally-weighted three-factor apportionment formula provided by the Multistate Tax Compact, in lieu of an apportionment formula requiring use of a double-weighted sales factor. This opinion is very similar to the previous opinion that the court released for this case on July 24 and subsequently vacated on August 9. However, the new opinion acknowledges legislation, S.B. 1015, enacted on June 27 that repealed the compact.

•   Washington Board of Tax Appeals holds delivery of goods by leased rail cars did not establish B&O tax nexus - Oct. 4, 2012

  The Washington Board of Tax Appeals (BTA) has held that a seller of raw materials used in food manufacturing that delivered its goods in leased rail cars did not have nexus for purposes of the business and occupation (B&O) tax and litter tax.

•   California FTB clarifies business/nonbusiness income characterization of stock sales - Oct. 4, 2012

  The California Franchise Tax Board (FTB) has released a legal ruling that clarifies whether certain types of stock sales should be characterized as business or nonbusiness income. Specifically, the letter ruling considers situations where one corporation purchases stock in a corporation with which it has preexisting operational ties with the intent to fully integrate Target into its unitary business operations, but the intended integration does not occur.

•   District of Columbia promulgates corporate income tax regs to clarify mandatory combined reporting - Sept. 24, 2012

  On Sept. 14, the District of Columbia Office of Tax and Revenue (OTR) promulgated combined reporting regulations that are effective for tax years beginning after Dec.31, 2010.These new regulations address several combined reporting issues including the composition of the combined group, worldwide reporting election, determination of taxable income or loss, computation of net operating losses (NOLs),adoption of the Joyce rule for apportionment, treatment of partnerships, FAS 109 deduction and the automatic filing extension for the first combined return.

•   Alabama ALJ clarifies application of NOLs on consolidated returns - Sept. 21, 2012

  An Alabama administrative law judge (ALJ) has issued an opinion and preliminary order finding that a parent company’s net operating losses (NOLs) incurred prior to 1999 could not be used to offset the current year income of one of its subsidiaries on a consolidated return.

•   Minnesota Tax Court finds lack of unitary relationship; no apportionment required for Section 382 limitation on NOLs - Sept. 20, 2012

  On Aug. 20, the Minnesota Tax Court held that an out-of-state provider of pharmacy benefit management and mail-order pharmacy services did not have a unitary business relationship with its one-third owned Minnesota joint venture partnership that created an electronic prescription and information routing service.

•   South Carolina Department of Revenue rules subsidiaries of foreign corporation can file single consolidated return - Sept. 18, 2012

  On Aug.27, the South Carolina Department of Revenue issued a private letter ruling that permits a group of subsidiary corporations of a foreign corporation to file a single South Carolina consolidated return even though the subsidiaries were required to file two different consolidated returns for federal income tax purposes.

•   California Court of Appeal affirms finding of distortion and FTB’s use of alternative apportionment formula in General Mills case - Sept. 14, 2012

  The California Court of Appeal has affirmed a trial court’s determination that a taxpayer’s inclusion of gross receipts from commodity futures contracts used to hedge against price fluctuations was distortive, and an alternative apportionment formula used by the California Franchise Tax Board (FTB) was reasonable.

•   Oregon Tax Court holds nonresident corporate partners of law firm are legitimate taxable corporate entities - Sept. 13, 2012

  On Aug. 6, the Oregon Tax Court held that nonresident professional service corporations serving as partners of a multistate law firm were legitimate “taxable corporate entities.”

•   Oregon Tax Court holds retailer required to include foreign insurance company’s income in consolidated return - Sept. 11, 2012

  The Oregon Tax Court has held that the income of an out-of-state retailer’s foreign insurance company subsidiary was required to be included in the retailer’s consolidated Oregon corporation excise tax returns.

•   California Court of Appeal holds statute allowing deferral of gain from qualified small business stock sales is unconstitutional - Sept. 11, 2012

  The California Court of Appeal has held that a personal income tax statute that allows a taxpayer to defer capital gains on the sale of qualified small business (QSB) stock if the taxpayer uses the gain to purchase stock in another QSB violates the Commerce Clause.

•   North Carolina Court of Appeals upholds forced combination of returns under prior law - Sept. 7, 2012

  The North Carolina Court of Appeals has affirmed a trial court’s decision that upheld the secretary of the North Carolina Department of Revenue’s ability to order a combined return under prior law. However, the Court of Appeals reversed the trial court’s decision that the taxpayer was entitled to a refund of the 25 percent gross understatement penalty that it had paid to the department.

•   Texas District Court determines costs attributable to comprehensive oilfield services includible in COGS deduction for revised Texas franchise tax purposes - Sept. 6, 2012

  On July 2, a Texas district court held that an oilfield service business was entitled to receive a Revised Texas Franchise Tax refund on the basis that certain costs attributable to comprehensive oilfield services are includible in the cost of goods sold (COGS) deduction.

•   Illinois Appellate Court holds taxpayer subject to double interest penalty for failure to participate in 2003 amnesty program - Sept. 5, 2012

  On Aug. 22, the Illinois Appellate Court held that a taxpayer’s additional income tax liability for tax years 2000 and 2001, resulting from a federal audit conducted after the conclusion of the state’s 2003 amnesty program, was subject to a double interest penalty because of the taxpayer’s failure to participate in the program. The justices concluded that even though the taxpayer did not know about the additional liability during the amnesty period, the liability was “due” and required to be paid during the program and, thus, was subject to the double interest penalty.

•   California FTB chief counsel ruling holds gain from sale to unitary partnership not deferred under combined reporting intercompany transaction regulation - Sept. 4, 2012

  The California Franchise Tax Board (FTB) has issued a chief counsel ruling concluding that the sale of a minority interest in a partnership by a member of a combined reporting group to a unitary noncorporate entity should not be treated as a sale between members of a combined reporting group under the intercompany transaction combined reporting regulation. As a result, any gain from the sale would not be deferred.

•   New York Trial Court holds Metropolitan Transportation Authority’s payroll tax is unconstitutional - Aug. 31, 2012

  On Aug. 22, the Supreme Court for Nassau County, N.Y., held that the metropolitan commuter transportation mobility tax is unconstitutional because the New York State Legislature did not follow proper procedures in enacting the law. However, the New York State Department of Taxation and Finance has announced that taxpayers who have been paying the MCTMT should continue to pay and file returns.

•   New Jersey amends treatment of stored value cards - Aug. 23, 2012

  On June 29, New Jersey amended its unclaimed property statutes related to stored value cards. There are several important components to the new version of the stored value card law that will affect both holders and owners of unclaimed property, and possibly taxpayers subject to the New Jersey Corporation Business Tax.

•   North Carolina enacts 2012 omnibus tax bill - Aug. 23, 2012

  On June 26, North Carolina adopted an omnibus tax bill, which provided many technical changes and clarifications, the most relevant of which are amendments to the Article 3J credits, the expanded definition of “holding company,” and the amended definitions for sales and use tax.

•   California Court of Appeal decides to rehear Gillette case concerning Multistate Tax Compact apportionment election, vacates earlier decision - Aug. 22, 2012

  On Aug. 9, the California Court of Appeal surprisingly filed an order that mandates a rehearing of its decision in the Gillette case that was released on July 24. The Court granted the motion on its own order and vacated the decision and opinion for the case. In Gillette, the court had ruled in favor of a group of taxpayers electing to use the equally weighted three-factor apportionment formula provided by the Multistate Tax Compact.

•   Florida Department of Revenue rules on sales factor treatment of online tuition and hedging receipts - Aug. 14, 2012

  The Florida Department of Revenue recently released two technical assistance advisements that address the sales factor apportionment treatment of certain receipts. On May 17, the department held that receipts from the provision of online courses are properly sourced to the students’ states of residence. On May 25, the department ruled that gross receipts from hedging commodity prices are not true sales.

•   Indiana Supreme Court reverses Indiana Tax Court ruling on sourcing of carrier pickup sales - Aug. 14, 2012

  Reversing an August 2011 decision of the Indiana Tax Court, the Indiana Supreme Court recently held that for purposes of the adjusted gross income tax, a taxpayer’s sales of products to Indiana customers who picked up the products through third-party common carriers outside the state should be sourced to Indiana.

•   California Court of Appeal allows taxpayers to elect equally weighted three factor apportionment formula - Aug. 8, 2012

  The California Court of Appeal has ruled in favor of a group of taxpayers electing to use the equally weighted three-factor apportionment formula that is provided by the Multistate Tax Compact, in lieu of an apportionment formula requiring use of a double-weighted sales factor.

•   Pennsylvania enacts single factor apportionment and changes to appeals process, sales and use tax and certain credits - Aug. 8, 2012

  On July 2, Pennsylvania Gov. Tom Corbett signed into law House Bill 761, which has become Act 85 of 2012 (Act 85). Act 85, among other things, completes Pennsylvania’s transition to single sales factor apportionment, extends the due date for filing a report of federal changes, amends provisions related to certain credits and makes several administrative/procedural changes, including changes related to the administrative appeals process and sales and use tax filing requirements.

•   Illinois enacts legislation that extends and revises Enterprise Zone Program - Aug. 8, 2012

  On Aug. 7, Illinois Gov. Pat Quinn signed legislation that extends the state’s Enterprise Zone program and allows for new areas to be designated as “enterprise zones.” Specifically, the legislation (i) extends the sunset of the Illinois Enterprise Zone program, (ii) creates an Enterprise Zone Board and (iii) increases the reporting requirements of companies that receive tax benefits from the Enterprise Zone and High Impact Business programs.

•   New Jersey Division of Taxation addresses sourcing of income from gift card sales - July 26, 2012

  On June 29, the New Jersey Division of Taxation issued a letter ruling addressing the application of the Corporation Business Tax (CBT) to the sourcing of income from a taxpayer’s sales of stored value cards, gift cards and gift certificates to retailers. The redemption fees attributable to a consumer’s redemption of gift cards in stores located in New Jersey, and the income recognized from dormant gift cards and deferred unredeemed gift cards, which were activated in New Jersey, were sourced to the numerator of the CBT sales factor.

•   North Carolina may not redetermine income or force combination until administrative rule is adopted - July 16, 2012

  On June 20, North Carolina Gov. Bev Perdue signed legislation providing that, except for a voluntary redetermination, the secretary of the North Carolina Department of Revenue may not redetermine the state net income of a corporation properly attributable to its business carried on in the state until an administrative rule is adopted and becomes effective.

•   California repeals multistate tax compact to clarify disallowance of equally weighted three-factor apportionment election - July 16, 2012

  On June 27, California Gov. Jerry Brown signed budget trailer legislation that repeals the Multistate Tax Compact and clarifies that an election to use the equally weighted three-factor apportionment formula provided in the Compact is not permitted in California. The legislation also clarifies more generally that tax elections must be made on original, timely filed returns and are binding on the taxpayer.

•   Indiana Supreme Court holds income of foreign reinsurance companies is not subject to premiums tax, not exempt from adjusted gross income tax - July 12, 2012

  On June 21, the Indiana Supreme Court ruled that the income received by a package delivery corporation’s affiliated foreign reinsurance companies that insured risks located in Indiana was not subject to the state’s gross premium privilege tax, and as a result, not exempt from the state’s adjusted gross income tax.

•   Rhode Island enacts tax amnesty program - July 5, 2012

  On June 15, Rhode Island Gov. Lincoln D. Chafee signed budget legislation, enacting a state tax amnesty program that is set to run during a 75-day period from Sept. 2 through Nov. 15, 2012. For qualifying taxpayers, the Tax Administrator will generally waive penalties for any state tax liabilities for taxable periods ending on or prior to Dec. 31, 2011. In addition, the applicable interest rate will be reduced by 25 percent.

•   Mississippi Court of Appeals holds Department of Revenue has burden of proving alternative apportionment method - July 5, 2012

  In a case involving the application of sales factor sourcing methods, the Mississippi Court of Appeals has held that the Mississippi Department of Revenue had the burden of proving that the use of alternative apportionment on the taxpayer’s income to Mississippi was appropriate.

•   Illinois issues new sales factor apportionment regulation for publishing industry - June 20, 2012

  On June 5, the Illinois Department of Revenue promulgated a new regulation addressing the computation of the sales factor used to determine a nonresident publisher’s taxable Illinois-sourced income.The regulation discusses the sourcing of sales of (i) tangible published materials, (ii) nontangible published materials and (iii) publishing services, and provides definitions of relevant terms such as “published material” and “publishing services.”

•   Louisiana enacts legislation expanding single sales factor to participants in new apportionment program - June 14, 2012

  Louisiana has enacted legislation that expands single sales factor apportionment for purposes of the corporate income and franchise taxes to qualified businesses that participate in a new corporate tax apportionment program.
  

•   West Virginia Supreme Court holds out-of-state intangible holding company does not have income or franchise tax nexus - June 7, 2012

  The West Virginia Supreme Court of Appeals has held that an out-of-state company licensing intellectual property to out-of-state licensees did not have corporation net income tax or business franchise tax nexus. The court based its determination on the following facts of the case: (i) the licensor lacked a physical presence in the state and did not sell products or services within the state, (ii) the licensees manufactured the products bearing the trademarks and trade names outside the state, (iii) the licensor did not direct or dictate how the licensees distributed the products, and (iv) the licensees did not operate any stores in the state and only sold the products to wholesalers and retailers in the state.

•   Tennessee enacts legislation affecting related-party add-back rules and net worth group membership - June 1, 2012

  Applicable to tax years ending on or after July 1, 2012, Tennessee Gov. Bill Haslam has signed legislation that amends the related-party add-back rules currently governing intangible expenses for purposes of the corporation excise (income) tax.

•   Minnesota Tax Court holds merchandisers create corporate income tax nexus for out-of-state distributor - May 31, 2012

  The Minnesota Tax Court has held that the in-state activities of merchandisers employed by an out-of-state distributor created corporate income tax nexus for the distributor. Specifically, the merchandisers’ activities exceeded the mere “solicitation of orders” that would receive immunity from a state’s income tax under Public Law 86-272 (P.L. 86-272).

•   Virginia Circuit Court holds add-back exception applies if licensing royalties are indirectly paid to related member - May 31, 2012

  A Virginia circuit court has held that a taxpayer was entitled to an exception to the general rule requiring the add-back of federal intangible expense deductions and costs to taxable income. Virginia law provides an exception for certain taxpayers that license intangible property to unrelated parties. The taxpayer was a franchisor that sublicensed the intangible property to franchises that were not related to the original licensor. The court determined that the original licensor met the “licensing to unrelated parties” requirement based on the sublicense agreements, and as a result, the franchisor taxpayer was entitled to a refund based on the exception to the add-back rule.

•   District of Columbia OAH holds transfer pricing study is arbitrary and unreliable basis for determining reallocation of income - May 30, 2012

  The District of Columbia Office of Administrative Hearings (OAH) has issued an order reversing an assessment that was issued against a software company on the basis of a transfer pricing analysis.The OAH determined the transfer pricing study was “arbitrary, capricious and unreasonable” because it did not comport with appropriate transfer pricing methodology as allowed by the federal Treasury regulations interpreting Internal Revenue Code Section 482.

•   South Carolina Court of Appeals holds Department of Revenue has burden of proof when proposing alternative apportionment method - May 21, 2012

  The South Carolina Court of Appeals has held that when the South Carolina Department of Revenue proposes an alternative apportionment method, it has the burden of proving that its alternative method of apportionment is the most appropriate.

•   Oklahoma Supreme Court holds out-of-state intangible holding company did not have income tax nexus - May 16, 2012

  The Oklahoma Supreme Court has held that an out-of-state company’s licensing agreement with another out-of-state company did not create Oklahoma corporation income tax nexus.

•   Mississippi enacts legislation providing certain corporate distributions are tax free - May 15, 2012

  Mississippi Gov. Phil Bryant has signed legislation which provides that a distributing corporation does not recognize gain for corporate income tax purposes on distributions of stock or securities of a controlled corporation (subsidiary) that satisfy certain federal provisions. Specifically, no gain is recognized if the distribution is part of a transaction or overall plan that qualifies for tax-free treatment under Internal Revenue Code (IRC) sections 3552 or 368(a)(1)(D).

•   Philadelphia provides BIRT/NPT relief to investment companies - May 8, 2012

  On April 10, 2012, Mayor Michael Nutter signed legislation, which, effective for tax years beginning on or after Jan. 1, 2012, excludes an “investment company” and its owners from the Philadelphia business income and receipts tax (BIRT, until recently, known as the business privilege tax) and exempts net profits from “investment company” activities from the Philadelphia net profits tax. The legislation is part of an initiative by the city of Philadelphia to bring jobs and investment into the city.

•   Texas comptroller’s amnesty program begins June 12, 2012 - May 3, 2012

  The Texas comptroller’s Office has officially announced a new amnesty program set to run from June 12 through Aug. 17, 2012. Under the Project Fresh Start amnesty program, the state will waive penalties and interest associated with delinquent tax reports and underreported tax liabilities that are paid by eligible participants during the amnesty period. Only reports that were originally due before April 1, 2012, are eligible for the limited-time amnesty.

•   New York enacts budget legislation including extension of credits, amendment of hotel room remarketer sales tax provisions - May 2, 2012

  New York Gov. Andrew M. Cuomo has signed into law 2012-13 budget legislation that implements many tax changes. Highlights of the legislation include extensions of corporation franchise tax credits and the sales tax exemption for alternative fuels.The legislation also revises the sales tax collection requirements imposed on hotelroom remarketers.

•   Kentucky legislation authorizes tax amnesty program - April 30, 2012

  On April 11, Kentucky enacted legislation authorizing a tax amnesty program to be conducted during the state’s 2012-2013 fiscal year, covering most tax types imposed by the state and applying to liabilities incurred during nearly 10 years of tax periods.

•   Nebraska enacts legislation adopting market-based sourcing - April 25, 2012

  On April 10, Nebraska Gov. Dave Heineman signed tax legislation that, beginning Jan.1, 2014, will apportion sales of services, application services, and intangibles, for purposes of corporate income tax, based on a market-based source of income approach rather than the current “all-or-nothing” cost-of-performance approach.

•   Indiana Department of Revenue rules on NOL calculation and consolidated group membership issues - April 2, 2012

  In an administrative appeal from an assessment published as a Letter of Findings, the Indiana Department of Revenue recently determined that a corporate taxpayer could not factor foreign source dividend deductions into its net operating loss (NOL) deduction calculation.

•   Indiana Supreme Court reverses and remands forced combination decision on procedural grounds - March 27, 2012

  The Indiana Supreme Court has reversed an Indiana Tax Court decision that required the Indiana Department of Revenue to consider alternative methods of apportionment before requiring a combined return. According to the Indiana Supreme Court, the department provided sufficient support to force combination, which required the taxpayer to provide evidence that combination was not appropriate.
  

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