are court case decisions worthless?

I attended the Paul J. Hartman State and Local Tax Forum this week. It was the 30th anniversary of the Forum. I’ve attended the conference over the years multiple times. Good conference. Knowledgeable, esteemed and respected speakers (lawyers). These lawyers handle some of the top state and local tax cases and litigation around the country. They also seem to be the same lawyers that speak at ALL of the conferences, so you’ve probably heard of them or met them.

As I was sitting in one of the sessions, the panel of speakers was going back and forth talking about court cases. One of the attorneys was explaining a specific case that the tax practitioner community was looking to as having broad applicability and authority to not only the state and taxpayer involved in the case, but every taxpayer and every state. He explained the facts and issues in the case and did confirm the ruling’s final decision and applicability, etc. However, he also said he disagreed with the ruling and mentioned the dissenting opinion. He thought the reasoning in the case was incorrect and thus, the conclusion was wrong and should be challenged.

Other speakers (attorneys) on the panel mentioned how the case was precedential and should be considered authoritative and reliable for taxpayers. The first attorney still disagreed with the conclusion and seemed to infer that taxpayers should not follow the court case.

That’s when it hit me, a strange epiphany - should taxpayers follow court case rulings?

Can taxpayers follow court case rulings? Yes, the facts matter. Yes, the states involved matter. But if a taxpayer’s facts line up with the facts in a ruling, shouldn’t the taxpayer be able to follow the case’s decision? Or should every taxpayer have to determine on their own, or make another judgement call regarding whether the case was decided correctly?

When does a taxpayer get a clear roadmap?

When does a taxpayer get certainty when the path always seems to be grey?

Taxpayers and state tax practitioners deal with vague statutes and regulations. State notices, publications, letter rulings, and court case decisions are supposed to provide clarity (which they generally do), but if taxpayers can’t follow court case decisions, then what good is a court case decision?

I know, I know, court case decisions are often appealed and I am not talking about those. I’m talking about court case decisions that are final (no appeal) and appear to be settled (until the next challenge). Can taxpayers rely on those decisions?

I also know that states often change their statutes or regulations after a court case if the state disagrees with the ruling or wants to limit its applicability (let’s not even talk about retroactive legislation - which I’ve done in the past).

Every question in the state tax profession is a research question due to the number of jurisdictions, the lack of uniformity and unique client fact patterns. The search to find answers and provide certainty is a daily challenge. If taxpayers and tax practitioners can’t rely on court case decisions, then what can we rely on?

Welcome Back

It’s been awhile since I’ve posted on this blog. I got busy doing my day job and I’ve just been posting quick hits on Linkedin. I plan to start posting more on this site going forward. I hope you join me.

Recent developments in the world have made it difficult to focus on work (like normal) this week. However, we have to push through. Momentum is a curious thing. It takes effort to create and then once you have it, it seems to have a life of its own. So if you are struggling to focus, I recommend you just start doing and the momentum will hopefully build.

In regards to state tax developments, the SALT (state and local tax) world continues its normal path of non-uniformity, of complex rules, of daily developments and changes; making it difficult for businesses to comply, causing pitfalls, missteps and also making it a challenge for state tax professionals to stay up to speed. Even with the developments of AI and other tools, a consultant’s knowledge, judgment and advocacy, and most of all - creativity, can not be duplicated. I call all of that - LEVERAGE.

Over the past week and recent months, I’ve dealt with:

• cleaning-up client historical liabilities via income tax sales tax voluntary disclosure agreements (VDAs).

• helping clients determine where they need to file and don’t need to file returns.

• helping clients determine if what they are selling is taxable.

• helping clients decide if they should do a private letter ruling.

• helping clients determine if they are eligible to use P.L. 86-272.

• reviewing another firm’s Tennessee franchise and excise tax filings and ensuring the correct entity is filing the return, and advising whether a consolidated net worth election makes sense.

• advising foreign companies investing in Tennessee on Tennessee credits and incentives and helping them obtain and use those credits.

• advising foreign companies operating in the US on sales tax implications and income tax filing requirements.

Just like when I started this blog in 2009, in the days ahead, I hope to write about developments (in a non-technical manner), and provide commentary on the state tax profession, albeit, from an older and ‘much wiser’ and experienced perspective. (Yes, I’m now 50 years old and have been doing this for 28 years). Crazy stuff.

I hope you’ll join me on this journey. Your journey. Your company’s journey. Your client’s journey. The profession’s journey.

Be well.

Sincerely,

Brian (Daily) Strahle

Improvise. Adapt. Overcome.

On this Memorial Day, I want to thank all the veterans, all those who have served and are currently serving in the U.S. military. Your sacrifice is not in vain and is not unnoticed.

In fact, during these unprecedented times this is when all of us could benefit from adopting a mindset of improvising, adapting and overcoming.

We should accept the situation - the fact that things are not the same and may not go back to the way they were. This may not necessarily be a bad thing in some cases. Meaning, we often don't look for a 'better way' to do something or are even open to other ways of doing something unless we are forced to. We often just keep going down the same path and doing the same things if they are working. Well, the chain is broken. Time to think of different ways. Time to think of better ways.

If you were looking for an opportunity to try something new or to try a different method of doing something - THIS IS IT!

LEVERAGE this moment. LEVERAGE this negative situation into something positive. We can't control the situation, but we can control ourselves. We can control the actions we take.

I want you to have a Happy Memorial Day and a Happy rest of 2020!

Improvise. Adapt. Overcome.

CLEANING UP STATE TAX EXPOSURE

In case you missed what states have amnesty programs going on currently, I thought I would send you a link to COST's (Council on State Taxation) quick summary.

Amnesty can be a great tool for states and taxpayers, but sometimes a voluntary disclosure agreement is a better option.

What is an Amnesty Program?

An amnesty program is generally a time period established by a state to allow taxpayers who are delinquent on their taxes to come forward, and pay those taxes without penalties being imposed. Usually interest is still imposed, but sometimes it may be waived as well. Each state amnesty program is different or unique; meaning, they each contain their own set of rules, guidelines and qualifications. Amnesty programs usually pertain to certain tax periods, specific tax types, and taxpayers who meet certain criteria. In other words, "look before you leap."

Taxpayers who are eligible for an amnesty program, but don’t take advantage of the program, are often faced with harsh penalties if caught after the program has ended.

Voluntary Disclosure Agreements

When amnesty programs are not in effect, most states still have what they call “Voluntary Disclosure Agreement” (VDA) programs which allow taxpayers to come forward on an anonymous basis, limit the number of prior years required to be filed (usually 4), and pay taxes and interest. Under most VDA programs, penalties are waived, but not interest.

Remember, a voluntary disclosure agreement is only able to be utilized if the state has not already contacted the taxpayer (in most cases). If the state contacts the taxpayer first, the state can make the taxpayer file returns for all previous years in which the company had nexus in the state.

7 Questions Companies & State Governments Should Consider

1. If alternative apportionment is wide open and anything goes, why have statutes?

2. Are we moving from apportionment to allocation when we use single-sales factor apportionment and market-based sourcing?

3. Is single-sales factor apportionment 'fair apportionment'? It moves income to customer states, not to states where the activities occurred that generated the income. Income is not based solely on sales.

4. Are throwback and throwout rules unconstitutional because they look beyond the borders of the state?

5. Should states be able to enact retroactive legislation to protect the state budget from financial loss?

6. Should retroactive legislation be limited to a state's statute of limitations?

7. Should judicial decisions only apply to the taxpayer involved in the litigation if it involves a refund?

Will Your Company Owe More or Less State Tax After the Merger?

Is your company considering restructuring its business? Perhaps creating new legal entities or re-aligning its lines of business into different entities? Changing the ownership structure of the legal entities within the commonly controlled affiliated group? Or maybe it is considering acquiring or merging with a new business (unrelated third-party)?

Regardless of your company's situation, in each of the above mentioned scenarios, your company must perform its due diligence prior to completing any transaction or restructuring. That due diligence should take into consideration the impact the restructuring or transaction will have on the business operations, legal obligations, insurance, finance, and tax, etc.

Additionally, the company can't neglect state and local tax due diligence. If the transaction ends up costing the company a significant amount of state tax dollars now or in the future, you may be asked if these issues were considered or reviewed prior to completing the transaction.

The state and local tax impact can be material and varied. Some of the potential state and local taxes to take into consideration are: income tax, gross receipts taxes, franchise taxes, sales and use taxes, property taxes and transfer taxes.

Usually the biggest concern in regards to the transaction from a state and local tax perspective are:

1. Is there any sales tax on the sale or transfer of assets or change in ownership?

2. Is there any transfer tax on the transfer of assets or change in ownership?

The answers to these questions depends on the state or states involved.

In addition to the above, the impact that the restructuring will have on the business' state tax nexus (taxable presence) position across the country should be reviewed and considered before making any changes.