what the "salt"?

Back in the early days of my career and marriage (in Decatur, Illinois), my wife and I grabbed some lunch from a fast-food joint and drove down to the lake. It was a little chilly that day, so we just stayed in the car while we ate and looked out over the lake. The sun made it feel a little warm in the car, so we kept all of the windows slighly cracked open. It was a beautiful day until............

All of a sudden, we heard a "caw, caw" as a flock of birds were flying over and then........."woosh." The flock of birds had decided to drop a bomb on us all at once. The whole car was covered in (you guessed it) bird poo. It smelled so bad. It was everywhere. Oh yeah, did I mention, the windows were all slightly open? So some of the bird poo got in the car and we could definitely smell it really good.

We immediately rolled the windows up .Then drove (a long way) to the closest car wash we could find. All the while, waving at people as we drove down the road with my car covered in bird poo. Good times.

What's the point of this story?

How does this have anything to do with state taxes?

Well, just as in life, you could have a great plan for your business and think everything is going splendid. Things could be going smoothly, running like clock work and then, "bam." Surprise - here's an audit. A notice. Or you wait until you decide to sell the company and during the due diligence process you learn that your company has historical tax liabilities or exposure that the buyer wants you to clean-up or adjust the purchase price.

There are a lot of grey areas and uncertainties in state tax law that impact busineses of all sizes. Unfortunately, these uncertainties if unaddressed can creep up on you and drop a bomb when you least expect it.

HOW DO YOU ELIMINATE STATE TAX RISK?

There are proactive measures a company can take such as a nexus review, taxability review, performing reverse audits, etc. Then the company can make an informed decision as to the best methods to resolve or move forward.

The situation that complicates the risk analysis is when you know the position is going to be reviewed by a potential buyer of the company in the near future.

If undergoing due diligence, how do you prove to the buyer (and their accounting firm) that the risk does not exist?

What if the state's law and rulings do not provide concrete or consistent guidance?

Do you seek a private letter ruling request or simply document the position in a memorandum for the file and hope the buyer (and their accounting firm) under due diligence will remove the risk?

As an advisor to both sellers and buyers during due diligence, I am always an advocate for the party I am advising. I always support the company's positions with all available legal authority. Sometimes its clean-cut. Sometimes it's not.

However, even when there is substantial authority, if you can't get to "more likely than not," would you advise the buyer to conclude there is no risk? Would you advise the buyer to not hold money back in escrow or reduce the purchase price or insert some other protection into the agreement?

Despite a history of not filing based on a nontaxable position and the fact that the company has not received any contact (notices, assessments, etc.) from the state, will the buyer agree no risk exists?

Even if there is substantial authority, a buyer (and their accounting firm) may still disagree.

So is the company's best course of action to request a private letter ruling?

If the company wasn't considering a sale in the future, you may simply document the file and let "sleeping dogs lie." But since the company is considering a sale in the future and you don't want the issue to be a sticking point under due diligence, you may advise the company to pursue the ruling request.

The side benefit of pursuing a ruling request is that the company will gain some level of certainty even if the company never sells. I say "level of certainty" because a ruling is only as good as the facts presented and the law at the time of the ruling. If the facts aren't accurately communicated, the conclusion could be disputed.

Awww, the fun of state taxes.

QUOTES TO CONSIDER

"If you choose not to decide, you have still made a choice." - Geddy Lee

"The way we see the problem is the problem" - Stephen R. Covey

"Most see what is before them; the strategic leaders sense what is around the corner." - Kirby Martzall

"In the bullfight, the bull perceives the cape as the problem, but it is the sword that kills him. Are you chasing the cape or the sword?" - Mike Bell

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.

It Feels Like Life Has Been Cancelled = Opportunity to Change?

Good morning. It’s been almost 2 years since I wrote on this blog. Now that we are all working from home, I thought it would be good to start-up again. Perhaps therapeutic for myself and hopefully for you. Yes, I will write about state taxes, but I want to mostly talk about the new challenges we face and our fight to move forward.

Before I do, I just want to say, I hope you are doing well and are safe. I hope you aren’t reading the news 24/7 and getting stressed and depressed. I had been doing that all week this week and I can’t do it anymore. It is demotivating and paralyzing. Can’t keep that up. I normally don’t watch the news because all they do is sensationalize and spread fear on a normal, daily basis. Now that they have this virus to talk about, it’s like non-stop negativity and politics. I normally don’ trust the media or politicians and when they are the only ones talking, it’s hard to read between the lines and find the truth.

Okay. Let’s talk.

It feels like life has been cancelled. Like waking up from a bad nightmare or movie. BUT, in the wake of this crazy time, this is when life becomes real. When we find out what really matters. When we are forced to pause, to stop our regular routine and change. Change is difficult, even when it is optional. However, sometimes we will only change if we are forced to change.

Trust me, I would rather this 'thing' not be the cause of change, but we can't change that. However, as we are confined to our homes with our families, we should try to be as positive as possible (which is difficult with the news and media constant barrage). In any case, we should try to be more innovative during this time. Think of all the things you do - why have you been doing them that way? Why is that your routine? Have you ever tried doing things differently? How could you do things differently?

Despite uncertainty, life is too short to live in fear. Let's live by faith and strength. Let's do what we can. Let's respond, not react.

Peace. Be Blessed.

STATE TAX KNOWLEDGE UPDATE (53 ITEMS) - AUGUST 3, 2018

The following are state tax and business developments I have curated since July 3rd, and posted in the LEVERAGE SALT LinkedIn group:

Some of the items may be on the same state/issue/topic, but they are from different sources which may give you a broader perspective to help your company or client.

1. New Jersey Closes Loophole, Increases Multi-Millionaires Rate

2. Alabama Announces Guidance in Response to Wayfair Decision

3. Michigan Provides Further Guidance on Impact of Federal Act

4. Remote Sellers Will Have Wisconsin Tax Duties Beginning October 1

5. Indiana Updates Remote Seller Guidance

6. Indiana Explains Income Taxes on Overseas Earnings

7. Enacted Louisiana law addresses the timing of expiring corporate income tax provisions

8. California OTA Issues Updated Draft of Proposed Permanent Regulations on Administration and Procedures of Appeals and Petitions for Rehearing

9. Indiana DOR Bulletin Discusses Recently Enacted Legislation, Including State Impact of IRC Sec. 965 Repatriation Provisions, GILTI, and IRC Sec. 163(j)

10. Maine Revenue Services Explains Procedures for Filing and/or Amending Returns Given State’s Nonconformity to Recent Federal Tax Law Changes

11. Pennsylvania: Bulletin Reflects New Law Reversing DOR’s Previous Policy by Allowing for Depreciation of 100% Bonus Property

12. New Jersey: New Law Requires Amnesty Program with Potential Waiver of 100% Penalties and 50% Interest

13. Massachusetts Appellate Tax Board Holds that Taxpayer is a “Manufacturer” Required to Compute its Corporate Excise Tax Liability Using Single Sales Factor Apportionment

14. New Jersey: New Law Includes Mandatory Combined Reporting Regime, Market-Sourcing Provisions, CBT Surtax, and Responses to Some Provisions of the Federal 2017 Tax Act

15. New York: Appellate Court Affirms Tax Appeals Tribunal Ruling Addressing Bank’s Treatment of NOLs

16. Vermont: New Law Updates State Conformity to Internal Revenue Code; Responds to Some Provisions of the Federal 2017 Tax Act

17. Georgia DOR Explains Exclusion for Dividends from Sources Outside the US, Including Application of IRC Sec. 965 Provisions

18. North Carolina: New Law Modifies Sourcing Language for Receipts from Intangibles for Sales Factor Purposes

19. Oregon DOR Issues Administrative Rule on New State Repatriation Tax Credit Pursuant to IRC Sec. 965 Repatriation Income for Tax Year 2017

20. Connecticut Issues GILTI Guidance

21. North Carolina Changes Intangible Property Sourcing Rules

22. MTC Adopts Apportionment Regulation Amendments

23. Delaware Imposes Tax on Series LLCs

24. Utah Enacts Deferred Foreign Income Changes

25. Florida DOR Holds that Taxpayer May Include Certain Intercompany Sales with Foreign Affiliates in its Sales Factor

26. New Jersey Division of Taxation Explains Upcoming Amnesty Program with Potential Waiver of Penalties, Reduced Interest, and Non-Participation Penalties

27. Alaska: New Law Requires Public Utilities to Use MTC Three-Factor Apportionment Formula for Corporate Income Tax Purposes

28. Connecticut: New Guidance Issued on Treatment of GILTI for Corporation Business Tax Purposes

29. Minnesota DOR Discusses How 2017 Federal Tax Act May Affect Business Tax Returns for Tax Year 2018

30. Rhode Island DOT Comments on Some State Tax Impacts of the Federal 2017 Tax Act

31. Utah: New Law Clarifies Previously Enacted Legislation Involving IRC Sec. 965 Deferred Foreign Income, and Revises NOL Provisions

32. Rhode Island Adopts C Corp IRC Sec. 965 Regulations

33. California Taxpayer Cannot Force Retailer to Seek Sales Tax Refund

34. Minnesota Hosting SST Meeting to Discuss Wayfair

35. Maryland Issues Wayfair Guidance

36. Indiana Wayfair FAQ Page Talks Enforcement

37. SST Meets to Discuss Wayfair

38. Texas Provides Guidance on Wayfair Decision

39. Wayfair Decision Does Not Affect Rhode Island Remote Sellers

40. Minnesota Sets Remote Collection Date

41. Indiana Explains Impact of Wayfair

42. Nebraska Issues Guidance for Remote Sellers

43. Utah Enacts Economic Nexus Law

44. Alabama Explains Impact of Federal Tax Cuts and Jobs Act

45. Michigan Issues Sales Tax Economic Nexus Guidelines

46. MTC Adopts Two Amended Model Rules Pursuant to Section 18 Alternative Apportionment Regulatory Project

47. Alabama DOR Issues Preliminary Guidance on Some State Impacts of the Federal 2017 Tax Act

48. Delaware: New Law Imposes Annual Tax on State-Registered Series LLCs

49. Michigan Appellate Court Affirms Disallowance of MBT Modified Gross Receipts Tax Base Deduction for Purchased Services

50. Vermont Department of Taxation Issues Certain Guidance on Federal 2017 Tax Act, Specifically the Inclusion of IRC 965 Income on State Returns

51. Arkansas DFA Says Remote Sellers Should Register and Collect Tax Pursuant to Recent US Supreme Court Decision that Overrules Quill

52. Kentucky DOR Updates Post- Wayfair Comments; Announces October 1 Enforcement Date and Reiterates Prospective Implementation

53. Nebraska DOR Comments on Recent US Supreme Court Decision that Overrules Quill, Including January 1, 2019 Enforcement Date and Promise of “No Retroactivity”

The above represents 'general curating' of state tax developments into one spot. If you still feel overwhelmed by the volume of state tax developments, please consider my 'custom curating' service. Meaning, clients hire LEVERAGE SALT to daily curate state tax developments relating to a specific industry, state(s), tax type and issue. You can make it as granular as you prefer. This allows you to reduce information overload, and only get the information you need to help your clients or company. This service is provided on a fixed-fee or subscription basis. Contact me at strahle@leveragesalt.com.