Throwback Rules

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?

28 State Tax Developments You May Want to Know - Sept 12, 2017

The following are state tax and business developments I have curated since September 5th, and posted in the LEVERAGE SALT LinkedIn group:

  1. State income tax return extended due dates 2016 calendar year

  2. While Virginia Supreme Court Holds “Subject-To-Tax” Means “Actually Taxed,” Determination of “Actually Taxed” is Relatively Broad for Purposes of Addback Exception

  3. Corporate Income Tax Rates around the World, 2017

  4. Wrapping Up August – and Looking Forward to September

  5. How Much Does Your State Collect in Corporate Income Taxes Per Capita?

  6. The Virginia Tax Amnesty Program will run for a 62-day period, beginning on September 13, 2017, and ending on November 14, 2017.

  7. Guidance for 2017 Tennessee Hall Income Tax Released

  8. As Political Division Grows, State Budgets Come in Later (If at All)

  9. How Did America's Richest State Become Such a Fiscal Mess?

  10. Indiana Ruling Holds that Taxpayer Successfully Showed Nexus with Foreign Jurisdictions for Sales Factor Throwback Purposes

  11. New York ALJ Rules in Favor of Taxpayer - Receipts from Online Services Sourced Out-of-State

  12. New York State Department of Taxation and Finance Removes Draft Proposed Regulation Section 4-2.12 Regarding Receipts from Certain Services to Investment Companies

  13. South Carolina Appellate Court Affirms that Satellite TV Provider Must Source Subscription Receipts Based on Market because Signal Delivery is Income-Producing Activity

  14. New York Advisory Opinion Explains Taxation and Sourcing of Interactive Software with Customized Skinning

  15. New New York Law Extends Certain Real Property Transfer Tax Rate Reductions to 1 September 2020

  16. California FTB proposes new withholding regulation for pass-through entities

  17. This week's local policy digest includes the NC Brunch Bill, a housing discrimination ordinance, and a balloon ban.

  18. California partnership returns: penalty relief available for 2016 returns and revised extension period in 2017

  19. NFL Superstars Sacked by Jock Taxes on Away Games

  20. State Revenue Volatility: An Inevitable Challenge With a Workable Solution

  21. States vs. Marketplace vs. Third-Party Sellers––The Amazon Sales Tax Challenge

  22. First U.S. Prosecution Over ‘Zapper’ Software Nets Guilty Plea

  23. New York Tax Office Loses Another Case Against Remote Company

  24. South Carolina income producing activity at customer location

  25. NORTH CAROLINA IMPORTANT NOTICE: SALES TAX BASE EXPANSION PROTECTION ACT

  26. TENNESSEE: Is there more than one formula for apportioning franchise and excise tax?

  27. TENNESSEE: 2017 SALES AND USE TAX GUIDE

  28. Virginia Supreme Court Rules in Addback Case

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 LS to daily curate state tax developments relating to a specific industry, state(s), tax type and issueYou 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.

State Taxation: 'Food For Thought'

My recent posts have contained some of my notes and questions I recorded from attending the Paul J. Hartman State and Local Tax Forum last week. This is my last post which lists 20 takeaways or 'food for thought.'

  1. The Organisation for Economic Co-operation and Development (OECD) does not identify tax havens, so why are the states?
  2. Discretionary Authority is no warning. It doesn't allow taxpayers to know what a state will do (i.e., using alternative apportionment or combined reporting to force a taxpayer to deviate from the standard apportionment formula; or modifying a costs-of-performance statute to get a market-based sourcing result).
  3. International taxation is starting to use state tax concepts such as combined reporting and apportionment.
  4. "Are 'bright-line' tests knee-jerk reactions?" - quote from one of the speakers
  5. "Tax Haven legislation should be trashed. Tax haven legislation picks winners and losers." - quote from one of the speakers
  6. The only way to fight retroactive legislation is to monitor it and lobby against it before it is enacted.
  7. Should states be able to enact retroactive legislation to protect the state budget from financial loss?
  8. Should judicial decisions only apply to the taxpayer involved in the litigation if it involves a refund?
  9. Retroactive legislation should not be able to increase revenue.
  10. Ask yourself, if a 'technical correction' is creating new law or changing the interpretation of the law from the original interpretation that has been followed by taxpayers for years. If the answer is yes, do something.
  11. Should retroactive legislation be limited to a state's statute of limitations?
  12. Prior legislatures can't bind future legislatures.
  13. New legislatures can't determine, or know, the intent of prior legislatures. Shouldn't be able to unbind or unwind prior legislation.
  14. "Retroactive legislation is telling you what the law was." - quote from one of the speakers
  15. Are we moving from apportionment to allocation when we use single-sales factor apportionment and market-based sourcing?
  16. Is single-sales factor apportionment 'fair apportionment'? Moves income to customer states, not to states where the activities occurred that generated the income. Income is not based solely on sales.
  17. "Throwback and throwout rules are unconstitutional because they look beyond the borders of the state." - quote from one of the speakers
  18. If alternative apportionment is wide open and anything goes, why have statutes?
  19. "To gain true insight, read the entire case - don't just read the blurb. See what it says and what it doesn't say." - quote from one of the speakers. Get creative. See the case, the issue from a different perspective. Ask "why not."
  20. Does common sense apply? If so, is your definition of 'common sense' the same as mine?

Obviously, I obtained all of the thoughts above from the Forum. Some are quotes from speakers, some are ideas paraphrased from a speaker's discussion, and others are personal reflections. 

state throwback rules make bad dinner guests

Let's imagine I invited 12 people over for dinner. For this particular dinner, each plate is filled and sat on the table before the guests arrive. As time goes by, all of the guests show up except for dinner guests #1 through #3. After about 20 minutes, dinner guest #4 asks if he can eat the food sitting on dinner guest #1's plate.

Another 20 minutes goes by and dinner guest #4 asks if he can eat the food sitting on dinner guest #2's plate.

Another 20 minutes goes by and dinner guest #4 asks if he can eat the food sitting on dinner guest #3's plate.

The above scenario is similar to what happens when a state has a throwback rule and another state doesn't tax the company. Dinner guest #4 represents the state with the throwback rule. Dinner guests #1 through #3 represent states that don't tax the company. As a result, the state with the throwback rule wants what is left or what isn't taxed by the other states, regardless of the fact that the food (or sales) was not meant for dinner guest #4.

The Council on State Taxation (COST) recently commented on a bill in Indiana that would repeal the state's throwback rule. COST has a formal policy statement on throwback rule provisions that asserts throwback laws seek to require companies to pay tax in one state on income that another state has chosen not to tax or is legally unable to tax. According to COST, a company's tax liability in one state should not be measured by its tax in another state. Throwback rules discourage investment in a state. Consequently, such rules must not be adopted and be repealed.

I agree with COST's position. A company's liability in one state should be measured by the company's activity in that state. A state should not be able to tax a company on activity that does not occur in that state simply because the other state chooses to not tax the company or doesn't have the legal authority to tax the company. 

As COST's policy statement mentions, repealing throwback laws will remove the constant discrepancies and arguments related to determining when a taxpayer is 'taxable in another state.' Throwback laws generally allow a taxpayer to not throwback sales as long as the taxpayer can prove that it is 'taxable in the other state.' Unfortunately, states have different thresholds and definitions for what it means to be 'taxable in another state' causing unnecessary confusion and controversy.

What do you think? Should dinner guest #4 get to eat other guests' food?