The founding mothers and fathers' ' ' 'OR' ' ' '

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The founding mothers and fathers. . . .OR. . .
.
A Funny Thing Happened on The Way to the
Revolution
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2008Corporate and Franchise TaxUpdate

• Southeastern Association of Tax Administrators
• Williamsburg, Virginia

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DRAMATIS PERSONAE

• Benjamin Franklin . . . . . Art Rosen
• Martha Washington . . . Loren Chumley
• King George III. . . . . . . Mike Sontag
• Thomas Jefferson . . . . . .Jordan Goodman
• Betsy Ross. . . . . . . . . . . . Carolynn
  Iafrate
• Abigail Adams . . . . . . . . Marilyn Wethekam
• Walter Cronkite . . . . . . .Bill Townsend

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DRAMATIS PERSONAE

• In Spirit But Not In Presence
• T. Reagan Farr
• Bill Backstrom

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NEXUS
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NEXUS DEVELOPMENTS

• Why are state tax officials and state
  legislatures advocating economic nexus and
  expanding attributional nexus?
• Why are they trying to undo all that we
  accomplished through our bloody fighting in the
  late 1770s and our negotiations and brilliant
  creations in the mid-1780s?
• --Benjamin Franklin
  (séance on Bastille Day, 2008)

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History of Attempts at Taxing Remote Businesses
1959
Northwestern States Portland Cement Company v.
Minnesota
-
-
1942
P.L. 86-272
Nelson v. Sears, Roebuck Co.
Nelson v. Montgomery Ward Co.
National Bellas Hess, Inc. v.Department of
Revenue of the State of Illinois
-
1967
1980s
- States Break the Law
1992
1992
Quill Corporation v. North Dakota
Quill Corporation v. North Dakota
1992
Geoffrey v. South Carolina and offspring
-
et.seq.
E-Commerce
E-Commerce
late 1990s
late 1990s
National Tax Associations Telecommunications and
- Electronic Commerce Project
1997 1999
National Tax Associations Telecommunications
and Electronic Commerce Project
1997 1999
-
-
Advisory Commission on Electronic Commerce
-
1999 2000
1999 2000
Advisory Commission on Electronic Commerce
2000 Present
2000 Present
-
BATSA
-
Streamlined Sales Tax and Related Federal
Legislation
2004
-
MTC Factor Nexus Proposal
2005
-
OH Commercial Activity Tax
2007
-
MBNA v. West Virginia
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MBNA v. West Virginia640 S.E.2d 226 (W. Va
2006), cert. denied, 127 S. Ct. 2997 (2007)

• Facts
• State Board of Tax Appeals
• Circuit Court
• State Supreme Court Significant economic
  presence

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History of Attempts at Taxing Remote Businesses
1959
Northwestern States Portland Cement Company v.
Minnesota
-
-
1942
P.L. 86-272
Nelson v. Sears, Roebuck Co.
Nelson v. Montgomery Ward Co.
National Bellas Hess, Inc. v.Department of
Revenue of the State of Illinois
-
1967
1980s
- States Break the Law
1992
1992
Quill Corporation v. North Dakota
Quill Corporation v. North Dakota
1992
Geoffrey v. South Carolina and offspring
-
et.seq.
E-Commerce
E-Commerce
late 1990s
late 1990s
National Tax Associations Telecommunications and
- Electronic Commerce Project
1997 1999
National Tax Associations Telecommunications
and Electronic Commerce Project
1997 1999
-
-
Advisory Commission on Electronic Commerce
-
1999 2000
1999 2000
Advisory Commission on Electronic Commerce
2000 Present
2000 Present
-
BATSA
-
Streamlined Sales Tax and Related Federal
Legislation
2004
-
MTC Factor Nexus Proposal
2005
-
OH Commercial Activity Tax
2007
-
MBNA v. West Virginia
2007
-
NH Amends Business Profits Tax
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New Hampshire Business Profits Tax

• Significant economic presence
• 5 N.H. Rev. Stat. Ann. 77-A1.XII

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History of Attempts at Taxing Remote Businesses
1959
Northwestern States Portland Cement Company v.
Minnesota
-
-
1942
P.L. 86-272
Nelson v. Sears, Roebuck Co.
Nelson v. Montgomery Ward Co.
National Bellas Hess, Inc. v.Department of
Revenue of the State of Illinois
-
1967
1980s
- States Break the Law
1992
1992
Quill Corporation v. North Dakota
Quill Corporation v. North Dakota
1992
Geoffrey v. South Carolina and offspring
-
et.seq.
E-Commerce
E-Commerce
late 1990s
late 1990s
National Tax Associations Telecommunications and
- Electronic Commerce Project
1997 1999
National Tax Associations Telecommunications
and Electronic Commerce Project
1997 1999
-
-
Advisory Commission on Electronic Commerce
-
1999 2000
1999 2000
Advisory Commission on Electronic Commerce
2000 Present
2000 Present
-
BATSA
-
Streamlined Sales Tax and Related Federal
Legislation
2004
-
MTC Factor Nexus Proposal
2005
-
OH Commercial Activity Tax
2007
-
MBNA v. West Virginia
2007
-
NH Amends Business Profits Tax
2008
-
MI Business Tax
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Michigan Business Tax

• Physical presence for more than one day or Active
  solicitation
• 350,000 of gross receipts
• A retailer located outside Michigan maintains an
  internet site over which customers may place
  orders the site is intended to reach all persons
  and markets.
• Michigan Revenue Administration Bulletin No.
  2007-6

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Texas Margins TaxNexus Regulation

• Tex. Admin. Code 3.586 states that the
  following activities will subject an entity to
  the Margins tax
• (19) solicitation having employees, independent
  contractors, agents, or other representatives in
  Texas, regardless of whether they reside in
  Texas, to promote or induce sales of the foreign
  taxable entity's goods or services
• (20) telephone listing having a telephone number
  that is answered in Texas

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Oregon Economic Nexus Regulation

• In determining whether a taxpayer has substantial
  nexus with Oregon the department may consider
  whether the taxpayer receives benefits such as
• Laws providing protection of business interests
• Highway or transportation system access
• Access to educated workforce
• Police and fire protection for property in Oregon
  that displays taxpayers intellectual property.
• Oregon Admin. Reg. 150-317.010.

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History of Attempts at Taxing Remote Businesses
-
1942
Nelson v. Sears, Roebuck Co.
Northwestern States Portland Cement Company v.
Minnesota
1959
Nelson v. Montgomery Ward Co.
-
National Bellas Hess, Inc. v.Department of
Revenue of the State of Illinois
-
1967
P.L. 86-272
1980s
- States Break the Law
1992
1992
Quill Corporation v. North Dakota
Quill Corporation v. North Dakota
1992
Geoffrey v. South Carolina and offspring
-
et.seq.
E-Commerce
E-Commerce
late 1990s
late 1990s
National Tax Associations Telecommunications and
- Electronic Commerce Project
1997 1999
National Tax Associations Telecommunications
and Electronic Commerce Project
1997 1999
-
-
Advisory Commission on Electronic Commerce
-
1999 2000
1999 2000
Advisory Commission on Electronic Commerce
2000 Present
2000 Present
-
BATSA
-
Streamlined Sales Tax and Related Federal
Legislation
2004
-
MTC Factor Nexus Proposal
2005
-
OH Commercial Activity Tax
2007
-
MBNA v. West Virginia
2007
-
NH Amends Business Profits Tax
2008
-
MI Business Tax
18
TODAY
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Attributional Nexus Developments

• Barnesandnoble.com, LLC v. State Bd. of
  Equalization, Cal. Sup. Ct. Dkt. No CGC-06-456465
  (Sept. 7, 2007)
• St. Tammany Parish Tax Collector v.
  Barnesandnoble.com, 481 F. Supp. 2d 575 (E.D. LA
  2007)
• Dell Catalog Sales LP v. Tax. and Rev. Dept., NM
  Ct. App. Dkt. No. 26,843 (June 3, 2008)
• N.Y. Tax Law Sec. 1101(b)(8)(vi)
• Amazon.com, Inc. v. Dept. of Taxation and
  Finance, Dkt. No. 08601247 (N.Y. Sup. Ct. filed
  Apr. 25, 2008)
• Overstock.com, Inc. v. Dept. of Taxation and
  Finance , Dkt. No. 107581/08 (N.Y. Sup. Ct. filed
  June 2, 2008)
• Drugstore.com, Inc, v. Division of Taxation, 23
  NJ Tax 624 (Tax 2008)
• Town Fair Tire Centers, Inc. v. Commissioner,
  Mass. App. Tax. Bd. Dkt. No. C280607 (June 9,
  2008)

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Business Activity Tax Simplification Act

• Physical Presence
• Employees for more than 14 days
• Tangible property for more than 14 days
• 86-272
• All business activity taxes, not just net income
  taxes
• All solicitations, not just those for tangible
  personal property
• Not just solicitation, but qualitatives de
  minimis activities such as information gathering,
  visiting vendor, attending media event
• Attribution
• Only if in-state person is performing
  market-related activities and has only one
  principal
• Rationale
• Fair (benefits and protections)
• Maintain federalism and states rights
• Consistent with international scheme
• Little revenue impact

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• Steager v. MBNA America Bank, 640 S.E. 2nd 226
  (2006). Cert denied. 127 S.Ct. 2997 (June 18,
  2007).
• Lanco Inc. v. Director, Division of Taxation, 908
  A 2d 176 (2006). Cert denied. 127 S.Ct. 2974
  (June 18, 2007).
• Capital One Bank v. Commr of Revenue, Nos.
  C263491 and C262598, 2007 Mass. Tax LEXIS 25
  (Mass. App. Tax Bd. June 22, 2007).

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UNITARY ANALYSIS/BUSINESS INCOME
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UNITARY ANALYSIS
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• Appeal of Apple Computers, Inc, California State
  Board of Equalization, 2006-SBE-02. The formal
  opinion was issued on November 29, 2006.
• RR Donnelley Sons Co. v. Department of
  Revenue, Arizona Tax Court, Superior Court,
  Maricopa County, No. TX 2005-050288, June 29,
  2007. Rehearing denied August 24, 2007
• Central National-Gottsman, Inc. v. Department of
  Treasury, State of Michigan, Ingham County
  Circuit Court No. 06-15-MT, October 5, 2007.

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• Cendant Corporation and Subsidiaries v.
  Department of Revenue of Colorado, Case No.
  07CV676, District Court City and County of
  Denver, January 7, 2008.
• ATT Corp. v. Kentucky Finance and Administrative
  Cabinet, KY Bd of Tax Appeals, No. K01-R-18,
  January 4, 2008.
• Golden West Financial Corporation et. al. v.
  Florida Department of Revenue, Florida Appellate
  Court, First District No. 1 D07-0135, February
  19, 2008.

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BUSINESS INCOME
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• ABB C-E Nuclear Power, Inc. v. Director of
  Revenue, Missouri Supreme Court, Dkt. SC 87811,
  January 30, 2007.
• National Holding, Inc. v. Zehnder, Dkt.
  4-06-013-48 Illinois Appellate Court 4th
  District, January 18, 2007. Petition for Leave
  to Appeal denied. 224 Ill.2d 577 (May 31, 2007).
• Science Application International Corporation v.
  Comptroller of the Treasury, Maryland Tax Court
  No. 04-IN-00-0632, May 11, 2006.
• Siegel-Robert, Inc. v. Ruth E. Johnson, Tennessee
  Chancery Court No. 00-3763-III, August 17, 2006.
• The Mead Corporation v. Illinois Department of
  Revenue. 553 U.S. __ (2008).

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• Arizona Department of Revenue Hearing Decision
  No. 200600091-C, May 14, 2007.
• North Carolina Secretary of Revenue Decision No.
  2007-28, September 14, 2007.
• Tate Lyle Ingredients America Inc. v. Alabama
  Department of Revenue, Administrative Law
  Division No. Corp. 07-162, January 15, 2008.
• Kimberly-Clark Corp. Kimberly Clark Worldwide,
  Inc. v. State Department of Revenue, Alabama
  Civil Appellate Court No. 2061117, March 21,
  2008.

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BUSINESS PURPOSE/ECONOMIC ANALYSIS
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• Surtees v. VFJ Ventures, Inc. Alabama Court of
  Civil Appeals, No. 2060478, February 8, 2008.
  Review granted Alabama S. C
• In the Matter of Petition of Hallmark Marketing
  Corporation, New York Division of Tax Appeals
  Dkt. No. 819956. January 26, 2006, affirmed, New
  York Tax Appeal Tribunal, Dkt. No. 819956, July
  19, 2007.
• Ruling of the Commissioner No. 07-15, October 2,
  2007. Virginia Department of Revenue.
• Wal-Mart Stores East, Inc. v. Hinton, North
  Carolina Superior Court, No. 06-CVS-3928,
  December 31, 2007. Appeal pending.

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• Letter of Finding , No. 06-0511, Indiana
  Department of Revenue January 30, 2008.
• The Classics Chicago Inc. v. Comptroller,
  Maryland Tax Court No. 06-IN-00-0226 (April 11,
  2008) and The Talbots, Inc. v. Comptroller,
  Maryland Tax Court No. 06-IN-00-0027 (April 11,
  2008).
• Letter Ruling No. 06-0377, Indiana Department of
  Revenue, December 26, 2007.

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INTERSTATE COMMERCE /DISCRIMINATION
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• Fluor Enterprises Inc. v. Department of Treasury,
  Michigan Supreme Court No. 129149. May 2, 2007.
  Petition for Certiorari denied October 9, 2007.
• George W. Davis and Catherine V. Davis v.
  Department of Revenue, U.S. Supreme Court No.
  06-666, May 19, 2008.
• ATT Corporation v. Mississippi Tax Commission,
  Chancery Court of Hinds County Docket No.
  G-2000-31S/Z. May 26, 2006. (Appeal Pending).
• ATT Corp. v. Surtees, Alabama Court of Appeals,
  No. 2040908. June 23, 2006. Petition for
  Reconsideration granted and decision modified.

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• Vulcan Lands, Inc. v. Surtees, Alabama Appellate
  Court, No. 2060607. November 30, 2007. Petition
  for Certiorari granted Alabama Supreme Court
  February 15, 2008.
• In the Matter of the Appeal of River Garden
  Retirement Home, State Board of Equalization, No.
  297405, September 10, 2006. (Not to be cited as
  precedent). Appeal Pending San Francisco
  Superior Court.
• Note Abbott Laboratories v. Franchise Tax Board,
  Appeal Pending Appellate Court No. B 204210, is
  challenging the lack of a dividends received
  deduction for periods after November 30, 1999.
  The Superior Court
• Johnson Controls, Inc. v. Rudolph ,Dkt. No.
  2004-CA-001566-MR, Court of Appeals (May 5,
  2006) 
• Colgate-Palmolive Company v. Florida Department
  of Revenue, Case No. 1D07-1051, Opinion filed
  June 2, 2008, ___So.2d___. Rehearing requested.

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APPORTIONMENT
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• Multistate Tax Commission Resolution amending MTC
  Reg. IV. 2.(a) to include a definition of gross
  receipts.
• Square D Co. v. Franchise Tax Board, Superior
  Court San Francisco County, April 30, 2007.
• General Mills, Inc. Subsidiaries v. Franchise
  Tax Board, San Francisco Superior Court,
  No.439929, September 26, 2007. Appeal Pending
  1st District Appellate Court No. A120492.
• In the Matter of Disney Enterprises, Inc. v. The
  Appeals Tribunal, New York No. 37 Court of
  Appeals (March 25, 2008).

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• Cost of Performance
• General Motors Corp. v. Commonwealth of Virginia,
  Virginia Supreme Court No. 032533, September 17,
  2004.
• Virginia Department of Taxation Tax Bulletin
  05-3 April 18, 2005.
• Indiana Department of Revenue Letter of Finding
  No. 03-0154, January 1, 2005.
• Revenue Ruling No. 2006-01IT, Indiana Department
  of Revenue, April 1, 2006.

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• Boston Professional Hockey Association, Inc. v.
  Commissioner of Revenue, Massachusetts Supreme
  Judicial Court No. SJC-09287, January 13, 2005.
• California Franchise Tax Board Legal Ruling
  2005-1, March 21, 2005.
• State of Michigan, Internal Policy Directive
  2006-8, September 28, 2006.
• Texas Comptroller of Public Accounts, Letter No.
  2006066226, June 26, 2006.

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• The Interface Group v. Commissioner of Revenue,
  Docket No. C266670-76, Massachusetts Appellate
  Tax Board, July 18, 2006.
• Legal Ruling 2006-02, California Franchise Tax
  Board May 3, 2006
• Ameritech Publishing Inc. v. Wisconsin
  Department, Wisconsin Tax Appeals Commission,
  Dkt. 01-I-227 (P-II), January 22, 2008.
• Payroll Factor
• Marquette Transportation Company, Inc. v. Finance
  and Administration Cabinet, Department of
  Revenue, Franklin County Circuit Court, No.
  05-C1-993 (July 26, 2007).
• Modification of Apportionment Formula
•  U.S. Bancorp v. Department of Revenue, Oregon
  Tax Court No. 4531, March 13, 2007.
• Appeal of Alaska Airlines, Inc., California State
  Board of Equalization, No. 342596 (March 1,
  2007).

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PARTNERSHIPS and LLCS /M ISCELLANEOUS
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TREATMENT OF PARTNERSHIPS AND LLCs
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• Asworth Corporation, HT Forum Inc. and D Aviation
  Services v. Revenue Cabinet, Franklin County
  Circuit Court No. 06-C1-00-288. June 14, 2007.
  Appeal Pending. 
• Note The Tax Modernization Plan, H.B.272, Laws
  2005 amended the Kentucky statutory nexus
  standard to specifically provide that taxpayers
  are doing business and are subject to the
  corporate income tax base on holding a general
  partnership interest in a partnership doing
  business in the state.
• Northwest Energetic Service LLC v. Franchise Tax
  Board, 159 Cal. App. 4th 841, January 31, 2008.
• See Ventas Finance LLC v. Franchise Tax Board,
  San Francisco Superior Court No. CGC-05-44001,
  November 17, 2006 holding the LLC fee was an
  unfairly apportioned tax. The Franchise Tax
  Board has appealed the decision.

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• Sasol North America v. Commissioner of Revenue,
  Massachusetts Appellate Tax Board, No. C273084,
  September 5, 2007.
• In the Matter of the Appeal of Eli Lilly and Co.,
  California State Board of Equalization, February
  1, 2007.

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MISCELLANEOUS CASES
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• Bank Boston Corporation v. Commissioner,
  Massachusetts Appellate Court No. 05-P-1545,
  February 2, 2007.  
• Fleet Funding Inc. v. Commissioner of Revenue,
  Massachusetts Appellate Tax Board No. C271862,
  February 21, 2008.
• Kentucky v. Autozone Development Corp., Kentucky
  Court of Appeals, No. 2006-CA-002175-MR, October
  12, 2007. 
• Advanced on-site Concrete Inc. v. Department of
  Revenue, Circuit Court of Cook County No. 06 CH
  377, October 30, 2006. (Appeal Pending)  
• Ford Motor Company v. City of Seattle, et. al.,
  Washington Supreme Court Dkt. No. 7767-7, April
  12, 2007. Petition for Certiorari Superior Court
  Docket No. 07-623 denied, February 19, 2008. 
• Ruling of the Tax Commissioner No. 07- 195,
  Virginia Department of Revenue, November 27, 2007.

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