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The SALT Minds Blog

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Although use tax has been on the books for decades in many states, it is now more relevant than ever in this day and age of Internet transactions. Due to efforts by state departments of revenue to bring awareness to use tax through informational materials and reminders, taxpayers are becoming more aware that this tax does not just apply when they make big ticket purchases from out-of-state sellers. A CCH Tax Tips video discusses how numerous states allow taxpayers to report their personal use tax liability on their individual income tax returns on an actual basis, or by using estimated tables based on adjusted gross income.

 

CLICK HERE to view the video.

As CCH’s Brian Plunkett and Bob Wilson have reported, New York’s 2014-15 budget package (Ch. 59, Laws 2014) includes a variety of corporate franchise and personal income tax provisions, as detailed below.

 

Corporate franchise tax rate: The corporate franchise tax rate is reduced from 7.1% to 6.5% for taxable years beginning on or after January 1, 2016. The legislation also lowers the tax rate on income for manufacturers to zero in 2014 and thereafter.

 

Corporate tax reform: Applicable to taxable years beginning on or after January 1, 2015, the legislation makes numerous changes to the corporate tax provisions.

 

The Article 32 bank franchise tax is repealed, and banks are merged into the Article 9-A corporate franchise tax. The legislation also repeals the organization and license taxes and maintenance fees under Tax Law §180 and §181.

 

Under Article 9-A, subtraction modification provisions are added for (1) qualified residential loan portfolios and (2) community banks and small thrifts.

 

An economic nexus provision is added to impose tax on businesses having receipts within New York of $1 million or more in a taxable year. In addition, the legislation amends the nexus provisions to remove the exception for the use of fulfillment services.

 

The legislation eliminates the minimum taxable income base, as well as the separate tax on subsidiary capital. In addition, the capital base tax is phased out over six years, beginning in 2016.

 

"Business income" is redefined to mean entire net income minus investment income and other exempt income. In no event will the sum of investment income and other exempt income exceed entire net income. If the taxpayer makes the election under Tax Law §210-A(5)(a)(1), then all income from qualified financial instruments will constitute business income.

 

A new provision is created to define "other exempt income" as the sum of exempt CFC income and exempt unitary corporation dividends.

 

The existing entire net income exclusions for income from subsidiary capital and 50% of dividends from non-subsidiaries are removed. With respect to an alien corporation (not treated as a domestic corporation under any provision of the IRC), the definition of "entire net income" is modified to refer to income that is effectively connected with the conduct of a trade or business within the U.S., as determined under IRC Sec. 882.

 

The legislation revises the definitions of "business capital," "investment capital," and "investment income."

 

The MTA surcharge under Tax Law §209-B is made permanent, and the rate is increased from 17% to 25.6% for taxable years beginning after 2014 and before 2016. For subsequent years, the rate is to be adjusted by the commissioner.

 

The legislation creates new Tax Law §210-A, generally providing for the sourcing of receipts based on customer location.

 

The legislation also adds Tax Law §210-C to generally require combined reporting if the taxpayer is engaged in a unitary business and a 50% common ownership test is met.

 

With respect to net operating losses (NOLs), the legislation provides for (1) a prior NOL conversion subtraction and (2) a deduction for NOLs generated in taxable years beginning after 2014.

 

The legislation also accelerates the phaseout of the temporary utility assessment.

 

Trusts: The legislation amends the New York state tax law and the New York city administrative code in relation to taxing residents who are grantors of exempt resident trusts that qualify as non-grantor incomplete gift trusts on the income from such trusts and taxing residents who are beneficiaries of all other exempt resident trusts or nonresident trusts on the distributions of accumulated income that they receive from such trusts.

 

Credits: The legislation creates new credits and amends many existing credits. New credits include:

 

  • an income tax credit for qualified manufacturers equal to 20% of real property tax paid;
  • a musical and theatrical production income tax credit which provides for a 25% refundable credit against taxes for production, promotion, performance and transportation expenses for live, dramatic, stage shows on national tour;
  • an income tax credit for the hiring of persons with developmental disabilities effective for taxable years beginning on or after January 1, 2015 and expiring January 1, 2020;
  • a personal income tax credit for homeowners and renters in New York City earning less than $200,000;
  • a credit for excise tax on telecommunication services for businesses located in tax-free NY areas; and
  • a real property tax freeze credit which is a refundable personal income tax credit for homeowners who reside in school and municipal jurisdictions that abide by the property tax cap.

 

The legislation amends the prepayment element of the family tax relief credit for tax years after 2014 and extends the empire state commercial production tax credit by two years so that it applies to taxable years beginning before January 1, 2017 (formerly 2015). The legislation also increases the aggregate dollar amount of credits available for the low-income housing credits in each of state fiscal years 2015-16 (from $48 million to $56 million) and 2016-17 (from $56 million to $64 million).

 

The Youth Works tax credit is amended to allow an additional $1,000 credit for eligible employees who are employed for one additional year. The legislation also amends the eligibility requirements of qualified employees to include full-time high school students working at least 10 hours.

 

The Empire film production credit is expanded by adding Albany and Schenectady counties to the list of counties participating in the 10% additional credit for upstate counties. Additionally, the non-custodial earned income tax credit is extended for two years making it applicable to taxable years beginning on or after January 1, 2006 and before January 1, 2017 (previously, 2015).

 

Exemption: The legislation creates an exemption from taxable income for any distributions from length of service defined contribution or benefit plans to volunteer firefighters and ambulance workers over the age of 59½ effective for taxable years beginning on and after January 1, 2014.

 

Electronic filing: The signature requirements on returns prepared by tax professionals are modified.

 

PIT add-on tax: The personal income tax add-on minimum tax is eliminated.

 

Metropolitan commuter transportation mobility tax: The legislation conforms the due dates for the metropolitan commuter transportation mobility tax (MCTMT) for taxpayers with income from self-employment with the due dates for the personal income tax. The legislation also allows the tax commissioner to require the filing of MCTMT combined returns in certain situations for taxable years beginning on or after January 1, 2015.

Taxpayers can breathe a sigh in relief now that Maryland’s highest court has reversed a lower court opinion that essentially created a new brand of nexus based on the unitary business principle. In 2013, a lower appellate court held that, if a parent company has nexus with Maryland, a subsidiary engaged in a unitary business with the parent company “inherits the parent’s nexus.” However, in Gore Enterprise Holdings, Inc. v. Comptroller of the Treasury, the Maryland Court of Appeals emphatically rejected this form of nexus, stating that the unitary business principle “does not confer nexus to allow a state to directly tax a subsidiary based on the fact that the parent company is taxable and that the parent and subsidiary are unitary.”

 

For the subsidiaries in Gore, however, the overall result was not what they had hoped for. Although nexus was not established via the unitary business principle, it was established under the existing “economic substance” test found in Comptroller of the Treasury v. SYL, Inc. One of the out-of-state subsidiaries in Gore was created to hold and manage the parent company’s patents. The other subsidiary was created to manage the parent company’s excess capital. Based on the subsidiaries' dependence on the parent company for their income, the circular flow of money between the subsidiaries and the parent, the subsidiaries' reliance on the parent for core functions and services, and the general absence of substantive activity from either subsidiary that was in any meaningful way separate from the parent company, the court held that the subsidiaries “had no real economic substance as separate business entities,” which satisfied the constitutional nexus requirements for taxation in Maryland. Furthermore, the court noted that “[a]lthough the unitary business principle and economic substance inquiry under SYL are distinct inquiries with distinct purposes, there is no reason—based either in case law or logic—for holding that the factors that indicate a unitary business cannot also be relevant in determining whether subsidiaries have no real economic substance as separate business entities.”

 

Finally, the court also upheld the Maryland Comptroller’s use of the parent company’s three-factor apportionment formula to calculate the subsidiaries’ tax liability. The subsidiaries claimed that, under Maryland statutes and regulations, income earned from intangibles must be apportioned according to a two-factor (payroll and property) formula. However, the court noted that the Comptroller can alter an apportionment formula or its components where the prescribed formula does not fairly represent the extent of a taxpayer's activity in Maryland. Furthermore, since the subsidiaries and the parent company were engaged in a unitary business, the subsidiaries bore the burden of demonstrating that the three-factor formula distorted the proportion of their income traceable to Maryland. According to the court, the subsidiaries failed to meet this burden.

Lawsuits filed by local governments against online travel companies (also known as “OTCs”) most often allege underpayment of hotel occupancy tax or sales tax arising from OTCs collecting these taxes on the wholesale rate that hotels charge them for rooms, rather than on the retail rate that OTCs ultimately charge customers. A CCH Tax Tips video examines the proliferation of these lawsuits in recent years and the legislative response to them in certain states.

 

CLICK HERE to view the video.

The Mississippi Supreme Court upheld the denial of a local utility company’s motion to quash a grand jury subpoena duces tecum, which compelled the company to release the names and billing addresses of all of its residential customers in certain areas. The subpoena was issued subsequent to the company’s refusal to release the information to the Madison County Tax Assessor, who sought to use the information to ascertain whether property tax homestead exemption claimants were committing tax fraud by comparing the billing addresses of the homeowners to the current tax roll.

 

 

The court held that the subpoena was not an abuse of the grand jury process because the grand jury requested information that reasonably could support criminal indictments based on tax fraud. Further, the tax assessor’s involvement did not constitute an improper influence of the grand jury, nor did it violate any other rules. Finally, the court found that the subpoena did not violate due process or privacy rights of customers, nor was it an improper, arbitrary “fishing” expedition, as grand juries may seek evidence even when they do not have a specific individual or crime to investigate.

 

 

The court concluded by noting that the grand jury requested information that was potentially relevant to a criminal investigation, and the utility failed to show that the subpoenas was sought for an unauthorized purposes. “Although there existed a possibility, perhaps a strong one, that the evidence thus acquired might be used for a collateral purpose, the fact that the subject matter of the subpoena carried with it the potential for ferreting out criminal activity for which the grand jury could have returned indictments ends the discussion.” Thus, the denial of the utility company’s motion to quash was affirmed.

 

 

The full text of the opinion is attached.

As David Caplan of CCH reports, the Alaska Supreme Court affirmed the Superior Court’s valuation of the Trans-Alaska Pipeline System (TAPS) for 2006 property tax assessment purposes. On appeal from the Alaska Department of Revenue and the State Assessment Review Board, the Superior Court conducted a trial de novo to assess the value of the pipeline by calculating its replacement cost and then accounting for depreciation. The Superior Court arrived at a final valuation of $9.977934 billion for the 2006 tax year, more than twice the Assessment Review Board’s valuation of about $4.31 billion. The pipeline owners had contended before the Superior Court that the valuation should be reduced to $850 million.

 

 

In their appeal of the Superior Court’s decision, the owners argued that the pipeline should have been assessed at fair market value as measured by tariff income rather than use value as measured by replacement cost. The Supreme Court first determined that the statutory language of AS 43.56.060 did not compel the Department of Revenue to use a fair market valuation standard. The Supreme Court then held that the Superior Court made ample findings to support its conclusion that, because there is no market from which to calculate fair market value for TAPS or for shipping capacity on the pipeline, the use value standard was appropriate. The Supreme Court further held that the use value standard did not improperly tax non-TAPS property.

 

 

The Supreme Court upheld the Superior Court’s depreciation deductions in its determination of replacement cost. The Superior Court made depreciation adjustments for physical and other types of depreciation (using the economic age-life method), for functional obsolescence (based on anticipated costs of the owners’ strategic reconfiguration plan), and for economic obsolescence (a scaling deduction for excess capacity). The owners claimed that the Superior Court did not deduct enough, while the taxing municipalities claimed it deducted too much. Among other things, the Supreme Court held that the Superior Court did not improperly consider unproven reserves of oil when calculating the economic life of the pipeline. Finally, the Supreme Court held that the Superior Court’s imposition of interest dating from 2006 was proper.

 

The full text of the opinion may be viewed in the attachment below.

The New York Court of Appeals has just made it easier for certain individuals to escape the long arm of New York’s tax law. New York taxes an individual as a “resident” if he or she (1) is domiciled in the state, or (2) “maintains a permanent place of abode” in New York and spends more than 183 days in the state during the taxable year. A person who qualifies for residency in New York under the second scenario is called a “statutory resident.” New York law does not define “permanent place of abode,” but the New York Tax Appeals Tribunal has interpreted the phrase “maintains a permanent place of abode” to mean that a taxpayer who maintains a dwelling in the state qualifies as a statutory resident even if he or she does not “reside” in it. However, the Court of Appeals rejected this interpretation in a case involving a man domiciled in New Jersey who owned an apartment building in New York, allowed his parents (who he supported) to live in the building, and occasionally slept on a couch in his parents’ apartment. Instead, the court held that in order for an individual to qualify as a statutory resident, there must be some basis to conclude that the dwelling was utilized as the taxpayer's residence. See Gaied v. New York State Tax Appeals Tribunal, New York Court of Appeals, No. 26 (February 18, 2014).

The Hawaii Senate has passed, in a 25-0 vote, legislation that would require a repeal provision to be included in any legislation that establishes a new tax expenditure, expands an existing tax expenditure, or extends the repeal date of an existing tax expenditure. Under the legislation, S.B. 2153, "tax expenditure" would be defined as a credit, deduction, exclusion, exemption, or any other tax benefit provided under state law.

 

The bill would also require legislation creating, expanding, or extending tax expenditures to include recapture provisions and measurable goals and objectives, as well as a requirement for an evaluation or study that could potentially create additional information reporting requirements for taxpayers that benefit from a tax expenditure.

 

Under S.B. 2153 as passed by the Senate, the Hawaii Department of Taxation would be required to submit a report on tax expenditures to the Legislature in odd-numbered years. The department's report would be required to include

 

* a detailed description of each tax expenditure;

 

* the statutory authority for each tax expenditure;

 

* the purpose and original intent of each tax expenditure;

 

* the actual or estimated revenue loss for each tax expenditure in the most recent fiscal year; and

 

* a determination of whether each tax expenditure has successfully achieved its intended purpose.

 

If enacted as passed by the Senate, the legislation would not take effect until July 1, 2017, to give the Department of Taxation time to begin capturing and analyzing data for purposes of the legislation.

Merchandise returns and exchanges are an everyday part of retail business, whether following the holiday season, or occurring throughout the year. A CCH Tax Tips video examines how these transactions impact the reporting of gross receipts for sales tax purposes, discusses when a retailer may be entitled to a sales tax refund or credit, and explores the sales tax treatment of restocking or reshelving fees.

 

CLICK HERE to view the video.

As recently reported by David Caplan of CCH, an Oregon company that made wholesale sales of fuel to customers in Washington had nexus with the state and was therefore subject to business and occupation (B&O) tax on those sales. The taxpayer argued that there was no substantial nexus between it and Washington and, without such nexus, imposition of the B&O tax violated the dormant Commerce Clause. The dormant Commerce Clause prohibits a state from discriminating against or unduly burdening interstate commerce, but a state may tax interstate commerce if the tax meets the substantial nexus and other requirements set forth in Complete Auto Transit, Inc., 430 U.S. 274 (1977).

 

Substantial Nexus

 

 

The Court of Appeals explained that substantial nexus exists when a company’s activities are both substantial and significantly associated with its ability to establish and maintain a market in Washington for its sales. In this case, the taxpayer’s regular deliveries established its physical presence in Washington. The deliveries were substantial because the taxpayer’s recorded sales to customers occurred on average more than once per day during the audit period. In addition, the taxpayer’s vehicles drove extensively on Washington roads while making deliveries. Further, the taxpayer conducted substantial activities in Washington because, as a wholesale fuel distributor, it sold both the commodity of fuel and the service of delivery to customers in Washington. The taxpayer’s physical presence in Washington and its delivery activities were significantly associated with its ability to establish and maintain a market in Washington for its sales. Accordingly, the Department of Revenue’s B&O tax assessment did not violate the dormant Commerce Clause.

 

Department of Revenue’s Interpretive Rule

 

 

The court rejected the taxpayer’s argument, based on a Department of Revenue interpretive rule, that delivery alone cannot establish substantial nexus. The court stated that an interpretive rule is not binding on the courts, and the court gives no deference to an agency’s interpretive rule unless it reasonably interprets an ambiguous statute that the Legislature has charged the agency with administering and enforcing. Even if the rule interpreted the dormant Commerce Clause, and it did not do so, the court would not defer to its interpretation because the department did not administer or enforce the federal Commerce Clause. Finally, the rule showed that a substantial nexus is necessary to tax an out-of-state seller but did not attempt to show whether a substantial nexus exists given a particular set of facts.

 

Activity Designed to Generate Sales; Quill Bright-Line Rule

 

 

The taxpayer’s argument that a substantial nexus can exist only by virtue of an activity that is designed to generate sales was rejected, as this was not the determining factor for all nexus-creating activity. Also rejected was the taxpayer’s argument that its deliveries did not create nexus under the reasoning of Quill, 504 U.S. 298. In Quill, the U.S. Supreme Court reaffirmed its prior holding that a vendor whose only contacts with the taxing state are by mail or common carrier lacks the substantial nexus required by the Commerce Clause. The bright-line rule under Quill was unavailing to the taxpayer in this case because the taxpayer delivered fuel in its own vehicles, not by common carrier. Because the taxpayer did not come within the safe harbor of Quill and Nat’l Bellas Hess, Inc., 386 U.S. 753, the court did not address the department’s assertion that the safe harbor protects a company only from sales and use taxes, and not from all taxes, including the B&O tax.

 

The full text of the opinion is attached.

As CCH’s Jennifer Troyer has recently reported, "affiliated groups" may elect to file combined returns under the Michigan corporate income tax law beginning with the 2013 tax year (see Act 266 (S.B. 367), Laws 2013). In general, the term "affiliated group" is defined as it is in IRC §1504, except that it includes all United States persons that are corporations, insurance companies, or financial institutions (other than a foreign operating entity) that are commonly owned, directly or indirectly, by any member of the affiliated group and other members of the group of which more than 50% of the ownership interest with voting rights or ownership interests that confer comparable rights is directly or indirectly owned by a common owner or owners. A taxpayer that is part of an affiliated group may elect to have all members of the affiliated group treated as a unitary business group. This group then files a combined return for 10 years, with the option to renew the election once for another 10 years. If the election renewal is not made immediately, then the election is not allowed in any of the next three tax years. The election is irrevocable and remains in effect for the time during which ownership requirements are met, irrespective of whether the federal consolidated group to which the unitary business group belongs stops filing a federal consolidated return or whether the common parent changes due to a reverse acquisition or an acquisition by a related person. The definition of "unitary business group" is also revised to include an affiliated group that makes the election to file as a unitary business group.

As CCH’s Lisa Tracey recently reported, the Oklahoma Supreme Court has struck down H.B. 2032, which reduced the top personal income tax rate in Oklahoma from 5.25% to 5% beginning January 1, 2015 (see Fent v. Fallin). In addition to the rate reduction, the bill provided for the creation of a fund (Oklahoma State Capitol Building Repair and Restoration Fund) to make repairs to the State Capitol building, calling for $60 million to be used for capitol repairs in the 2014 fiscal year, which began July 1, 2013, and an additional $60 million to be set aside for repairs in the 2015 fiscal year.

 

According to the court, the statute is unconstitutional as it violates the single subject rule mandated by Art. 5, §57, of the Oklahoma Constitution. Under the test to determine if a statute’s provisions are related to a single subject, those voting on the law must be able to make a choice without being misled, and also must not be forced to make an all or nothing choice between two unrelated provisions contained in one measure. Taxation policy and the appropriation of funds for improvements to the State Capitol building are not germane, relative, or cognate to a readily apparent common theme and purpose. Accordingly, H.B. 2032 is void.

As the holiday season gets underway, many state departments of revenue are reminding taxpayers that use tax may be due on out-of-state purchases made in person, over the telephone, or through sources such as the Internet and print catalogs. A CCH Tax Tips video discusses what use tax is, as well as the different ways departments of revenue make taxpayers aware of it and compel its payment on purchases made during the holiday season and throughout the year.

 

CLICK HERE to view the video.

As reported by CCH's David Caplan and Laura LeeLun, legislation enacted in a recent special session and signed by Washington Gov. Jay Inslee November 11 extends the expiration date of various business and occupation (B&O) tax, sales and use tax, property tax, and leasehold excise tax incentives for the aerospace industry and expands a sales and use tax incentive for construction of airplane manufacturing facilities. According to a press release issued by the governor, the legislation was enacted to help secure a commitment from The Boeing Company to assemble its new 777X jetliner and the plane’s carbon fiber wing in Washington.

The legislation is contingent upon the siting of a significant commercial airplane manufacturing program in Washington. If such a program is not sited in the state by June 30, 2017, the legislation does not take effect.

Business and Occupation, Other Tax Incentives

The legislation extends the following B&O tax incentives, which were formerly scheduled to expire on July 1, 2024, to July 1, 2040: (1) the preferential tax rate for the manufacturing, wholesaling, and retailing of commercial airplanes and airplane components; (2) the preferential tax rate for the manufacturing, wholesaling, and retailing of tooling used in the manufacturing of commercial airplanes and airplane components; (3) the preferential tax rate for retail sales by a FAR Part 145 certificated repair station; (4) the preferential tax rate for businesses performing aerospace product development for others; (5) the tax credit for aerospace product development expenditures; and (6) the tax credit for property taxes and leasehold excise taxes on property used exclusively in manufacturing superefficient airplanes or components of airplanes.

The preferential B&O tax rate applicable to new versions of commercial airplanes is terminated if final assembly or wing assembly of the new model or version is sited outside Washington.

The leasehold excise tax exemption for leasehold interests in port facilities used by a manufacturer engaged in manufacturing superefficient airplanes is extended to July 1, 2040. The property tax exemption for buildings, machinery, equipment, and other personal property of a lessee of a port district, used exclusively in manufacturing superefficient airplanes, is also extended to July 1, 2040.

Sales and Use Tax Incentives

The sales and use tax exemption for the construction of new buildings for the manufacture of superefficient airplanes is expanded to include charges related to the construction of facilities for the manufacture of commercial aircraft. The exemption applies to construction labor and service charges with respect to the construction of new buildings made to (1) a manufacturer of commercial airplanes or fuselages or wings of such airplanes, or (2) a port district, political subdivision, or municipal corporation, to be leased to a manufacturer of such aircraft. Also exempt are sales of tangible personal property incorporated into such buildings and labor and service charges relating to the installation of building fixtures. The exemption, which was previously scheduled to expire on July 1, 2024, is extended to July 1, 2040.

The sales and use tax exemption for computer hardware, peripherals, and software used primarily in the development, design, and engineering of aerospace products or in the performance of aerospace services is extended to July 1, 2040.

Attached below is the text of the bill as passed by the Legislature.

 

http://apps.leg.wa.gov/documents/billdocs/2013-14/Pdf/Bills/Senate%20Passed%20Legislature/5952-S.PL.pdf

As CCH’s Tim Bjur recently reported, the Alaska Supreme Court has affirmed a superior court’s decision that a Texas-headquartered petroleum company that operated an oil transportation pipeline in Alaska and had its retail and marketing subsidiary based in Alaska was part of a unitary business group with its Alaskan and non-Alaskan subsidiaries, the income of which was subject to formula apportionment for purposes of determining corporation net income tax liability (see Tesoro Corp. v. Alaska Department of Revenue, Alaska Supreme Court, Opinion No. 6838, October 25, 2013).

 

The application of a special three-factor apportionment formula consisting of property, sales, and extraction factors did not violate the Due Process or Interstate Commerce Clause of the U.S. Constitution, the court held, because there was substantial evidence of functional integration between the parent and its subsidiaries in the form of shared administrative and financial services, centralized management by the parent’s very active board of directors, and economies of scale creating significant unquantifiable flows of value from the cost savings of providing centralized administrative and financial services. The court rejected the taxpayer’s argument that vertical or horizontal integration was a necessary condition for finding a unitary business.

 

In addition, the court concluded that the taxpayer lacked standing to challenge the constitutionality of the different three-factor apportionment schemes that potentially apply in Alaska to taxpayers transporting oil or gas and taxpayers conducting other types of business activities in the state. The taxpayer had not identified an actual injury it had suffered as a result of the alleged constitutional infirmity of the state’s apportionment scheme or that it would result in double taxation.

 

Moreover, the taxpayer failed to show that the property and sales factors of the apportionment formula were unreasonable or distortive as applied to it. The taxpayer owned massive infrastructure in Alaska, which showed that it made greater use of state protections and benefits than in other states where its property holdings were more modest. The valuation of the taxpayer’s property factor at cost, rather than market value, and the exclusion of a valuable intangible asset likewise did not cause unreasonable property factor distortion. The calculation of taxpayer’s sales factor based on gross sales and not profits was not unreasonable. A business’s in-state activities may be fairly measured by the amount of goods or services that consumers purchase in the state, the court observed, regardless of whether the business later turns a profit or loss on those purchases. The court also rejected the taxpayer’s argument that the apportionment of its income was unreasonable because of a large disparity between the income that would have been taxed under separate accounting and the income that was actually taxed under formula apportionment.

 

Finally, the court concluded that the penalties against the taxpayer were permissible because it repeatedly took the unjustified position for the tax years in question that its Alaskan subsidiary was not unitary, despite the obvious invalidity of the position.

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