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Two years ago, Missouri eliminated the corporate franchise tax for thousands of small businesses when it raised the "outstanding shares and surplus" threshold amount used to calculate the annual tax from $1 million to $10 million. Now, the Missouri franchise tax will be eliminated for all businesses by 2016.


 


Under legislation signed by Gov. Jay Nixon on April 26 (S.B. 19), the corporate franchise tax rate will gradually be reduced as follows over a five-year period beginning in 2012 until the tax is completely phased out in 2016: 

 

<u>Tax Year</u>         <u>Corporate Franchise Tax Rate</u>


2011                1/30 of 1 percent


2012                1/37 of 1 percent


2013                1/50 of 1 percent


2014                1/75 of 1 percent


2015                1/150 of 1 percent


2016                Tax Eliminated


 


In addition, the legislation also caps corporate franchise tax liabilities for tax years beginning after 2010 at the amount of each corporation's tax liability for the 2010 tax year (i.e., a company's franchise tax liability is limited to no more than what it owed in the 2010 tax year). Therefore, if a corporation had no franchise tax liability in 2010 because the it was not doing business in the state or did not exist, then its annual franchise tax liability will be limited to the amount of its corporate franchise tax liability for its first full taxable year of existence.

 


According to Gov. Nixon, eliminating the franchise tax will "encourage businesses to expand their operations and create jobs in Missouri, boosting economy and making state more competitive for years to come."</div>

 

North Dakota is the first state to enact legislation modeled after the Multistate Tax Commission's Model Mobile Workforce Statute (see S.B. 2170). Generally, under the state's new law, wages received by a nonresident individual for working in North Dakota will be exempt from North Dakota individual income tax if:

 


(1) the individual has no other income from North Dakota sources;


 


(2) the individual works in North Dakota for no more than 20 days during the tax year (presence in the state for any part of a day constitutes a full day unless the presence is purely for purposes of transit through the state); and


 


(3) the individual's state of residence provides a substantially similar exemption, or does not impose an income tax.


 


The exemption does not apply to compensation received by professional athletes, entertainers, "prominent" individuals performing services on a per event basis, individuals performing construction services to improve real property, or certain "key" employees.


 


In addition, an employer will not be required to withhold North Dakota income tax on the nonresident's wages if the individual works for no more than 20 days in North Dakota, and the individual's state of residence provides a substantially similar exemption or does not impose an income tax.


 


These exemptions will not take affect until 2013.

 

On April 18, the Executive Committee of the Multistate Tax Commission (MTC) unanimously approved for public hearing a proposed model statute based on the “Amazon” law that Colorado enacted in 2010. A federal district court has enjoined enforcement of that Colorado law at the request of the Direct Marketing Association while briefing begins on motions for summary judgment.

Under the MTC proposal, a seller that does not collect sales or use tax on items delivered to a state that adopts the proposed statute would have to provide: 


§ notice to customers at the time of the transaction that tax is not being collected and may be due by the customer directly to the department of revenue,


§ an annual report to each customer listing the general type and price of the customer's purchases on which tax was not collected, and


§ an annual report to the department of revenue of the total dollar amount of each in-state customer's purchases on which tax was not collected, including the name of the customer and the billing and shipping addresses.


      


Exceptions would exist for small sellers and sellers with de minimis in-state sales. Penalties would be imposed on sellers that do not comply.


 


A public hearing on the MTC's proposed model statute has been scheduled for May 18. The proposal and related information can be found at [http://www.mtc.gov/Executive.aspx?id=5078 | http://www.mtc.gov/Executive.aspx?id=5078]

 

 

Arizona has enacted legislation authorizing Department of Revenue to establish a tax amnesty or tax recovery program from September 1 through October 1, 2011. The program will apply to all Arizona state and county taxes administered by the department, except property and estate taxes. For taxpayers who comply with program requirements, the Director of Revenue will abate or waive all or part of the civil penalties and reduce the interest rate for the applicable tax liabilities, without requiring a showing of reasonable cause or the absence of wilful neglect.


To qualify, a taxpayer must submit an application identifying the tax, the qualifying taxable period, and the tax liability for which the taxpayer seeks recovery. The tax and interest due must be paid by October 1, 2011. The amnesty is available for various liability periods, depending on a taxpayer's filing frequency.

 

On April 1, Arkansas became the latest state to enact a "click-through" nexus (also called an "Amazon") law. The state joins Illinois, which enacted such a law in March, and New York, North Carolina and Rhode Island, which have had such laws for a couple years.


In addition to the "click-through" provision, the Arkansas law includes a provision that an entity will be presumed to have sales tax nexus with the state if it has an in-state affiliate that is part of the same controlled group of corporations and certain conditions are met. 

 

In a case of first impression under New Mexico law, a hearing officer held that oil and gas royalty payments that Chevron USA, Inc., made to New Mexico lessors under various oil and gas leases were considered "rents" for purposes of calculating Chevron's property factor (see +In the Matter of the Protest of Chevron USA, Inc.+). Under UDITPA, which New Mexico has adopted, rented property is valued at eight times the net annual rental rate for purposes of calculating a taxpayer's property factor.


During the tax years at issue, Chevron acquired rights to oil and gas property by both purchase and lease. The leases provided for the payment of royalties to the lessors. For purposes of calculating its property factor, Chevron treated the royalties as rents.


 


However, on audit, the New Mexico Taxation and Revenue Department (TRD) determined that the calculation of the value of Chevron's rented property should be adjusted to exclude all royalty payments to lessors of natural resource interests. The TRD's auditors relied on Multistate Tax Commission (MTC) Model Regulation IV.11(b), which excludes royalties based on extraction of natural resources from the definition of "annual rent." After adjusting the property factor to disallow the royalty payments from the valuation of Chevron's property, additional corporate income tax and interest was assessed for the years under audit. Chevron filed a timely written protest to the assessment and asserted that its calculations on the original returns were correct.


 


The hearing officer found that there was case law from other jurisdictions to support both Chevron's argument that royalties can be considered rents and the TRD's argument that royalties are not rents. In addition, the hearing officer also found that New Mexico had not adopted the MTC regulation that excludes royalties for the extraction of natural resources from the definition of annual rent. Instead, the hearing officer determined that royalties fall within the definition of "annual rent" found in the New Mexico regulations (§3.5.12.9). Finally, the hearing officer noted that Chevron's method for calculating the value of its oil and gas leaseholds was reasonable because it produced a value that was equivalent to the value of the production from those properties. For those reasons, Chevron's protest was granted.

 

 

A manufacturer of custom communication towers may have to pay tax twice on a capital asset because the manufacturer's proof of sales tax payment was the original contract purchase order from the vendor which included a single dollar figure and the language "SALES TAX INCLUDED."  This was not enough proof of payment for the Indiana Department of Revenue because Indiana law requires persons acquiring property in a retail transaction to pay the tax to the retail merchant as a separate added amount to the consideration in the transaction.


 

 

In a Letter of Findings holding the manufacturer liable for Indiana use tax on its purchase of the capital asset, the department stated: "The vendor in this case should not subsume the sales tax into its total price, the sales tax amount should always be stated separately. However, even assuming that the vendor's purchase order price did include sales tax, there is still no guarantee, absent an actual invoice, that sales tax was actually paid upon completion of the transaction." Next time you buy a capital asset, be sure to get an actual invoice separately showing the sales tax paid. 



 

 

On April 4, the U.S. Supreme Court held, in a 5-4 opinion, that taxpayers do not have standing to challenge an Arizona personal income tax credit for contributions to school tuition organizations.


 


The taxpayers alleged the credit violates the Establishment Clause of the U.S. Constitution because most of the funds go to religious schools. However, the Court held that the exception to the general rule against taxpayer standing, which has been recognized in previous Establishment Clause cases, does not apply where, as here, the taxpayers challenge a tax credit rather than a government expenditure. The majority opinion was written by Justice Anthony Kennedy.


 


In a dissent, Justice Elena Kagan said the Court was breaking with over forty years of precedent involving taxpayer-initiated challenges and creating an unprincipled distinction in standing between appropriations and tax expenditures.

 

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