4th quarter 2018
In the fourth quarter of 2018, taxpayers’ results improved, as taxpayers prevailed in 45.8% (27 out of 59) of significant cases.* Taxpayers won 36.8% (7 out of 19) of the significant corporate income tax cases and 48.0% (12 out of 25) of the significant sales and use tax cases. Overall, taxpayers won only 36.8% (81 out of 220) of significant 2018 cases. Taxpayers prevailed in fewer significant cases in 2018 than in 2016 and 2017 (43.0% and 41.0%, respectively
CASE: In re NRG Energy, Inc., Dkt. No. 826921 (N.Y. Div. Tax App. Nov. 8, 2018). SUMMARY: A New York State Administrative Law Judge ruled that a taxpayer’s constitutional due process rights were not violated when amendments were applied retroactively to the state’s Empire Zones statute, disqualifying the taxpayer from taking the credits. The Division of Tax Appeals determined that the application of statutory amendments was an “extremely short period of retroactivity” that outweighed the lack of a public purpose for the retroactivity. View more information. Out-of-state sales CASE: Richardson’s RV, Inc. v. Indiana Department of State Revenue, 112 N.E.3d 192 (Ind. 2018). SUMMARY: The Indiana Supreme Court held that an Indiana RV dealership, located near the Michigan border, was liable for uncollected sales tax on RV sales even though it delivered the RVs to buyers at an out-of-state location. The RV dealership delivered RVs to its Michigan customers at a Michigan gas station approximately three miles from the Indiana border. The court held that Indiana sales tax was due on the Michigan sales because the deliveries were made in Michigan solely to avoid paying Indiana sales tax with no other independent, non-taxrelated business purpose. View more information. Refund procedure CASE: Bannister Properties, Inc. v. Louisiana, Dkt. No. 2018-0030 (La. Ct. App. Nov. 2, 2018) (unpublished). SUMMARY: The Louisiana Court of Appeal held that the Department of Revenue could not issue a franchise tax refund because the tax was paid as a result of a “mistake of law arising from the misinterpretation by the secretary of the provisions of any law or of the rules and regulations promulgated thereunder.” Instead, the taxpayer could only seek to recover franchise tax paid under a mistaken interpretation of law by: (1) paying the tax under protest and filing a petition to recover the payment under protest; or (2) seeking recovery from the Louisiana Legislature under the claim against the state procedure. View more information. Bank tax CASE: Synovus Bank v. Department of Revenue, No. 17-ALJ-17- 0418-CC (S.C. Admin. Law Ct. Oct. 22, 2018). SUMMARY: The South Carolina Administrative Law Court determined that a bank could not deduct net operating loss carryforwards when computing its bank tax liability. The taxpayer argued that because the state conforms to the Internal Revenue Code, banks should be allowed to deduct NOLs regardless of whether they pay under the income tax or the franchise tax. However, the court concluded that the IRC conformity did not apply because the bank tax base is defined as “entire net income,” whereas the corporate income tax base is defined as “taxable income.” View more information. Title transfer CASE: City of Brisbane v. California Department of Tax & Fee Administration, No. A151168 (Cal. Ct. App. Nov. 14, 2018) (unpublished). SUMMARY: The California Court of Appeal held that transactions involving an Internet retailer headquartered in California, were subject to local use tax, rather than local sales tax, because title to the sold property passed outside of California. The court explained that when a retail seller delivers goods to a common carrier at an out-of-state warehouse for shipment to a customer in California, title passes to the buyer where the retailer delivers the goods to the carrier, absent an agreement to the contrary. View more information. Credit for taxes paid CASE: Smith v. Robinson, No. 2018-CA-0728 (La. Dec. 5, 2018). SUMMARY: The Louisiana Supreme Court ruled that residents who owned an S corporation and LLC were entitled to a credit against their Louisiana income tax liability equal to the Texas franchise tax paid by these entities. The court held that limiting Louisiana’s credit for taxes paid to other states to only those states that offer a reciprocal credit violated the dormant Commerce Clause. The court determined that the credit limitation was not externally consistent because Louisiana fails to apportion the out-of-state income and creates the potential for multiple taxation of the same income. The court also applied Wynne and held that the credit limitation discriminates against interstate commerce because it resulted in the double taxation of interstate income. View more information.
CASE: Targa Resources Partners, L.P. v. Director, Division of Taxation, 010749-2015 (N.J. Tax Ct. Dec. 7, 2018) (unpublished). SUMMARY: The New Jersey Tax Court held that the partnership filing fee does not violate the Commerce Clause. Partnerships with New Jersey source income pay a $150 per-partner fee. The court held that the filing fee is not facially discriminatory because all partnerships must pay the fee regardless of the location of the partnership or partner, or the nature of the partnership’s business, as long as the partnership earns New Jersey source income. The court also held that the taxpayer failed to prove that the filing fee, in practical effect, discriminates against interstate commerce. The filing fee did not “implicate or violate” the Commerce Clause because the fee is imposed to cover the government’s cost of processing and reviewing the New Jersey returns of partnerships and their partners. View more information. CASE: Canon Financial Services, Inc. v. Director, Division of Taxation, No. 000404-2014 (N.J. Tax Ct. Dec. 5, 2018) (unpublished). SUMMARY: The New Jersey Tax Court rejected the Division of Taxation’s application of a five-factor alternative apportionment formula as invalid rulemaking under the state’s Administrative Procedures Act. The court found that although the proposed modified formula could be an acceptable exercise of the Division’s discretionary authority to adjust the taxpayer’s apportionment formula, it nevertheless constituted an impermissible “de facto rule-making” in violation of the APA. View more information.
CASE: Merrill Lynch Credit Corporation v. Division of Taxation, Dkt. No. 004230-2017 (N.J. Tax Ct. Sept. 28, 2018) (unpublished). SUMMARY: The New Jersey Tax Court rejected a taxpayer’s due process claim that the Division of Taxation did not properly issue the notice of assessment. The taxpayer argued that the Division erred by issuing the assessment in the predecessor corporation’s name and addressing it to the wrong zip code. The court reasoned that the taxpayer’s officer had executed statute waivers in the predecessor’s name, and the Division delivered the assessment to the address where the taxpayer’s agents accepted and signed the mail return receipt card. View more information. CASE: ADP Vehicle Registration, Inc. v. Division of Taxation, 30 N.J. Tax 589 (2018). SUMMARY: The New Jersey Tax Court ruled that a corporation was entitled to apportion its income because it had a “regular place of business” outside of New Jersey. Prior to July 1, 2010, corporations were required to maintain a regular place of business outside the state in order to apportion its income. The court disagreed with the Division’s contention that the factors for finding a regular place of business provided in the Division’s regulation was a list of absolute requirements. Rather, the court held that the factors only assist the court to determine whether a taxpayer maintained an out-of-state regular place of business. View more information.