Description
State Taxation of Corporate Income From Intangibles
analyzes the federal constitutional and state statutory rules governing state taxation of corporate income from intangibles. It attempts to untangle some of the more complex issues raised in this area and to provide a framework for sensibly resolving these issues in the future. Based on Walter Hellerstein’s, “State Taxation of Corporate Income From Intangibles: Allied–Signal and Beyond,” this Portfolio, written by Professor Walter Hellerstein, University of Georgia School of Law, addresses the topics currently debated by practitioners, administrators, and commentators. These topics cover apportionability and fair apportionment, with particular emphasis on factor representation, and other controversies, including:
- The rejection of Payor–Payee Unity as an essential precondition to apportionability of intangible income,
- The adoption of an apportionability standard based on whether the intangible asset serves an “operational” function,
- Ownership as the linchpin of apportionability of corporate income from intangibles,
- The impact on the existing structure of state taxation of corporate income from intangibles,
- Misattribution of income,
- Intangible income apportioned on the basis of an operational connection with the taxpayer's business, and
- Implementing factor representation when apportionability of intangible income is based on the operational function served by the intangible.
This Portfolio also suggests various apportionment methods, with considerable attention to apportioning income on the basis of the intangible asset's operational link to the corporation's business.
State Taxation of Corporate Income From Intangibles
allows you to benefit from:
- Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
- Invaluable practice documents including tables, charts and lists.
- Plain-English guidance from world-class experts.
- Real-world and in-depth analysis that lets you explore various options.
- Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
- Alternative approaches to both common and unique tax scenarios.
This Portfolio is part of the Premier State Tax Library, a comprehensive series, which covers major state tax transactions and issues with expert, in-depth analysis, and offers commentary on a wide range of multi-state and state-specific taxation topics, including Sales and Use, Corporate Income, Individual Income, Property, Gross Receipts, Limitations on States' Authorities to Tax, Credits and Incentives, Electronic Commerce, Mergers and Acquisitions, Procedure and Administration, Special Industries, and more.
Table of Contents
Detailed Analysis
1190.01. INTRODUCTION
1190.02. STATE TAXATION OF CORPORATE INCOME: GENERAL PRINCIPLES
Introductory Material
A. Federal Constitutional Restraints on State Taxation of Corporate Income
1. The Unitary Business Principle
2. Fair Apportionment
B. The Statutory Framework Governing State Taxation of Corporate Income
1. The Distinction Between Allocable and Apportionable Income
2. The Apportionment Formula
1190.03. STATE TAXATION OF CORPORATE INCOME FROM INTANGIBLES: GENERAL PRINCIPLES
A. Federal Constitutional Restraints on State Taxation of Corporate Income from Intangibles
1. The Unitary Business Principle
a. The Property Tax Cases
b. The Income Tax Cases
(1) Mobil Oil Corp. v. Commissioner of Taxes
(2) ASARCO, Inc. v. Idaho State Tax Commission
(3) F. W. Woolworth Co. v. Taxation and Revenue Department
(4) Container Corporation of America v. Franchise Tax Board
2. Fair Apportionment
B. The State Statutory Framework Governing State Taxation of Corporate Income From Intangibles
1. Historical Background
2. The Current Framework
a. Allocable and Apportionable Income from Intangibles
b. Apportionment of Income from Intangibles
1190.04. STATE TAXATION OF CORPORATE INCOME FROM INTANGIBLES: CURRENT CONTROVERSIES
A. Apportionability
1. Allied-Signal v. Director, Division of Taxation
a. The Facts and Proceedings Below
b. The Supreme Court's Opinion
(1) The Rejection of Payor-Payee Unity as an Essential Precondition to Apportionability of Intangible Income
(2) The Adoption of an Apportionability Standard Based on Whether the Intangible Asset Serves an "Operational" Function
c. Allied-Signal: "The Road Not Taken"
(1) Ownership as the Linchpin of Apportionability of Corporate Income from Intangibles
(a) Form Versus Substance
(b) Fair Apportionment
(c) The Impact on the Existing Structure of State Taxation of Corporate Income from Intangibles
(2) Ownership as the Linchpin of Apportionability of all Income
(a) Misattribution of Income
(b) Increased Judicial Monitoring of State Tax Apportionment
(3) The Merits of the Commercial Domicile Rule for Assigning Income from Nonunitary Intangible Assets
2. Allied-Signal v. Commissioner of Finance
a. Taxing Intangible Income by Reference to the Payor's or "Investee's"Activities in the State
b. Can Taxing Corporate Income from Intangibles by Reference to the Investee's Activities in the State Pass Constitutional Muster after Allied-Signal?
c. Should Intangible Income Be Taxed on Basis of Investee's Activities?
B. Fair Apportionment
1. Factor Representation
a. Intangible Income Apportionable on the Basis of Payor-Payee Unity
(1) Implementing Factor Representation Based on Payor-Payee Unity
b. Intangible Income Apportioned on the Basis of an Operational Connection with the Taxpayer's Business
(1) Implementing Factor Representation when Apportionability of Intangible Income is Based on the Operational Function Served by the Intangible
(a) Property Factor
(b) Sales Factor
(c) Reconciling the Apportionability and the Fair Apportionment Analyses
c. Intangible Income Apportioned on the Basis of the Investee's Activities in the Taxing State
d. State Court Decisions Addressed to Factor Representation
(1) The Right to Factor Representation when Payor–Payee Unity is the Predicate for the Apportionability of Intangible Income
(2) The Right to Factor Representation When the Operational Function Served by the Intangible Asset is the Predicate for the Apportionability of Intangible Income
2. Combined Reporting
1190.05. STATE TAXATION OF CORPORATE INCOME FROM INTANGIBLES: A FRAMEWORK FOR THE FUTURE
Introductory Material
A. Recapitulation
B. Apportioning Intangible Income: A Roadmap for the Future
1. Income Apportionable on the Basis of Payor-Payee Unity
2. Income Apportionable on the Basis of the Operational Connection of the Intangible Asset to the Corporation's Business
a. Dividends
b. Interest
c. Capital Gains
d. Royalties from Patents, Copyrights, and Similar Intangibles
e. Franchise Fees
3. Partnership Income
4. Income of Holding Companies
1190.06. CONCLUSION
Working Papers
Table of Worksheets
Worksheet 1 SITUS OF ALLOCABLE NONBUSINESS INTANGIBLE INCOME
Bibliography
Bibliography
Authors
Walter Hellerstein
Mr. Hellerstein is a Professor of Law at the University of Georgia School of Law and a partner in the firm of Sutherland, Asbill & Brennan. He is formerly Of Counsel to the law firm of Morrison & Foerster. He is a 1967 graduate of Harvard College, where he was elected to Phi Beta Kappa, and a 1970 graduate of the University of Chicago Law School, where he served as Editor–in–Chief of the University of Chicago Law Review. After graduation from law school, Mr. Hellerstein clerked for the Hon. Henry J. Friendly, served as an attorney in the Honors Program of the Air Force General Counsel's Office, and practiced law at Covington & Burling in Washington, D.C. Mr. Hellerstein taught at the University of Chicago Law School before joining the University of Georgia's law faculty in 1978. Mr. Hellerstein has written and practiced extensively in the state tax field. He is the author of State and Local Taxation of Natural Resources in the Federal System: Legal, Economic, and Political Perspectives (American Bar Association Section of Taxation 1986), co–author with Jerome R. Hellerstein of State Taxation, Vols. I & II, and State and Local Taxation (West Publishing Co.), and the author of numerous law review articles on state taxation that have appeared in The Michigan Law Review, The University of Chicago Law Review, The Supreme Court Review, The Tax Lawyer, The Journal of Taxation, The National Tax Journal, The Tax Law Review, the Virginia Law Review, and other journals. Mr. Hellerstein has spoken widely on state tax topics at conferences sponsored by Georgetown University Law Center, New York University Law School, the National Tax Association, the Heart of America Tax Institute, and other organizations. He is a member of the District of Columbia, Illinois, and New York bars.