For over 50 years, Bloomberg BNA’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...
Oct. 11 — Bank of America Consumer Card Holdings and other credit card issuers owe New Jersey tax on revenue derived from interest, interchange and service fees.
In an opinion released Oct. 11, the New Jersey Tax Court determined that the companies' receipts of interest and interchange generated from New Jersey cardholder accounts are fully allocable to the state for tax years 2002 through 2008. The companies' receipt of service fees are 50 percent allocable to New Jersey ( Bank of Am. Consumer Card Holdings v. N.J. Div. of Taxation , 2016 BL 337981, N.J. Tax Ct., No. 012947-2011, unpublished 10/6/16 ).
After filing returns for the tax years in question, the companies submitted amended returns covering the same time frame, seeking approximately $42 million in refunds. According to the tax court, they alleged that “none of the income earned or derived from accounts of cardholders located in New Jersey should be allocated to the State of New Jersey.”
The New Jersey director of the Division of Taxation rejected their refund requests.
The dispute implicated the state's Corporation Business Tax, which provides for a three-factor allocation formula incorporating a double-weighted receipts factor.
While Bank of America and the other issuers acknowledged there was sufficient nexus with New Jersey, they contested the allocation of income under the CBT.
The tax court declined to side with the companies' interpretation of the CBT and New Jersey law, and found no viable constitutional claim invalidating the state's apportionment.
According to the court, the “thrust of the taxpayers' argument” was the second prong of the Complete Auto four-prong test for the constitutionality of a tax under the federal commerce clause—whether the tax is fairly apportioned.
“While taxpayers here wring their hands and allege that New Jersey’s version of the three-factor formula unfairly allocates taxation, taxpayers do not allege any clear and cogent evidence that the formula as implemented results in such a distortive effect that is so outrageous to require invalidation,” according to the opinion. The court observed that “a double weighted sales factor is more likely than a single weighted formula to result in an attribution to the taxing state that more closely reflects the net income derived from the state.”
Rejecting the director's arguments relating to the throwout rule, the tax court held that all of the companies' receipts must be applied to the denominator of the receipts allocation formula.
To contact the reporter on this story: Jennifer McLoughlin in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Ryan C. Tuck at email@example.com
The opinion is at http://src.bna.com/jir.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)