Tax laws that are applied retroactively or interpretations of laws applied retroactively can be a big concern for taxpayers. It can be the difference between obtaining a refund and owing large sums to the state (which ultimately will include penalties and fees).
A recent example of this is Oregon Dept. of Rev. v. Rent-A-Center, Inc., No. TC 5224 (Or. T. C. 2015). In that case the department attempted to retroactively apply its preferred definition of a “single trade or business” to Rent-A-Center Inc.'s 2003 tax return. The department wanted to use a rule interpreting the statutory definition that was adopted in 2006—three years after the tax year for which the return was filed. The revised rule provided for a more expansive definition of “unitary business.” It provided the presence of one of two of the factors listed in the statute can “demonstrate the flow of value requisite for a single trade or business.”
The three statutory factors of concern are:
In 2007, the legislature changed the statute to reflect the rule, using the conjunctive "and" instead of "or."
A determination that a Rent-A-Center entity or operation located outside of Oregon was part of the corporation's “unitary group” would result in the inclusion of that income in Rent-A-Center's worldwide business income subject to Oregon tax. The court looked to legislative history to determine whether the 1984 legislature intended the word “and” to be read disjunctively or conjunctively.
The court concluded Jan. 26 that the legislature in 1984 intended that the statutory definition be read as requiring all three factors be present if there was to be a finding of a “single trade or business.” Judge Breithaupt stated “the only law relevant to this case is the 1984 statute. The substantive changes made by the 2007 statute were expressly applicable only for years beginning on or after January 1, 2007.”
Retroactive legislation has been used in the past to avoid results a state finds unfavorable. Last year, Michigan enacted legislation retroactively repealing the state’s adoption of the Multistate Tax Compact beginning Jan. 1, 2008. This was partly in response to Intl. Bus. Machs. Corp. v. Dept. of Treas., 852 N.W.2d 865 (Mich. 2014), where the court concluded that IBM was allowed to elect to use the Multistate Tax Compact’s three-factor apportionment formula on its Michigan Business Tax return for the 2008 tax year.
The court found that the legislature did not repeal by implication the three-factor formula for tax years 2008 through 2010 solely by repealing the Single Business Tax and replacing it with the Michigan Business Tax. The MBT generally requires taxpayers to apportion their income using a single sales factor formula.
by Erica Parra
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Given these two examples, what do you believe the policy of retroactive legislation should include?
For more information about this and other state tax and unclaimed property issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library today.
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 email@example.com.
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 firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)