Individual Income Insights: Highlights of the ABA and IPT Advanced Income Tax Conference in New Orleans

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Several times each year, federal, state, and local tax practitioners gather to discuss hot topics and exchange practical advice. Partners, former commissioners, and think tank members gave presentations and answered questions about taxation trends and how to improve the quality of service they provide to their clients. 

While federal tax reform was a recurrent theme, topics covered ranged from ethical questions for multi-jurisdictional practice to defending against harmful transfer pricing adjustments during the sale of goods across state borders. Together they formed a comprehensive examination of the cutting edge of tax practice, and included more than a few surprising revelations; here is a recap of the conference: 

  • Day 1 began with a brief overview of the world of state credits and incentives. The panel started by discussing the various types of credits, the difference between negotiated and statutory credits, and then the conversation moved to an examination of credits in Alabama, California, Louisiana, New York, and Texas. Economic development credits were at the fore, with panelists comparing the Jobs Act in Alabama to Louisiana’s Quality Jobs Program. Hearing about the complex negotiations that take place when states agree to offer the credits was particularly interesting, reminding the audience of the many “hats” tax practitioner must wear in the service of their clients.

  • The next seminar concerned the idea of “deference” within practice before a state tax court. While beginning with a review of the federal Chevron standard, panelists were able to share their own views and experiences through decades of practice before state taxing authorities. Highlights included a discussion of the shifting burden of proof, the often difficult task of reviewing administrative rule making, and a comparison with the federal Administrative Procedure Act.

  • An in-depth discussion of manufacturing exemptions and credits in New York followed, concerning changes to the law since 2014. The state of New York has decided to be generous with this incentive, reducing the entire net income base corporate rate to 0 percent (capped at a capital base of $350,000), and expanding the scope of eligible manufacturers to include those with a larger workforce and which operate outside of a pre-designated zone. Included in the presentation was an informative piece on the difference between exemptions and credits for the purposes of tax litigation and burden-of-proof shifting. Although the practitioners read the law as a simple rate reduction, they cautioned that a court labeling the incentive as a credit will shift the burden to the taxpayer, while the label exemption will shift the burden to the state.

  • The seminar then moved to a discussion of state conformity to the recently enacted 2017 federal tax act (Pub. L. No. 115-97), referred to by one panelist (with tongue firmly planted in cheek) as the tax practitioner and CPA relief act of 2017. The speakers were able to share keen insights on the expected state response to the federal legislation, from those states already passing conforming legislation (Idaho, West Virginia) to work-arounds planned in New York and California. Although uniformly skeptical of “charitably donating” to a state in order to reduce tax liability, all seemed confident that high-tax states feeling targeted by federal tax reform will find a workable path forward.

  • An engaging discussion of cross-border transfer pricing issues ensued at the end of the conference’s first day. Transfer pricing refers to the process of assigning a fair price of the sale of goods and services for tax purposes. Firms may attempt to devalue prices through a variety of mechanism to reduce their tax liability. Most states conform to the federal transfer pricing regime, established by I.R.C. § 482, but with many key differences. Lack of uniformity in the application of transfer pricing has resulted in difficulties reconciling two state’s views: one state may reduce pricing (resulting in a reduced deduction for the buyer) while another increases pricing (resulting in a higher tax liability for the seller. Presenters offered a range of solutions, from combination to full-fledged litigation.

  • The second day of the conference included a discussion of the Supreme Court case Wayfair and potential outcomes of the litigation. Panelists seemed to agree that, at least for the purposes of Quill, the Supreme Court was wrong even in 1992, but that the Court believed that Congress would act to provide the states a remedy. The justices could not have foreseen that Congress would in fact not act, and the decision would become the foundation of state taxation of online sales by companies with no physical presence for the next quarter century. One panelist theorized that the Supreme Court may once again leave it to Congress to create a national policy for digital sales, considering one party currently controls Congress and the presidency, and that the Wayfair case has very little record for justices to review.

  • The Advanced Individual Income portion came to a close with a discussion of multi-jurisdictional practice and traps for the unwary. States wishing to protect in-state lawyers allow little interpretation of the code of ethics, and presenters encouraged multi-jurisdictional attorneys to ensure they fall into one of the safe-harbor provisions. The rules for multi-jurisdictional CPAs are somewhat less stringent but carry similar traps for those who ignore it in their planning. Although several challenges have been made to states’ admissions and transfer rules, to date none have been successful, further highlighting the need for caution when engaging in this practice.

The opportunity to hear from practitioners on the front lines and in the trenches was a very useful opportunity for any federal, state, or local practitioner. I applaud the American Bar Association and the Institute for Professionals in Taxation for putting on an incredibly insightful and practical conference. 

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What hot topics in the field of State and Local Law do you believe should be covered in conferences of this kind?

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