Bloomberg BNA is pleased to introduce a new column in our Weekly State Tax Report, Crowell's Conversations, in which members of Crowell & Moring's state tax team sit down with high ranking state revenue officials for a candid conversation regarding current tax issues as well as a look at their career path. For this inaugural column, Walt Nagel, Don Griswold, and Jeremy Abrams sit down with Alan Levine, Chief Counsel at the District of Columbia's Office of Tax and Revenue.
In this interview, DC's chief tax counsel says that DC intends to continue to pursue transfer pricing audits for periods before 2011, despite an adverse ruling and the jurisdiction's shift to combined reporting. He also explains why D.C.'s combined reporting regime may have yielded a "bumper crop" of revenue in 2012. The following is a brief excerpt of the interview [full text of interview available here].
Could you tell us a little bit about what's happening in the transfer pricing area?
I see activity there, definitely. DC has its own transfer pricing statute, Section 47-1810.03, which is akin to Section 482 of the Internal Revenue Code. There are still many years out there that need to be audited, and that can be audited, and that we intend to audit, before 2011 when we adopted combined reporting. In terms of our audit methodology, Microsoft was the first case to deal with transfer pricing. We lost in the Office of Administrative Hearings (OAH) but we don't believe that the court's opinion was correct. The issue continues to be litigated in both the DC Superior Court and in other cases at OAH. We intend to be very active in this area. Editor's Note: The DC Office of Tax and Revenue filed a motion to dismiss its appeal in the Microsoft case on Dec. 17, 2012, which was granted by the DC Court of Appeals on Jan. 2, 2013.
You mentioned combined reporting. How did it come to be the law in DC and how is OTR going to administer combined reporting?
Well, it was a cloudy day in November of 2009, and Aaishah Hashmi, Assistant General Counsel, and I flew to West Virginia for the day to meet with the Commissioner of Tax for West Virginia, Craig Griffith, and a host of other people. That was our first toe in the water, beyond “the water's edge” as it were, with combined reporting.
Then about a year went by and nothing happened legislatively. Frankly we thought it was dead. And all of a sudden we got the word to come up with a statute. So we worked on it fast and furiously, and came up with proposed legislation. We are still working on changes to that statute and to the regulations to make sure that they are on all fours with each other.
One of the things we want to make sure of is that there is no double taxation. There's a unique tax in the District on certain unincorporated businesses – “UBs” – and that can create issues in combination when a UB is part of a combined group. We had an extensive comment period to our regulations, received probably over 100 comments, many on this issue and others. We tried to listen to the affected corporations and we made many changes as a result of their comments.
I will say this: Recent revenue estimates for the corporate franchise tax based on estimated payments were something like $45 million. The office is analyzing to see what part is attributable to combined reporting. In the Fiscal Impact Statement accompanying the legislation, we estimated that combined reporting would only bring in $22 million during its first year, so that may turn out to be a conservative estimate once the analysis is concluded. If so, it will have been a bumper crop. Very nice.
In other developments…
Two-Tax Rise Tests Wealthy in California , the New York Times reports.
State and Local Sales Tax Rates in 2013 , a new report by the Tax Foundation.
North Dakota Tax Department uses social media to promote tax filing season.
California Board Takes Back Tax Benefit, Demands Retroactive Payments and Interest , the Tax Foundation explains.
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