If 2012 could be considered the year of Gillette, 2013 may best be remembered as the year in which state courts, legislatures and taxpayers began to respond to Gillette in preparation for the California Supreme Court's decision in the case expected early next year, Brian Murphy, Jamie Yesnowitz, Dale Busacker, Chuck Jones and Lori Stolly, all with Grant Thornton, write in their annual end-of-year alert. The alert, found in this week’s issue of the Bloomberg BNA Weekly State Tax Report, summarizes the ten stories that were the most material SALT developments of the year.
On the litigation front, activity in Michigan illustrated that two courts in one state could come to different conclusions: International Business Machines Corp. v. Department of Treasury , Michigan Court of Appeals, No. 306618, Nov. 20, 2012 (unpublished), and Anheuser-Busch Inc. v. Michigan Department of Treasury, Michigan Court of Claims, No. 11-85-MT, June 6, 2013, they write.
In Texas, a series of letter rulings issued by the Comptroller made it clear that a position to elect three-factor apportionment under the Compact for purposes of the Revised Texas Franchise Tax will not be accepted by the Comptroller at any time in the near future, the authors said.
In response to the potential results a taxpayer-favorable decision in Gillette could bring, state legislatures spent a significant amount of time and energy attempting to protect themselves from refund claims and prospective tax benefits by removing themselves from the Compact, or at the very least legislating out of Articles III and IV of the Compact, according to the authors. Following California's lead in 2012, the District of Columbia, Minnesota, Oregon, South Dakota, and Utah all enacted legislation in 2013 repealing all or certain portions of the Compact. Of course, due to the Gillette litigation and other cases, it is still uncertain as to whether states can effectively insulate themselves from litigation concerning the three-factor apportionment election by repealing certain provisions of the Compact, the authors said.
Finally, the MTC's effort to amend the Uniform Division of Income for Tax Purposes Act (UDITPA), along with the recommendations contained in the Report of the Hearing Officer which analyzes proposals and makes recommendations for amending key provisions of Article IV of the Compact, has potential implications on the ongoing vitality of the Compact, according to the authors.
The Compact currently provides for a three-factor apportionment formula consisting of equally-weighted property, payroll and sales factors. However, many states have moved away from this standard formula and require that multistate taxpayers apportion income using a single sales factor or a three-factor formula with a double-weighted sales factor, the authors said.
One of the MTC Uniformity Committee's recommendations was for the Compact to be amended to recommend a double-weighted sales factor to Compact states, but ultimately allow these states to define their own factor weighting. This amendment would allow states to essentially reset the Compact from the equally-weighted three-factor formula to a formula including a more heavily-weighted sales factor so that the MTC election (which would remain under the Uniformity Committee's recommendation) would no longer provide taxpayers with an obvious apportionment formula benefit.
The Hearing Officer's Report noted that the “proposal to allow states to define the factor weighting fraction is a concession to reality” and that “[t]he recommendation of double weighting is unlikely to have much effect.”
Check out the complete article by Murphy, Yesnowitz, Busacker, Jones and Stolly here .
In other developments…
New Jersey Throwout: Tax Court Amplifies Its No Dual Nexus Decision , a new client alert by Morrison & Foerster LLP
What Same-Sex Couples Need to Know This Filing Season , by Joseph Henchman of the Tax Foundation
A proposed Tax Tribunal for Texas , by the Texas State and Local Tax Law blog
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