Weekly Round-Up: Treasury's Debt-Equity Rules May Limit States' Authority

Highlights from the 4/29/16 issue of the Weekly State Tax Report:

  • Treasury's Debt-Equity Rules May Curtail States' Authority. The Treasury Department's effort to curb the manipulation of intercompany debt transactions has raised sweeping questions about the impact on states' authority to make independent debt-equity determinations. Treasury released proposed regulations under tax code Section 385 to rein in earnings stripping through excessive indebtedness between related parties—both domestic and foreign.
  • ‘Quill’ Case Challenging Nexus Law Heading to S.D. Court. South Dakota is getting what it wanted—a lawsuit contesting its recently enacted law that sweeps aside Quill for remote retailers. Pending approval of the American Catalog Mailers Association's Board, ACMA and NetChoice are planning to file a complaint in the South Dakota Sixth Judicial Circuit, Hughes County, challenging the facial constitutionality of S.B. 106.
  • Kraft Addbacks Not ‘Unreasonable,' New Jersey Court Says. The Tax Court of New Jersey ruled against a Kraft Foods subsidiary in a case that could serve as a warning to in-state companies that argue the addback of interest payments is “unreasonable.”
  • New York Bar Tax Section Challenges Combined Reporting Rules. The New York State Department of Taxation and Finance may have exceeded its statutory authority in a section of its draft rules to clarify the state's new combined reporting requirements, according to a report from the New York State Bar Association Tax Section.

Some notable developments from the State Tax Developments Tracker–Bloomberg BNA’s tool for monitoring important developments in all the states:

  • Indiana Department of Revenue Holds Assessment Incorrect as Taxpayer Proves it is Not a Captive Real Estate Investment Trust
  • Arkansas Economic Development Commission Publishes Consolidated Incentive Act Final Amended Rules
  • Maryland General Assembly Enacts Law Concerning the Income Tax Subtraction Modification for Contributions to College Savings Accounts
  • Michigan Court of Appeals Partially Affirms Applicability of Agricultural-Production, Industrial-Processing, and Extractive-Operations Exemption to Taxpayer's Tangible Personal Property
  • Texas Comptroller of Public Accounts Issues Private Letter Ruling on Requirements of an Agency Relationship and Its Sales Tax Consequences

For more information about this and other state tax issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library.

In other developments…  

State Tax Fallout From Federal Proposed Related-Party Debt Regulations, by Sutherland

New York - Net Income, Including NOLs, Should Be Computed Even If Tax Liability is Measured On an Alternative Base in Pre-tax Reform Years, by PwC