Decision trees are devices which can serve to diagram the uncertainties accompanying the alternatives of “settle” or “litigate,” Michael H. Salama and Katelyn E. Godfrey, both with The Walt Disney Co., and Deborah Swann, of Bloomberg BNA, write in this week’s issue of the Weekly State Tax Report.
In the article, the authors use a decision tree in a case study involving a Colorado taxpayer taking a return position that elects to use the Multistate Tax Compact's equally weighted three-factor apportionment formula rather than Colorado's single-sales factor apportionment formula prescribed under Colo. Rev. Stat. §39-22-303.5(4)(a).
In the illustration, the authors assume that the election has been disallowed and a deficiency notice of $5M has been issued. The taxpayer must either settle or litigate. Relevant factors to consider may include the state's settlement procedures, the additional time involved in pursuing litigation, as well as applicable legal fees, according to the authors.
Applying a decision tree analysis to the case study “demonstrates that the present value of proceeding to litigation generates a better result for the taxpayer,” the authors conclude. As a result, although the taxpayer must exhaust all administrative remedies under Colorado law before proceeding to litigation, it may be in the best interest of the taxpayer to not extend a significant amount of effort on settling the case.
However, as the assignment of relative percentages to the potential outcomes is not a precise science, given the closeness of the settlement result to the litigation result, settlement might be preferred from a certainty perspective, according to the authors.
To see the complete analysis of this case study using a decision tree, check out the article by Salama, Godfrey and Swann here .
In other developments…
Once Again, Alabama Ranks Near Bottom on COST Due Process Scorecard , a new alert by Bradley Arant Boult Cummings LLP.
Shopper’s Beware: Gift Cards Are Tax Free , OpenDOR, the official blog of the Massachusetts Department of Revenue explains.
Sometimes, a like-kind exchange just might EAT up the Texas occasional sale exemption , by the Texas State and Local Tax Law Blog.
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