State Taxation: 'Food For Thought'

My recent posts have contained some of my notes and questions I recorded from attending the Paul J. Hartman State and Local Tax Forum last week. This is my last post which lists 20 takeaways or 'food for thought.'

1. The Organisation for Economic Co-operation and Development (OECD) does not identify tax havens, so why are the states?
2. Discretionary Authority is no warning. It doesn't allow taxpayers to know what a state will do (i.e., using alternative apportionment or combined reporting to force a taxpayer to deviate from the standard apportionment formula; or modifying a costs-of-performance statute to get a market-based sourcing result).
3. International taxation is starting to use state tax concepts such as combined reporting and apportionment.
4. "Are 'bright-line' tests knee-jerk reactions?" - quote from one of the speakers
5. "Tax Haven legislation should be trashed. Tax haven legislation picks winners and losers." - quote from one of the speakers
6. The only way to fight retroactive legislation is to monitor it and lobby against it before it is enacted.
7. Should states be able to enact retroactive legislation to protect the state budget from financial loss?
8. Should judicial decisions only apply to the taxpayer involved in the litigation if it involves a refund?
9. Retroactive legislation should not be able to increase revenue.
10. Ask yourself, if a 'technical correction' is creating new law or changing the interpretation of the law from the original interpretation that has been followed by taxpayers for years. If the answer is yes, do something.
11. Should retroactive legislation be limited to a state's statute of limitations?
12. Prior legislatures can't bind future legislatures.
13. New legislatures can't determine, or know, the intent of prior legislatures. Shouldn't be able to unbind or unwind prior legislation.
14. "Retroactive legislation is telling you what the law was." - quote from one of the speakers
15. Are we moving from apportionment to allocation when we use single-sales factor apportionment and market-based sourcing?
16. Is single-sales factor apportionment 'fair apportionment'? Moves income to customer states, not to states where the activities occurred that generated the income. Income is not based solely on sales.
17. "Throwback and throwout rules are unconstitutional because they look beyond the borders of the state." - quote from one of the speakers
18. If alternative apportionment is wide open and anything goes, why have statutes?
19. "To gain true insight, read the entire case - don't just read the blurb. See what it says and what it doesn't say." - quote from one of the speakers. Get creative. See the case, the issue from a different perspective. Ask "why not."
20. Does common sense apply? If so, is your definition of 'common sense' the same as mine?

Obviously, I obtained all of the thoughts above from the Forum. Some are quotes from speakers, some are ideas paraphrased from a speaker's discussion, and others are personal reflections. 

LEGAL PRINCIPLES IN STATE TAXATION - DO YOU KNOW THEM?

Last week I attended the Treasures in the Attic-Tried and True Legal Principles in SALT session at the Paul J. Hartman State and Local Tax Forum presented by Janette Lohman and Brian Kirkell. I found the session very interesting and wondered if all state tax practitioners really know or understand how to use the legal principles that were discussed. Here is a list of the principles that were mentioned and can be used to defend your company or client.

1. Manifest Injustice
2. Equitable Estoppel
3. Statute of Limitations
4. Equitable Tolling
5. Equitable Recoupment
6. Collateral Estoppel
7. Statutory Rules of Construction (Canons of Construction)
8. Burden of Proof
9. Regulations Cannot Expand the Reach of a Statute
10. Retroactive Changes
11. Doctrine of Consistency
12. Laches
13. Conformity

State Taxation of The Sharing Economy - My Notes From the Paul J. Hartman SALT Forum

As I was sitting in the State Taxation of the Sharing Economy (i.e, Uber, Airbnb, etc.) session at the Paul J. Hartman State and Local Tax Forum presented by Jeremy Abrams, French Slaughter and Reid Okimoto last week, I took some notes. Here are a few of them:

1. How you characterize a charge (i.e., label it) and the contract language will most likely determine how the charge is taxed for sales tax purposes.
2. Will states 'back into' the characterization?
3. How do you source the sharing economy? By service address, billing address, or where the transaction starts or ends?
4. Does the Internet Tax Freedom Act pre-empt any sales taxation of the sharing economy?
5. Is physical presence 'nexus' MORE important, NOT less important due to technology advances and changes in how transactions occur?

CREDITS AND INCENTIVES - My Notes From the Paul J. Hartman SALT Forum

The following are some of my notes and thoughts from attending the Credits and Incentives session at the Paul J. Hartman State and Local Tax forum last week, presented by Chris Grissom, Robert Boehringer and Ron Rabkin.

1. All politics are local.
2. Taxpayers often obtain multiple letter rulings for credit and incentive deals due to the sophistication of the rules.
3. Credits and incentives are the opposite of simplification. Similar to market-based sourcing and single-sales factor apportionment, credits and incentives pick winners and losers - shifting the tax burden to out-of-state taxpayers and/or to other tax types such as property taxes and personal income taxes. How does this impact schools? Does the positive outweigh the negative?
4. Credits and incentives require so much knowledge of the deal, the incentive, the contacts at the jurisdiction, the procedure, etc. So many 'hoops' to jump through to obtain an incentive. Is it fair to have a system that requires so much investment of time, money, and energy? Those who are unwilling, or unable to invest the time, money and energy lose out. Is that fair? You could miss out on a great incentive package simply because you did not hire the right person to negotiate for you? Is that what it should take?
5. If a company makes an investment in a project before getting the credit and incentive, did the company actually need the credit and incentive?
6. Credits and incentives require companies to 'tell the story.'
7. Is everybody 'winning'?
8. What tool are you using to determine the type of credits and incentives that will benefit your company the most? A modeling tool or excel spreadsheet? Using the right tool will allow your company to negotiate with a state/city to get the right incentives package (i.e., incentives you can actually use).

Transfer Pricing, Treasures in the Attic and Using Social Media

Next week I will be attending the Paul J. Hartman State and Local Tax Forum in Nashville. A few of the sessions on Tuesday that I am extremely interested in are:

1. Transfer Pricing - MTC - ALAS program by Carley Roberts and Marshall Stranburg. The MTC program has been struggling to gain traction among the states. With all of the other activity around transfer pricing (i.e., BEPS, IRC Sec. 385 regulations, etc.), I wonder if traction will be found or will states remain in pause mode waiting for the dust to settle from other initiatives? For more info, check out my previous post - State Tax Transfer Pricing - What's Next?
2. Treasures in the Attic - Tried and True Legal Principles in SALT by Janette Lohman and Brian Kirkell. This should be a good session to refresh our knowledge of principles that we can use to help clients avoid and resolve controversy. If this interests you, you may like my previous post - Should the Federal Government Pre-empt A State's Taxing Power?
3. Ethics and Social Media for Tax Professionals by Brett Carter, Mark Holcomb and Glenn McCoy. I have a personal interest in this session as I have used social media for the last 8 years. Personally, social media has been a great tool to meet new people all over the country and help more companies, firms, publishers and policy organizations. If you haven't read it, here is a link to an interview I did for Bloomberg BNA about blogging.  For more history on my blogging adventure, check out this post.

Other sites I have used as a resource during my blogging years are:

Real Lawyers Have Blogs

Lawyerist

The Greatest American Lawyer

Amazing Firms, Amazing Practices

In Search of Perfect Client Service

Cordell Parvin Blog

Seth Godin Blog    

Adrian Dayton

*Please note that I am not an attorney, just so happens that most of the resources or people blogging when I started in 2009 were lawyers, not accountants.

The 'Most Significant State Tax Policy Issues'

David Brunori will be in Las Vegas this week speaking at the Council On State Taxation annual meeting (Friday morning) with Doug Lindholm, Helen Hecht, and Richard Pomp. They are leading a debate/discussion on the most significant issues in state tax policy. I can't be there, but thought I would give my two cents. 

I think some of the most significant state tax policy issues are:

• the imposition of sales tax collection obligations on remote retailers;
• expanding the sales tax base to services;
• whether states should ramp-up transfer pricing training/positions or join the MTC ALAS program;
• whether states should adopt tax haven legislation which allows them to cherry-pick the taxation of foreign income or simply adopt mandatory worldwide combined reporting;
• whether states should continue to enact unconstitutional legislation forcing taxpayers to go to court;
• whether states should continue to enact retroactive legislation;
• whether states should continue to enact legislation that benefits in-state taxpayers vs. out-of-state taxpayers (i.e., market-based sourcing, single-sales factor apportionment, credits and incentives).

What do you think are the most significant issues in state tax policy?