Transparency and Letter Rulings

I found this Tax Analysts article by Cara Griffith, Amy Hamilton, and Jennifer Carr, that discusses the need for transparency and the value of publishing letter rulings to help all taxpayers. The article discusses the pros and cons of doing so, and the constraints that state departments of revenue face in fulfilling the desired objective of providing as much guidance as possible.

Even though the article is a few years old, I think it is beneficial reading because all taxpayers are looking for more certainty and less risk regarding the tax positions they take.

We need to work together to fight the struggle for clarity.

14 STATE TAX DEVELOPMENTS YOU MAY HAVE MISSED

I have been extremely busy with work and managing a move from Virginia to Nashville, TN. We bought a fixer-upper on 16 acres near Nashville and are set to close on the sale of our house in Virginia in June. We will be physically and permanently in the Nashville area in June. Can't wait. Because of the multitude of tasks involved in moving, I haven't had the time to blog as much. I hope you understand. 

Note: if you are located in the Nashville area, please contact me or connect with me on LinkedIn. If you are ever in the area for work or attend the Paul J. Hartman State and Local Tax Forum in October, let me know.

I have however, posted several things in the LEVERAGE SALT LinkedIn group that you may find interesting, if you haven't seen them.

1. State Rundown 4/21: Scraping the Bottom of the Revenue Barrel

2. 90 Reasons We Need State Corporate Tax Reform? - Interesting.

3. State Rundown 5/6: Energy Boom Goes Bust

4. Iowa Tax Reform Options: Building a Tax System for the 21st Century

5. Oregon Initiative Petition 28: The Threat to Oregon’s Tax Climate

6. Graduated Income Tax Amendment Stalls In Illinois House

7. 2016 State Tax Amnesty Programs (According to COST)

8. COST Issues Comments on Georgia's Waiver of Interest Provision

9. TEI Issues Policy Statement on Statutes of Limitation for State and Local Taxes

10. TEI Holds Liaison Meeting with the Illinois Department of Revenue

11. New Jersey Can Strike Blow Against Tax Havens

12. If Everyone Is a Tax Haven, No One Is

13. Unclaimed Property Litigation Update – Spring 2016

14. Pennsylvania Illustrated: A Visual Guide to Taxes & The Economy

I hope you find something useful from the links provided. If you do, please drop me a line and let me know. Also, send me a topic or question you would like me to cover in a future blog post.

I started the LEVERAGE SALT LinkedIn group to encourage interaction. To be honest, there really isn't much interaction on LinkedIn. It appears to be more of a bullhorn than true conversation. I know we are extremely busy and don't have time to wander the halls of LinkedIn. But I challenge you to start a conversation. Let's really talk. 

'AS IF' the Seller Had A Physical Presence

The Governor of South Dakota signed SB 106 on March 22, 2016. The law requires any seller selling tangible personal property, products transferred electronically, or services for delivery into South Dakota, who does not have a physical presence in the state to remit sales tax 'as if the seller had a physical presence' in the state. For this new requirement to apply, the seller must meet one of two criteria in the previous calendar year or the current calendar year:

1. The seller's gross revenue from sales into South Dakota exceeds $100,000; or
2. The seller has 200 or more separate transactions in South Dakota;

The law applies to sales made on or after May 1, 2016.

BEWARE

If you disagree with South Dakota's new law, you can voluntary comply and request a refund. However, the law explicitly provides that no claim will be granted on the basis that the taxpayer lacked a physical presence in the state.

IMMINENT HARM

In the new law, South Dakota states that the inability to effectively collect sales or use tax from remote sellers is "seriously eroding the sales tax base," "causing revenue losses" and "imminent harm" through the "loss of critical funding for state and local services."

South Dakota asserts that their revenue loss is more problematic because the state has no income tax.

WANT U.S. SUPREME COURT TO RECONSIDER QUILL

South Dakota also states in its new law that the U.S. Supreme Court has an urgent need to reconsider Quill and the physical presence requirement. The law provides that the legislature recognizes that the enactment of this law places remote sellers in a complicated position because existing constitutional doctrine calls this law into question. In other words, South Dakota is enacting an unconstitutional law to create a case to litigate with the hopes of overturning Quill.

The law states that the Legislature intends to clarify that the obligations created by this law would be stayed by the courts until the constitutionality of the law is clearly established by a binding judgment.

WARNING: ENFORCEMENT OF PROVISIONS CURRENTLY BARRED

As the state tax group at McDermott Will & Emery reported in their INSIDE SALT blog, two declaratory judgment suits have been filed which now bars the enforcement of the provisions until the litigation is resolved. The plaintiffs are trade associations representing catalog marketers and e-commerce retailers.

The bottom line is that remote retailers can breathe easy for a moment and do not have to comply with this new law while we wait for the courts to decide. For more details, read the INSIDE SALT post.

are you leveraging state tax developments?

When state tax developments in the form of court decisions, rulings, proposed and enacted legislation, policy organization proposals, etc. are released daily, what do you do with them?

First of all, do you read them? Do you even scan them? 

If you do more than scan and you even read them, what next? Do you simply file them away and say, 'that is interesting.' Or do you take the development and attempt to determine its application to your company's facts or client facts?

Do you take a proactive approach or reactive approach?

Do you contact states to comment on proposed legislation to help form it or guide it to a fair and just enactment? Do you identify risks that may cause your company or client exposure upon audit? Do you identify refund opportunities?

Or better yet, do you read the state tax development in detail and turn it upside down to look at it from a different perspective that may yield unexpected benefits?

With so many state tax developments happening daily, it can be difficult to determine what is worth reading and what isn't. But even after you make that judgment call, it can be even more difficult to determine what it means for you? Why should you care? What can you do with it?

We need to leverage these state tax developments to their fullest extent to provide proactive benefits to our company and clients. We also need to leverage each other's expertise. We don't need to fight the struggle for clarity alone.

That is what I am all about. Working to make this 'game' of state taxation easier. Let's leverage knowledge and each other. To that end, please contact me with your questions and I may answer them in a future blog post. No obligation. All information kept confidential.

Join the LEVERAGE SALT LinkedIn group and start asking real questions. Follow me on Twitter. Let's really connect and interact.

2016 Survey of State Tax Departments

Bloomberg BNA recently released its annual Survey of State Tax Departments. I recommend you get your free copy and gain additional insight to what states are thinking. The answers may not be totally reliable, but they will help you make informed decisions.

Bloomberg BNA is also holding a webinar on May 20th regarding the survey. 

How are you protecting your company from state taxes?

As I was reading Deloitte's, "The New Normal in State Taxation," I was thinking, this is great information, but what are companies doing with this information? How are they responding? Are they doing anything differently? Are companies becoming more aggressive in light of the fact that states are aggressively expanding the definition of what is taxable and when you are taxable? Or are companies becoming more conservative, more risk averse? 

Companies are in a difficult position. All of the legal arguments are great, but practically speaking, where do opportunities exist to reduce state and local taxes or conduct your business in a tax-efficient manner? How will you find them? How do you know if other companies are taking similar positions or taking more aggressive positions?  Will those positions withstand the scrutiny of an audit or succeed upon appeal?

Companies seek outside counsel via accounting and law firms, and some times even call the state for guidance. Some companies lobby to obtain favorable legislation or get it changed because proposed legislation will have unintended consequences. 

What is your company doing to make sure it isn't overpaying its state and local taxes?

How is your company reducing risk? 

what level of tax avoidance is permissible?

The following is an excerpt from my December 2, 2013 article in Tax Analysts State Tax Notes:

Here’s a multiple choice: the difference between tax avoidance and tax evasion is (a) whatever the IRS says, (b) a smart lawyer, (c) 10 years in prison, (d) all of the above. — Avery Tolar (Gene Hackman) in The Firm

According to the courts, tax avoidance is legal, but tax evasion is not. However, tax avoidance without business purpose or economic substance may be treated as a sham and disallowed. The history of state tax planning and two recent conflicting state decisions raise a question: What level of tax avoidance is acceptable?

Senate Finance Committee member Chuck Grassley, R-Iowa, once said that at the heart of every abusive tax shelter is a tax lawyer or accountant. That may be true, but what about legal tax planning and avoidance? Who, or what, is at the heart of tax avoidance? The answer to that may depend on the experience of the individual responding — whether he has worked for the government or has represented taxpayers against the government. Hence, we all decide whether tax avoidance should be allowed based on our own biases. For example, I have always worked as a taxpayer representative or advocate. Thus, I naturally lean toward the taxpayer’s point of view.

From the taxpayer’s side, I have experienced tax authorities abuse power, neglect the law, and use vague laws to raise revenue. States have imposed unconstitutional state taxes and pleaded bankruptcy when found guilty. On the other side, I have experienced taxpayers and advisers who analyze laws to the finite detail to wiggle around corners and yet stay within the boundaries of the law. As a result, both government and taxpayers can take advantage of the law, but who is right? What is acceptable? What came first — aggressive tax planning or overreaching and vague tax laws?