Corporate Apportionment and Sourcing Rights in Multistate Tax Compact States Key Implications Triggered by California's Gillette Case Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. WEDNESDAY, JANUARY 23, 2013 Presenting a live 110-minute teleconference with interactive Q&A Bruce Ely, Partner, Bradley Arant Boult Cummings, Birmingham, Ala. Walter Pickhardt, Partner, Faegre Baker Daniels, Minneapolis Donald Griswold, Partner, Crowell & Moring, Washington, D.C. Jeremy Abrams, Attorney, Crowell & Moring, Washington, D.C. For this program, attendees must listen to the audio over the telephone.
72
Embed
Corporate Apportionment and Sourcing Rights in Multistate ...media.straffordpub.com/products/corporate-apportionment-and...Corporate Apportionment and Sourcing Rights in Multistate
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Corporate Apportionment and Sourcing
Rights in Multistate Tax Compact States Key Implications Triggered by California's Gillette Case
Market-Based Sourcing (Cont.) Royalties from the use of patents, copyrights, etc.
• Where the intangible property is used by the purchaser
• Alabama, Colorado, Michigan, Minnesota, Utah
• Example where property used in more than one state
• If the property is used in more than one state, the royalties
or other income must be apportioned to this state pro rata
according to the portion of use in this state. If the portion
of use in this state cannot be determined, the royalties or
other income must be excluded from both the numerator
and the denominator. Intangible property is used in this
state if the purchaser uses the intangible property or the
rights therein in the regular course of its business
operations in this state, regardless of the location of the
purchaser's customers.
• Minn. Stat.
290.191 Subd. 5(h)
30
Other Sourcing Rules Pro rata cost of performance
• Colorado – services performed within and outside of the state
• The portion of the gross receipt included in the Colorado numerator
is found by multiplying the gross receipt by a fraction, the
numerator of which is the direct costs incurred in the performance
of that service in Colorado and the denominator of which is the
direct costs incurred in the performance of that service
everywhere. Colo. Code Regs. 39-22-303.5.4(c)
Unique rule
• Arkansas - sales, other than sales of tangible personal property, are in
this state if:
(a) The income-producing activity is performed in this state; or
(b) The income-producing activity is performed both within and
without the state, in which event the portion of income allocable to this
state shall be the percentage that is used in the formula for allocating
income to Arkansas during the year of the sale. Ark. Code
26-51-717
31
Departures From Business Income Definition
Compact definition
“Business income” means income arising from transactions
and activity in the regular course of the taxpayer’s trade
or business and includes income from tangible and
intangible property if the acquisition, management and
disposition of the property constitute integral parts of the
taxpayer’s regular trade or business operations.
Art. IV, Sect. 1.(a)
32
Business Income Definition
• Alabama
• “Notwithstanding any other provision of law to the
contrary and specifically, Section 40-27-1, for purposes of
Article IV of the Multistate Tax Compact, the term
“business income” means [transactional test]; or income
from tangible or intangible property if the acquisition,
management, or [additional categories of income].”
• Ala. Code Sect. 40-27-1.1
• District of Columbia
• “Business income” means all income that is apportionable
under the Constitution of the United States.
• D.C. Code Sect. 47-1801.04(5)
33
Business Income Definition (Cont.)
• Idaho
• “Business income” means [transactional test] and includes income
from the acquisition, management, or disposition of tangible and
intangible property when such acquisition, management, or
disposition constitutes integral or necessary parts of the taxpayer’s
trade or business operations. Gains or losses and dividend and
interest income from stock and securities of any foreign or domestic
corporation shall be presumed to be income from intangible
property, the acquisition, management, or disposition of which
constitutes an integral part of the taxpayer’s trade or business; such
presumption may only be overcome by clear and convincing evidence
to the contrary.
• Idaho Code
63-3027
34
Business Income Definition (Cont.)
• New Mexico
• “Business income” means income arising from transactions and activity in the
regular course of the taxpayer's trade or business and income from the
disposition or liquidation of a business or segment of a business.
“Business income” includes income from tangible and intangible property if
the acquisition, management or disposition of the property constitute
integral parts of the taxpayer's regular trade or business operations.
• N.M. Stat. Ann.
7-4-2
• Oregon
• “Business income” means income arising from transactions and activity in the
regular course of the taxpayer’s trade or business and includes income from
tangible and intangible property if the acquisition, the management, use or
rental, and the disposition of the property constitute integral parts of the
taxpayer’s regular trade or business operations.
• O.R.S.
314.610
35
Departures From Industry Specific Apportionment
• No industry specific formulae in the Compact except
exclusion of financial organizations and public utilities
• If a taxpayer has income from business activity as a public
utility but derives the greater percentage of its income
from activities subject to Article IV, then the taxpayer may
elect to allocate and apportion its entire net income as
provided in Article IV.
36
Industry Specific Apportionment
• California franchisors
• Following receipts attributed to the state in which the
franchisee’s place of business is situated, provided the taxpayer is
taxable in such state
• Advertising fees, administrative/advisory services fees, site
acquisition fees
• If the taxpayer is not taxable in the state in which the franchisee’s
place of business is, or would have been, located, the receipts
shall be attributed to the state in which the principal office of the
taxpayer’s employee or employees performing such services is
located, except that if such services are performed by an
independent contractor the receipts shall be attributed to the
state of the taxpayer’s commercial domicile.
• Cal. Code Regs. 25137-3
37
Industry Specific Apportionment (Cont.)
• Manufacturing
• Print media
• Broadcasting
• Shipping
• Telecommunications
38
Slide Intentionally Left Blank
Departures From Other Article IV Definitions
40
• Sales
• All gross receipts of the taxpayer not allocated under
paragraphs of this Article
• Compensation
• Wages, salaries, commissions and any other form of
remunerations paid to employees for personal services
Broader Implications Of Article IV?
41
ISSUES ARISING FROM OTHER STATE CASES, GUIDANCE
Bruce Ely, Bradley Arant Boult Cummings
Issues With Other State Cases And Administrative Guidance On Similar Issues
A. With California’s withdrawal, 18 states plus D.C. remain full members of the Compact. At least 10 of those states have apportionment provisions that differ from UDITPA, e.g., a single sales factor.
B. International Business Machines Corp. v. Michigan Dept. of Treasury, Dkt. No. 306618 (Mich. Ct. App. 11/20/12, unpublished); motion for leave to appeal to Mich. S. Ct. pending; motion to admit Gillette attorneys pro hac vice also pending
C. Health Net, Inc. v. Oregon Dept. of Revenue, Dkt. No. 120649D (pending in Oregon Tax Court)
43
Issues With Other State Cases And Administrative Guidance On Similar Issues (Cont.)
D. Announcement, Oregon Dept. of Revenue, www.oregon.gov/DOR/bus/Pages/corp-tax_main.aspx (last visited 1/16/13)
E. Graphic Packaging Corp. v. Comptroller, Dkt. No.
GN-12-003038 (pending in Travis Co. Dist. Ct.)
D. Texas Comptroller of Public Accounts, Hearing Decision Nos. 106,508 (7/13/12) and 104,752 (8/18/11)