But that’s not my car!

In a recent Arkansas Admin ruling, a taxpayers was held responsible for sales tax on a vehicle that they no longer own. The seller repossessed the taxpayer’s car and it was later found that the car was never registered in Arkansas. The taxpayer insisted that the car was not in their possession for more than 30 days. Unfortunately the State of Arkansas stated that based on the governing statutes the fact that possession of the vehicle was taken creates a tax liability.

Contact our state and local tax team for more information on this and other similar SALT issues.

New Tax Laws Enacted in CT & MS

As more businesses enter the online marketplace to sell goods across borders, states are creating laws to capture sales tax for online transactions. Recently, both Connecticut and Mississippi have enacted new tax laws targeting out-of-state e-commerce sellers. Check out the following articles to learn more:

Connecticut to Tax Web Cookies
Mississippi to Tax Out-of-State Sellers

Colorado Sales and Use Tax Notice & Reporting Requirements

Colorado’s sales and use tax notice and reporting requirements for remote retailers…Still Alive! Previously, the District Court granted DMA’s motion for summary judgement and granted an injunction against the Department of Revenue from enforcing such requirement.  However, on February 22 the U.S. Court of Appeals for the Tenth Circuit held that the requirements do not violate the Commerce Clause.  In other words, (depending on any further litigation/appeals) Colorado can reinvigorate its efforts to force certain out-of-state retailers selling to in-state customers to:

1) notify Colorado customers that they are obligated to self-report and remit use tax on their purchases;

2) to provide Colorado customers with an annual report, detailing a customer’s purchases in the previous year;

3) notify the customer that the retailer was required to report the customer’s name and amount of purchases to the Department; and

4) report to the Department, the name, billing address, shipping address and total amount of purchases made by Colorado customers.

While Colorado has led the charge, many others states may jump on the reporting requirement band wagon.

Read Sutherland’s full legal alert outlining the background on Colorado’s Use Tax Reporting Requirements, District Court Ruling, Tenth Circuit Ruling, and the possibility of Future Congressional Intervention here.

North Carolina Tax Structure Update

Over the last several years, North Carolina has been incrementally revising its tax structure.  On September 18, 2015, Governor Pat McCrory signed House Bill 97 (H.B. 97), which contained several additional changes to North Carolina tax law.  Two noteworthy provisions relate to the apportionment formula, and they include:

  1. The phase in of single sales factor apportionment. The phase in occurs over three years beginning in 2016, replacing the existing double-weighted sales factor apportionment for both income and franchise tax.
  2. Requirement to file an informational report, showing the company’s 2014 sales factor as if it were computed using market based sourcing rules.  This requirement only affects corporate multistate taxpayers with apportionable income greater than $10 million, and North Carolina apportionment percentage less than 100%.

The Corporation must include, with its 2015 filing, Form CD-400 MS, Market-Based Sourcing Information Report.  The 2014 sales factor is required to be computed based on the market-based provisions outlined in H.B. 97. A potential non-filing penalty of $5,000 may be assessed for failure to file the informational report.  The collected information will assist North Carolina is deciding whether to transition from cost-of–performance sourcing to market based sourcing.

More information can be found on the North Carolina Department of Revenue website.

California Multistate Tax Compact Election

On December 31, 2015, a California Supreme Court decision ended a 6 year long debate regarding the State’s Multistate Tax Compact (“Compact”) election (Gillette Company v. Franchise Tax Bd., No. S206587, Dec. 31, 2015).  While Gillette has indicated it will appeal to the United States Supreme Court, the professional community is mixed on whether the Court will grant certiorari.  The full California Supreme Court ruling can be found here: http://www.courts.ca.gov/opinions/documents/S206587.PDF

By way of background, the Multistate Tax Compact was originally drafted as a model law in 1966 by a widely representative group of state officials, including tax administrators, attorneys general, state legislators and a Special Committee of the Council of State Governments.  The Compact became effective, under its terms, on August 4, 1967. The Compact is an advisory compact, in that actions taken under its authority have only an advisory or recommendatory effect on its member states. California enacted and became a member of the Compact in 1974.

Prior to 1993, California law required the use of an evenly weighted three-factor apportionment formula (same as per the Compact). In 1993, the California Legislature decided to replace the three-factor formula with a double-weighted sales-factor formula.

In 2010, The Gillette Company (and others) sued and argued that California’s enactment of the double-weighted sales-factor apportionment formula did not override or repeal the Compact’s formula and that they were permitted to elect to use the Compact formula.  They asked for $34 million in refund claims for prior taxable years, basing its calculations on an evenly weighted three-factor apportionment formula.

The trial court dismissed Gillette’s suit for refund, stating that the Compact’s apportionment formula was repealed. In October 2012, (after some interesting procedural matters occurring in the months prior) the California Court of Appeal reaffirmed its prior opinion while clarifying that California’s requirement to use the double-weighted sales factor was an “unconstitutional impairment of contract” during the tax years at issue to the extent it sought to override and disable California’s obligation under the Compact.

Now, the California Supreme Court has reversed the Court of Appeals.  With its unanimous decision, the Court held that the Compact is not a binding contract among its members and California was not bound by its provisions.

Similar cases have been brought forth and are at various stages of appeal in Michigan, Minnesota, Oregon and Texas.