Since the election of President Trump, Washington has been buzzing with talk of tax reform. Yet surprisingly little attention has been paid to the effect federal tax reform might have on state tax systems across the country. Because most state, individual, and corporate income tax systems rely heavily on federal rules, definitions, and calculations, what happens with federal tax reform has broad ramifications on state taxation.
Tax Analysts Blog
Cara Griffith, President and Chief Executive Officer of Tax Analysts, is an expert on state and local tax issues and policy. She contributes regularly to the Tax Analysts blog and writes the State Tax Notes column Practice Notes. Since joining Tax Analysts, Griffith has reported on many federal and state court cases, congressional hearings, and tax conferences. Previously, she was a manager with PwC and has written for a broad range of tax policy publications, including The Tax Adviser, The Hedge Fund Law Report, and The Hill. Griffith has a BA in political science and a BA in international studies from the University of Evansville and a JD from the George Washington University Law School.
One of the goals of the OECD’s base erosion and profit-shifting project is to achieve a level of uniformity in countries’ domestic laws, particularly those that address the international movement of goods and services. The U.S. states and multistate taxpayers have likewise longed for more uniformity on certain issues. States are permitted a great deal of leeway in the creation and administration of their tax systems, and the result is that state tax systems vary greatly. For a multistate taxpayer, this creates compliance challenges.
Harsh words for the state commissioner of revenue from the Minnesota Tax Court in a recent opinion involving utility assessments. The case, CenterPoint Energy Resources Corp. v. Commissioner of Revenue, stemmed from CenterPoint’s appeal of the commissioner’s valuation of its gas transmission pipeline as a single economic unit.
Tax Analysts recently obtained the field audit manual of the Maryland Comptroller of Public Accounts. We had submitted a public records request under Maryland law requesting the manual. Initially, the state was willing to release only 55 pages of the 283-page document, claiming that the remainder qualified as an intra-agency memorandum and was therefore exempt from disclosure under GP section 4-344. After Tax Analysts filed suit, the Maryland attorney general’s office determined that the state had a weak case and quickly released the entire document..
My colleague Maria Koklanaris recently wrote an excellent article on the pension debt held by state and local governments. It’s worth a read. Those in state and local government should be well aware of the level to which pension plans are underfunded. According to Koklanaris’s article, which was published in State Tax Today on September 20, there “isn’t a pension fund in America that can earn its way out of its liabilities.”
This month State Tax Notes turns 25 years old. It’s quite the accomplishment. There were some rocky times, but the magazine has emerged as a place where state and local tax ideas are floated, the debates are spirited, and discussion is informed. The magazine is better than ever, and we’re excited for what the future may hold.
It is generally well accepted that the founders of the United States wanted a federalist system of government. That is, they wanted the national government to concern itself with issues that affect the entire country and the numerous subnational governments to take care of more local issues. The powers granted to the federal government are enumerated in the U.S. Constitution. Article I, section 8 specifically provides that “Congress shall have the power to lay and collect taxes, duties, imposts and excises, to pay debts and provide for the common defense and general welfare of the Unites States.”
Given that it’s a presidential election year, much of the discussion among tax policy experts will focus on the candidates’ appetites for federal tax reform. But what often gets lost in that discussion is how changes at the federal level might affect the states. The reason for this is that most states in some way conform to the Internal Revenue Code.
Managing nonresident employees has been a challenge for companies for several years -- in part because of states’ various requirements, but also because states continue to be aggressive in locating remote employees. It is part of the continuing trend by state tax departments to ensure they are getting every dollar of available revenue. This has translated into being more aggressive in enforcing their tax codes, including their nonresident withholding statutes. Although numerous states have had nonresident withholding requirements on the books for many years, recent budget strains have spurred states to increase their enforcement efforts.
I once got an email from Angie’s List with the subject line “$99 for $200 Credit Toward Plumbing Services.” I could pay $99 to receive a $200 credit that I could use for a variety of plumbing services. Not a bad deal. It occurred to me that transferable tax credits could be marketed in a similar fashion. Recently, Tesla Motors Inc. could have sent out a comparable email captioned “$19 million for $20.4 million Credit Toward State Tax Liability.” The Tesla deal isn’t quite as good as the plumbing service example, but transferable tax credits provide tangible benefits to both sellers and purchasers.
This isn’t the first time I’ve written about this, and it won’t be the last. Part and parcel of maintaining a transparent tax system is having a press that can report on important issues and the actions of the government. Reporters can’t do that without sources willing to speak on the record and without access to events where government officials are speaking.
The number of passthrough entities (which includes partnerships, limited liability companies, and S corporations) has been on the rise for the last 30 years. And along with the increase in the number of passthrough entities has been a decrease in the number of C corporations. According to the Tax Foundation, passthrough businesses now account for 94 percent of all businesses in the United States.
Just days after Uber tentatively settled a lawsuit in California and Massachusetts for $100 million, another lawsuit was filed in Illinois. This suit, filed on May 2, once again raises the age-old (or at least year-old) question whether Uber could survive if its drivers were classified as employees rather than independent contractors.
Few terms in state and local tax are more of a misnomer than “nonbusiness income.” It’s as if nonbusiness income would have no relationship to a business. In reality, though, nonbusiness income is part of a business’s total income; it is simply not apportionable income. Thankfully, many states and the Multistate Tax Compact now refer to business income as apportionable income and nonbusiness income as non-apportionable income. While that provides some clarity, the underlying definitions – and how states apply them – leave much to be desired.
It’s always enlightening to reduce information to a scoreboard. The state and local tax (SALT) team at Sutherland Asbill & Brennan LLP apparently knows that as well. On April 6 Sutherland released its SALT Scoreboard, a quarterly feature tracking significant state tax litigation across the country.
An April 6 news article out of Sacramento caught the eye of an editor in my office. The story provides details about companies that are applying for tax credits in California. The first company mentioned was Faraday Futures, and the second was Snapchat, but it was the third company that made the story interesting to the editor. According to the story, the online news company, Politico, “would expand its California operation by adding 41 employees in Sacramento — if it received $205,000 in tax credits.”
If it is conventional wisdom that good cases settle while bad cases go to trial, isn’t there a lot that could be learned if lawsuit settlements were made available for public scrutiny?
Sometimes it really feels like something untoward is going on, but the suspicion is difficult to confirm. I’m having one of those moments regarding the Minnesota Tax Court.
Retailers and state officials are giving up on Congress and instead hoping that the U.S. Supreme Court will act to provide clarity and uniformity on the taxation of remote sales.