This document first appeared in the September 8, 2014 edition of State Tax Notes.
SALT Shakers is a column by State Tax Notes commentary editor Doug Sheppard that features viewpoints of, and interviews with, noteworthy members of the state and local tax world.
This edition features an interview with SALT luminary Art Rosen of McDermott Will & Emery, who is celebrating his 40th year in state and local tax. Though perhaps best known in recent years for his advocacy on federal business activity tax legislation, not to mention electronic commerce, Rosen has also racked up a long list of other accomplishments, some of which are touched on here.
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Art Rosen needs no introduction. A marquee name in state and local tax, he's been most well known in recent years for his advocacy on federal business activity legislation. He has also been active on electronic commerce issues, in the New York State Bar Association Tax Section, and in the American Bar Association Section of Taxation's State and Local Tax Committee. His list of speaking engagements since 1981 is the size of a small town's phone book.
Rosen's entree into the SALT arena was as a tax specialist with Coopers & Lybrand in 1974. By the next year, he had joined the New York State Department of Taxation and Finance as a deputy counsel, which paved the way for various positions in the private sector beginning in 1979. Rosen has been with Xerox Corp., AT&T, Roberts and Holland LLP, Morrison & Foerster LLP, and finally, with McDermott Will & Emery, where he has been a partner since 1996.
Rosen has also been a frequent contributor to these pages, both as an author and a quoted source in news articles. As Rosen celebrates his 40th year in SALT, there are more than a few things that many readers might not know about him.
Tax Analysts: How has the state and local tax practice changed in growth and prestige since you first entered it 40 years ago? What are some of the most significant changes?
Art Rosen: It was truly a "backwater" practice four decades ago; it was neither highly respected nor widely practiced outside in-house corporate tax departments. For example, I came up with the idea for the New York University summer SALT programs largely as a result of feeling discriminated against because NYU had produced federal tax programs for many years. Similarly, my getting Mead Data to add SALT quasi-judicial decisions and SALT administrative guidance to its Lexis database was probably driven just as much by the real need for such material to be available online as it was by the same fight-for-equality goal -- although I guess you could say that it was to enhance my own ego and the egos of other SALT practitioners.
I think the biggest changes have been in the areas of technical professionalism among SALT practitioners, the degree of SALT awareness among federal tax practitioners and business executives, and the fundamental change in the basis of state tax policy.
As to technical professionalism, there is now a much greater focus on, for example, statutory construction and case law interpretation. Forty years ago, the focus was much more on cutting a reasonable deal in an "old boys' club" sort of way. It seems to me that in virtually every major business acquisition or disposition today, the federal tax lawyers and the most senior business executives don't forget about SALT issues, as they did 40 years ago. State tax policy has clearly changed almost 180 degrees; instead of lawmakers making decisions on what is fair and equitable, they are now myopically focused on economic development -- that is, increasing the quantity and quality of jobs in the state.
TA: What impact has the expansion of accounting firms' state and local tax practices over the last 15 years or so had on the SALT practice in general?
Rosen: On the positive side, that development has obviously added to the amount of total brainpower being dedicated to SALT issues, both substantive as well as procedural. On the negative side, the selling of tax planning devices (which, admittedly, some -- but far from all -- law firms in the SALT area have done) ended up backfiring in the long run.
TA: When you got into the SALT arena in 1974, where did you expect it to lead?
Rosen: I really had no long-term plans or specific expectations. I would just roll with the punches.
TA: Have the past 40 years met or exceeded your expectations?
Rosen: Yes, in every dimension.
TA: Did you expect to be in the SALT world this long?
Rosen: No, not at all. I thought that I would end up in senior business management at a major corporation.
TA: In our preliminary conversations, you mentioned quite a few individuals' names? Why is that?
Rosen: I think that I have accomplished very little by myself, but have been a team member in connection with several major successful projects.
TA: You list convincing Mead Data to establish a state tax library in Lexis as one of your proudest achievements. How did that process play out, as you put it, with backup from the NYSBA tax section and the ABA SALT Committee?
Rosen: It started when I was working in the New York State Department of Taxation and Finance. In response to my approach, Mead offered to put SALT material in its database for a fee with New York state getting a royalty based on subscribers who accessed it. New York, however, didn't want to go into a business venture so I then had to convince Mead that there would be a market for online SALT material. That's when I turned to the bar groups for their support.
TA: How long did it take to create the library? What are the benefits?
Rosen: It took Mead, I think, over a year, but I really can't remember. Now, not only are more technical analyses possible, but multistate comparisons and contrasts are much more efficient.
TA: What year was the New York independent tax tribunal established? What role did Paul Comeau, Rick Pomp, and Frank Mauro play?
Rosen: The legislation was enacted in 1986 and became effective on September 1, 1987. Paul and I, on behalf of the New York State Bar Association's Tax Section, made numerous trips to Albany over many years trying to convince legislative staff of the need for an independent tribunal. When Rick, as executive director of the state's legislative tax study commission, accepted our idea, it gained a very respectable stamp of approval. Frank, a top legislative staffer, took up our cause and victory was finally achieved.
TA: Did the establishment of the state tribunal affect the work that you, Shelly Cohen, and Ken Moore performed in writing the law that established the current version of the New York City tribunal? What sources did you draw from in drafting the statute? What was the process?
Rosen: It was clear to us that the recently created state tribunal was structured and operating extremely well, so we tried to replicate that for the city, making modifications for legal requirements that were mandated by the city charter and state enabling acts.
TA: When did you conceive the term "attributional nexus" with Marc Bernstein and how did it come about?
Rosen: We were seeing quite a bit of activity in this area, and as we were completing the article for the Tax Executives Institute's The Tax Executive, I remembered a cool, erudite- sounding word from law school. I wanted to sound sophisticated and intellectual, so the term "attributional" was chosen.
TA: When did you start the ABA SALT Committee's roundtable discussions?
Rosen: When I was chair in the early 1980s.
TA: Were there any other inspirations besides Paul Frankel's monthly NYU SALT luncheons?
Rosen: Not really. Paul's lunch programs were unique at that time, in the same way that Paul has always been very special.
TA: How did they evolve?
Rosen: At ABA meetings, the roundtables were replaced by guest speakers at the Friday lunch -- so the roundtables were moved to early Saturday morning. I think that they have evolved in a very positive way; the various moderators have done a great job in keeping the discussions relevant and valuable.
TA: How did the New York Times and Heidelberg Eastern cases result in you and Jim Bergin developing the New York law on combined reporting?
Rosen: Frankel had successfully been litigating some New York state combined reporting cases regarding IRC section 936 corporations and their parents. In the two cases you just named, Jim and I completed the picture by successfully litigating on behalf of corporations that were seeking to get, rather than avoid, combined reporting.
TA: You were very involved in the National Tax Association's Communications and Electronic Commerce Tax Project, then the federal Advisory Commission on Electronic Commerce, and then the sales tax streamlining effort. Do you have any observations?
Rosen: During the first several years of the streamlining activity, I -- and many others in the business community -- were very excited and optimistic; as a matter of fact, Susan Haffield and I wrote a portfolio on the Streamlined Sales and Use Tax Agreement. However, a great deal of that enthusiasm waned as the states refused to budge from the ways they currently administer their sales tax laws, and so the degree of granularity that is required to maintain each state's status quo has erased any hopes of true simplification.
TA: You list Hank DiAntonio and Ethan Geto as your mentors. Can you expound on that?
Rosen: I think that Hank -- who was the manager of the drugstore where I was assistant manager while in high school -- showed me how one could perform his job in a fully responsible manner yet have fun. Similarly, Ethan -- who was the press secretary to Bronx Borough President Robert Abrams while I was a special assistant to the Borough president -- showed me how to aim for perfection yet have fun while doing so. Perhaps the bottom line is that they both taught me the importance of doing good work while not taking oneself too seriously.
TA: How did you come up with the idea that became the Mobile Telecommunications Sourcing Act?1
Rosen: When the industry approached me and explained the problems inherent in sourcing mobile telephone calls for sales tax purposes (for example, both caller and recipient could be moving through several tax jurisdictions during a single call, and the roaming carrier could be characterized as the agent of either the caller or the caller's home carrier), my brain was about to explode -- I just wasn't smart enough to develop a solution. But then I thought about a clean and easy solution based on the recently decided Jefferson Lines case in which the U.S. Supreme Court ruled that a seemingly divisible transaction could be treated as a single transaction for sales tax purposes. The idea of mobile telephone service being viewed as a single, monthly transaction was thus born.
TA: There obviously have been some pivotal state tax decisions over the past 40 years -- Quill, Geoffrey, U.S. Steel, Complete Auto Transit, Allied-Signal, etc. What are some cases that you think are also important that may not be as recognized? Why are they significant from your perspective?
Rosen: I'm not sure where I would draw the line between those that are well recognized and those that are less recognized. As far as U.S. Supreme Court decisions go, I think the West Lynn Creamery, ASARCO, and Woolworth cases were extremely important; I might add Camps Newfound to that list. Those cases all demonstrated that contrary to the view of many state tax administrators, there is a limit to what a state may tax. The U.S. Constitution does still carry some weight even though, as many revenue department staff often say in the context of older court decisions, "It's an old law so it doesn't apply anymore."
From a jurisprudential perspective, I think Wrigley was very interesting because the Court rejected both sides' broader arguments. The taxpayer community was asking for the word "solicitation" to be defined as anything that salespeople generally do in the relevant industry, while the state governments were asking that it be defined as activity that occurs before a sale. The Court, as we know, said the former would be too circular or self-defining, while the latter would jibe with reality because a seller is always hoping for another sale.
In the area of state court decisions, the recent due process cases (Scioto and ConAgra) may have a profound effect. The Geoffrey cases finally made me understand the meaning of the saying that we were taught in law school: "Bad facts make bad law."
TA: What would you rank as the most important state tax decision during your tenure and why?
Rosen: I think Allied-Signal was the most significant case, because it explicitly recognized that constitutional principles impose two nexus requirements for a tax imposition to be valid: nexus with the person (what I have traditionally called "presence nexus") and nexus with the transaction (what I have traditionally called "transactional nexus"). I think that MeadWestvaco simply confused the terminology that is used in this area, although it may have clarified the difference between selling a business and selling other assets.
TA: Where do you see state tax litigation on issues such as nexus and apportionment (for example, Gillette-styled litigation) headed?
Rosen: I am hoping that the pendulum, perhaps through legislation, will start swinging the other way (as we've recently witnessed in Scioto and ConAgra) not only in the nexus area, but in the alternative apportionment area as well. In the latter area, one would hope that lawmakers would start demanding that their role in setting tax policy prevail over an administrative agency's staff desire to "flex its muscle." I really hope that the rule of law returns to this area.
TA: You appeared on The Colbert Report in 2012. Any thoughts on that?
Rosen: What I found most surprising was the reaction of my kids, Rachele and Kenneth. They both found my appearance as infinitely more impressive than my having testified in Congress a few times.
TA: What, if anything, do you want to tell younger tax professors?
Rosen: I would tell them my well-known pet peeves as far as maiming the English language: using "comprise" when "compose" is correct, using "I feel badly" when "I feel bad" is correct, fearing to use "me" when appropriate, using "healthy" when "healthful" is correct, and misplacing the word "only" in a sentence.
TA: Any final thoughts?
Rosen: I really thank those clients who have showed me so much loyalty and respect over the years; their seeking and following my judgment is an amazingly gratifying experience.
1See Rosen, "Proposal for Uniform Sourcing for Mobile Telecommunications Transaction Taxes," State Tax Notes, Sept. 15, 1997, p. 717.
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