Tax Analysts Blog

Scoreboards Are Fun . . . Even If They Are About Taxes

Posted on Apr 20, 2016

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.

According to the scoreboard, there were 48 “significant” state and local tax cases in the first quarter of 2016. Significant is defined as those “that have the greatest impact on our clients, the industries that we serve and the overall SALT landscape.” Of the 48 cases, 14 involved corporate income taxes, 22 involved sales and use tax issues, and 12 involved other tax types.

The scoreboard reports that taxpayers prevailed in exactly half of the 48 cases. Not bad. In fact, a “tie” is far better than one might expect.

The real question, of course, is what does this mean for taxpayers? It is commonly believed that taxpayers are likely to lose in court. There are a variety of reasons for this conviction, chief among them that on the national level, the IRS does in fact win the vast majority of cases it litigates. According to the National Taxpayer Advocate’s 2015 Annual Report, of 396 cases, pro se taxpayers prevailed in only 19 percent of the cases, and in 244 cases, represented taxpayers prevailed in only 28 percent of the cases.

It would seem logical that state tax agencies would also win the vast majority of cases they litigate. But perhaps this won’t prove to be true: At least for this quarter, the SALT Scoreboard suggests otherwise. If taken in isolation, the first quarter of 2016 suggests taxpayers have just as good a shot of winning as they do losing. Perhaps lawyers across the country will convince more taxpayers to challenge state tax assessments in court.

Still, while some of the news appears rosy, taxpayers are certainly on a losing streak when it comes to e-commerce. One of the cases included in the scoreboard is Direct Marketing Ass’n v. Brohl, a Tenth Circuit case challenging the validity of Colorado’s notice and reporting requirements on retailers. On April 1, the appeals court denied a petition for an en banc rehearing. The Tenth Circuit had previously held that Colorado’s requirement that out-of-state retailers disclose in-state customers to the state Department of Revenue doesn’t violate the U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota.

Still, many questions remain unanswered by the SALT Scoreboard, largely because of the limited amount of data. As the year continues, it will be interesting to continue crunching the numbers and tracking the trends.

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