Monthly Archives: February 2013

FEBRUARY 2013 NEWS FROM SULLIVAN & ASSOCIATES, PC

So the Northeast gets pounded by a fun little storm called Nemo, and tax season has begun, isn’t winter fun? Now, it is quite impressive to see Connecticut step so quickly into the 21st century regarding identity theft. It usually takes the fiefdoms years upon years to catch up on issues like this. Considering all the press regarding identity and tax refund theft, it is great to see a tax department take preventative measures in this area. The real question becomes can they administer this program while causing minimal harm? I’m betting not; Let’s hope I’m wrong. Have a great February.

California – Corporate Income Tax – Supreme Court Grants Review in Gillette

The California Supreme court recently granted the Franchise Tax Board’s (“FTB”) petition for review of the California Court of Appeal’s decision in The Gillette Company, et al., v. California Franchise Tax Board (“Gillette”). In that decision, the California Court of Appeals upheld the right of the taxpayers to elect to allocate and apportion income to California using the Multistate Tax Compact (the “Compact”) as statutorily adopted in California Revenue and Taxation Code. The election at issue allowed the taxpayers to apply the Compact’s equally-weighted, three-factor apportionment formula (property, payroll and sales), while eliminating the double weighting of the sales factor applicable to most taxpayers. The Gillette Company, et al. v. California Franchise Tax Board, 2013 Cal. LEXIS 282 (Jan. 16, 2013), petition for review granted.

This case has considerable tax implications for businesses with significant California sourced revenues, and taxpayers may want to consider electing to apply the Compact methodology, both prospectively and retroactively, if the election would yield a material tax benefit.

Connecticut – Personal Income Tax – Refund Protection Program Announced

The Connecticut Department of Revenue Services (DRS) announced that it is launching a new taxpayer refund protection program to help prevent identity theft and tax fraud. Under the refund protection program, some taxpayers will be notified in writing, asked to call the DRS, and requested to provide additional identity information before refunds are issued, which may result in a small delay in receiving a refund for affected taxpayers. In addition, the DRS notes that taxpayers who do not choose direct deposit for refunds of less than $5,000 will receive their refund in the form of a debit card that can either be cashed at any VISA-affiliated bank or used to make purchases from vendors that accept VISA. News Release, Connecticut Department of Revenue Services, January 28, 2013.

Michigan – Income/Franchise Tax – Tax Provisions Amended Involving Business Losses & Sales Factor Computations

The Michigan Business Tax (MBT) was recently amended indicating that for purposes of computing a “business loss,” a taxpayer that acquires the assets of another corporation in a transaction described under Internal Revenue Code section 381(a)(1) or (2) may deduct any business loss attributable to that distributor or transferor corporation. In addition, sourcing rules for goods in transit were amended in the same legislation. The amendment stated that property stored in transit for 60 days or more prior to receipt by the purchaser or the purchaser’s designee, or in the case of a dock sale not picked up for 60 days or more, shall be deemed to have come to rest at this ultimate destination. Property stored in transit for fewer than 60 days prior to receipt by the purchaser or the purchaser’s designee, or in the case of a dock sale not picked up before 60 days, is not deemed to have come to rest at this ultimate destination. S.B. 1037.

New York – Income Tax- State Adopts Amendments to Combined Filing Regulations

The New York State Department of Taxation and Finance (the “Department”) recently adopted amendments to the combined reporting regulations applicable to general business corporations (including REITs and RICs) subject to the tax (Franchise Tax) imposed by New York Tax Law. The new regulation, Reg. Sec. 6-2.3(c), sets forth 10 steps that should be used to determine whether a combined report is required and, if so, which corporations are included in that combined report. The amended regulation changes its syntax to eliminate language that infers that all corporations must be combined regardless of whether they had substantial intercorporate transactions. Further, the new regulation adds New York S corporations and non-New York taxpayer federal S corporations to the list of corporations eliminated from combination. New York Reg. Sec. 6-2.3(c).

New York – Sales Tax – Collection on a Court Judgment for a Taxable Lease is Still Subject to Sales Tax

New York State Department of Taxation and Finance concluded that when a Petitioner enters into a true lease of taxable equipment, and the lessee defaults and the Petitioner eventually wins a court judgment against the lessee for a portion of the amount due under the lease, any collection of the judgment would be taxable. The Division also concluded that Petitioner’s subsequent recovery of a part of a bad debt involving a taxable sale would not be subject to sales tax if Petitioner never received any bad debt credit or refund in regard to that bad debt. TSB-A-13(3)S.

Texas – Corporate Income Tax – Telecommunications Provider not Entitled to Cost of Goods Sold (COGS) Deduction

A taxpayer could not take a cost of goods sold (COGS) deduction for Texas franchise tax purposes for costs associated with providing a service that is sold in a mixed transaction. The taxpayer sold telecommunication products such as local and long-distance telephone, Internet access, and video and requested a refund of franchise tax based on its claim of a COGS deduction.

The comptroller denied the request on the grounds that Texas franchise tax law does not authorize a taxable entity to take a COGS deduction for costs associated with providing a service that is sold in a mixed transaction. For franchise tax purposes, the telecommunication products that the taxpayer sold in 2008 were determined to be services. Decision, Hearing No. 102,735, Texas Comptroller of Public Accounts, October 24, 2012, released January 2013.