TWIST - February 17, 2020

Welcome to TWIST for the week of February 17th. This is Sarah McGahan from KPMG’s Washington National Tax state and local tax practice. If you are a TWIST reader or listener, you probably noticed we are trying something new this year. Instead of reading longer summaries of each development, we are doing a round-up of the week’s happenings in our podcast and longer write-ups on the developments we discuss are available on the TWIST webpage.

This week, we are covering three cases addressing very different issues and different tax types. The first is a case from the Michigan court of appeals addressing whether the Department properly denied a sales tax refund claim related to a bad debt deduction. The refund was being requested by the bank that offered Private Label Credit cards to customers of various merchants. Although the retailers remitted the sales taxes at issue, Michigan’s bad-debt statute allows either the merchant or the lender to seek a tax refund. Any claim for a bad debt deduction must be supported by the evidence required by the Department. In this case, the court agreed that the taxpayer had not presented sufficient evidence to support that sales tax was actually paid on the transactions that were defaulted on.

In another case, the Ohio Supreme Court addressed the scope of an exclusion from the Public Utility Excise Tax base for “all receipts derived wholly from interstate business.”  The taxpayer at issue, an interstate natural gas pipeline subject to the excise tax, had originally taken the position that all of its receipts were derived from interstate business, and it was, therefore, liable only for the minimum tax. After an audit, the Department assessed tax on the receipts from gas that entered and exited the pipeline in Ohio.  The taxpayer tried to argue that these sales were in interstate commerce and were therefore eligible for the interstate business exclusion. The court rejected this position and also rejected the taxpayer’s argument that the imposition of tax on these receipts violated the Commerce clause.

Finally, the last case we are covering this week is a Washington state Court of Appeals case addressing whether the Department of Revenue could assess B&O tax on a Utah nonprofit corporation whose sole member was the University of Utah- a component unit of the state. The issue really centered on whether the nonprofit- a laboratory- was person subject to B&O and there were some cases addressing whether an agency of the state can be a person. After reviewing the prior cases, several factors lead the court to decide that the lab-despite its connection to the University- was a person subject to B&O. Notably, the lab employed staff who were not university employees and although the taxpayer’s income accrued to the University, it did not receive funding from the state of Utah and paid lawsuit settlements and judgements from its own funds.

That’s all for this week. Stay tuned to TWIST for future updates!