TWIST - August 3, 2020

Welcome to TWIST for the week of August 3.  This is Sarah McGahan from KPMG’s Washington National Tax state and local tax practice.

Our first development today is a case from Pennsylvania in which the court upheld the Department of Revenue’s benefits-received, market-based interpretation of the cost of performance method for sourcing sales of services that was in effect for the tax year at issue. This case was unusual in that the Department and the taxpayer were on the same side, but the Commonwealth’s Attorney General was arguing for a different interpretation of the law and asserted that the Department’s position was not entitled to deference.  The court, agreeing with the Department, first noted that because the statute was ambiguous, it needed to defer to the expertise of the Department. Both parties stipulated that the Department’s interpretation had been consistently enforced for many years. The court found that the legislature acquiesced in that interpretation when it amended the law in 2013 to clarify the application of the benefit-received method. In conclusion, the court determined that the Department’s interpretation was consistent with the legislative intent of the statute, and the taxpayer was accordingly entitled to a refund.

In other corporate income tax news, the North Carolina Department of Revenue issued an Important Notice announcing that it is implementing a voluntary initiative to expedite the resolution of corporate intercompany pricing issues. The initiative will commence August 1, 2020 and generally conclude by December 1, 2020. By September 15, 2020, taxpayers must agree in writing to participate in the initiative and by October 16, 2020, taxpayers must provide all required transfer pricing, tax, and financial information and documentation to the Department.  After the Department reviews the relevant documentation, it will propose an adjustment, and the taxpayer will have 15 days to accept the proposal. Assuming the parties reach an agreement, the Department will waive penalties for any agreed upon issue.

And now for a tax reform update. The Iowa Department of Revenue issued revised guidance reflecting recently-enacted legislation adopting an exclusion for GILTI. Under the revised law, corporate taxpayers are allowed an exclusion for the amount included in income under IRC section 951A net of the IRC section 250 deduction.  The exclusion applies retroactively to tax years beginning on or after January 1, 2019.

Finally, the Maryland Comptroller recently issued an Alert addressing the state’s rather unique conformity to the federal CARES Act. The Oregon Department of Revenue recently announced that for purposes of Oregon corporate excise/income tax, the presence of teleworking employees of the corporation in Oregon between March 8, 2020 and November 1, 2020 won’t be treated by the department as a relevant factor when making a nexus determination if the employees in question are regularly based outside Oregon. And, the New Jersey Division of Taxation issued guidance on the sales tax treatment of surcharges added to a customer’s invoice for COVID-19 precautions and prevention costs. 

Thank you for listening and stay well.