TWIST - January 11, 2021

Welcome to TWIST for the week of January 11, featuring Sarah McGahan from the Washington National Tax State and Local Tax practice.

We have two corporate income tax cases that we are covering today. First, the Louisiana First Circuit Court of Appeal recently held that gain from the sale of an LLC doing business in Louisiana, which was apportionable income, was included in the taxpayer’s sales factor denominator for the tax year at issue. Under Louisiana law for the tax year under review, the denominator included total net sales made in the regular course of business and the taxpayer’s other gross apportionable income. A regulation provided that sales that were not in the regular course of business were excluded from the factor. The taxpayer argued that the regulation exceeded the scope of the statute and was therefore unenforceable. The court ultimately agreed with the taxpayer— based largely on statutory construction and legislative intent—and held that the gain was properly included in the sales factor denominator.

In an unpublished decision, the Oregon Tax Court recently addressed whether a taxpayer properly included in its sales factor denominator dividends and Subpart F income that remained in the tax base after applying the state’s dividends-received deduction. The taxpayer at issue subtracted 80 percent of its foreign dividends and Subpart F income in computing its Oregon tax base. The taxpayer also excluded 80 percent of these amounts from the sales factor.  The non-subtracted 20 percent was included in the sales factor denominator but was not included in the Oregon numerator. On audit, the Department protested this treatment. The tax court rejected the taxpayer’s argument that the statute requiring an exclusion for 80 percent of the Subpart F income and dividends necessarily meant that the remaining 20 percent was included in the factor. However, the court also rejected the Department’s arguments that an exclusion from the definition of “sales” for certain types of gross receipts applied to exclude the Subpart F income. In the court’s view, Subpart F income was not a gross receipt. The court, however, could not determine on summary judgement whether this exclusion from the definition of “sales” applied to the dividend income.

In sales and use tax news, the Missouri Supreme Court recently rejected a taxpayer’s position that it was delivering a service when it  provided portable toilets to customers. In the court’s view, the taxpayer held itself out to be a portable toilet rental business and without providing the toilets, the taxpayer had no service to provide. The court also rejected the taxpayer’s argument the “true object” test should be applied to determine whether the transactions were taxable.  This test was not appliable where, as here, the item of tangible personal property being transferred had value on its own. As such, the court affirmed the Administrative Hearing Commission decision holding that the taxpayer owed sales tax on its portable toilet rentals.

The Nevada Department of Taxation announced that the upcoming tax amnesty program will begin on February 1, 2021 and run through May 1, 2021. Under the program, a business will be relieved of all penalties and/or interest imposed with regard to unpaid taxes, fees, or assessments that were due and payable on or before June 30, 2020.

Finally, on January 6, 2021, the Maryland Comptroller announced that due to the ongoing state of emergency in Maryland, the upcoming due dates for filing returns and making payments of certain taxes, including but not limited to corporate income taxes and sales and use taxes, has been extended. Importantly, these extensions are available to all taxpayers.

Thank you for listening to TWIST and stay well!