TWIST - October 11, 2021

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

First up, in corporate income tax news, the Court of Appeals of Michigan held once again that a taxpayer was entitled to use an alternative apportionment formula because the statutory formula did not fairly reflect income earned within the state. On its Michigan Business Tax return for the tax year at issue, the taxpayer included gain from a deemed asset sale in its tax base and in the denominator of its sales factor. On audit, Treasury determined that the taxpayer improperly included the gain in the sales factor denominator, which increased the taxpayer’s sales factor to approximately 70 percent. The same court ruled last year that the taxpayer was entitled to use an alternative apportionment formula, but the decision was reversed by the Michigan Supreme Court and the case was remanded to address how taxpayer’s income was apportioned under the statutory formula. After a trial court concluded last month that the gain was not included in the sales factor at all, the appeals court once again ruled that alternative apportionment was warranted.

The New Jersey Division of Taxation recently announced that it has extended the deadline for participating in its current initiative for non-filing members of a combined group.  This initiative is for corporations that filed as part of a unitary group indicating they have New Jersey nexus, but did not file as a separate entity for periods prior to 2019. These corporations have been given an opportunity to come forward and voluntarily comply with their separate entity Corporate Busines Tax filing requirements for periods prior to 2019. The initiative began June 15, 2021 and is now extended through January 3, 2022.

Finally, Senate Bill 267, which was recently signed into law in California, clarifies that developers of solar energy projects do not lose their property tax exemption when a change in ownership occurs as a result of a partnership flip transaction. Prior to enactment of Senate Bill 267, new construction solar energy projects were exempt from property tax until a “change in ownership” occurred. What was not clear in the law was whether a partnership flip would be considered a “change in ownership.” Senate Bill 267 clarifies that a partnership flip transaction is excluded from the definition of a “change in ownership” that would normally trigger a reassessment of property taxes.