Tax Report - Institute for Professionals in Taxation Home Caruthers The Coca-Cola ... Keith G....

Gore Decided: Unitary Nexus Rejected! Economic Substance Test Clarified?Last year the authors reported on the Maryland Court of Special Appeals’ de-cision in Comptroller of the Treasury v. Gore Enterprise Holdings, Inc. and Fu-ture Value, Inc., which essentially held that nexus to tax could be asserted over on an out-of-state based on the entity’s being part of a unitary business with a presence in Maryland. In this article, the authors discuss the Maryland Court of Appeals’ recent decision on appeal of the case, in which the court clarified that the unitary business principle cannot be used as a basis to assert nexus over an out-of-state entity, but nevertheless held that Maryland had authority to tax the entities at issue on the ground that they lacked economic substance as businesses apart from their Maryland parent.Stephen J. Blazick, Esq. Reed Smith LLP Philadelphia, PA Phone: (215) 851-8877 E-mail: [email protected] E. Sampson, Esq. Reed Smith LLP Washington, D.C. Phone: (202) 414-9486 E-mail: [email protected]

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Income Tax

In this IssuePresident's Corner . . . . . . . . . . . . . . . . . . . . . . . . . 3Counsel's Corner . . . . . . . . . . . . . . . . . . . . . . . . . . 4IPT Annual Conference . . . . . . . . . . . . . . . . . . . . 19IPT Annual Conference Exhibitors . . . . . . . . 19 & 23Real Property Tax School . . . . . . . . . . . . . . . . . . . 23Notice of Annual Meeting of Members . . . . . . . . . 24Basic State Income Tax School . . . . . . . . . . . . . . 25Advanced State Income Tax School . . . . . . . . . . . 25CMI Candidate Connection . . . . . . . . . . . . . . . . . 26CMI Corner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Certified Credits & Incentives Professional . . . . . 27Credits and Incentives Symposium . . . . . . . . . . . 27Property Tax Calendar . . . . . . . . . . . . . . . . . . . . . 27State Business Income Taxation Book . . . . . . . . . 27Career Opportunities . . . . . . . . . . . . . . . . . . . . . . 28Calendar of Events . . . . . . . . . . . . . . . . . . . . . . . . 29

Tax ReportInstitute for Professionals in Taxation®Excellence Through Tax EducationMay 2014

Sales Tax

Tennessee Sales Tax Update: Transactions with Affiliates Receive Additional Scrutiny from Tennessee Tax DepartmentTransactions between related entities are sometimes overlooked from a sales tax perspective, which can result in tax liability that might have been avoided. Using a pending Tennessee case and a recent statutory change, this article highlights different scenarios in which these issues often come into play, and provides tips on how to avoid exposure in this area and maximize the benefits available under statutes exempting certain affiliate transactions.Brett R. Carter, Esq.Bradley Arant Boult Cummings LLPNashville, TNPhone: (615) 252-2383E-mail: [email protected]


IPT’s Amicus Brief to the U.S. Supreme Court Supporting the Petition for Certiorari in Equifax, Inc. v. Mississippi Department of RevenueOn March 24, IPT filed a brief in the U.S. Supreme Court as amicus curiae in support of the taxpayers’ petition for certiorari in the Equifax case. The brief was authored and IPT is represented in the case by Art Rosen, Mary Kay Martire, and Hayes Holderness of McDermott, Will & Emery. Reprinted as an article in this issue are the substantive portions of the brief, which argues that the Court should grant review in Equifax because Mississippi’s highly deferential standard of judicial review of administrative tax decisions deprives taxpayers of fundamental due process rights in various ways, and because if the state supreme court’s ruling is allowed to stand, other states are likely to follow Mississippi’s lead.

Arthur R. Rosen, Esq. McDermott Will & Emery LLP Miami, FL / New York, NY Phone: (305) 347-6512 / (212) 547-5596 E-mail: [email protected] Kay McCalla Martire, Esq. McDermott, Will & Emery LLP Chicago, IL Phone: (312) 984-2096 E-mail: [email protected] R. Holderness, Esq. McDermott, Will & Emery LLP New York, NY Phone: (212) 547-5490 E-mail: [email protected]


Tax Procedure

IPT 38th Annual ConferenceJune 29-July 2, 2014 ~ Phoenix, Arizona

Program Registration Hotel Reservation

TEAM SUCCESS

AnnualConference

mailto:[email protected]






IPT May 2014 Tax Report 2

IPT OFFICERS President Arlene M. Klika, CMI Schneider

First Vice President Arthur E. Bennett, CMI Property Tax Assistance Co., Inc.

Second Vice President Margaret C. Wilson, CMI, Esq. Wilson Agosto LLP

BOARD OF GOVERNORS Immediate Past President Paul A. Wilke, CMI Weingarten Realty Investors

Carolyn L. Carpenter, CMI, CPA International Paper Company

Kyle Caruthers The Coca-Cola Company

Garfield A. Grant, CMI, CPA DuCharme, McMillen & Associates, Inc.

Rick H. Izumi, CMI ITA, LLC

Kenneth R. Marsh, CMI TransCanada Pipelines Limited

William J. McConnell, CMI, CPA, Esq. General Electric Company

Faranak Naghavi, CPA Ernst & Young LLP

Andrew P. Wagner, JD, LLM FedEx Corporation

Allan J. Wells, CMI ABB Inc.

CORPORATE COUNSEL Lee A. Zoeller, CMI, Esq. Reed Smith LLP

EXECUTIVE DIRECTOR Cass D. Vickers

ASSISTANT EXECUTIVE DIRECTORS: Brenda A. Pittler Charles Lane O’Connor

GENERAL COUNSEL Keith G. Landry

This publication is designed to provide accu-rate information for IPT members and other tax professionals. However, the Institute is not en-gaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Re-print permission for articles must be granted by authors and the Institute. Send address changes and inquiries to Institute for Profes-sionals in Taxation®, 1200 Abernathy Road, NE, Building 600 Suite L-2, Atlanta, Georgia 30328 Telephone (404) 240-2300/Fax (404) 240-2315.

What’s Left of Florida’s Government Property Leasehold Exemption?The Florida Supreme Court recently decided two cases in which, by answering questions certified to it by the appellate court, it upheld the lower court decisions in both cases to deny taxpayers the ad valorem tax exemption for leaseholds of government-owned property on the ground that the taxpayers were actually the equitable owners of the property. This article reports and comments on the somewhat unusual aspects of these decisions.Keith G. Landry, Esq. Institute for Professionals in Taxation Atlanta, GA Phone: (404) 240-2303 E-mail: [email protected]


Property Tax

President’s

Corner

Arlene M. Klika, CMI President June 2013-2014

The Institute’s Sales Tax School II will be almost over by the time you read this letter. I would like to take this opportunity to thank the Sales Tax School II Chair, Kathleen M. Holston, CMI, CPA, and Vice-Chair Richard Sinton, Esq., for their leadership as well as the school instructors; all of whom contribute their time and talent to the program.

IPT’s first Credits and Incentives School will have its face-to face coursework at the Marriott Kingsgate Conference Center at the University of Cincinnati, May 14-16. The school’s enrollment has exceeded initial expectations, and registrants are now actively completing the pre-requisite distance learning

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courses. This is the first time an IPT school has used distance learning coursework. Co-Chairs Ali Master, CPA, and Michael Eickhoff are working with their faculty and committee to finalize the courses for presentation, including those being offered as distance learning electives.

The next programs on our agenda are IPT’s two State Income Tax Schools. The Basic and Advanced State Income Tax Schools will be held concurrently at the Georgia Tech Hotel and Conference Center in Atlanta, Georgia, from June 2-6, 2014. The Basic School Co-Chairs Frank Gallo, CMI, Esq., and Mark A. Loyd, Esq., and the Advanced School Co-Chairs Margaret Wilson, CMI, Esq. and Paul A. Broman, Esq., are coordinating with their faculty members and finalizing their classroom presentations. Brochures and forms are located on IPT’s website. Please pass this information along to those professionals in your companies who are in the income tax area.

The Real Property Tax School will be held July 13-18 in Austin, Texas at the AT& T Executive Education Center on the University of Texas campus. This school was moved to July for 2014 as well as to a new venue, and we expect good attendance. I encourage everyone to register early. Chair Mike Larson, CMI, ASA, and Vice Chair Todd Heinrichs, CMI, are now working with the instructors to begin making revisions to the course material. The brochure and registration information are on the IPT website.

The Institute’s 38th Annual Conference will be held at the JW Marriott Desert Ridge Resort in Phoenix, Arizona, from June 29–July 2, 2014. The theme of this year’s Conference is TEAM SUCCESS. The speakers are working on finalizing their materials to be posted on the Conference website. Don’t miss the chance to participate with your colleagues in this annual program. There are significant educational opportunities planned for each conferee, including general sessions and many breakout sessions where current credits and incentives, income, property and sales and use tax topics will be discussed and viewpoints exchanged. The social and other planned activities should be equally enjoyable and informative. Please remember on Tuesday, attendees have been asked to wear attire supporting their favorite sports team and join us for the opening session with Walt Coleman, an NFL Referee.

Every year, the Annual Meeting of Members is held in conjunction with the Conference. The Notice for this

year’s meeting was emailed to the membership in April. In the event you did not see it, a copy is also included in this Report. I encourage all members to attend this very important meeting on Sunday, June 29, 2014, to receive an update on the educational and membership opportunities evolving within IPT.

The Professional Designation Committees are finalizing their plans for the exams in June. Members who seek to attain the CMI (Certified Member of the Institute) designation (in Income Tax, Property Tax or Sales Tax) or the new CCIP (Certified Credits and Incentives Professional) designation should visit IPT’s website and look at the qualifications for earning these professional designations as well as the timelines for submitting applications and other relevant materials. Our thanks to Jeremiah Lynch, CMI and the CCIP designation committee for all their efforts. The CCIP designation joins the ranks with the CMI designations as recognition of advanced professional achievement. I encourage you to consider this investment in your education and career.

Every month, when I read the Member News, I scan the “Just One More” membership campaign participants. At the Annual Meeting of Members, anyone who has referred a new member during the year is included in a prize drawing. I am requesting that all IPT members help the Institute to continue to grow by resolving to refer “Just One More” new member before the 2015 Conference. Even though the campaign is called “Just One More,” there is no need to limit your membership recruiting to only one!

IPT is in the process of concluding its update of the 12th Edition of the Third-Party Drop Shipment Survey. This biennial update provides the latest information from forty-five states and the District of Columbia about this complicated tax issue. Pre-publication orders are being accepted (via order forms on IPT’s website) with publication in early summer. Make sure you get a copy of this valuable resource.

I look forward to having you join me in Phoenix.

Arlene M. Klika, CMI President


Tennessee Sales Tax Update: Transactions with Affiliates Receive Additional Scrutiny from Tennessee Tax DepartmentBrett R. Carter, Esq.Bradley Arant Boult Cummings LLPNashville, TNPhone: (615) 252-2383E-mail: [email protected]

T he focus of sales and use tax compliance departments is often on making sure that sales tax is being properly applied to transactions with

third-parties, that exemptions are properly documented, and that use tax is being assessed and remitted when appropriate. Transactions that can often be overlooked, however, are those that involve the interaction between the taxpayer and its affiliates.

In Tennessee, the Department of Revenue has begun focusing on these affiliated-party transactions during audits, asserting that sales tax is due depending on the nature of the transaction between affiliates.

In one case now pending before the Davidson County Chancery Court in Tennessee, a taxpayer served as the central purchasing agent for its various affiliates. Purchases of tangible personal property were made by the parent, and sales tax was paid on those purchases. The purchased goods were then transferred to the various affiliates, and the costs were shared pursuant to an Intercompany Cost Allocation Agreement. Significantly, the Agreement also provided for the allocation of costs for a variety of administrative and management services, which included (1) personnel services, (2) financial, legal and accounting services, (3) other administrative services, and (4) investment management services. The taxpayer also provided information technology services, including the development of certain software projects that, once

developed, allowed the taxpayer’s affiliates to access software maintained by the taxpayer at its centralized servers. The Department issued an assessment based on the provision of all these services to the taxpayer’s affiliates.

Tennessee has a long history of targeting affiliated-party transactions dating back to Standard Advertising v. Jackson, 735 S.W.2d 441 (Tenn. 1987), in which the Department successfully asserted that charges between Service Merchandise and its affiliated advertising entity were subject to sales and use tax. More recently, Tennessee has attempted to disregard transactions between affiliates involving the sale and lease of an aircraft, when the application of the resale exemption was at issue. CAO Holdings, Inc. v. Trost, 333 S.W.3d 73 (Tenn. 2010).

The Tennessee Court of Appeals added a twist to this area of the law with its decision in OakTenn, Inc. v. Chumley, No. E2007-02411-COA-R3-CV, 2008 WL 2600685 (Tenn. Ct. App. 2008), in which the Court concluded that the operation of a laundry among hotels was not taxable if the operation of the laundry was a joint venture between the hotels. In OakTenn, the affiliated hotels all shared the costs of operating a laundry for all the hotels as a joint venture. The Department attempted to impose sales tax on all the amounts paid for the laundry operation. The taxpayer prevailed on the legal issue, but the case was remanded for additional factual development. The premise of the Court’s ruling was based in large part on the conclusion that the members of the joint venture were operating in furtherance of the common goals of the joint venture and were not operating as separate companies with respect to the laundry operation.

The Tennessee legislature has also enacted provisions to define what transactions between affiliates are exempt from sales and use tax. In particular, section 67-6-350(a)(2) formerly exempted services rendered by a corporation to an affiliated corporation provided that there was no profit and that the services were not provided to unaffiliated entities. This exemption was replaced in 2009 with Tenn. Code Ann. § 67-6-395(b), which exempts “the repair of computer software or any other services otherwise taxable that are rendered by a company for an affiliated company.” Accordingly, the revised statute does not limit the application of the exemption to taxpayers that exclusively provide services to affiliates and do not receive a profit for the service.

The main argument now asserted by the taxpayer in the Davidson County case is that the intercompany services that the Department is now attempting to tax are

Counsel’sCorner


SALES TAX



exempt under the statutory exemption from the sales tax for transactions between affiliates. Based on the 2009 change that removed the requirement that no mark-up be charged and the requirement that services could only be provided to affiliates, the taxpayer appears poised to prevail on the language of the exemption statute. In the alternative, the taxpayer also argues that it is entitled to a credit for sales and use tax paid on its purchases of taxable items. Alternative arguments focus on whether the information technology services result in the transfer of computer software.

This case highlights the significance of intercompany agreements between affiliates that involve central purchasing or the transfer of tangible personal property or taxable services. Absent language in a state statute that provides for an exemption, those transactions may otherwise be taxable. Properly identifying the end user in these transactions and utilizing resale certificates will help make sure that these affiliated transactions do not get lost in the shuffle and result in an inadvertent tax liability.

The Tennessee statute, as amended in 2009, removed the requirements that make it much more difficult to qualify for the exemption for affiliated intercompany services. These types of statutes, however, vary significantly from state to state, so taxpayers should make sure to understand the requirements of these affiliated party exemption statutes and ensure that the intercompany agreements for services are structured to maximize the benefits offered by these statutes.

While not addressed in the Davidson County pleadings, issues involving sales tax and affiliated party transactions often present proof issues because those intercompany transactions are often consummated with journal entries rather than actual intercompany payments. Care should be taken that procedures are in place from an accounting perspective to make sure that these charges are properly documented, so that the separate nature of the entities and the transactions can be established with the supporting documentation.

Another significant issue highlighted by this case is the risks involved with utilizing catch-all intercompany agreements that include both taxable and nontaxable items. Here, personnel, management, and administrative services are not taxable services in Tennessee and only become taxable because the charges are included in a contract that involves the sale of tangible personal property. The use of severable contracts for the taxable and nontaxable items will help avoid or at least minimize the impact of sales tax on transactions between affiliates.

While the Davidson County case focuses on the sales and use tax assessment, there is a related business license tax assessment. In Tennessee, the business license tax applies to a broader set of services and there is no exemption for intercompany amounts paid to an affiliate. Instead, there is only a deduction from the sales price for a reasonable allocation of the cost incurred in providing the service. Thus, even within Tennessee’s taxing structure, it is clear that the terms of the affiliated party transaction statutes will often be determinative of the application of the tax to the transaction.

The Tennessee case only provides one example of how affiliated party transactions can result in disputes with state taxing authorities. Tax professionals should be careful to identify affiliated party transactions that have transaction tax implications, plan to minimize the exposure where possible and include these transactions in the tax compliance program. This task will prove to be a daunting one because the business operations of companies rarely remain stagnant. Thus, it will be a continuous process to evaluate what your business counterparts are doing, where they are doing it, and with whom, but evaluating these issues will put you in a better position in the event that Tennessee or some other state comes calling and reviews your transactions with affiliated entities.



assets and makes loans to Gore. In return, Gore pays interest to FVI. Gore deducts its royalty payments to GEH and its interest payments to FVI from its taxable income.

In 2006, the Comptroller audited Gore and issued its typical “pick your poison” alternative assessments. The Comptroller issued assessments to GEH and FVI, asserting that the entities had nexus with Maryland, and apportioning their income to the state using Gore’s apportionment factor. The Comptroller also issued an alternative assessment to Gore, disallowing Gore’s royalty and interest expense deductions for its payments to GEH and FVI. Upon the Comptroller’s Notice of Final Determination, which upheld the audit assessment, the entities appealed the matter to the Maryland Tax Court.

The Tax Court affirmed the assessments against GEH and FVI, explaining that because it was Gore’s business in Maryland that produced the income of GEH and FVI, the subsidiaries did not have real economic substance as business entities separate from Gore, and were engaged in a unitary business in Maryland with Gore. The taxpayers then appealed to the Circuit Court for Cecil County, which reversed the Tax Court decision. The Comptroller appealed to the Maryland Court of Special Appeals. The Maryland Court of Special Appeals reversed the decision of the circuit court, stating that GEH and FVI had nexus with Maryland because they were engaged in a unitary business with Gore, and Gore had nexus with Maryland. Gore appealed the decision of the Court of Special Appeals to the Court of Appeals (Maryland’s highest court).

Court of Appeals Rejects “Unitary Nexus”; Clarifies “Economic Substance as Separate Business Entities” Test

The Court of Appeals determined that the Maryland Tax Court was correct in holding that Maryland could tax GEH and FVI consistent with the Court of Appeals’ holding in Comptroller of the Treasury v. SYL, Inc.2

In reaching this decision, the court’s opinion does two important things. First, it clarifies that the test to be ap-plied in evaluating intercompany transactions and intan-gible holding company type cases is whether the entities in question have “real economic substance as separate business entities.”

2 825 A.2d 399, 375 Md. 78 (Md. 2003).

Gore Decided: Unitary Nexus Rejected! Economic Substance Test Clarified?Stephen J. Blazick, Esq. Reed Smith LLP Philadelphia, PA Phone: (215) 851-8877 E-mail: [email protected]

Alexandra E. Sampson, Esq. Reed Smith LLP Washington, D.C. Phone: (202) 414-9486 E-mail: [email protected]

In March, the Maryland Court of Appeals issued its highly anticipated decision in Gore Enterprise Hold-ings, Inc. v. Comptroller of the Treasury; Future Value,

Inc. v. Comptroller of the Treasury.1 The court held that under the Due Process and Commerce Clauses, Mary-land had the authority to tax the income of two out-of-state subsidiaries that did not have economic substance as separate business entities apart from their Maryland parent. The court also clarified that the unitary business principle cannot be used as a basis to assert nexus over an out-of-state entity engaged in a unitary business with another entity with a presence in Maryland. However, the court’s analysis seems to leave room for the continued conflation of the two principles.

Background

W. L. Gore & Associates, Inc. (“Gore”) is a Delaware corporation that uses certain patented material in the manufacture of various products. Gore operates in Maryland and is the parent to two wholly-owned, out-of-state subsidiaries – Gore Enterprises Holdings, Inc. (“GEH”) and Future Value, Inc. (“FVI”). GEH holds all of Gore’s patents and granted Gore an exclusive license to use the patents. In exchange for this license, Gore paid a royalty fee to GEH. FVI holds all of Gore’s financial

1 Gore Enterprise Holdings, Inc. v. Comptroller of the Trea-sury; Future Value, Inc. v. Comptroller of the Treasury, No. 36, September Term, 2013, 2014 Md. Lexis 155 (Md. March 24, 2014).

INCOME TAX




business principle to establish nexus, taxpayers will need to analyze how the “economic substance as separate entities” test applies to their facts.

Although the Court of Appeals decision rejects the unitary nexus theory, it notes that there’s no reason that factors that indicate a unitary business cannot also be relevant in determining whether subsidiaries have no real economic substance as separate business entities.5 This statement seems to suggest that there’s still a significant risk that the Maryland courts will continue to conflate the “unitary nexus” and “economic substance” theories as they apply the Gore decision in pending cases.

5 See Gore at 23-24.

Second, the court’s opinion acknowledges that the uni-tary business principle cannot be used to assert nexus over an entity. The court notes:

We must be clear about what the unitary business principle allows. The principle can be used to ‘tax an apportioned sum of [a] corporation’s multistate business if the business is unitary.’ But the principle does not confer nexus to allow a state to directly tax a subsidiary based on the fact that the parent company is taxable and that the parent and subsidiary are unitary.3

In reconciling the two principles in its analysis of Gore’s facts, the court determined that although the unitary busi-ness principle cannot be used to establish nexus over GEH and FVI, the subsidiaries nevertheless lacked eco-nomic substance as separate entities. The court pointed to the subsidiaries’ dependence on Gore for their income, the circular flow of money between the subsidiaries and Gore, the subsidiaries’ reliance on Gore for core func-tions and services, and the general absence of substan-tive activity from either subsidiary that was in any mean-ingful way separate from Gore as support for this finding.

Impact on Subsequent Cases and Audits

Behind the Gore decision stands a line of cases involving similar issues currently pending at the Maryland Tax Court and at audit.4 Taxpayers will want to pay close attention to the application of Gore to these cases. Specifically, although the Gore decision represents a partial victory for taxpayers due to its rejection of the use of the unitary

3 Gore at 13 (emphasis in original; internal citations omit-ted).

4 For instance, ConAgra Brands, Inc. v. Comptroller of the Treasury, No. 09-IN-OO-0150, involving intercompany royalty payments, was heard by the Tax Court in October 2010. The Tax Court also heard arguments in August 2011 in Staples, Inc. v. Comptroller, No. 09-IN-OO-0148, and Staples the Office Su-perstore, Inc. v. Comptroller, No. 09-IN-OO-0149 (“Staples”), involving intercompany royalty and interest payments. In ad-dition to these cases, there are a line of other cases involving intercompany royalty and interest payments pending before the Tax Court awaiting to be heard. Now that Gore has been de-cided, we may see a ruling from the Tax Court in these cases, regardless of whether the taxpayers in Gore seek certiorari to the U.S. Supreme Court.



TAX PROCEDURE

IPT’s Amicus Brief to the U.S. Supreme Court Supporting the Petition for Certiorari in Equifax, Inc. v. Mississippi Department of RevenueArthur R. Rosen, Esq. McDermott Will & Emery LLP Miami, FL / New York, NY Phone: (305) 347-6512 / (212) 547-5596 E-mail: [email protected]

Mary Kay McCalla Martire, Esq. McDermott, Will & Emery LLP Chicago, IL Phone: (312) 984-2096 E-mail: [email protected]

Hayes R. Holderness, Esq. McDermott, Will & Emery LLP New York, NY Phone: (212) 547-5490 E-mail: [email protected]

INTRODUCTION

E quifax filed Mississippi corporate income and franchise tax returns in which it apportioned its income to Mississippi using the formula mandated

by regulations promulgated under Mississippi law (402.06, 402.09(3)(d), and 402.09(3)(f)(iii) of Mississippi Administrative Code section 35.III.8.06 (“Rule 806”)). Rule 806 generally requires a multistate service provider to apportion its income to the state based on the ratio of its receipts “derived by the taxpayer from transactions and activity in the regular course of such trade or business during the tax period” in Mississippi to all such receipts. Rule 806 further provides that receipts from services are sourced to (i.e., derived) where the taxpayer performs the services generating those receipts. Because Equifax performed its services in Georgia, not Mississippi, under Mississippi law Equifax’s income was apportioned to Georgia and was thus not subject to Mississippi tax.

On audit, the Mississippi Department of Revenue (“MDOR”) unilaterally applied an alternative method of apportionment, known as “market-based” sourcing, to determine Equifax’s income subject to tax. MDOR provided no justification for its selection of the alternative apportionment method. As a result of its adoption of the

alternative method, MDOR imposed substantial additional tax, interest and penalty upon Equifax.

When Equifax sought to challenge MDOR’s assessment, it was subjected to a series of due process violations. While its protest was before MDOR, Equifax had no right of discovery or investigation to determine the basis for the assessment. At the trial court level, Equifax was deprived of a right of de novo review by the trier of fact. The trial court applied an arbitrary and capricious standard of review, instead of the de novo standard mandated by the governing statute. The trial court affirmed MDOR’s penalty assessment despite the fact that MDOR stipulated that Equifax had prepared its returns in accordance with Rule 806. The trial court also did not require MDOR to demonstrate any justification for prescribing an alternative apportionment formula for Equifax, but instead placed the burden on Equifax to prove that MDOR’s choice of an alternative apportionment formula was error. Although Equifax obtained relief on appeal to the Mississippi appellate court, the state supreme court overturned the appellate court and affirmed the trial court’s rulings.

The Court should grant the petition to afford Equifax relief from the State of Mississippi’s actions. By granting the petition, the Court would protect the rights of all Mississippi taxpayers and prevent the spread of Mississippi’s unconstitutional practices to other jurisdictions throughout the country.

* * * *

ARGUMENT

1. The Court should grant review in this case because Mississippi has deprived Equifax (and potentially all persons seeking administrative agency review) of fundamental due process rights.

a. Mississippi deprived taxpayers of a de novo hearing before the only available trier of fact.

The Fourteenth Amendment’s Due Process Clause requires that taxpayers have a meaningful opportunity to contest a tax assessment. McKesson Corp. v. Div. of Alcoholic Beverages & Tobacco of Fla., 496 U.S. 18, 38-39 (1990). The minimum requirements of due process in this context include an “opportunity to be heard in person and to present witnesses and documentary evidence . . . [and] a ‘neutral and detached’ hearing body . . . .” Morrissey v. Brewer, 408 U.S. 471, 489 (1972).

In accordance with this undeniable principle, many state courts have concluded that taxpayers are entitled to de novo review of a state revenue department’s tax assessment.






See, e.g., Ind. Dep’t of Revenue v. Miller Brewing Co., 975 N.E.2d 800, 804 (Ind. 2012) (“Nevertheless, we note that . . . the Tax Court has the authority – indeed, the obligation – to review the Department’s ruling de novo.”); Konover v. West Hartford, 699 A.2d 158, 166 (Conn. 1997); Chevron Pipeline Co. v. Strayhorn, 212 S.W.3d 779, 783 (Tex. App. 2006); T-Mobile USA, Inc. v. Utah State Tax Comm’n, 254 P.3d 752, 757-58 (Utah 2011).

The Mississippi legislature similarly appears to have provided for such an opportunity. This was the plain intent of the state’s statute, which provides that the chancery court “shall try the case de novo and conduct a full evidentiary judicial hearing on the issues raised.” Miss. Code Ann. § 27-77-7(5) (2014). By ignoring the statute’s de novo review requirement and, instead, adopting an arbitrary and capricious standard, the Mississippi Supreme Court has deprived Mississippi taxpayers of any meaningful opportunity to contest their tax assessments. Taxpayers do not have the opportunity to engage in discovery or to present evidence in front of a trier of fact that can review the evidence on its merits. Rather, the Mississippi Supreme Court has mandated that the trier of fact give deference to MDOR’s conclusions, even if the facts would otherwise clearly call for taxpayer relief.

The [Mississippi Supreme Court’s ruling (the “Ruling”)] also has wide-ranging implications for persons seeking relief from other Mississippi agency decisions. The Ruling interpreted Mississippi Code section 27-77-7(5)’s statement that “the chancery court shall give deference to the decision and interpretation of law and regulations by the Department of Revenue as it does with the decisions and interpretation of any administrative agency” (emphasis added) as imposing a judicially created arbitrary and capricious standard of review, despite the statute’s requirement that the court “shall try the case de novo.” By clear implication, the Ruling would apply the same standard of review to any chancery court review of the actions of any Mississippi state agency. See, e.g., Miss. Code Ann. §§ 23-15-69 (appeals from the registrar of any county that denies a person’s registration for voting), 25-9-131 (appeals to employee appeals board), 41-29-165 (appeals from decisions made under the uniform controlled substances law), 41-59-49 (appeals from State Board of Health decisions), 49-33-9 (appeals from inverse condemnation actions), 83-11-21 (appeals from commissioner of insurance decisions) (2014).

b. Mississippi subjects taxpayers to an unconstitutional “bait and switch” tactic.

This Court has established that a state may not nominally provide a particular remedy to a taxpayer and then deny

that remedy when the taxpayer attempts to claim it after relying on the state’s pronouncement of the remedy’s availability. Reich v. Collins, 513 U.S. 106, 111 (1994). Mississippi imposed such a “bait and switch” tactic here in two ways.

First, the Ruling subjects taxpayers to an arbitrary and capricious standard of review despite the underlying statute’s promise of a de novo hearing.21 Other state courts have rejected such tactics as unconstitutional. See, e.g., S. Cal. Edison v. First Judicial Dist. Court of Nev., 255 P.3d 231, 237-38 (Nev. 2011) (granting a taxpayer the right to de novo judicial review where “the Department [of Revenue] stated in a letter to the [taxpayer’s] counsel that ‘[i]n the event this matter is appealed to district court, it will be reviewed de novo and additional discovery will likely be allowed at that time’” and finding that “it would be highly inequitable to now allow the Department to change its position with respect to this taxpayer”); N. Supply Co. v. Dir. of Revenue, 29 S.W.3d 378, 380 (Mo. 2000); Harper v. Va. Dep’t of Taxation, 462 S.E.2d 892, 896-97 (Va. 1995). The Mississippi Supreme Court overlooked these deficiencies, effectively reading “de novo” out of the duly enacted statute in favor of a court-created standard of extreme deference, if not complete abdication, to MDOR.

Second, the Ruling deprives Mississippi taxpayers of the ability to offer proof that their actions are reasonable so as to obtain relief from penalty assessments. This right was provided by statute (Mississippi imposes penalties for non-compliance with tax laws, “unless it is shown that the failure is due to reasonable cause and not due to willful neglect . . . .” Miss. Code Ann. § 27-13-25(3) (2014)) but was eliminated by the ruling’s requirement that the assessment of penalties be reviewed using an arbitrary and capricious standard. As a result, although the trial court disagreed with MDOR’s decision to penalize Equifax and found that Equifax had acted reasonably, it affirmed the penalty assessment.

c. The Ruling deprives taxpayers of the separation of powers guaranteed by the Mississippi Constitution.

This Court recognizes that “property interests [protected by the Due Process Clause of the Fourteenth Amendment] . . . are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law – rules or understandings

21 Prior to the Ruling, it was generally understood that the statute provided for a de novo hearing. See, e.g., W.C. Fore v. Miss. Dep’t of Revenue, 90 So. 3d 572, 577-78 (Miss. 2012); Miss. Admin. Code § 35.I.1.01(107.02)(12)(f).


that secure certain benefits and that support claims of entitlement to those benefits.” Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 577 (1972); see Paul v. Davis, 424 U.S. 693, 709 (1976).

Article 1 of the Mississippi Constitution divides the powers of the state government into three distinct departments – legislative, executive and judicial – and precludes any “person or collection of persons, being one or belonging to one of these departments” from exercising any power properly belonging to the other branch. Miss. Const. art. I, §§ 1, 2. Further, Mississippi case law firmly establishes that matters of state taxation are the provenance of the legislative branch, not the judiciary. See, e.g., Colbert v. State, 39 So. 65, 66 (Miss. 1905) (finding that the “control of the purse strings of government is a legislative function,” and “is the supreme legislative prerogative, indispensable to the independence and integrity of the Legislature, and not to be surrendered or abridged, save by the Constitution itself, without disturbing the balance of the system and endangering the liberties of the people”).

In Mississippi Code section 27-77-7(5), the legislature provided unequivocally for a right of de novo review from MDOR assessments. By eliminating the statutorily-prescribed de novo standard of review in favor of an arbitrary and capricious standard, the Mississippi Supreme Court usurped legislative authority, and thereby violated the separation of powers clause of the Mississippi Constitution. In turn, the Ruling also violated taxpayers’ Fourteenth Amendment due process rights by depriving them – in a “bait and switch” manner – of the benefits and protections afforded by the State Constitution’s separation of powers clause.

The arbitrary and capricious standard adopted by the Mississippi Supreme Court invites further deprivations of the benefits of the separation of powers clause by encouraging MDOR to act with impunity. The standard eviscerates the essential checks and balances inherent in Mississippi’s guarantee of the separation of powers by failing to adequately check the actions of the executive branch state revenue department.

d. The Ruling undermines the purpose for which penalties are imposed.

This Court has recognized that a state’s deprivation of a person’s property interest “fails to comply with due process if the statute or regulation under which it is obtained fails to provide a person of ordinary intelligence fair notice of what is prohibited, or is so standardless that it authorizes or encourages seriously discriminatory enforcement.”


FCC v. Fox Television Stations, Inc., 132 S. Ct. 2307, 2317 (2012) (quotation omitted). The Ruling violated this principle by affirming the assessment of penalties against Equifax despite its compliance with the Mississippi tax laws.

It is commonly understood by the states, including Mississippi, that the purpose of tax penalties is to encourage compliance with the tax laws. See, e.g., Hills Materials Co., Inc. v. Van Johnson, 316 N.W.2d 646, 648 (S.D. 1982) (“The object of the penalty is to secure compliance, not to generate additional revenue for the state.”); Gen. Petroleum Corp. v. Smith, 157 P.2d 356, 358 (Ariz. 1945); Tenn. Prods. & Chem. Corp. v. Dickinson, 256 SW 2d 709, 710 (Tenn. 1953); Broadhead v. Monaghan, 117 So. 2d 881, 888 (Miss. 1960). In keeping with this purpose, Mississippi’s penalty law provides that penalties will not be imposed where “it is shown that the failure [to comply with the tax law] is due to reasonable cause and not due to willful neglect.” Miss. Code Ann. § 27-13-25(3) (2014).

In this proceeding, the record firmly establishes grounds to conclude that Equifax acted reasonably. MDOR stipulated that Equifax prepared and filed its returns in accordance with the tax law, and had no notice that MDOR would require the use of an alternative apportionment method. Despite these facts, the Ruling affirmed the imposition of penalties. It is inconsistent with traditional notions of due process to penalize a taxpayer for its failure to anticipate whether or how a taxing authority might deviate from default rules for determining income subject to tax. Certainly “a person of ordinary intelligence” would not have fair notice that a failure to anticipate such actions is a punishable offense.

The State of North Carolina addressed these issues in Delhaize Am., Inc. v. Lay, 731 S.E.2d 486, 499 (N.C. Ct. App. 2012). The case addressed Delhaize’s challenge to a substantial penalty assessment made by the state revenue department after the department decided to forcibly combine Delhaize’s income with that of a related entity. The trial court reversed the penalty assessment, finding that imposition of the penalty would be in violation of the Due Process Clause because Delhaize could not have sufficiently understood or anticipated that a penalty would be assessed. The North Carolina Court of Appeals reversed the trial court’s decision based on its determination that the taxpayer was on notice of the taxing authority’s position, and therefore could have anticipated that the state revenue department would require a deviation from the generally applicable requirements for combination. Id. at 500. The appellate court noted,


however, that had the taxpayer (like Equifax here) not known of the state revenue department’s position, it could not have expected the variance, and the imposition of penalties would have violated the taxpayer’s due process rights. Id. (“If the above statements by the trial court were supported by the evidence of record, we would agree with the trial court’s conclusion.”).

In recognition of this fact, other state courts have rejected the imposition of penalties where, as here, a state revenue department exercised its discretion to impose an alternative method of taxation. See, e.g., CarMax Auto Superstores W. Coast, Inc. v. S.C. Dep’t of Revenue, 725 S.E.2d 711, 713 (S.C. Ct. App. 2012); In re Wal-Mart Stores, Inc., Docket No. 06-07 (N.M. Tax’n & Rev. Dep’t Decision and Order May 1, 2006).

e. The Ruling gave MDOR unfettered discretion to impose alternative apportionment and burdened taxpayers with the obligation to disprove the state’s methodology.

This Court has held, under First and Fourth Amendment jurisprudence, that grants of unbridled discretion invite impermissible intrusions on constitutionally guaranteed rights. See, e.g., Terry v. Ohio, 392 U.S. 1, 21-22 (1968) (finding that, with respect to Fourth Amendment rights, failure to judge facts under an objective standard “would invite intrusions upon constitutionally guaranteed rights . . . a result this Court has consistently refused to sanction”); Shuttlesworth v. Birmingham, 394 US 147, 150-51 (1969) (“A law subjecting the exercise of First Amendment freedoms to the prior restraint of a license, without narrow, objective, and definite standards to guide the licensing authority, is unconstitutional.”); Delaware v. Prouse, 440 U.S. 648, 661-62 (1979); Se. Promotions, Ltd. v. Conrad, 420 U.S. 546, 552-53 (1975). The same concerns are equally applicable under the Fourteenth Amendment, which requires that “a person in jeopardy of serious loss [be given] notice of the case against him and [a meaningful] opportunity to meet it.” See, e.g., Mathews v. Eldridge, 424 U.S. 319, 348 (1976) (quoting Joint Anti-Fascist Comm. v. McGrath, 341 U.S. 123, 171-72 (Frankfurter, J., concurring, 1951)).

Mississippi’s alternate apportionment provisions are modeled after section 18 of the Uniform Division of Income for Tax Purposes Act (“UDITPA”), which provides for the use of alternative apportionment “[i]f the allocation and apportionment provisions of this Act do not fairly represent the extent of a person’s business activity in the state.” UDITPA § 18.32 UDITPA is a uniform act that

32 Both UDITPA section 18 and the Mississippi regulation provide that a state department or taxpayer may require, “in re-


addresses one of the most fundamental features of state corporate income and franchise taxes – division of the tax base among the multiple states in which a taxpayer does business. The weight of authority addressing the UDITPA alternative apportionment standard strongly supports the conclusion that alternative apportionment should be used sparingly and that the party (state revenue department or taxpayer) seeking to use the alternative remedy should bear the burden of justifying use of the alternative. See, e.g., Donald M. Drake Co. v. Dep’t. of Revenue, 500 P.2d 1041, 1044 (Or. 1972) (“the use of any method other than apportionment should be exceptional”); The Limited Stores, Inc. v. Franchise Tax Bd., 152 Cal. App. 4th 1491, 1498 (Cal. Ct. App. 2007); Union Pac. Corp. v. Idaho State Tax Comm’n, 83 P.3d 116 (Idaho 2004); St. Johnsbury Trucking Co., Inc. v. State, 385 A.2d 215 (N.H. 1978); Deseret Pharm. Co., Inc. v. State Tax Comm’n of Utah, 579 P.2d 1322, 1326 (Utah 1978); see also William J. Pierce, The Uniform Division of Income for State Tax Purposes, 35 Taxes 747, 781 (1957).

Unlike other states, the Mississippi Supreme Court did not require MDOR to justify its selection of an alternative apportionment formula and burdened taxpayers with the obligation to disprove MDOR’s selection. This deprived taxpayers of the ability to anticipate the imposition of an alternative formula and eliminated any fair opportunity to challenge such impositions. The ruling affords MDOR unfettered discretion to impose alternative apportionment formulas on Mississippi taxpayers, and invites impermissible intrusions on taxpayers’ constitutionally guaranteed rights.

f. Mississippi has engaged in an invalid rulemaking without regard to the Due Process requirements of the Constitution.

As noted, the Fourteenth Amendment’s Due Process Clause requires that “a person in jeopardy of serious loss [be given] notice of the case against him and opportunity to meet it.” See, e.g., Mathews v. Eldridge, 424 U.S. 319, 348 (1976) (internal quotation omitted). Generally speaking, with respect to administrative rulemaking, a state revenue department’s actions may pass constitutional scrutiny when rules are adopted through “notice and comment” procedures that alert people to the proposed rule and allow people to comment on that rule before it is enacted or when aggrieved people are allowed a meaningful opportunity to present their case against the application

spect to all or any part of the taxpayer’s business activity, if rea-sonable: . . . the employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer’s in-come.” MDOR relied upon this language to impose the market-based sourcing methodology.



of the rule after it has been enacted. See id. at 348-49; Goldberg v. Kelly, 397 U.S. 254, 267-71 (1970).

Many states, including Mississippi, require that administrative rulemaking be done pursuant to prescribed “notice and comment” procedures in order to meet the requirements of the Fourteenth Amendment’s Due Process Clause. See, e.g., Miss. Code Ann. §§ 25-43-1.101 to -3.114 (2014). In these states, a “rule” is typically defined, at least in part, as a “statement of general applicability that implements, interprets or prescribes law or policy.” See, e.g., Miss. Code Ann. § 25-43-1.102(i) (2014). If there is no unique circumstance requiring the application of an alternative apportionment formula to a taxpayer, then it should be expected that all other similarly situated (i.e., non-unique) taxpayers would be required to use the same alternative apportionment formula. This approach amounts to a rule – “a statement of general applicability.”

Mississippi’s approach to alternative apportionment thus violates taxpayers’ fundamental constitutional rights. Where a state revenue department applies an alternative apportionment formula to a non-unique taxpayer, as MDOR did here to Equifax, without justification and without providing the taxpayer with a meaningful opportunity to challenge the basis for the alternative apportionment formula, the state revenue department has engaged in unconstitutional administrative rulemaking. See, e.g., Metromedia, Inc. v. Dir., Div. of Taxation, 478 A.2d 742 (N.J. 1984).

2. The Court also should grant review in this case because if it does not reject the Mississippi Supreme Court’s unconstitutional ruling, other States may follow Mississippi’s lead.

Of equal, if not greater, concern to the amicus is the potential domino effect the Ruling could initiate in other states if this Court does not hear this case. In matters of taxation, states have a history of following the lead of more aggressive states on issues of unclear constitutionality when the positions of those more aggressive states are upheld by the home state courts and the federal courts do not weigh in on the issues. If this Court similarly does not address the due process violations at issue in this case, other states will adopt similar approaches, emboldened by the Court’s silence and less fearful of reprimand. This is not idle speculation; the groundwork for a domino effect is already in place, as many states have statutory and regulatory language that is substantially similar to Mississippi’s and their courts have not addressed the due process rights at issue here.

a. Some states have statutory language much like Mississippi’s, on their face seeming to provide basic rights, but have not addressed the rights at issue here.

Many other states have tax statutes and regulations similar to Mississippi’s. Like Mississippi, most states require a de novo review of tax determinations at some point during the appeals process. See, e.g., Ark. Code Ann. § 26-18-406(c)(1) (2014); Colo. Rev. Stat. § 39-21-105(2)(b) (2013); Del. Code Ann. tit. 8, § 505(d) (2014); Fla. Stat. § 194.036(3) (2013); Md. Code Ann., Tax-Gen. § 13-523 (2014); N.J. Rev. Stat. § 2B:13-3(b) (2013); Tex. Tax Code Ann. §§ 112.054, 112.154 (2013).

Similarly, virtually all states allow for the abatement of penalties where the taxpayer has made a reasonable effort to comply with the tax laws, just as Mississippi Code section 27-13-25(3) provides that penalties will be imposed for failure to comply with the requirements of the tax law “unless it is shown that the failure is due to reasonable cause and not due to willful neglect.” See, e.g., Cal. Rev. & Tax. Code § 19132(a)(1) (2014); La. Rev. Stat. Ann. § 47:1603(A) (2013); Mass. Gen. Laws ch. 62C, § 33(f) (2014).

Finally, the vast majority of states, like Mississippi, have language allowing for alternative apportionment methods to be imposed on a taxpayer where it is determined that the standard apportionment formula does not accurately reflect the taxpayer’s business activity in the state. See, e.g., Ala. Code § 40-27-1 (2013); Cal. Rev. & Tax. Code § 25137 (2014); Fla. Stat. § 220.152 (2013); 35 Ill. Comp. Stat. 5/304(f) (2014); N.Y. Tax Law § 210(8) (2014); 72 Pa. Stat. Ann. § 7401(3)(2)(a)(18) (2014); Tenn. Code Ann. § 67-4-2014(a) (2013); W. Va. Code § 11-24-7(h)(1) (2013).

b. Not all states have addressed the due process rights at issue here and if the Ruling stands, states will follow those actions.

Many of the states with tax laws similar to the Mississippi laws here at issue have not addressed the due process rights under consideration in this case. If the Court does not grant the petition and strike the Ruling, IPT is concerned that other states will be encouraged to follow Mississippi’s lead and deprive taxpayers of a fair right to contest the assessments made by state revenue departments.

IPT’s concerns are real. There is ample history of states following the lead of more aggressive states in matters of state taxation, even where the actions are of questionable constitutionality. For instance, in 1993, the


South Carolina Supreme Court decided Geoffrey, Inc. v. Tax Commissioner, 437 S.E.2d 13 (S.C. 1993), widely recognized as the first case approving the concept of “economic nexus.” “Economic nexus” is the notion that a business without a physical presence in a state – thus a business that receives no meaningful benefits or protections from the state – can nevertheless have sufficient taxable nexus with the state for income tax purposes based solely on its having customers in the state, such as licensees of intellectual property. This Court denied certiorari in the Geoffrey case in 1993, id., cert denied, 510 U.S. 992 (1993), and has declined to address the constitutionality of economic nexus outside of the sales and use tax context.4 3Quill Corp. v. North Dakota, 504 U.S. 298, 317-18 (1992). Since the South Carolina Geoffrey decision, no less than ten state courts have adopted an economic nexus standard. See, e.g., Borden Chems. & Plastics L.P. v. Zehnder, 726 N.E.2d 73 (Ill. App. Ct. 2000), appeal denied, 731 N.E.2d 762 (Ill. 2000); KFC Corp. v. Iowa Dep’t of Revenue, 792 N.W.2d 308 (Iowa 2010), cert. denied, 132 S. Ct. 97 (2011); Md. Comptroller of the Treasury v. SYL Inc., 825 A.2d 399 (Md. 2003), cert. denied, 540 U.S. 1090 (2003); Capital One Bank v. Mass. Comm’r of Revenue, 899 N.E.2d 76 (Mass. 2009), cert. denied, 557 U.S. 919 (2009); Geoffrey Inc. v. Mass. Comm’r of Revenue, 899 N.E.2d 87 (Mass. 2009), cert. denied, 557 U.S. 920 (2009); Lanco Inc. v. Dir., N.J. Div. of Taxation, 908 A.2d 176 (N.J. 2006), cert. denied, 551 U.S. 1131 (2007); Kmart Props. Inc. v. N.M. Taxation & Revenue Dep’t, 131 P.3d 27 (N.M. Ct. App. 2001), cert. quashed 131 P.3d 22 (N.M. 2005); A&F Trademark Inc. v. Tolson, 605 S.E.2d 187 (N.C. Ct. App. 2004), review denied (N.C. 2005), and cert. denied, 546 U.S. 821 (2005); Geoffrey Inc. v. Okla. Tax Comm’n, 132 P.3d 632 (Okla. Civ. App. 2005), review denied (Okla. May 20, 2006); Gen. Motors Corp. v. Seattle, 25 P.3d 1022 (Wash. Ct. App. 2001), cert. denied, 535 U.S. 1056 (2002); W. Va. Tax Comm’r v. MBNA Am. Bank, N.A., 640 S.E.2d 226 (W. Va. 2006), cert. denied sub nom. FIA Card Servs., N.A. v. W. Va. Tax Comm’r, 551 U.S. 1141 (2007).54

3 4 KFC Corp. v. Iowa Dep’t of Revenue, 792 N.W. 2d308 (Iowa 2010), cert. denied, 132 S. Ct. 97 (2011); Lanco Inc. v. Dir., N.J. Div. of Taxation, 908 A.2d 176 (N.J. 2006), cert. denied, 551 U.S. 1131 (2007).

45 Emboldened state legislatures also have begun pass-ing laws adopting economic nexus standards despite there be-ing no clear guidance on the constitutionality of economic nex-us from this Court. See, e.g., Cal. Rev. & Tax. Code § 23101 (2014); Conn. Gen. Stat. § 12-216a (2013); Mich. Comp. Laws § 206.621(1) (2014); N.H. Rev. Stat. Ann. § 77-A:1(XII) (2014); Ohio Rev. Code Ann. § 5751.01 (2013); Wash. Rev. Code §


There are many other examples of states following one another, in ways constitutional and not, to mimic other state taxation policies. For example, after the enactment of the Public Salary Tax Act of 1939, at least 15 states adopted the discriminatory practice of granting special tax exemptions for retirement income to state and local government employees that were not granted to federal employees. This practice was ultimately declared unconstitutional by this Court after reversing a Michigan Supreme Court decision upholding the practice. Davis v. Mich. Dep’t of Treasury, 489 U.S. 803, 817 (1989). As another example, many states have begun following New York’s lead in adopting “click-through” nexus laws in an attempt to require “online” retailers such as Amazon.com and Overstock.com to collect and remit sales taxes in the state. See, e.g., N.Y. Tax Law § 1191(b)(8)(vi) (2014); Ark. Code Ann. § 26-52-117 (2014); Cal. Rev. & Tax. Code § 6203(c) (2014); Conn. Gen. Stat. § 12-407(a)(12)(L) (2013); Ga. Code Ann. § 48-8-2(8)(K) (2013); 35 Ill. Comp. Stat. 105/2, 110/2 (2014); Kan. Stat § 79-3702(h)(2)(C) (2013); Me. Rev. Stat. Ann. tit. 36, § 1754-B(1-A)(C) (2014); Minn. Stat. § 297A.66, Subd. 4a (2013); Mo. Rev. Stat. § 144.605(2)(e) (2014); N.C. Gen. Stat. § 105-164.8 (2013); R.I. Gen. Laws § 44-18-15 (2013); Vt. Stat. Ann. tit. 32, § 9701(9)(I) (2013).65

c. Taxpayers have no opportunity to obtain relief through alternate channels.

The need to grant Equifax’s petition is underscored by the fact that taxpayers typically have no remedy other than the state-mandated appeals process to protest their state tax assessments. The Tax Injunction Act, 28 U.S.C. § 1341 (2014) (“TIA”), provides that a federal district court “shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” The Court of Appeals for the Tenth Circuit recently held that the TIA deprived the federal district court of jurisdiction to enjoin the State of Colorado’s sales tax collection statute. The Direct Mktg. Ass’n v. Brohl,

82.04.067 (2013); Wisc. Stat. § 71.22(1r) (2014).65 While New York’s law passed constitutional muster at

the state court level, see Overstock.com, Inc. v. N.Y. Dep’t of Taxation & Fin., 987 N.E.2d 621, 627 (N.Y. 2013), cert. denied, 134 S. Ct. 682 (2013), Illinois’ law was overturned by the Illi-nois Supreme Court on the grounds that it violated the Internet Tax Freedom Act, see Performance Mktg. Ass’n v. Hamer, 998 N.E.2d 54, 59-60 (Ill. 2013). Having overturned the law on such grounds, the Illinois Supreme Court expressly declined to ad-dress the trial court’s finding that the act was unconstitutional. Id.


735 F.3d 904, 920 (10th Cir. 2013), reh’g denied (Oct. 1, 2013). Similarly, this Court has held that the doctrine of comity precludes the exercise of lower federal court jurisdiction to consider questions of tax controversy when a reasonable state court forum is available to hear and decide the matter. The constraint “has particular force when lower federal courts are asked to pass on the constitutionality of state taxation of commercial activity.” Levin v. Commerce Energy, Inc., 560 U.S. 413, 417 (2010) (holding, under the comity doctrine, that a taxpayer’s complaint of allegedly discriminatory state taxation, even when framed as a request to increase a competitor’s tax burden, must proceed originally in state court).

In light of these constraints, taxpayers have little choice but to follow state court procedures to contest their tax assessments. This Court should grant the petition to ensure that taxpayers are afforded a fair and equitable state court review process meeting constitutional due process standards.

CONCLUSION

Equifax was unquestionably denied its due process right to challenge MDOR’s tax assessment. The ruling has serious implications for all taxpayers, as well as all persons seeking to challenge a Mississippi agency ruling. The Court should grant the petition for certiorari, reverse the finding of the Mississippi Supreme Court, and remand to allow the trier of fact to conduct a de novo review of Equifax’s objections to the tax assessment.

PROPERTY TAX

What’s Left of Florida’s Government Property Leasehold Exemption?Keith G. Landry, Esq.Institute for Professionals in TaxationAtlanta, GAPhone: (404) 240-2303E-mail: [email protected]

In addition to property owned and used by governmental units for governmental purposes, under certain conditions Florida law exempts from ad valorem taxation property owned by state and local government units but leased to and used by nongovernmental lessees for nongovernmental purposes.1 The specific leasehold criteria necessary to satisfy the conditions for this exemption have been the subject of litigation previously, and some of the cases have been decided based on the doctrine of equitable ownership. Most recently, the Florida Supreme Court issued two unanimous decisions on the same day in two cases, Accardo v. Brown and 1108 Ariola, LLC v. Jones,2 in which the court addressed this issue again and further expanded the application of equitable ownership in this context. While these decisions clearly narrow the scope of the exemption, they leave much to be desired in the way of guidance and clarity. What a follows is a discussion of these two cases, including their similarities and differences, and an attempt to determine what, if any, practical insight can be gleaned from the court’s opinions.

Background

The statute provides for the leasehold exemption and sets forth the conditions for application of the exemption as follows:

§ 196.199. Government property exemption. . . .

1 Fla. Stat. §196.199(2)(b).2 Accardo v. Brown, No. SC11-1445, 2014 Fla. Lexis 982

(Fla. March 20, 2014); 1108 Ariola, LLC v. Jones, No. SC11-2231, 2014 Fla. Lexis 981 (Fla. March 20, 2014). On April 4, 2014, the taxpayers in Accardo filed a Motion for Clarification and the taxpayers in 1108 Ariola filed a Motion for Rehearing or Clarification, and those motions are currently pending.




(2) Property owned by the following governmental units but used by nongovernmental lessees shall only be exempt from taxation under the following conditions:

(b) . . . [T]he exemption provided by this subsection shall not apply to those portions of a leasehold or other interest defined by s. 199.023(1)(d), Florida Statutes 2005, subject to the provisions of subsection (7). Such leasehold or other interest shall be taxed only as intangible personal property pursuant to chapter 199, Florida Statutes 2005, if rental payments are due in consideration of such leasehold or other interest. All applicable collection, administration, and enforcement provisions of chapter 199, Florida Statutes 2005, shall apply to taxation of such leaseholds. If no rental payments are due pursuant to the agreement creating such leasehold or other interest, the leasehold or other interest shall be taxed as real property. Nothing in this paragraph shall be deemed to exempt personal property, buildings, or other real property improvements owned by the lessee from ad valorem taxation.

. . . .

(7) Property which is originally leased for 100 years or more, exclusive of renewal options, or property which is financed, acquired, or maintained utilizing in whole or in part funds acquired through the issuance of bonds pursuant to parts II, III, and V of chapter 159, shall be deemed to be owned for purposes of this section.

The statutory provision referenced in section 196.199(2)(b), i.e. Section 199.023(1)(d), Florida Statutes 2005, includes within the definition of “intangible personal property” for purposes of the intangible personal property tax “all leasehold or other possessory interests in real property owned by [virtually any governmental body], which are undeveloped or predominantly used for residential or commercial purposes and upon which rental payments are due.”3

3 For most other personal property, the intangible tax was repealed in 2007.

While the statutory language describing the property subject to this exemption is far from a model of clarity, there is general agreement that it applies to leaseholds held by private parties in real property owned by government bodies, provided rent payments are made in consideration for the lease. The questions have centered on whether the interest is in fact a leasehold and what property is considered part of the leasehold.

The Facts and Arguments

The land involved in both of these cases is located in beach communities on Santa Rosa Island, a Gulf Coast barrier island, and was conveyed by the U.S. government in 1947 to Escambia County. The improvements consist primarily of residential condominiums, single family residences, and various business establishments. Under the terms of the deed form the United States, Escambia County is permitted to lease the land for purposes it deems to be in the public interest, but the County is prohibited from ever conveying or otherwise disposing of the land.

The taxpayers in both cases had leases or subleases on portions of this land from either Escambia County or Santa Rosa County.4 The leasehold interests of the taxpayers in both cases were generally similar and most contained the following features:

• The leases are for initial 99-year terms.

• The leases require the payment of rentals by the lessee.

• The lessee is required to make improvements on the property, to repair and maintain those im-provements, and to rebuild any damaged or de-stroyed improvement.

• The lessee is prohibited from removing any im-provement of a permanent nature.

• The lessee has the right to convey, lease, assign, or otherwise encumber its interest in the property without restraint.

• The lessee is responsible for any taxes on the leasehold interest.

• The lessee has no option to purchase the prop-erty at the end of the lease.

4 The lands involved in Accardo were leased in 1956 by Escambia County to Santa Rosa County under what is essen-tially a perpetual lease, and Santa Rosa County subleased por-tions of the land to the Accardo taxpayers and others. See Ac-cardo, slip op. at 3.



• Legal title to any improvement on the property vests in the lessor at the termination of the lease.

The only significant difference in the leases involved in the two cases was in the terms governing lease renewals. In Accardo, by affording the lessees the right to renew for additional ninety-nine year terms indefinitely, the leases were as a practical matter perpetual. In 1108 Ariola, on the other hand, while some contained renewal provisions, the leases generally did not give the lessees the automatic right to renew.

In both cases the taxpayers’ primary argument was that, since they leased land from a governmental unit (a county) for an initial term of less than 100 years, and because they were required to pay rent under those leases, their leaseholds were not subject to ad valorem property tax under the plain language of section 196.199(2)(b) and section 199.023(1)(d) of Florida Statutes 2005. Recognizing that the First District had previously applied the equitable ownership doctrine in a similar situation, the taxpayers also argued that even if they were determined to have an equitable ownership interest in the property, such equitable ownership constituted an “other interest” under the statute and therefore could not be subject to ad valorem tax. The taxpayers further argued that they did not have equitable ownership in any event because the requirement of paying rent and the other obligations imposed on them under the leases are inconsistent with ownership and because they would never have any right to acquire legal title to the property. Finally, the taxpayers argued that, because section 196.199(7) “deemed” property subject to a lease of 100 years or more (exclusive of renewal options) to be owned by the lessee, it in effect provided a safe harbor for leases of less than 100 years.

In both cases, the First District Court of Appeal held that, by virtue of the nature of the rights under their leasehold interests, the taxpayers were equitable owners of the property and that, accordingly, section 196.199(2)(b) did not exempt their leasehold interests from ad valorem taxes. However, the First District also in both cases certified as questions of great public importance the issue of whether the taxpayers were equitable owners of the respective properties; and the Florida Supreme Court exercised its discretionary jurisdiction to answer the questions in both cases.

The Accardo Decision

The Florida Supreme Court began its analysis in Accardo with a review of the long history of the equitable ownership concept in the context of Florida ad valorem tax. The

court discussed a number of cases—some involving the exemption provisions at issue—in which it and the Florida district courts have applied the doctrine of equitable ownership to determine the application of ad valorem taxes.

In holding that the taxpayers were the equitable owners of the property, the court relied most heavily on the First District’s 2005 decision in Ward v. Brown,5 which involved the taxability of improvements on leaseholds of land on Santa Rosa Island and in which that court had previously applied the equitable ownership doctrine to find the section 196.199(2)(b) exemption inapplicable. In Ward v. Brown, the court had relied on a number of cases, including two by the U.S. Supreme Court, to hold that the lessee under a perpetual lease is effectively the owner of the leased property. But Ward v. Brown involved only the taxability of the leasehold improvements.6 In Accardo, the Supreme Court went a step further, stating in part:

We conclude that Ward correctly applied the doctrine of equitable ownership in holding that the improvements on the leasehold properties were subject to ad valorem taxation. And we conclude that there is no basis for declining to extend the application of the doctrine of equitable ownership to the underlying land that is subject to the perpetually renewable leases. Under the perpetual leases, the interest of the petitioner taxpayers in the underlying land is not materially different from their interest in the improvements. The taxpayers hold “virtually all the benefits and burdens of ownership” of both the improvements and the land.7

The court then went on to address the taxpayers’ other arguments. Regarding the contention that equitable ownership is an “other interest” which, like a qualifying leasehold, is only taxable as intangible property, the court stated that this argument ignored the full context of the statutory provisions. In the court’s somewhat circular view, it need not reach the “other interest” question, because the property could not possibly be owned by a government entity (as the statute requires) given that the taxpayers were the equitable owners. The court also pointed out that the “other interests” mentioned in the exemption statute was a reference to the term

5 919 So.2d 462 (Fla. App. 1st Dist. 2005).6 Id. at 463-64.7 Accardo, slip op. at 16 (citations omitted).



“other possessory interests” in the intangible tax statute. Because in the court’s view equitable ownership is not a “mere” possessory interest, the reference to “other interests” in the exemption statute could not have been intended to include equitable ownership.8

The court quickly dismissed the argument that equitable ownership can only exist if the lessee ultimately has the right to obtain legal title, based on the First District’s conclusion in Ward v. Brown that a lessee’s interest under a perpetual lease is essentially that of an owner. The court also found no merit in the notion that the payment of rent and the imposition of other obligations precluded a finding of equitable ownership, noting that these aspects of the lease simply were not sufficient to defeat the conclusion that the lessees had virtually all of the benefits and burdens of ownership. Again with a bit of circular reasoning, the court also held that the reference in section 196.199(7) to leases of 100 years or more was essentially irrelevant, stating:

Finally, we reject the petitioner taxpayers’ argument that subjecting their leasehold interests to ad valorem taxation is inconsistent with the provision of section 196.199(7) regarding the taxation of “property which is originally leased for 100 years or more, exclusive of renewal options.” We agree with Ward and Hialeah, Inc.9 that it must first be determined that the governmental entity is the “owner” of the property--not the mere holder of bare legal title--before there is any reason to consider whether the bright line one-hundred-year rule of section 196.199(7) is applicable. Here, for ad valorem tax purposes, the “owner” of the property is not a governmental entity.10

The 1108 Ario la Decision

As mentioned previously, the only meaningful difference in the facts of 1108 Ariola was that the lessees did not have the right to renew the leases indefinitely. Thus, the leases in this case could not, under the reasoning of

8 Id. at 16-17.9 Hialeah, Inc. v. Dade County, 490 So.2d 998 (Fla. App,

3d Dist. 1986).10 Accardo, slip op. at 18.

Ward that the court approved in Accardo, be considered perpetual leases. The court acknowledged this, as well as the fact that its decision in Accardo was based on this finding. Nevertheless, the court again took a step further to hold that the lessees in 1108 Ariola also had equitable ownership of the property:

Our holding in Accardo that the taxpayers in that case are the equitable owners of both the improvements and the underlying land, turns on the fact that the leases are perpetually renewable. In contrast, this case presents leaseholds that are not perpetually renewable. We conclude, however, that this distinction--along with the absence of the right to obtain legal title for a nominal consideration--is not sufficient to remove the improvements on the properties at issue here from the scope of the equitable ownership doctrine.11

Unlike its decision in Accardo, the court’s opinion in 1108 Ariola addressed the provision in section 196.199(2)(b) that nothing in that paragraph “shall be deemed to exempt personal property, buildings, or other real property improvements owned by the lessee from ad valorem taxation.” In this regard the court stated: “Of course, the reference to ‘owned by the lessee’ must be viewed in the context of Florida’s law concerning equitable ownership and thus cannot be restricted to the holders of legal title to improvements.” Finally, in support of its holding the court cited two cases involving 75-year leases, which held the lessees to be equitable owners of the property on the ground that the useful life of the improvements on the property would likely outlast the term of the lease. In this case, the court noted, the taxpayers had made no specific argument about the useful life of the improvements.12

Observations

Among the interesting aspects of these decisions, there is first of all the question of why the Florida Supreme Court chose to exercise its discretion to decide either of the cases, as well as why it chose to decide both of them. The court obviously did not do so to reverse the lower court, and the lower court decisions arguably were

11 1108 Ariola, slip op. at 5 (footnote omitted).12 Id. at 5-6.



not inconsistent with prior case law.13 The court could have simply declined to answer the certified questions and let the First District’s decisions stand. And it also appears that whatever the court did in both of these decisions could have been done by deciding 1108 Ariola alone, particularly since, as acknowledged by the court, the record in that case showed that some of the leases were perpetually renewable. Indeed, having these two decisions on the books seems actually to increase the level of confusion in this area.

It is also unclear why the court apparently considers it so important to limit the scope of this exemption. The Florida legislature included in the statute at least two relatively clear characteristics of a lease (the rental payment requirement and the 100-year initial lease term) that the court conceivably could have construed as establishing bright-line tests for the availability of the exemption. This is arguably what the legislature intended. Even a construction with an exception for true perpetual leaseholds that permit the lessee to renew automatically under the same terms forever (as the First District created in Ward v. Brown) would be truer to the statute without undermining the other Florida authorities on equitable ownership.

While it may not be terribly surprising, given the prior case law involving this exemption, that the supreme court did not construe the statute this way and reverse the lower court’s decision in at least the 1108 Ariola case, it is unfortunate that the court, having chosen to address the leasehold exemption issue, did not elaborate further on its view of the application of the statute. Other than expanding the scope of the equitable ownership doctrine, the opinions in these cases provide little if any practical guidance regarding the circumstances that will qualify a leasehold for this ad valorem tax exemption. While the court certainly made it clear that a perpetually renewable lease will not qualify, it seems that the only further guidance the court has really given is that a non-perpetual lease for an initial term of less than 100 years may qualify if it can be demonstrated that the improvements constructed by the lessee will survive the period during which the lessee has the right to retain the leasehold interest. Although changes resulting from motions for rehearing or clarification are relatively rare, there is at least the possibility that the final chapter has yet to be written in one or both of these cases.

13 One possible exception to this is Bell v. Bryan, 505 So.2d 690 (Fla. App. 1st Dist. 1987). In Ward v. Brown, however, the First District stated that its holding in Bell was not control-ling because the issue of equitable ownership had not been ad-dressed in that case. See Ward v. Brown, 919So.2d at 464, n.2.


This year’s Annual Conference theme is “TEAM SUCCESS” . . . Together Everyone Achieves More! Don’t let the clock run out;

put yourself in scoring position by attending this year’s Conference. The Institute for Professionals in Taxation® brings together tax professionals from around the country to learn about new practices, to exchange ideas, and to stay on top of the latest tax developments. IPT’s 38th Annual Conference, June 29 – July 2, 2014, at the JW Marriott Desert Ridge Hotel in Phoenix, Arizona, provides you an opportunity

to learn from colleagues and other distinguished leaders about critical state and local tax issues. As always, it is IPT’s goal to present sessions which are timely, highly informative and span a broad spectrum of topics to meet the diversity of its members. Ample networking time will allow attendees to meet potential collaborators and mentors as well as enjoy the company of long-time friends and colleagues. As a premier educational institution, IPT’s Conference-Program Team is committed to providing the highest standard of learning for its members.

Together Everyone Achieves More!

2014 Annual Conference

TEAM SUCCESS

IPT 38th Annual ConferenceJune 29 - July 2, 2014 ~ Phoenix, ArizonaProgram Registration Hotel Reservation

AAA Scholarship Foundation, Inc.Ashland GroupAvalaraBusiness Licenses, LLCDuCharme, McMillen & Associates, Inc.Eide Bailly LLP

ISSI/TEAMSMarvin F. Poer and CompanyMeridian Global ServicesTax Compliance, Inc.Thomson Reuters ONESOURCEWolters Kluwer, CCH

Plan to visit IPT's Exhibitors during the Conference. See the latest products and services in the state and local tax area. Exhibitors signed up as of May 1, 2014 are as follows:


Sunday, June 29, 2014

4:00-5:00pm Annual Meeting of Members

5:00-5:30pm Welcome New Members

5:30-7:30pm Opening Reception - Exhibits Open

Monday, June 30, 2014

7:00-8:15am Pre-Session Continental Breakfast Admittance is by badge only

8:30-9:00am Opening of Conference - Welcome & Introductions

9:00-10:15am Keynote Session: The Economic Outlook William F . Fox, Ph .D .

10:30-Noon Keynote Session: Ethical Lapses Marianne Jennings, Esq .

Noon-1:00pm Lunch in Exhibit Hall - Exhibits Open

Monday Concurrent Breakout Sessions (Select 1)

1:00-2:00pm Tax Incentives & Real Estate: Combined Strategy for Success

2:15-3:15pm Hitting a Home Run with Veterans

3:30-4:30pm Enterprise Zones: Is the Fad Over?

5:30-7:30pm Reception Honoring Past Presidents in Exhibit Hall Exhibits OpenTuesday, July 1, 2014


8:15-9:30am Keynote Session: "Turning Boos into Cheers” How Effective are You? Walt Coleman, Referee

9:45-10:30am Presentation of Awards

10:30-11:45am General Session: Tax Reform and What it Means to You

11:45-1:00pm Lunch in Exhibit Hall - Exhibits open

Tuesday Concurrent Breakout Sessions (Select 1)

1:00-2:00pm Emerging Trends & Issues in Tax Credits and Incentives

2:15-3:15pmsCredits & Incentives Recapture - Developing a Game Plan to Avoid Fouling Out

3:30-4:30pm Qualitative and Quantitative Factors of Site Selection 6:00-10:00pm Tailgate party

Wednesday, July 2, 2014

6:45-8:15am Pre-Session Continental Breakfast Admittance is by badge onlyWednesday Concurrent General Sessions

8:30-9:30am Review of the EY Credits & Incentives Survey

9:45-10:45am South & Southwest Update on Changes with Select Key Credits and Incentives

11:00-12Noon Chicago Property Tax Incentives

IPT 2014 Annual Conference Credits & Incentives Program At-A-Glance











Monday Concurrent Breakout Sessions

1:00-2:00pm Grand Slams v . Biggest Strikeouts of 2013 State Update: Best & Worst Cases

2:15-3:15pm Dealing with Never-Ending Statutes of Limitations

3:30-4:30pm State Implications of International Transactions

5:30-7:30pm Reception Honoring Past Presidents in Exhibit Hall Exhibits OpenTuesday, July 1, 2014






1:00- Tuesday Concurrent Breakout Sessions

1:00-2:00pm Pitching the Perfect Game: Best Practices for Administrative Procedures

2:15-3:15pm ASC 740/FIN 48; Top 10 (13-14 Lessons Learned)

3:30-4:30pm Get a Grip on Combined Reporting: A Case Study

6:00-10:00pm Tailgate party


6:45-8:15am Pre-Session Continental Breakfast Admittance is by badge onlyWednesday Concurrent General Sessions

8:30-9:30am Taxpayer Calls a “Flag on the Play”: Requesting or Challenging Alternative Apportionment

9:45-10:45am The Revitalization of the Due Process Clause

11:00-12Noon State Updates: NY, IL, CA & TX

IPT 2014 Annual Conference Income Tax Program At-A-Glance











Noon-1:00pm Lunch in Exhibit Hall-Exhibits Open

1:00-2:00pm Monday Concurrent Breakout Sessions (Select One)

The Heavy Equipment Dealers Inventory Tax in Texas

Selling the Obsolescence Argument (External & Functional) (repeated at 2:15pm)

Is Your Tax Team Playing at Full Strength or Short Handed . . . (repeated at 2:15pm)

Tips and Insights for Data Mining to Support Property Tax Programs


Is Your Tax Team Playing at Full Strength or Short Handed . . . (repeated from 1:00pm)

Selling the Obsolescence Argument (External & Functional) (repeated from 1:00pm)

A Bumpy Road Ahead for Property Owners – Real Property (repeated at 3:30pm)

Maximizing Technology to Streamline Data for Personal Property Taxes (repeated at 3:30pm)


A Bumpy Road Ahead for Property Owners – Real Property (repeated from 2:15pm)

Technology to Streamline Data for Personal Property Taxes (repeated from 2:15pm)

Inventory Reporting: Securing Market Value and Exemptions from Assessors

California Conundrum - Personal vs Real Property

Monday 5:30-7:30pm

Reception Honoring Past Presidents in Exhibit Hall Exhibits Open

Tuesday Concurrent Breakout Sessions (Select 1)


8:15-9:30am Keynote: "Turning Boos into Cheers” How Effective are You? Walt Coleman, Referee



11:45-1:00pm Lunch in Exhibit Hall-Exhibits Open

1:00-2:00pm Tuesday Concurrent Breakout Sessions (Select One)

Canadian Property Tax 101 (repeated at 2:15pm)

Possessory Interests are a Whole New Ball Game (repeated at 2:15pm)

Depreciation: Real &Personal Property Assessments (repeated at 2:15pm)

Emerging Trends & Issues in Credits & Incentives


Canadian Property Tax 101 (repeated from 1:00pm)

Possessory Interests are a Whole New Ball Game (repeated from 1:00pm)

Depreciation: Real & Personal Property Assessments (repeated from 1:00pm)

What Tax Professionals Need to Know about Fair Market Value (repeated at 3:30pm)


What Tax Professionals Need to Know about Fair Market Value (repeated from 2:15pm)

Why Government Moving Away from Leasing Properties is a Bad Thing

Process Plants: Strategies for Obtaining Property Tax Reductions

A Relentless Ground Game: Assessment of Salt Cavern Storage Facilities-Real or Personal?

Tuesday 6:00-10:00pm Tailgate party



8:30-9:30am Analyzing Complex Appraisals to Find the Foul Plays

9:45-10:45am New Challenges to Appraisal Adjustment Grids

11:00-12Noon Double Taxation

IPT 2014 Annual Conference Property Tax Program At-A-Glance








8:30-9:00am Welcome & Introductions





State Trends in Auditing (repeated at 2:15pm)

Digital Goods & Cloud Computing - Sales Taxation of the Future (repeated at 2:15pm)

Navigating the Roadmap to Complex Reporting Requirements of ASC 450 (repeated at 3:30pm)

Officer Liability - How to Keep your Boss out of Trouble (repeated at 3:30pm)


State Trends in Auditing (repeated from 1:00pm)

Digital Goods & Cloud Computing (repeated from 1:00pm)

Bundled Transactions - Ways to Ensure the Sales Tax Is Correct (repeated Tues . at 1:00pm)

Accounting for Sales Tax Professionals (repeated Tues . at 1:00pm)


Officer Liability - How to Keep your Boss out of Trouble (repeated from 1:00pm)

Navigating the Roadmap to Complex Reporting Requirements of ASC 450 (repeated from 1:00pm)

Don’t Punt When It Comes to Intercompany Transactions (repeated on Tuesday at 2:15pm)

Sourcing - Origin versus Destination versus . . . (repeated Tuesday at 2:15pm)

5:30-7:30pm Reception Honoring Past Presidents in Exhibit Hall Exhibits Open

Tuesday, July 1, 2014




10:30-11:45am General Session: Tax Reform & What it Means to You



Bundled Transactions - Ways to Ensure the Sales Tax Is Correct (repeated from Monday at 2:15pm )

VAT Developments in the European Union

Accounting for Sales Tax Professionals (repeated from Monday at 2:15pm)

Contract Planning (repeated at 3:30pm)


Sourcing - Origin versus Destination versus . . . (repeated from Monday @ 3:30pm)

Don’t Punt When It Comes to Intercompany Transactions (repeated from Monday @ 3:30pm)

Credit and Incentives Recapture

Technology: The Tax Professional’s New Best Friend (repeated at 3:30pm)


Technology: The Tax Professional’s New Best Friend (repeated from 2:15pm)

Gross Receipts - Taxing States

Contract Planning (repeated from 1:00pm)

The Pros and Cons of Outsourced Compliance

6:00-10:00pm Tailgate party



8:30-9:30am Current Developments

9:45-10:45am Update on the Nexus Battles

11:00-12Noon Don’t Ruin Your Chances for Refund/Appeal

IPT 2014 Annual Conference Sales Tax Program At-A-Glance


Exhibits at IPT’s Annual Conference Include Service Providers. Apply to become an exhibitor today!Whether you’re looking to showcase your products/tech-nologies in the state and local tax arena or provide state and local tax services to businesses, then this is the place to be.

You can select a booth ($2000) or table ($1500) for your exhibit. Exhibitors will be present for two evening recep-tions and lunches on Monday and Tuesday.

• Discuss services and demonstrate products

• Make connections with State and Local Tax Pro-fessionals to understand their needs and current issues.

Your “beyond-the-display” presence extends outside the dates of the Annual Conference. Beginning May 1, as soon as you sign up, your company logo will appear on IPT’s website and remain there until the end of the year. The exhibitors are also listed in the Annual Conference Highlights in the Member News.

Detailed information is provided in the Exhibitor Guide-lines, including booth and table dimensions. Space is lim-ited. Don’t let the clock run out; put yourself in scoring po-sition and become an exhibitor at this year's Conference.

When you exhibit at IPT's Annual Confer-ence, you get more than floor space!

Click here to apply!

Program Hotel ReservationRegistration Form Online Registration

For online registration: current IPT members should scroll down the page and click “log on” and then enter username and password, and sign in. You will then be taken back to the page to click on the “Register” button. If you are not an IPT member, please click on “new account” or find an “existing account,” which-ever one applies and follow the steps.

2014 Real Property Tax SchoolAT&T Executive Education Center

July 13 - 18, 2014 ~ Austin, TX

This is a comprehensive, five-day school for property tax professionals who have some experience in the real property area. The purpose of the program is to provide students with a fundamental and integrated knowledge of property tax principles, concepts and technical skills essential to the field. The course is designed to investigate in-depth the real property tax valuation process and related subjects.

Tools of the Profession

Thank you to IPT members who have already joined the IPT LinkedIn group as we now have over 2900 members. We encourage you to join the IPT

LinkedIn Discussion group and share the group with other tax professionals in your network.Follow IPT on Facebook and Twitter and like our Face-book page for updates on IPT event registration, photos, and other IPT news. If you have not already done so, please join these groups today by clicking on the icons below.Thank you for your continued support of IPT!


Pursuant to Section 2 of ARTICLE III of the Institute’s By-Laws, and by direction of the Board of Governors, NOTICE IS HEREBY GIVEN that the Annual Meeting of members of the Institute for Professionals in Taxation will be held SUNDAY, JUNE 29, 2014, at 4:00 p.m. at The JW Marriott Desert Ridge, Phoenix, Arizona for the following purposes:

1. For the election of Officers and members of the Board of Governors.

Section 5 (a) of ARTICLE III of the By-Laws provides in part that “the Nominating Committee shall report such nomination to the Board of Governors no later than seventy (70) days prior to the Annual Meeting, and the Ex-ecutive Director shall include such list of nominees in the notices of the Annual Meeting. Additional nominations may be made from the floor at the Annual Meeting by any voting member in good standing, provided that such member shall have given to the Executive Director no less than thirty (30) days prior to the Annual Meeting, a nominating petition signed by at least ten (10) Voting Members in good standing, containing the names of the proposed nominees and the position for which each nominee is nominated.”

The Nominating Committee is recommending the following nominees:

PRESIDENTArthur E. Bennett, CMI Vice President-National Property Tax Services Property Tax Assistance Co., Inc.

FIRST VICE PRESIDENTMargaret C. Wilson, CMI, Esq. Partner Wilson Agosto LLP

SECOND VICE PRESIDENTChris G. Muntifering, CMI Senior Manager, Property & Sales/Use Tax General Mills, Inc.

BOARD OF GOVERNORS (Three-Year Term)Leslie S. Fisher, CMI Tax Consultant E.I. Du Pont de Nemours and Company

Kenneth R. Marsh, CMI Director, Property Tax TransCanada Pipelines Limited

Carolyn C. Shantz, CMI, CPA Sales Tax Manager Superior Energy Services

2. To transact such other business as may properly come before the meeting.

We urge you to attend this important meeting. The By-Laws provide that only Regular members, Board mem-bers, and Honorary members are eligible to vote at the Annual Meeting. If attendance by a voting member is not possible, Section 4 of ARTICLE III of the Institute’s By-Laws provides that “each member in good standing entitled to vote at a meeting of the members of the Institute may authorize another member to act for him by written proxy.”

Cass D. VickersExecutive Director

*This notice was originally published in the April issue of the IPT Member News.

NOTICE OF ANNUAL MEETING OF MEMBERS*


This school is a thorough, five-day program that exam-ines in-depth the more complex problems those respon-sible for state income taxes face, including nexus and entity concerns, separate and consolidated/combined re-turn issues, apportionment complexities, reorganizations and mergers, tax planning nuances, and more.

Topics Include: h State of the States h Evaluating Risk in Nexus and PL 86-272 Issues h Nonbusiness Income:

Recent Cases & Remaining Questions h Unitary Business:

Core Theory & Recent Applications h Case Study:

Differences Between Unitary and Non-Business h State Tax Issues for Foreign Affiliates h Complex Problems in Combined Reporting and

Advanced Return Mechanics h Case Study: Combined Reporting h Advanced Problems in Mergers & Acquisitions h Tax Planning h Case Study: Tax Planning h Passthroughs — Advanced Issues h Case Study: Passthroughs h Advanced Issues in Using and Accounting for Net

Operating Losses h SALT Tax Provisions and Accruals h IFRS: What the Future Holds for SALT h Thorny Issues with “Other” Business Taxes: Margin

Tax, Franchise Tax, B&O, Etc. h Apportionment — Current Issues with Factors:

Market vs. COP, Joyce vs. Finnigan, Gross vs. Net, (MTC Compact)

h Apportionment — Weighing Constitutional Issues h Apportionment — Seeking Alternative Relief h Case Study: Tax Apportionment h Related Party Transactions:

Transfer Pricing, 311(b) Distributions, etc. h Case Study: Related Party Transactions h Coordinating Federal and State RARs and

Compliance h Taxpayer Remedies:

The How To’s of Tax Controversies h Ethics

ADVANCED STATE INCOME TAX SCHOOLGeorgia Tech Hotel & Conference CenterAtlanta, Georgia, June 1 - 6, 2014

This school is focused on teaching fundamental state in-come tax concepts and practice. The five-day program is designed to provide the essential state tax building blocks for those students with less than five years income tax experience. The curriculum includes a thorough review of basic income tax concepts, such as apportionment, nexus, and the unitary business principle while also pro-viding an introduction to more advanced issues and fea-turing specific courses on accounting principles, income tax audits and compliance as well as best practices for researching and documenting income tax issues. The curriculum will also provide an introduction and analysis of recent trends, such as states’ greater emphasis on the sales factor and resort to gross receipts taxes. The format of this school includes lectures as well as interactive case studies and group discussions. The students will benefit from the insight and diversity of experiences of the school faculty, which consists of tax professionals from public and private companies, and top accounting and law firms.

Topics Include: h State of the States h Jurisdiction to Tax, Part 1:

Federal Constitutional Limitations h Jurisdiction to Tax, Part II: Nexus and P.L. 86-272 h Determination of Income Tax Base h Case Study: Nexus and P.L. 86-272 h What is a Unitary Business h Income Subject to Allocation h Income Tax Filing and Compliance h Common Issues in Mergers and Acquisitions h Fundamentals of Formulary Apportionment h Pass Through and Disregarded Entities h Allocation and Apportionment h Tax Return Basics h Handling an Income Tax Audit h Tax Provisions 101 h Case Study: Tax Provisions h Researching and Documenting Findings h Ethics

BASIC STATE INCOME TAX SCHOOLGeorgia Tech Hotel & Conference CenterAtlanta, Georgia, June 1 - 6, 2014

Don’t miss this opportunity! Click on the following links for more information:

Basic State Income Tax School

Advanced State Income Tax School


Question of the Month:What is the CMI Candidate Application Process?1. Submit Application.2. Application is reviewed by IPT Staff & CMI

Committee.3. Applicant notified of candidacy.

– Includes information on accessing study material online.

4. Applicant notified of eligibility. – Met requirements: eligible to sit at next exam.– Lacking requirements: ineligible to sit without

further verification of requirements.5. Eligible candidates will receive an email 6 – 8

weeks prior to each exam with the exam details. Candidates are asked to respond to the email to indicate if they will sit at that particular exam.

6. Examinees are notified of the exam results in writing.– New CMIs will receive a lapel pin and certificate

via mail within 3 weeks of the exam.Please note: *Applicants have six consecutive testing opportunities from the date of application (not eligibility) to meet the requirements in effect for certification. *Applicants must notify the IPT office in writing to update their application as requirements are met.For a complete overview of the application process, please review the following: CMI Income Tax Candidate Orientation Slideshow CMI Property Tax Candidate Orientation Slideshow CMI Sales Tax Candidate Orientation Slideshow

Upcoming CMI Exam Application Deadlines• The deadline for submitting applications for the

September 2014 Sales Tax Exam is June 19, 2014.

• The deadline for submitting applications for the November 2014 Income Tax Exam is August 8, 2014.

• The deadline for submitting applications for the November 2014 Property Tax Exam is August 8, 2014.

CMiCornerCERTIFIED MEMBER

CMI

• INST

ITUTE

FOR PROFESSIONALS IN TAXATION

® •

CMi CandidateConneCtionCERTIFIED MEMBER

CMI

• INST

ITUTE


® •

Attention CMIs:The Annual Conference in Phoenix is Just Around the Corner!

The Annual Conference is particularly important for Certified Members of the Institute. It provides experienced tax professionals, like you, with valuable continuing education and updates on advanced topics and current issues. Approximately seventeen (17) CPE credits (including 1.5 IPT ethics credit hours) are available for full attendance Monday through Wednesday, June 29th – July 2nd.

If you are a CMI: All Certified Members are required to attend at least twelve hours at one IPT Annual Conference, discipline-specific Symposium, School or Academy or IPT/ABA Advanced Tax Seminar within each five-year term. Please encourage other experienced income, property and sales tax professionals to achieve the CMI professional designation. The continued growth of the CMI professional designation benefits you as a fellow CMI, your profession, and IPT as the premier association of business tax professionals.

If you have questions about the CMI Professional Designation that are not answered on our website, please contact Emily Archer at [email protected].

CODE OF ETHICS: CANON 4IT IS UNETHICAL for a member of IPT to state or imply that such member rep-resents a person that the member does not represent, or to file any document on behalf of such person without authoriza-tion.



Property Tax Calendar ~ June 2014

This information is provided by International Appraisal Company (IAC) and is provided for quick reference/re-minder purposes only. IPT and IAC make no guarantee to completeness or accuracy and are not responsible for errors or omissions or for any results from the use of this information. We strongly suggest confirmation of all information with local taxing jurisdictions.

Appeals DueMN* OK* MO* VA* VT* WI* WY* CO 6/1** if in personID 4th Monday in JuneMT First Monday in June or 30 days after noticeNE 6/30NY 3rd Tuesday - Westchester & Geneva (City) TN 6/1**

Personal Property Filing DatesMD 6/15** (On Extension)

Assessment Dates: None

* Dates vary, check jurisdiction ** Date falls on weekend, should be next business day,

Check Jurisdiction. Confirm all information with local taxing jurisdictions.

Click here to order this vital resource.

State Business Income Taxation Book

State Business Income Taxation includes contributions from some of the nation’s preeminent state business income tax practitioners, a virtual Who’s Who of SALT professionals. This treatise, derived from the authors’ many years of expertise in state business income taxation, is a vital reference tool. Let the leading state and local income tax experts provide you with the answers you need by purchasing this book and accompanying CD today!

Credits and inCentives

CCIPCERTIFIED MEMBER

• INST

ITUTE


® •

Certified Credits & Incentives Professional (CCIP) DesignationApplications are now being accepted for IPT’s 2014 September CCIP Exams. Please review the Brochure, Application and Orientation available on the IPT website for details. The major requirements for the Certified Credits and Incentive Professional Designation include membership in the Institute, statutory tax credits, discretionary incentives, site selection, and economic development experience, successful completion of IPT’s Credits and Incentive School, attainment of prescribed educational requirements, and successful completion of both comprehensive written and oral examinations. September 2014 Exam Dates:September 20 – 21, 2014 Crystal Gateway Marriott Arlington, VA

Plug in to Savings: Attend IPT’s Credits and Incentives Symposium at the Crystal Gateway Marriott Hotel Arlington, VA ~ September 21-24, 2014Be proactive when it comes to managing your tax credits and incentives opportunities by attending IPT’s Tax Credits and Incentives Symposium. This Symposium will help you examine your policies and procedures, identify ways to implement best practices, improve your process, ensure compliance, and achieve bottom-line gains.


C a r e e r s Please visit the Career Opportunities page on the IPT web-site for complete position descriptions and requirements.

Positions Available:Position Wanted:

AVP of Sales Tax: Compliance (Jacksonville, Florida) – CIT. Send resume to [email protected] or ap-ply at https://cit.csod.com/ats/careersite/JobDetails.aspx?id=1998. Date Posted: 4/22/2014 (IPT1390)

AVP of Sales Tax: Audit (Jacksonville, Florida) – CIT. Send resume to [email protected] or apply at https://cit.csod.com/ats/careersite/JobDetails.aspx?id=1217. Date Posted: 4/22/2014 (IPT1389)

Senior Tax Accountant (Denver, Colorado) – TriZetto. To apply, https://career4.successfactors.com/sfcareer/jobreqcareer?jobId=21807&company=trizetto&username=. Date Posted: 4/22/2014 (IPT1388)

Tax Manager Credits & Incentives (Deerfield, Illinois) – At Walgreens. To apply, http://jobs.walgreens.com/chicago/accounting-and-finance/jobid5050239-tax-manager-cred-its-%EF%B9%A0-incentives-jobs. Date Posted: 4/22/2014 (IPT1387)

Senior Tax Analyst (Sunrise, Florida) – MEDNAX, Inc. Local candidates only. Apply online at https://re22.ultipro.com/PED1000/jobboard/JobDetails.aspx?__ID=*86FDE549C232505A. Date Posted: 4/21/2014 (IPT1386)

Severance Tax Manager (Fort Worth, Texas) – To apply for this position, email your Resume and Salary Require-ments to: [email protected]. Date Posted: 4/21/2014 (IPT1385)

Sales/Use Tax Senior Consultant (Fort Worth, Texas) – To apply for this position, email your Resume and Salary Requirements to: [email protected]. Date Posted: 4/21/2014 (IPT1384)

Sr. Tax Specialist Sales & Use Tax (Tempe, Arizona) – Interested candidates need to submit application at: https://career8.successfactors.com/sfcareer/jobreqcareer?jobId=14294&company=Avnet&username. Date Posted: 4/17/2014 (IPT1383)

Property Tax Analyst (Houston, Texas) – BP. To ap-ply, go to http://jobs.bp.com/. Date Posted: 4/15/2014 (IPT1382)

State and Local Tax Manager – OUM & Co., LLP. Apply with resume and cover letter to [email protected]. Date Posted: 4/15/2014 (IPT1381)

Tax Manager (Herndon, Virginia) – To apply, please visit www.gdit.com/careers and reference job id 222101. Date Posted: 4/11/2014 (IPT1380)

Property Tax Analyst (Lakeland, Florida) – Mar-riott Vacations Worldwide. To apply, https://www1.apply2jobs.com/MarriottVacationsWorldwide/index.cfm?FuseAction=mExternal.showJob&rid=3548. Date Posted: 4/7/2014 (IPT1379)

Transaction Tax Analyst (East Chicago, Indiana) – Ar-celorMittal. All interested candidates may apply directly at http://www.candidatemanager.net/arcelormittal/. Date Posted: 4/3/2014 (IPT1378)

Associate Director/Director, Property Tax Services (Dallas, Texas; Chicago, Illinois; Phoenix, Arizona) – Cushman & Wakefield. Please email your resume to: [email protected]. Date Posted: 3/28/2014 (IPT1377)

Tax Analyst (Seattle, Washington) – Avalara Inc. Send resume to [email protected]. Date Posted: 3/27/2014 (IPT1376)

Senior Income Tax Analyst (Corning, New York) – Corn-ing. Apply online at: https://careers.corning.com/psp/PD-PAHRPRER/CNG_MYCAREER_SITE/PDGLHRPRER/c/HRS_HRAM.HRS_CE.GBL?Page=HRS_CE_JOB_DTL&JobOpeningId=174694&SiteId=1&PostingSeq=1. Date Posted: 3/27/2014 (IPT1375)










Michigan One-Day Tax Seminar Domino’s Pizza World Resource Center Ann Arbor, MI May 2, 2014

Credits and Incentives School Marriott Kingsgate Conference Center Cincinnati, OH May 14 - 16, 2014

Basic State Income Tax School Georgia Tech Hotel & Conference Center Atlanta, GA June 1 - 6, 2014

Advanced State Income Tax School Georgia Tech Hotel & Conference Center Atlanta, GA June 1 - 6, 2014

CMI Sales Tax Exams JW Marriott Desert Ridge Phoenix, AZ June 27 - 28, 2014

CMI Income Tax Exams JW Marriott Desert Ridge Phoenix, AZ June 28 - 29, 2014

CMI Property Tax Exams JW Marriott Desert Ridge Phoenix, AZ June 28 - 29, 2014

CCIP Exams JW Marriott Desert Ridge Phoenix, AZ June 28 - 29, 2014

Annual Conference JW Marriott Desert Ridge Phoenix, AZ June 29 - July 2, 2014

Real Property Tax School AT&T Executive Education Center Austin, TX July 13 - 18, 2014

Property Tax School Georgia Tech Hotel & Conference Center Atlanta, GA August 10 - 14, 2014

Value Added Tax Symposium Crystal Gateway Marriott Hotel Arlington, VA September 17 - 19, 2014

CMI Sales Tax Exam Renaissance Washington DC Downtown Hotel Washington, DC September 19 - 20, 2014

CCIP Exams Crystal Gateway Marriott Arlington, VA September 20 - 21, 2014

Credits and Incentives Symposium Crystal Gateway Marriott Hotel Arlington, VA September 21 - 24, 2014

Sales and Use Tax Symposium Renaissance Washington DC Downtown Hotel Washington, DC September 21 - 24, 2014

Personal Property Tax School Georgia Tech Hotel & Conference Center Atlanta, GA October 12 - 16, 2014

CMI Income Tax Exams Marriott Harbor Beach Resort Fort Lauderdale, FL November 8 - 9, 2014

CMI Property Tax Exams Marriott Harbor Beach Resort Fort Lauderdale, FL November 8 - 9, 2014

Income Tax Symposium Marriott Harbor Beach Resort Fort Lauderdale, FL November 9 - 12, 2014

Property Tax Symposium Marriott Harbor Beach Resort Fort Lauderdale, FL November 9 - 12, 2014

IPT 2014 CALENDAR OF EVENTS

Please check IPT’s online Calendar of Events for additional programs that may be added.

Tax Report - Institute for Professionals in Taxation Home Caruthers The Coca-Cola ... Keith G....

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