Jurisdiction and Nexus: The latest interpretations by the states and the Multistate Tax Commission of what constitutes nexus for state income tax purposes. Efforts by the MTC to revise its Statement on Public Law 86-272 to address Internet activities and the resulting controversy. State tax treatment of passive investment companies, financial institutions, service companies, credit card activities. Effect of having employees work from home, officers residing in-state, deliveries in company and third-party trucks, leased or mobile property, in-state affiliates, and other in-state activities. Impact of voluntarily registering to do business in a state. The growing use of economic nexus standards and their application in the income tax arena. Potential effect of the Wayfair decision. Planning ideas for minimizing state income taxes.
The Unitary Concept: An analysis of current cases interpreting the extent of a state’s authority to apply the unitary concept in its many forms, e.g., domestic, worldwide, water’s edge combination. Unique statutory and regulatory definitions. The MTC approach. The latest states to adopt combined reporting. Application of the unitary concept to non-income taxes. Structuring business to best take advantage of unitary reporting.
Business and Nonbusiness Income: Recent interpretations of the business/nonbusiness distinction by UDITPA and non-UDITPA states before and after MeadWestvaco. Determining “operational significance.” Using the functional, transactional, and unitary tests to minimize state taxation of short and long-term investment income, dividends, capital gains, rents, royalties, 338(h)(10) income, and other intangibles. Effect of operating under centralized cash management, through divisions, partnerships, S corporations, LLCs and other special situations on a business/nonbusiness determination. Treatment of complete and partial liquidations. Legislative developments; update on MTC efforts to amend the UDITPA definition of business income.
Tax Base & Conformity Issues, including State Tax Consequences of Federal Tax Reform: State income tax conformity methods to the Internal Revenue Code, including common areas of decoupling modifications. Particular focus on state conformity to major components of the recently passed One Big Beautiful Bill Act (OBBBA) as well as other important federal tax legislation such as the Tax Cuts and Jobs Act of 2017, the CARES Act of 2020, the Consolidated Appropriations Act, 2021 and the Inflation Reduction Act of 2022. Developments in state tax treatment of bonus depreciation, federal and state taxes, dividends, foreign source income, federal and municipal obligations, net operating losses, and related party expenses. State tax planning and structuring opportunities.
Cost of Performance Versus Market Sourcing and Other Apportionment Issues: Characterizing business activities for purposes of apportionment. Does the company sell tangibles, intangibles, services, mixed products, or a combination? Discussion of sourcing issues and methods, including cost of performance and market sourcing. Treatment of installment, intercompany, drop shipment and dock sales; investment activities, service providers and specialized industries. Analysis of states using throwout and/or throwback rules, including the latest in the Joyce/Finnigan controversy. The increasing adoption of single factor sales formulas and what it means to multistate taxpayers. Proving distortion to obtain Section 18 alternative apportionment.
Pass-Through Entities and Their Owners: Nexus at the pass-through entity and owner level, allocation and apportionment of pass-through entity income, withholding, composite, and elective pass-through entity taxes originally designed to circumvent the SALT deduction cap. Effect of OBBBA. Hot topics in this area including investment partnership developments, state conformity to the IRS partnership audit regime under the Bipartisan Budget Act of 2015, and the Multistate Tax Commission’s project in developing uniform rules for state taxation of partnerships.
Ethical and Procedural
Issues: Ethical and strategic dilemmas involved in conducting state income tax audits and running the state tax department, including application of ethical standards set by the AICPA, ABA, state CPA societies and bar associations. Determining the availability of refunds and the associated procedural requirements, such as payment under protest and “pay to play.” Writing a protest; alternative dispute resolution; the right to an administrative appeal. Statute of limitations issues, including the effect of RARs, waivers, settling with the IRS, and choosing the date from which the limitations period should be measured. Ethical issues related to working from home and the use of technology, including artificial intelligence, in managing the state income tax function.
Problems
Session: Practical application of the concepts
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