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(This article originally was published by Law360 on March 17, 2016.)

A New York state Division of Tax Appeals administrative law judge issued three determinations addressing the tax implications for unauthorized insurance companies, both life and nonlife.[1] Significant uncertainty has surrounded New York state’s taxation of unauthorized insurance companies since New York state amended its insurance tax provisions (Article 33) in 2003. The Department of Taxation and Finance even issued a technical memorandum in 2012 reversing its prior position on unauthorized life insurance company taxation. These ALJ determinations provide much needed clarity, although questions still remain.

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In 926 North Ardmore Avenue, LLC v. County of Los Angeles, the 2nd District Court of Appeal held that Proposition 13 changes in ownership prompted by transfers of legal entity interests should also be characterized as “realty sold,” resulting in the imposition of realty transfer taxes under the California Documentary Transfer Tax Act in cases even where no real property interests are transferred at all.

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As part of a sweeping law change, New York will require taxpayers to use a water’s-edge combined reporting method when filing corporate income tax returns beginning January 1, 2015.

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On July 1, 2014, the United States Supreme Court agreed to review the 10th Circuit Court of Appeals decision in Direct Marketing Association v. Brohl.1 The Court of Appeals held that federal courts lack jurisdiction under the Tax Injunction Act (TIA) to address Direct Marketing Association’s (DMA) challenge to Colorado’s use tax notice and reporting provisions.

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On June 3, 2014, in a published decision, the California Court of Appeal for the Second Appellate District affirmed the Superior Court ruling in Ocean Avenue LLC v. County of Los Angeles, holding that even though 100 percent of an entity was sold, a reassessable change in ownership of the entity’s real property did not occur because no one person obtained more than 50 percent of the entity. Assembly Bill 2372 would change that result by requiring reassessment of an entity’s realty if 90 percent or more of its ownership interests were sold within a three year period, even if no one owner acquired more than 50 percent.

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With the significant rise of third-party enforcement actions—especially consumer class actions and qui tam actions involving state tax questions—corporate taxpayers are being forced to assess a significant set of risks in connection with their compliance obligations.

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The California Franchise Tax Board has issued a chief counsel ruling stating that a registered broker-dealer must include the entire sales price received from the sale of securities—including the return of capital—in the sales apportionment factor. Interestingly, the chief counsel determined that California’s alternative apportionment provisions do not apply to the combined group’s intrastate apportionment result.

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On May 30, 2012, the State Board of Equalization (SBE), approved pro-posed amendments to the California Code of Regulations, Title 18, section 1684. The Proposed Regulation attempts to provide guidance as to the meaning of the broadened statutory definition of “retailers engaged in business in this state.” The statutory definition now includes retailers who are members of “commonly controlled groups,” as well as retailers who enter into agreements with “a person or persons in this state” who meet certain minimum thresholds.

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California Sales and Use Tax Regulation 1698.5, which sets forth comprehensive procedures for sales and use tax audits, has been approved by the California Office of Administrative Law. The new regulation, which was proposed by the California Board of Equalization (BOE), goes into effect August 18, 2010. According to the BOE, the regulation was necessary to clearly establish taxpayers’ and BOE staff’s responsibilities and duties during the audit process in order to ensure that BOE staff completes audits in a timely and efficient manner and to help taxpayers better understand and avoid confusion regarding the BOE audit process.

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Taxpayers who have been relying upon Section 530 to provide relief with respect to their classification of service providers as independent contractors rather than employees should take note of the fact that Section 530 is now under attack from Congress and the Obama Administration.

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