Articles Posted in States

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In “California Office of Tax Appeals Rejects Franchise Tax Board’s Broad Interpretation of California’s “Doing Business” Standard,” the SALT team examines the board’s rejection of the California Franchise Tax Board’s (FTB) extremely narrow interpretation and application of Swart Enterprises, Inc. v. Franchise Tax Board, involving California’s “doing business” standard.

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(This article was originally published by Law360 on August 24, 2018.)

California is the latest to join a growing list of states to ban local taxes targeted at sweetened beverages or similar sugar taxes. California Assembly Bill 1838 signed into law on June 28, 2018, imposes a 13-year ban on any new local taxes on carbonated and noncarbonated beverages and other “groceries.”1 Arizona and Michigan have done the same and three more states, Oregon, Pennsylvania and Washington are considering similar bans. The public policy debates behind these recent legislative enactments are no different than the all too familiar “sin taxes” that harken of decades, if not centuries past.

Aside from the inherent differences between sugary groceries and the likes of tobacco, alcohol or gambling, sweetened beverage taxes imposed at local levels pose serious compliance issues for distributors and retailers. The recent popularity of these taxes at the local level not only has the beverage and retail industry fired up over the compliance issues, but citizens are beginning to recognize the paternalistic nature of these taxes and their regressive effects on the communities.

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(This article was originally published by Bloomberg’s Daily Tax Report: State.)

Recent developments in several key states, including Illinois, New York, Minnesota, and Oregon, will impact many captive insurance companies. These states are moving to include certain captives in corporate income tax combined returns with parents and affiliates. The effect of combination is to tax the captives’ investment income and to disallow the deductions for premiums paid to the captives. New York and Minnesota are also using the federal definitions of “insurance” to determine whether captive insurance companies are combinable and subject to corporate income tax.

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(This article was originally published by Law360.)

California’s A.B. 2731 seeks to accomplish what the federal Tax Cuts and Jobs Act did not, namely, to close the carried interest “loophole.” Currently making its way through state assembly committees, AB 2731 would impose an additional 17 percent tax on interest income derived from investment management services on taxpayers subject to California’s personal income tax law.

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(Note this originally appeared in March 26, 2018, edition of State Tax Notes)

Nearly every state that imposes a corporate income tax includes a sales factor in its apportionment formula. Generally, the sales factor in computed by comparing a taxpayer’s “in-state” sales to its total sales. Determining in-state sales of tangible personal property is a straightforward concept—good shipped to a customer’s location are included as in-state sales only in the state of the customer’s location. It is more complicated to determine an in-state sale regarding the provision of multistate services or licenses of intangibles. Historically, states looked to a taxpayer’s costs of performing the service of licensing the intangible. Some states have become critical of this cost-of-performance method and replaced it with a market-based method of computing in-state sales.

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