This advisory summarizes the recent guidance issued by the Delaware Secretary of State regarding the details of its new unclaimed property voluntary disclosure program. The new program was created pursuant to Delaware Senate Bill 258, which grants the Secretary of State (as opposed to the State Escheator) a limited three-year window to enter into voluntary disclosure agreements with holders of unclaimed property involving reduced look-back periods. Previously, only the State Escheator had the authority to enter into unclaimed property voluntary disclosure agreements. The Secretary of State’s guidance provides important details regarding various aspects of the new program, including the required VDA work plan, the nine-month window for completion, the nature of the review of holder submissions, the closing agreement and release provision, and required disclosures by the holder.
The advisory is provided in PDF on the Alston & Bird website: www.alston.com/advisories/unclaimed-property-delaware-vda-guidance
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This article was originally published in State Tax Notes, as part of Alston & Bird’s regular column “Audit & Beyond.” See 66 State Tax Notes 417 (November 5, 2012).
This advisory discusses how, in unclaimed property audits and in voluntary disclosures, states commonly take the position that time-based contractual limitations on an owner’s right to claim unclaimed property may be disregarded by the state and how that allows states to seize unclaimed property even if the owner no longer has a right to claim the property. States justify that position based on so-called anti-limitations provisions that provide that the expiration of a contractual period of limitation on the owner’s right to claim property does not prevent the property from being presumed abandoned. However, despite the seemingly broad language of these contractual anti-limitations provisions, such provisions were never intended to apply to contractual limitations agreed to by sophisticated businesses acting at arm’s length. In those contracts, the inclusion of a contractual limitation period is typically driven by legitimate business considerations that in no way violate public policy, rather than by escheat avoidance, which was the characteristic focused on by the courts in the private escheat cases out of which the anti-limitations provisions arose. Those legitimate business considerations would be defeated if the limitations provisions were overridden by a state anti-limitations provision. Moreover, the anti-limitations provisions would also violate the derivative rights doctrine and good public policy, by allowing the state (and, indirectly, the business on whose behalf the state is acting) to claim property that could not be claimed under the negotiated terms of the contract. Finally, if the anti-limitations provisions are construed broadly to apply to contracts negotiated at arm’s length, those provisions may well be preempted by federal law. Accordingly, state contractual anti-limitations provisions should be construed narrowly to apply only when the holder has engaged in unilateral action designed specifically to circumvent state unclaimed property laws.
The advisory is provided in PDF on the Alston & Bird website:
www.alston.com/advisories/salt-advisory-anti-limitations-provisions
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This advisory discusses the recently approved Proposition 39, a California ballot initiative that requires corporations conducting a multistate business to apportion their income using a single-sales factor apportionment formula beginning January 1, 2013. Two other recent developments in California raise significant questions regarding the effectiveness of Proposition 39’s single-sales factor apportionment requirement. In Gillette Co. v. Franchise Tax Board, the Court of Appeal of California held that a corporate taxpayer could elect to apportion its income using either the statutory formula or the equally weighted, three-factor Multistate Tax Compact formula. The California Assembly attempted to eliminate that election by enacting legislation, SB 1015, shortly before Gillette was issued. However, there are serious concerns regarding the validity of that legislation. It therefore remains to be seen whether corporate taxpayers will indeed be required to apportion their income in accordance with Proposition 39 or may instead elect to apportion under the Compact’s equally weighted, three-factor formula.
The advisory is provided in PDF on the Alston & Bird website:
www.alston.com/advisories/state-and-local-tax-advisory-proposition-39
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Attached is a link to a recently prepared Wealth Planning Alert titled “Taking Advantage of Tax Exemptions Before They May Expire on December 31, 2012.”
The 2010 federal estate and gift tax law provided good news for wealthy taxpayers: a lower maximum tax rate of 35%; estate, gift, and generation-skipping transfer tax exemptions of $5 million ($10 million for a married couple); and estate and gift tax “exemption portability,” which allows a surviving spouse to increase his or her own lifetime exemption by the exemption a predeceased spouse never used. However, these favorable rules are scheduled to expire at the end of 2012, unless Congress chooses to extend them in the same or a modified form. (Congress also has the power to take that action after the end of 2012 and make it retroactive.) At press time for this advisory, no one in the world truly knows what Congress will do before the end of this year, or what the federal estate and gift tax law will look like in 2013 and beyond. This advisory explains what you should do before the end of 2012 if you are worried about possibly having to pay a big estate tax bill if the laws are not as favorable when you pass away as they are for 2012.
The alert is provided in PDF on the Alston & Bird website: www.alston.com/advisories/wealth-planning-tax-exemptions-2012
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The attached article titled "Importance of the Federal Preemption Doctrine for Unclaimed Property" was written by Kendall Houghton and Matthew Hedstrom of Alston & Bird’s State and Local Tax Group. This article was originally published in State Tax Notes, as part of Alston & Bird’s regular column “Audit & Beyond.” See 64 State Tax Notes 857 (September 24, 2012). Audit & Beyond, a column on state tax audits, the resolution of disagreements between business taxpayers and state revenue departments, and emerging nationwide state tax trends, is written by members of the Alston & Bird State and Local Tax Group. The article is reprinted with Tax Analysts’ permission.
Practitioners who advise clients on unclaimed property matters are, no doubt, familiar with issues associated with federal preemption and their often substantial effect on unclaimed property audit defense and compliance. Two recent developments are likely to add significantly to the ongoing discourse surrounding the scope of federal preemption of state unclaimed property laws, and practitioners and holders alike should be aware of their potential impact on this ever-developing area of unclaimed property jurisprudence. First, on August 16 the Consumer Financial Protection Bureau (CFPB) issued a notice of intent to make a determination whether the unclaimed property laws of Maine and Tennessee are preempted by the federal Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD act) and amendments to Regulation E previously issued by the Federal Reserve Board to implement the CARD act.
Second, on June 27 the Third Circuit Court of Appeals issued its decision in New Jersey, et al. v. U.S. Dep’t. of the Treasury, in which the court held that states are barred from claiming unredeemed federally issued savings bonds from the U.S. Treasury under their respective unclaimed property laws. This advisory will examine those developments and place the doctrine of preemption in a well-deserved spotlight.
The advisory is provided in PDF on the Alston & Bird website:
www.alston.com/advisories/salt-advisory-up-preemption-article
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This advisory discusses the New York Supreme Court’s recent holding that the Metropolitan Commuter Transportation Mobility Tax (“MTA payroll tax”) was passed unconstitutionally and thus is invalid. This decision potentially impacts all companies with operations in the New York City area and its development should be closely monitored.
The advisory is provided in PDF on the Alston & Bird website: http://www.alston.com/advisories/salt-advisory-mta-payroll-tax
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It was perhaps viewed as a close shave prior to the California Court of Appeal’s issuance of its opinion in Gillette Co. & Subsidiaries v. Franchise Tax Board, No. A130803 (Ct. App., July 24, 2012), but in fact, the court soundly rejected the California Franchise Tax Board’s (FTB) arguments that taxpayers were not entitled to make a so-called “Compact election” and file California tax returns using the Uniform Division of Income for Tax Purposes Act’s (UDITPA) equally-weighted, three-factor apportionment formula. This advisory explains how the court’s decision has ramifications beyond California and how it likely impacts most multistate businesses.
The advisory is provided in PDF on the Alston & Bird website: www.alston.com/publications/SALT-advisory-gillette-ftb
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A memorandum dated July 19, 2012, from the MTC Counsel to the chair of the MTC Income and Franchise Tax Uniformity Subcommittee proposes adoption of a uniform regulation akin to, or actually adopted under the states’ version of, I.R.C. Section 482. The proposal is posted on the MTC website.
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On June 21, 2012, the North Carolina General Assembly enacted its annual updates and so-called technical revisions of the revenue laws. Session Law 2012-79.
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The Governor of North Carolina signed Session Law 2012-43, which suspends the authority of the NCDOR to force corporate combinations for years beginning on or after January 1, 2012 until the DOR issues and has approved an administrative rule defining the standards for forced combinations.
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Armour v. City of Indianapolis, 132 S. Ct. 2073 (2012) ruled that a city did not violate the Equal Protection Clause of the Fourteenth Amendment when it chose to forgive remaining unpaid installments of a special assessment for sewage improvements but not to refund those taxpayers who had paid in full without choosing to pay in installments.
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Technocom Business Systems Inc. v. North Carolina Dep't of Revenue; No. COA11-655 (NCAPP 2/21/2012). Taxpayer sold and leased equipment. It also serviced the equipment sold and leased and charged customers for the maintenance service. It also bought property to use in performing its service agreements. It did not pay use tax on the purchases of that property. A final determination was made that taxpayer owed use tax on its purchases of such property. Taxpayer also erroneously collected sales tax on the charges for its maintenance agreements, which were services and not taxable sales of property. A final determination was made that such maintenance agreement charges were not subject to sales tax.
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Effective February 1, 2012 the NCDOR will charge $5,000 for most answers to taxpayer’s questions through “expedited” letter rulings, and more taxpayers will be forced to seek private letter rulings, because the DOR officers are generally unwilling to give oral advice. If not “expedited,” the rulings will cost a minimum of $500. The new policy applies to ruling requests mailed after on or February 1, 2012.
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Please click here to read an article by Ethan Millar and Kendall Houghton on current developments in unclaimed property. This article was published in the Sept. 12 edition of State Tax Notes.
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Please click here for a recent paper by Atlanta SALT partners Jeff Glickman and Mike Petrik regarding two of the most significant issues in state tax during 2011: click-through nexus provisions (or "Amazon laws") and the taxation of cloud computing.
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States have recently started to use third party contract auditors to conduct transfer pricing audits of taxpayers. Such audits have resulted in large assessments made pursuant to the states' "discretionary authority." This article, recently published by Kendall Houghton and Maryann Luongo in the IPT's August 2011 Tax Report (see p. 15), discusses the use of third party contract auditors in the transfer pricing arena as well as some of the issues that arise during such audits.
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This presentation was given by Tim Fallaw at this year's CBIZ and MHM Annual Conference.
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For contested cases appealing proposed decisions of the NCDOR on tax disputes to the NC Office of Administrative Appeals filed on or after January 1, 2012, a new set of rules will apply. The principal change is that the decision of the ALJ will be final, subject only to an appeal to the Superior Court on the record. The General Assembly has eliminated the power of the DOR to revise the ALJ’s decision. Since 2008 the DOR has used this power to change both the outcomes and the reasonings of the ALJ’s decisions.
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The NCDOR has posted on its website a Notice stating the Secretary’s view of the effective dates in the recently enacted statute that changes the way the Secretary will force combinations of corporate taxpayers after 2011. For prior coverage see this blog’s post on June 20, 2011.
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Please click here for my recent presentation entitled, "Businesses and State Revenue Departments: Where the Battles Are in 2011."
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