cost presentation southeast multistate updates todd senkiewicz forrest hunter april 29, 2015

COST PresentationSoutheast Multistate Updates

Todd SenkiewiczForrest Hunter

April 29, 2015

2 Footer Copyright © 2015 Deloitte Development LLC. All rights reserved.

Agenda

Florida

Georgia

Mississippi

North Carolina

South Carolina


Pending Legislation

Florida

• HB 7009

− Passed by the FL House and Senate waiting to be sent to the FL Governor. The bill, if enacted, would provide the following:◦ (1) Update the IRC as of January 1, 2015,

◦ (2) Decouple from bonus depreciation and IRC section 179 expenses, and

◦ (3) Permit the Florida Department of Revenue to issue emergency rules.

◦ The bill would require taxpayers to add back to adjusted federal income the bonus depreciation permitted by Section 125 of the Tax Increase Prevention Act of 2014 provided IRC Sections 167 and 168(k) and amounts exceeding $128,000 deducted pursuant to IRC Section 179. Taxpayers are permitted to subtract the amounts added back equally over 7 years beginning in 2014.


Pending Cases

Florida

Case No. 12-CA-3891 (Leon County 2nd Circuit)

• The taxpayer filed a consolidated Florida CIT return with the members of the federal consolidated group.

• Taxpayer incorporated its cash management system as a separate legal entity.

• The entity collected funds from the members of the affiliated group and paid bills for the group.

• To the extent a member of the group needed funds, the entity loaned the funds and created promissory notes.

• The taxpayer included the note in the denominator of the property factor and included the interest in the denominator of the sales factor based on financial institution rules.


Pending Cases

Florida

Case No. 12-CA-3891 (Leon County 2nd Circuit) (cont.)

• In addition, the taxpayer claimed a nonbusiness income deduction for investment income of the insurance company subsidiary that is a member of the affiliated group.

• The case is pending and no hearings have been set.


Recent Cases

Florida

American Business USA Corp. v. Dept. of Revenue, 151 So.3d 67, Fla. 4th DCA, (November 2014)

• The taxpayer, an in-state Florida dealer, sold gift cards, flowers, gift baskets and other tangible personal property to Florida and non-Florida customers.

• The Department assed sales tax on all sales pursuant to Section 212.05(1)(l) and Fla. Admin. Code Rule 12A-1.074(1).

• The 4th DCA then held the Department’s assessment for sales tax on the sale of flowers, gift baskets, and tangible personal property (excluding the prepaid calling cards) outside Florida, ordered by out-of-state customers for out-of-state delivery, violates the commerce clause of the U.S. Constitution.

• The Florida Department of Revenue appealed the matter to the Florida Supreme Court. The court accepted the case and assigned it case number SC14-2404. The Department filed its initial brief on the merits on March 3, 2015. The answer brief on the merits is due May 29, 2015.


Legislation

Georgia

• GA HB339 – Extender for Film Credit - Enacted

− Bill to amend Article 2 of Chapter 7 of Title 48 so as to extend the tax credit for film, video, or digital production in this state.

− For tax years beginning on or after January 1, 2014, and before January 1, 2016 the total credit available for entertainment production companies and affiliates shall not exceed $12.5 million.

• GA HB292 – Updating due date conformity to Federal among other proposed changes - Enacted

− For years beginning on or after January 1, 2014, the term “Internal Revenue Code” or “Internal Revenue Code of 1986” refers to the Internal Revenue Code of 1986 as amended on or before January 1, 2015.

− Decouples from IRC Sections 108(i), 168, 179 and others.

− Provides for increased levels of deduction under IRC Section 179(b)(1) for GA purposes from $250,000 in 2013 to $500,000 for 2014.

− Provides for increased levels of limitation under IRC Section 179(b)(2) for GA purposes from $800,000 to $2,000,000 for 2014.


Recent Rulings

Georgia

Rosenburg v. Macginnittie, Tax Tribunal Docket NO.: TAX – HT - 1414626

• Georgia Code Ann. § 48-7-27 provides for that Georgia individual residents may reduce AGI for income received from a flow-through entity that was subject to tax at the entity level in another state that is based on or measured by income.

• A Georgia individual resident taxpayer reported all of his income on the Georgia return, including the distributive share of flow-through income attributable to his ownership interest in an LLC treated as a flow-through entity.

• Taxpayer later filed an amended return to reduce AGI by the income received by the LLC that was subject to the Texas Franchise Tax.

• The taxpayer filed a petition with the Georgia Tax Tribunal when the Department denied his refund.

• The Tribunal ruled that the Texas Franchise Tax constitutes a tax “on or measured by income” for purposes of determining Georgia state taxable income.

• The Tribunal did not rule on the calculation, therefore, an additional ruling is expected.


Recent Rulings

Georgia

Tax Tribunal Docket No.: TAX - S&UT – 14-3540 (Jan. 5, 2015)

• The company filed sales/use tax claims for refund relating to the periods of January 2009 through December 2010 for purchases of equipment used in the Company’s transmission and distribution system.

• The company argued that these items were used in the manufacturing of electrical energy and that the generating facilities, and transmission and distribution system should be considered a single manufacturing plant.

• The Tribunal held that the transmission of electrical power was not part of the manufacturing process.

• The power lines served a function apart from manufacturing because the lines were used for transmission to and from other power providers.

• No production is done in the transmission and distribution system.

• The case has been appealed to the Fulton County Superior Court.


Recent Rulings

Mississippi

Hinds County Chancery Court, Cause No. G-2004-1303 (March 19, 2015)

• A telecom company requested summary judgment from the court due to an assessment of income tax by the DOR.

• The company and its affiliates filed group MS income tax returns for the 1997 – 1999 tax years.

• The DOR made several adjustments including adding back dividends received from subs not taxable in MS.

• Company appealed the assessment to the Tax Commission Board of Review which upheld the assessment.

• Company appealed the holding on the dividend deduction to the Chancery Court.

• Court held the statute excluding dividends received only from subs doing business did not meet the four prong test of Complete Auto Transit.

• The DOR appealed the case to the MS Supreme Ct.


Legislation

North Carolina

• SB 20 – IRC Update/Motor Fuel Tax Changes - Enacted

− Adopts Internal Revenue Code as of 1/1/2015.

− Decouples from bonus depreciation and accelerated expensing under IRC 179

− Provides for adjustments due to decoupling.

− Increases motor fuels tax from $.35 to $.36 per gallon effective April 1, 2015.


Pending Legislation

North Carolina

• SB 526 – Job Creation and Tax Relief Act of 2015. If enacted the bill would provide the following:

− Lower the corporate tax rate from 5% to 4% by 2017.

− Apply the same reporting option to intercompany interest as is currently available for intercompany royalties.◦ Either deducted by payor and included in income of recipient or added back to payer

and excluded from recipient.

− Phase in single-sales factor apportionment by 2017.

− Adopt market-based sourcing,

− Lower the business franchise tax rate from .15% to .135% ,

− Reduce the personal income tax rate, and give individual filers an option between tax relief and claiming specific itemized deductions.

Governor McCrory hasn’t shown any sign that he will support this bill.


Poll Question

If enacted, how would North Carolina SB 526 impact your company’s most recent provision?

1. Significant increase in deferred tax provision.

2. Significant decrease in deferred tax provision.

3. Offsetting increases and decreases with insignificant net effect.

4. Little to no effect or not applicable.

North Carolina


Recent Rulings

North Carolina

Midrex Technologies Inc. V. Dep't of Revenue, Office of Adm. Hearings, 13 REV 18654 (Oct. 10, 2014)

• Company filed NC corporation tax returns from 2005 through 2008 using three factor apportionment.

• The company subsequently filed amend returns utilizing the single sales factor apportionment for “excluded corporations.”

• “Excluded corporations” are those in business as a building or construction contractor, a securities dealer, a loan company or a corporation receiving more that 50% of its ordinary income from intangibles.

• Company believed it qualified as a building or construction contractor because sold steel products used in the construction industry.

• The company’s NAICS code was not within the construction sector.

• The administrative law judge for the North Carolina Office of Administrative Hearings found the company was not engaged in business as a construction contractor and therefore not entitled to use the single-factor apportionment method to determine its corporate and franchise tax liability.


Legislation

South Carolina

• S. 397 - IRC Update - Enacted

‒ Updates term Internal Revenue Code to mean the Internal Revenue Code of 1986 as amended through December 31, 2014.

‒ Also extends expired IRC provisions if updated by congressional activity in 2015.

• S.170 - Click through Nexus Law – In Committee

− This bill would establish a rebuttable presumption that retailers entering into online referral agreements with South Carolina residents have nexus with the state for sales tax collection purposes.

− The bill also includes a minimum sales threshold -- the law would apply only if a retailer's gross proceeds from sales made through referral links exceeded $10,000 for the prior 12 months.


Recent Cases

South Carolina

Dish DBS Corp. v. Dep't of Revenue, S.C. Adm. Law Ct., Doc. No.: 14-ALJ-17-0285-CC (Feb. 10, 2015)

• Taxpayer is a multi-media broadcasting corporation providing access to digital television entertainment access.

• The distribution of programming is comprised of the programming source, the uplink center, the satellite, a receiving dish and an in-home receiver box.

• SC DOR conducted and income tax audit of Taxpayer for the 2004 – 2010 tax years.

• DOR found that taxpayer used inconsistent methods for apportioning revenue to the State and instructed taxpayer to source its receipts to SC based on the subscribers in the State.

• Taxpayer appealed the assessment on the narrow issue of whether or not SC is a cost-of-performance state.

• Statute provides that if the income-producing activity is performed within and without this State sales are attributable to SC to the extent the income-producing activity is performed within this State.


Recent Cases

South Carolina

Dish DBS Corp. (cont.)

• SC Court of Appeals had held in an earlier ruling that gross receipts were sourced to the place where the services were performed or the “place of activity” method.

• Petition for summary judgment by taxpayer and Department both denied.


Poll Question

The Dish DBS SC ruling indicates service revenue should be sourced to the state based on the “place of activity” method. How has your company typically applied the South Carolina sourcing requirements for services?

• Cost-of-performance

• Time Spent

• Other

• N/A

South Carolina


Recent Cases

South Carolina

S.C. Supreme Ct, Case No. 2012-212203 (Dec. 23, 2014)

• Two affiliates of a group formed a multi-member LLC, to hold the financing operations, overhead management and intangibles of the group.

• The two affiliates made royalty payments to the LLC, which flowed back to each member.

• One of the two affiliates filed a SC income tax return using the “gross receipts method” to apportion its income including receipts from royalties and financing in SC in the numerator and receipts from royalties, financing and retail sales in the denominator.

• The DOR audited this affiliate and stated the apportionment methodology used to file the returns did not fairly reflect the company’s activity in SC.

• The DOR proposed an alternative apportionment method including royalty and financing receipts in SC in the numerator and everywhere royalty and financing receipts in the denominator but excluding retail sales from the denominator.


Recent Cases

South Carolina

S.C. Supreme Ct.(cont.)

• The DOR issued a final determination utilizing the alternate apportionment formula and the company filed a contested case with the Administrative Law Court (“ALC”).

• The ALC upheld the DOR’s determination and use of the alternative apportionment formula.

• Company appealed the decision to the Court of Appeals arguing the ALC erred in:

‒ Applying the wrong burden of proof;

‒ Failed to consider unitary business;

‒ Finding company’s SC activity was not accurately reflected using the gross receipts method;

‒ Using wrong test to source financing receipts to SC, and;

‒ Ruling the DOR did not violate company’s constitutional rights by applying separate accounting to a unitary business and sourcing financing receipts to SC.


Recent Cases

South Carolina

S.C. Supreme Ct. (cont.)

• Court of Appeals reversed and remanded case to ALC for proper application of the burden of proof.

• Both parties filed petitions of writ of certiorari with the S.C. Supreme Court which granted the review.

• S.C. Supreme Court held the DOR did not meet its burden of proof to show the statutory apportionment formula did not fairly reflect company’s business activity in South Carolina.

• Court clarified a two prong test for alternative apportionment where the statutory formula does not reflect taxpayer’s business activity and the alternative methodology is reasonable.


Contacts

Todd Senkiewicz

Director, Atlanta

404.631.3371 [email protected]

Forrest Hunter

Senior Manager, Atlanta

404.220.1387 [email protected]

mailto:[email protected]

mailto:[email protected]


This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.

About this presentation

About DeloitteDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2015 Deloitte Development LLC. All rights reserved.Member of Deloitte Touche Tohmatsu Limited

http://www.deloitte.com/about

http://www.deloitte.com/us/about

cost presentation southeast multistate updates todd senkiewicz forrest hunter april 29, 2015

Documents