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Beth Cooley, COST David Kupiec, Kupiec & Martin, LLC

Council On State Taxation. A National Overview: Are States Looking To You To Stimulate Their Economies? Taxpayers’ Federation of Illinois 2009 Tax Conference September 17, 2009. Beth Cooley, COST David Kupiec, Kupiec & Martin, LLC. Council On State Taxation. Tax Trends Outline.

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Beth Cooley, COST David Kupiec, Kupiec & Martin, LLC

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  1. Council On State Taxation A National Overview: Are States Looking To You To Stimulate Their Economies? Taxpayers’ Federation of Illinois 2009 Tax Conference September 17, 2009 Beth Cooley, COST David Kupiec, Kupiec & Martin, LLC

  2. Council On State Taxation Tax Trends Outline • State Budgets • State Audits • State Tax Trends • U. S. Supreme Court • Financial Reporting Trends • Other • Opportunities???

  3. Projected Budget Gaps: FY 2010As a Percentage of General Fund Budget HI Council On State Taxation WA VT ME MT ND OR MN NH MA ID WI SD MI NY WY RI CT PA IA NV NE NJ OH IN IL UT DE CA WV CO MD DC VA KS MO KY NC TN OK AZ NM AR SC GA AL MS AK TX LA FL Key: More than 15% of the state’s general fund 10% to 15% of the state’s general fund Less than 10% of the state’s general fund Not applicable or not reporting Source: National Conference of State Legislatures, “State Budget Update: July 2009”

  4. Council On State Taxation Budget Gap Numbers By Year

  5. Council On State Taxation State Audits • States Hiring More Auditors • Experience Level of State Auditors • Recordkeeping/Information Requests • Complex Tax Issues/Changing Laws • Settlement/Litigation • Textron Decision (August 2009)

  6. Council On State Taxation State Tax Trends • Nexus • Tax Base • Combined Reporting • Apportionment • Credits/Net Loss Deductions • Amnesties

  7. Council On State Taxation State Tax Nexus Trends • Physical Presence (Flash Title, PL 86-272) • Attributional (Independent Contractors/Affiliates) • Economic (Numerous Decisions) • Statutes/Regulations (NY, WI, CA, OR, IL, …) • Business Activity Tax Simplification (HR 1083) • Related Issues – “Know Your Business”

  8. Council On State Taxation Internet Nexus: New York “Starts Spreading The News” • New York: 2008 Budget • Proposals To-Date: • California (Gov. vetoed) • Hawaii (Gov. vetoed: HB 1405) • Illinois (by regulation) • Maryland (dead for 2009, will resurface 2010) • Minnesota (in omnibus tax bill; Gov. vetoed) • North Carolina (enacted) • Rhode Island (enacted) • Tennessee (dead for 2009; may resurface)

  9. Council On State Taxation Tax Base • Income Tax: • Addback Statutes (DC, Oregon, West Virginia) • Decoupling From Federal Provisions (Depreciation, Stimulus, IRC Conformity, C-Corp Election, …) • Section 482 Adjustments (IL Section 404) • Sales Tax: • Inclusion of Previously Tax Exempt Items • Base Expansion to Services • Streamlined Sales Tax • Gross Receipts/Franchise

  10. Council On State Taxation Tax Base – Proposed IL Sales Tax Expansion (Not Enacted) • Other warehousing and storage • Travel agent services • Carpet and upholstery cleaning services • Dating services • Dry cleaning and laundry (except coin operated) • Consumer goods rental • Health clubs, tanning parlors, reducing salons • Linen supply • Interior design services • Other business services, including copy shops • Bowling Centers • Coin operated video games and pinball machines • Membership fees in private clubs • Admission to spectator sports (excluding horse tracks) • Admission to cultural events • Billiard Parlors • Scenic and sightseeing transportation • Taxi and Limousine services • Unscheduled chartered passenger air transportation • Motion pictures theaters, except drive-in theaters

  11. Council On State Taxation Tax Base – Proposed IL SalesTax Expansion (Not Enacted) • Pet grooming • Landscaping services (including lawn care) • Income from intrastate transportation of persons • Mini-storage • Household goods storage • Cold storage • Marina Service (docking, storage, cleaning, repair) • Marina towing service (including tugboats) • Gift and package wrapping service • Laundry and dry cleaning services, coin operated • Other services to buildings and dwellings • Water softening and conditioning • Internet Service Providers • Short term auto rental • Information Service • Amusement park admission and rides • Circuses and fairs – admission and games • Cable and other program distribution • Rental of video tapes for home viewing

  12. Combined Reporting: Status 2009 Legislation HI Council On State Taxation WA ME MT ND OR VT MN NH ID MA WI SD MI NY WY CT RI PA IA NV NE NJ OH IN IL UT DE CA WV CO MD DC VA KS MO KY NC TN OK AZ NM AR SC GA AL MS AK TX LA FL Key Adopted combined reporting in 2009 Pending combined reporting legislation Rejected combined reporting legislation

  13. Council On State Taxation Apportionment Trends • Single Sales Factor • Market Based Sourcing • Joyce/Finnigan • Gross vs. Net Proceeds (General Mills/CA Law Change) • Throwback/Throwout (Pfizer v. NJ) • Distortion/Nowhere Sales • Alternative Apportionment

  14. Council On State Taxation Credits/Net Losses • Limitations on Amounts • Limitations on Carrybacks/Carryforwards • Limitations on Transferability • Survival of Tax Attributes During Dissolutions, Mergers, Bankruptcies • Uniformity Issues

  15. Council On State Taxation Amnesties • Opportunity to Resolve Issues • Potential to Reduce Open Years • Abatement of Penalties • Potential Abatement of Interest • Potential for Additional Penalties/Interest

  16. Council On State Taxation Amnesties Ongoing/Potential Amnesty Programs: Delaware (9/1-10/30) DC (Pending legislation) Louisiana (9/1 – 10/31) Maryland (9/1-10/30) Penn. (Pending legislation) Maine (9/1 – 11/30) Oregon (10/1–11/19) Virginia (TBD) Wisconsin (7/1-9/30) Recently Concluded: Alabama Arizona Connecticut Hawaii Massachusetts New Jersey Vermont Note: COST is maintaining an active spreadsheet of administrative & statutory amnesties on COST’s website at: http://www.cost.org/WorkArea/DownloadAsset.aspx?id=73518

  17. Council On State Taxation U.S. Supreme Court • Recent (Cuno, Mead, Davis, Polar Tankers) • Cert. Denied (Geoffrey/Mass, Capital One/Mass, VFJ Ventures/AL, Ventas Finance/CA, MBNA/WV, Lanco/NJ …) • Petition Pending (MO Gas Energy/OK) • Next?

  18. Council On State Taxation Financial Reporting • Expansion of FAS 5 • FIN 48 • Conversion to IFRS

  19. Council On State Taxation Other • Tax Commissions • CA, CO, MD, MN, SC, VA • Vendor Compensation • CO, IL, TX, VA • Alternative Base Taxes • Uniform Law Commission’s UDITPA Revision • Not This Time

  20. Council On State Taxation Opportunities • Restructurings • Mergers/Acquisitions • Jobs • Improving Economy

  21. Council On State Taxation Questions? Beth Cooley David Kupiec bcooley@cost.orgdkupiec@kupiecandmartin.com (202) 484-5226 (312) 632-1022 CIRCULAR 230 DISCLOSURE - To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (2) promoting, marketing or recommending to another party any transaction, arrangement or other matter.

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