The BR State + Local Tax Spotlight: November 2021
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Note from the Editor
Welcome to the November 2021 edition of The BR State + Local Tax Spotlight. We understand the unique demands of staying on top of important State + Local Tax developments, which happen frequently and across numerous jurisdictions. Staying updated on significant legislative developments and judicial decisions helps tax departments function more efficiently and improves strategy and planning. That is where The BR State + Local Tax Spotlight can help. In each edition, we will highlight for you important State + Local Tax developments that could impact your business. In this issue, we will be covering:
- A recent Michigan appeals court decision that upheld a reduction of a credit in an otherwise closed year, despite acknowledging flaws in the audit and the lack of notice to the taxpayer;
- A recent California Franchise Board legal ruling providing guidance on when a pass-through entity holding company is considered unitary with other entities in its group;
- A recent 2nd Circuit Court of Appeals decision that rejected a constitutional challenge to the federal SALT deduction cap; and
- A recent Texas appeals court decision that affirmed the dismissal for lack of jurisdiction of a dispute over how gross receipts should be apportioned for franchise tax purposes.
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Michigan Court of Appeals Holds That a Reduction in a Credit Is Not a “Deficiency”
By Hollis L. Hyans
The Michigan Court of Appeals held that the statute of limitations does not prevent the Department of Treasury (“Treasury”) from reducing a credit in an otherwise closed year, despite acknowledging flaws in how the audit was handled and the lack of notice to the taxpayer. McLane Co., Inc. v. Dep’t of Treasury, No. 354973, 2021 WL 4808351 (Mich. Ct. App. Oct. 14, 2021). This case is another example of auditors reaching back into otherwise closed years to examine items that have going-forward impact, but here the result was different from the result in a recent New Jersey case, which did not allow the retroactive adjustment under different statutory language. Read More »
California Franchise Tax Board Issues Legal Ruling on Unity of Holding Companies
By Kara M. Kraman
On October 25, 2021, the California Franchise Tax Board (“FTB”) issued a legal ruling providing guidance on the issue of when pass-through entity holding companies will be considered unitary with the pass-through entities in which they hold an ownership interest or which hold an ownership interest in them. Cal. Franchise Tax Bd., Legal Ruling No. 2021-01 (Oct. 25, 2021). California FTB legal rulings are not precedential; however, they may be cited as the FTB’s official interpretation of the tax law and courts may attribute some weight to them. Read More »
Second Circuit Unanimously Rejects States’ Constitutional Challenge to $10,000 SALT Deduction Cap
By Irwin M. Slomka
The $10,000 federal cap on the state and local tax itemized deduction for individuals (“SALT limitation”) continues to generate considerable debate, as well as efforts to narrow its scope. Several states have enacted entity-level income taxes on pass-through entities as partial workarounds, and as we went to press Congress was considering proposals that would either drastically raise the cap or allow an unlimited deduction for 2021. Less well known is a long-running—and, to some, dubious—legal action brought by four states seeking to invalidate the SALT limitation on constitutional grounds. Read More »
In Texas, Square Corners Should Protect Pay-To-Play Foot Fault!
By Mitchell A. Newmark
The Texas Court of Appeals recently ruled that pay-to-play appeals from assessments means that the Comptroller has to first assert amounts due, then you pay them under protest, and then you appeal. If the first step does not happen, the challenge fails for lack of court jurisdiction to hear the appeal. 1st Global, Inc. v. Hegar, No. 03-19-00740-CV, 2021 WL 5022390 (Tex. App.—Austin Oct. 29, 2021). Read More »
WHAT’S SHAKING: BLANK ROME STATE + LOCAL TAX ROUNDUP
Blank Rome’s nationally prominent State + Local Tax attorneys are thought leaders in the community as frequent guest speakers at various local and national conferences throughout the year. Our State + Local Tax attorneys believe it is necessary to educate and inform their clients and contacts about topics that will impact their businesses. We invite you to attend, listen, and learn as our State + Local Tax attorneys interpret and discuss key legal issues companies are facing and how you can put together a plan of action to mitigate risk and advance your business in accordance with state and local tax laws. Read More »
© 2021 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.