The State of Arizona has asked the Supreme Court of the United States to hear a challenge to the State of California’s taxation of nonresident members of California LLCs and nonresident shareholders of California corporations. The crux of the dispute relates to California’s “doing business” tax on all entities that conduct business in the State. The tax is a flat $800 for limited liability companies and is a minimum of $800 for corporations. Arizona asserts that California’s aggressive efforts in taxing nonresident passive investors violates the Due Process Clause and the Commerce Clause of the U.S. Constitution. If the Court decides to hear the case, a ruling in Arizona’s favor would have an unquestioned impact on the state and local taxation of nonresidents. Continue Reading
The U.S. Supreme Court recently issued its decision in North Carolina Department of Revenue v. Kimberley Rice Kaestner 1992 Trust. The Court unanimously determined that the residency of in-state beneficiaries alone is an insufficient basis for a State’s taxation of trust income where (1) the beneficiary did not receive distributions of trust income, (2) the beneficiary had no right to distributions of trust income, and (3) it was uncertain if the beneficiary would ever receive trust distributions. The Court concluded that a State’s imposition of tax in such circumstances violated the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution. Continue Reading
The Florida legislature recently wrapped up its 2019 session. Of particular note, the following tax law changes were enacted.
Documentary Stamp Tax – Deeds between Spouses
Florida imposes a surtax – referred to as the “documentary stamp tax” – on real estate deeds based upon the consideration paid for the transfer. Mortgage indebtedness on the property is always treated as consideration paid, even if the debt is not assumed by the acquiror. Exempt from this surtax were deeds of homestead property between spouses. However, this exemption only applied to deeds given during in the first year of marriage. Continue Reading
During the Great Depression, the taxi industry boomed in the United States. This growth was fueled, in part, by the fact that the industry was largely unregulated. With many unemployed and underemployed individuals in need of extra money at the time, driving a taxi was a popular pursuit. At that time, drivers used “call boxes” located on city streets to communicate directly with the dispatch center to determine where to pick up the next passenger and what to charge for the ride. Continue Reading
Last year, the U.S. Supreme Court ruled in South Dakota v. Wayfair that economic nexus is constitutional for sales tax purposes. South Dakota’s economic nexus statute at issue in the case included an economic threshold of at least $100,000 of sales or 200 separate transactions into the state in the prior calendar year. The decision overruled prior decisions by the Supreme Court, including the landmark holding in Quill Corp. v. North Dakota. In the 1992 Quill decision, the Court affirmed a bright-line physical presence rule limiting the imposition of sales and use taxes on remote sellers. The Wayfair ruling created a snowball effect with approximately 40 states jumping on the bandwagon of “economic nexus.” Nearly all of these states enacted laws that mirrored South Dakota’s $100,000/200 separate transaction threshold model. Continue Reading
In the late nineteenth century, Annie Oakley was arguably the most famous woman in the country. She was renowned for her skill as a sharpshooter and traveled the country in Buffalo Bill’s Wild West Show performing mind-blowing feats. She is credited with shooting the ashes off a lit cigarette hanging out of someone’s mouth and hitting objects by looking at them in a mirror. With rare exception, if Annie Oakley targeting something, she hit it.
When the U.S. Supreme Court issued its decision in Wayfair, many viewed the case as resolving all of the outstanding questions of sales tax nexus. To this point, the Court determined that an online retailer could be liable for sales taxes whether or not it was physically present in a state. State and local tax authorities viewed the Wayfair case as granting carte blanche to economic nexus laws that triggered liability based solely on thresholds tied to sales revenue and the number of sales made by the retailer. Despite this unbridled effort by states to expand the scope of their sales tax laws, there remains a certain level of ambiguity regarding sales tax nexus post-Wayfair.
The decision by the New York City Tax Appeals Tribunal in Goldman Sachs Petershill Fund Offshore Holdings Corp (“Petershill Fund“), unfortunately, does not involve parachute pants or any reference to the “Running Man” dance. Setting this disappointment aside, the case does address a critical constitutional issue impacting passive investors in partnerships. The crux of the dispute was whether the U.S. Constitution prevented New York City (“NYC”) from imposing its General Corporation Tax on a nonresident corporate partner’s sale of its interest in a partnership actively conducting business in the City.
The two primary constitutional weapons used to combat the application of state tax laws are the Due Process Clause and the Commerce Clause. That said, for decades Due Process Clause arguments were often afterthoughts to those made under the Commerce Clause. All that changed when the U.S. Supreme Court’s decision in South Dakota v. Wayfair. The Court’s holding in Wayfair calls into question the going forward usefulness of taxpayer challenges brought under the Commerce Clause. Despite the far-reaching impact of the decision in Wayfair, however, the Court did not address the Due Process Clause. Enter Kaestner Trust.
New York City faces a continuing decline in state and federal funding and increased property taxes continue to be a reliable revenue stream to fund local services. Every January 15th, the NYC Department of Finance (DOF) sends to each owner of NYC commercial real property a Tentative Assessment setting forth (i) the market value of the lot (including improvements), (ii) the actual assessed value of the lot, and, most importantly, (iii) the value upon which the lot will be taxed for the upcoming tax year. The property owner has until March 1st to challenge the Tentative Assessment determining the amount of tax to be paid on the property. If this tax appeal, often referred to as Tax Certiorari or Tax Cert, is not filed by March 1st, the owner loses any right to challenge the assessment for the upcoming tax year.
On June 21, 2018, in its South Dakota v. Wayfair, 138 S. Ct. 2080 (2018), decision, the U.S. Supreme Court reversed its “physical presence” nexus test established over a quarter century earlier in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). In Wayfair, the Court held that “economic nexus” arising from “economic and virtual contacts” with a state could trigger a sales tax collection obligation. Thus, an out-of-state seller without physical connection to a state can now be required charge, collect, report, and remit sales tax to such state. As expected, most states (over 35 to date) updated their nexus policies to take advantage of the revenue-collection opportunity created by the Wayfair economic nexus decision.