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State & Local Tax Update - 7/31/12

Posted 12:00 PM by

Reassessment for Indiana Real Property Taxes: Indiana counties are currently wrapping up their 2012 statewide reassessments. During a reassessment year, county and township assessors are required to inspect all properties and adjust all assessed values to properly reflect market value in use. Counties were last required to reassess property in 2002; therefore, some property owners should expect significant changes as a result of the 2012 reassessment.

Property owners are encouraged to review their assessment notices (Form-11) as soon as they receive them to make sure the assessed value looks appropriate. The property owner has 45 days to file an appeal after the mailing of the first notice of assessment. When a property owner receives their tax bill, it is often too late to appeal the assessed value for that year. Some counties began mailing their assessment notices this month.

Contact your KSM advisor, or KSM property tax leader Chad Miller, as soon as you receive your Form-11. We would be happy to review the reassessed value of your commercial property to help you consider whether an appeal should be filed.

 

California Multistate Taxpayers May Elect 3-Factor Apportionment: The California Court of Appeals has ruled that multistate taxpayers could validly elect to use the Multistate Tax Compact's equally weighted 3-factor formula to apportion and allocate income for state corporation franchise/income tax purposes. The Compact's optional 3-factor formula, enacted by California in 1974, was not repealed and superseded by the 1993 amendment to California Revenue and Tax Code § 25128 that required use of the double-weighted sales factor apportionment formula because such an interpretation would be unconstitutional, violative of the prohibition against impairing contracts. The Court concluded that the Compact was a valid multistate compact, and California was bound by it and its 3-factor apportionment election provision unless and until California withdrew from the Compact by enacting a statute that repeals California Revenue and Tax Code § 38006. (Note that California has enacted legislation repealing the MTC code effective 6/27/12.) See The Gillette Co., et al. v. Franchise Tax Board for details of the case.

Illinois Court Rules on Residency: An Illinois appellate court ruled that a husband and wife were not required to pay Illinois income taxes for tax years 1996 through 2004 because they were residents of Florida. In 1995, the taxpayers left their Illinois home, renounced their Illinois residency, and moved to Florida. Because the couple then split their time roughly equally between the two states, they essentially maintained an intent to return to both Illinois and Florida for half of each year. Therefore, the "intent to return" element of domicile determination could not govern the result in this case. The court instead focused on the concept of domicile as an intended permanent home. Although they maintained contacts, memberships and real estate in Illinois, the taxpayers changed their voter registrations to Florida, paid Florida income taxes, obtained residency cards and drivers' licenses in Florida, and filed a declaration of Florida residency. Based on these factors, the court determined that the couple intended to live in Florida for half the year and visit Illinois, not the other way around. The court also examined whether the regularity and duration of the couples' visits to Illinois affected their residency status. Despite some continued Illinois ties such as social club memberships and the ownership of their longtime home, the couple spent more money on Florida social clubs; voted in Florida. used a Florida telephone number; distanced themselves from their Illinois-connected companies; and began to shift the focus of their charitable foundation to Florida causes; spent more money in Florida; and purchased burial plots in Florida. Overall, the couple had a much stronger connection to Florida. See Cain v. Hamer for details.

Missouri Resale Exemption Applies to Water used in Hotel Rooms: The Missouri Department of Revenue ruled that a Missouri hotel may purchase for resale water used by its patrons in their rooms for personal consumption and personal hygiene purposes and the water utility company may accept the hotel's resale exemption certificate in good faith. The hotel provides water in its hotel rooms and incorporates the cost of the water into the price the hotel patrons pay for renting the rooms. Each guest has access to the water spigots in his or her room to control the flow or completely shut off of the water in the room. Therefore, the hotel may purchase the water used in the rooms rented by its patrons under a resale exemption certificate and will not be required to pay sales tax on its purchase of water from the utility company. See LR 7118 for details.

Oregon Court Rules Officer Responsible for Withholding: The Oregon Tax Court ruled a taxpayer was personally liable for unpaid withholding taxes for businesses for which he served as an officer. The taxpayer, the principal officer of a group of restaurants, appealed the Department of Revenue's determination that he was personally liable for employment taxes that were not withheld by the restaurants for portions of 2008 and 2009. The taxpayer asserted, that for the periods at issue, because he had turned over the day-to-day operations of the restaurants to various consultants and was not aware that employment taxes were not being paid, he did not willingly fail to withhold and pay employment taxes. The court stated that, unlike the federal tax system, the Oregon tax system does not have a willfulness requirement in order to establish officer liability. The court also cited authority holding that the withholding tax responsibilities of corporate officers are not delegable and do not require the officer to be in control of the corporation. As the plaintiff continued to be the corporate officer for the relevant periods, he was responsible for the withholding of employment taxes and liable for any unpaid taxes. See Gantes v. Dept. of Revenue for details.

Pennsylvania Adopts Single Sales Factor: Pennsylvania has enacted legislation that requires the use of a sales factor apportionment formula to compute Pennsylvania corporate net income tax for tax years starting after Dec. 31, 2012. See H761 for details.

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