SC&H Group Blog: "Expertise Beyond the Numbers"

State & Local Tax Updates: California Personal Income Tax; Massachusetts Real Property Tax; and South Carolina Corporate Income Tax

Through its content-sharing partnership with Thomson Reuters Checkpoint, SC&H Group’s State and Local Tax practice has compiled the following round up of actionable state tax news.

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California Limited Liability Companies — Annual tax and LLC fee—short-period returns.
The California State Board of Equalization (SBE) has upheld the Franchise Tax Board (FTB) in denying the taxpayer’s (Taxpayer’s) claim for refund for the tax year ended December 31, 2010, with respect to: (1) the annual LLC tax of $800 the FTB imposed for the second short-period return the Taxpayer filed for 2010; (2) the additional $2,500 for the LLC fee the FTB assessed for the second short-period return the Taxpayer filed for 2010; and (3) related penalties. The Taxpayer is a California limited liability company (LLC) that converted from a 2-member LLC that was taxed as a partnership into a single-member LLC treated as a disregarded entity during 2010. As a result of that event, the Taxpayer filed two short-period LLC returns in 2010: one on July 21, 2011 for the tax period January 1, 2010, through March 31, 2010 (as partnership) and one on September 15, 2011, for the tax period April 1, 2010, through December 31, 2010 (a single-member LLC treated as a disregarded entity). On that second return, the Taxpayer reported an LLC fee of $6,000, a reduction of $2,500 for the LLC fee it had paid with the first short-period return, and no LLC annual tax. As a single-member LLC for the period April 1, 2010, through December 31, 2010, the Taxpayer was required to comply with the requirements set forth in Cal. Rev. & Tax. Cd. § 17941 , Cal. Rev. & Tax. Cd. § 17942 , and Cal. Rev. & Tax. Cd. § 18633.5 , even though it was disregarded for federal tax purposes. The Taxpayer contended that the FTB was assessing the LLC fee and the annual tax twice on a single business because it filed two short-period returns for 2010. The Taxpayer’s contention was rejected. Regarding the LLC return, on September 15, 2011, the Taxpayer filed an untimely short-period return for its disregarded LLC that had a filing deadline of April 15, 2011, and a short-period tax year from April 1, 2010 to December 31, 2010. Regarding the annual LLC tax, the Taxpayer was required to pay the annual LLC tax of $800 on or before April 15, 2010, but payment was not remitted until March 29, 2012. The Taxpayer has not provided any legal authority supporting its argument that the disregarded LLC should not be subject to the annual LLC tax of $800 for its 2010 short-period tax year. Regarding the LLC fee, it was due on or before April 15, 2011. The Taxpayer argues that it should be entitled to aggregate the total income reported separately on its two short-period LLC returns for 2010 and pay a single LLC fee of $6,000 by subtracting any excess amount from the second short-period return but has not provided any legal authority supporting its argument. The penalties were properly imposed. (Appeal of Bay Area Gun Vault, LLC, Case No. 631038, 07/17/2014, released 11/13/2014 (not to be cited as precedent).)

California Limited Liability Companies — Late payment penalty and interest abatement.
The California State Board of Equalization has upheld the Franchise Tax Board’s (FTB’s) denial of the taxpayer’s (Taxpayer’s) refund claim for the 2010 tax year. On April 13, 2009, the FTB received a 2009 California Limited Liability Company (LLC) voucher for the Taxpayer, along with a payment of $800. On April 2, 2010, prior to the filing of the 2009 tax return, the FTB received a second 2009 LLC voucher with an additional payment of $800. The FTB applied the second payment as a credit for the 2009 tax year. On or about March 24, 2011, the Taxpayer filed a 2009 LLC tax return and claimed only one of the previously submitted $800 payments. The return did not indicate any overpayment amount to be credited to the subsequent year. As the Taxpayer submitted two payments of $800 for the 2009 tax year, there was an overpayment of $800 on appellant’s 2009 account, and the FTB applied $100 of the overpayment to a late filing penalty and the remaining $700 to the Taxpayer’s outstanding 2008 liability. Regarding the late payment penalty, a late payment penalty is imposed when a taxpayer fails to pay the amount shown as due on the return on or before the due date of the return. The late payment penalty may be abated if the taxpayer can show that the failure to make a timely payment of tax was due to reasonable cause and was not due to willful neglect. Here, the Taxpayer’s 2010 annual tax was due on April 15, 2010. The FTB applied the April 2, 2010 payment to the 2009 tax year, as directed by the 2009 LLC voucher submitted by the Taxpayer with this payment. The Taxpayer failed to indicate that this April 2, 2010 payment was intended for the 2010 tax year. Regarding interest abatement, there is no reasonable cause exception to the imposition of interest. Here, the Taxpayer’s error in submitting a payment with a voucher for the wrong tax year directly caused the interest to accrue. Thus, the FTB did not abuse its discretion in denying interest abatement. (Commerce Avenue, LLC, SBE, Case No. 663753, 07/17/2014, released 11/13/2014 (not to be cited as precedent).)

California Personal Income Tax — Innocent spouse relief—unmarried taxpayers.
A woman who filed a joint return with the man with whom she had been cohabiting was not entitled to innocent spouse relief because the return was invalid. The taxpayer claimed that she should not be held liable for the assessed taxes and penalties because she was not, and had never been, married to the other party to the return, and because self-employment income reported on Form 1099-MISC was not her income and she never received it. Filing a valid tax return is a threshold requirement for requesting innocent spouse relief under Cal. Rev. & Tax. Cd. § 18533(b) and Cal. Rev. & Tax. Cd. § 18533(c) , and since the taxpayers were never married, the joint return that they filed was not valid. Equitable innocent spouse relief under Cal. Rev. & Tax. Cd. § 18533(f) also requires the filing of a valid return as a threshold matter, and requires that the requesting spouse be divorced, legally separated, or widowed; which is not possible where the couple was never married and California does not recognize cohabitation or marriage under common law. Because the return was not valid, the taxpayer did not meet her burden of proving error in the Franchise Tax Board’s determination that she is not entitled to innocent spouse relief. (Appeal of April Williams, SBE, Case No. 722869, 07/17/2014, released 11/13/2014 (not to be cited as precedent).)

California Personal Income Tax — Innocent spouse relief denied.
The State Board of Equalization (SBE) sustained the determination by the Franchise Tax Board (FTB) that the taxpayer’s spouse was not entitled to innocent spouse relief (ISR) regarding liabilities on their joint returns for tax years 2001, 2002, and 2003. The FTB had initially granted ISR to the taxpayer’s former spouse and then during the briefing process reversed its decision based on what it found as credible evidence provided by the taxpayer. The taxpayer, an owner of a car repair business, contended that multiple factors weighed in favor of denying ISR to his former spouse, such as her knowledge of the understatement on the tax returns, a legal obligation under their divorce decree for equal division of any tax deficiency and costs, her significant benefit from the unpaid tax liability, and that she would not suffer economic hardship if relief was not granted. The taxpayer’s former spouse argued, in part, that the taxpayer owned the business and she was retired during the tax years at issue, that she had no knowledge of taxes and simply signed the return, she had no knowledge or involvement in the day-to-day business, and she did not notice and would not have been aware of the implications of her name appearing as owner of the Schedule C business. The SBE noted when a couple files a joint return, each person is consenting to joint and several liability for the tax due; however, federal and California law provide that an individual who files a joint return may be relieved of all or a portion of such joint and several liability if such individual qualifies as an innocent spouse. Under Cal. Rev. & Tax. Cd. § 18533 , there are three types of ISR: (1) traditional relief under subdivision (b); (2) separate allocation under subdivision (c); and (3) equitable relief under subdivision (f). With regard to the ISR factors, the SBE found: (1) under traditional ISR, the taxpayer’s former spouse did not satisfy the third requirement that, in signing the return, she did not know of, and had no reason to know of, the understatement, because she was involved in the business by accepting payments from clients, paid vendors, and gathered the business paperwork for accounting purposes; (2) under separate allocation ISR, she satisfied the third requirement of subdivision (c) for tax years 2002 and 2003, but not for 2001 by not establishing how the deficiency arising from the itemized deductions for 2001 should be allocated (note: the SBE found that based on her involvement in the business, she made a deliberate effort to avoid learning about the Schedule C deductions to avoid liability; therefore, she is not eligible for separate allocation ISR for any of the tax years at issue); and (3) under equitable ISR, the SBE points out that since she met the threshold requirements of subdivision (f), then the SBE considered whether she was entitled to partial relief under the factors listed in Revenue Procedure 2013-34, § 4.01(7) which, if met, permit a streamlined determination of equitable ISR and the SBE concluded that the taxpayer’s former spouse is not eligible for equitable ISR. (Appeal of Ross Peck, SBE, Case No . 681037, 07/17/2014, released 11/13/2014 (not to be cited as precedent).)

California Personal Income Tax — S corporation—cost of goods sold exclusion.
The appellants, sole owners of an S corporation, failed to show error in the Franchise Tax Board’s (FTB’s) disallowance of the COGS (cost of goods sold) exclusion. The appellants reported zero ending inventory on the S corporation’s 2002 return and $65,200 in beginning inventory on its 2003 return. Though the appellants claimed they provided evidence in the form of oral testimony and records during the audit, unsupported assertions are insufficient to satisfy the appellants’ burden of proof, and a review of the record shows that the appellants did not provide any documentation during the audit. The appellants also asserted they did not have the relevant records because the records were destroyed by flooding, but failed to provide any evidence to substantiate this claim. In any case, an alleged loss of substantiating records does not relieve the appellants from their burden of proof in substantiating their claimed exclusion. While the appellants claimed that the IRS considered the COGS exclusion and did not issue a federal assessment based on the COGS exclusion, the federal Account Transcript shows that the IRS action was a collection due process matter and that in fact the IRS did not consider the COGS exclusion. Finally, though the appellants contested the amounts attributable to the late filing penalty and accrued interest, they did not present any argument or evidence to support abating these items, and a review of the record did not support any abatement. (Appeal of Randeep S. Dhillon and Kamalpreet Sidhu, SBE, Case No. 594206, 07/17/2014, released 11/13/2014 (not to be cited as precedent).)

California Personal Income Tax — Additional assessment for Utah source income upheld.
The State Board of Equalization (SBE) has rejected the taxpayers’ appeal of notice of additional tax due on their 2008 tax return on account of Utah source income omitted from the return. The taxpayers, as California residents, are subject to California income tax on all of their taxable income regardless of source. The Franchise Tax Board also correctly revised their 2008 Schedule CA to allow the taxpayers no California adjustments for their Utah sourced items since the taxpayers are not entitled to California adjustments on Schedule CA for income and losses sourced to Utah. The purpose of Schedule CA is to report adjustments to federal AGI when that income is taxed differently for state and federal purposes. (Appeal of Garff, SBE, Case No. 711211, 07/17/2014, released 11/13/2014 (not to be cited as precedent).)

California Personal Income Tax — Loss from partnership and QSBS exclusion denied.
The California State Board of Equalization (SBE) has upheld the Franchise Tax Board’s (FTB’s) determinations that for the 2000 tax year the taxpayer (Taxpayer) was not entitled to: (1) a loss relating to his investment in Prefix Venture Partners, LLC (Prefix); and (2) a qualified small business stock (QSBS) exclusion for the gain on the sale of his stock in Endeavor Information Systems, Inc. (Endeavor). The SBE also determined that it had no jurisdiction to review the post-amnesty penalty that the FTB indicated it would impose if and when the proposed assessments became final. Regarding the loss from Prefix, in 2000, Prefix (a partnership for tax purposes) incurred a loss from its sale of Resonex stock, $1 million of which it allocated to the Taxpayer as his distributive share, a loss that the Taxpayer claimed on his California tax return. The issue was whether the Taxpayer could include in his basis in his interest in Prefix the $1 million promissory note (the Note) he issued as of December 15, 2000, and payable to Prefix. California generally conforms to the federal partnership rules pursuant to which a partner’s distributive share of a partnership’s losses is allowable only to the extent of the partner’s adjusted basis in his partnership interest at the end of the partnership year. The SBE determined that the applicable law is the precedent set forth in Appeal of Wybenga, Dkt. No. 86-SBE-083, 04/09/1986 (where a taxpayer incurs no cost in making a note and contributes it to a partnership, the taxpayer’s basis in the note is zero) and that the ruling in Peracchi v. Commr, 9th Cir., 143 F3d 487 (1998) (contribution of a self-created note to a corporation can increase the shareholder’s basis in the note in certain circumstances) does not extend to the partnership context. Since the Taxpayer did not make any payments on his promissory note during 2000, the Taxpayer did not receive any basis relating to the Note. Therefore, under IRC § 704(b), the Taxpayer cannot claim any portion of the distributed loss from Prefix in 2000. Regarding the QSBS exclusion, it is available under Cal. Rev. & Tax. Cd. § 18152.5 for the tax year at issue if the taxpayer held the QSBS for more than five years when he sold it on May 2, 2000. The issue was the date on which the 5-year holding period began. Case law shows that the date upon which a taxpayer received the beneficial ownership of the stock will be the date on which the taxpayer acquired and began to hold stock for purposes of the QSBS exclusion. The FTB contends that the subscription date of June 23, 1995, as evidenced by Endeavor’s official corporate stock register, identifies the date which the Taxpayer acquired ownership, possession, and control over the stock. The FTB’s determinations are presumptively correct, and the Taxpayer did not provide any documents relating to when his receipt of ownership over the stock at issue occurred. Therefore, the exclusion is not available because the Taxpayer fails the 5-year holding period requirement for the QSBS exclusion. Regarding the post-amnesty penalty under Cal. Rev. & Tax. Cd. § 19775.5(a) , the SBE does not have jurisdiction to review it in the context of the Taxpayer’s appeal for various reasons, including that it has not yet been paid. (Appeal of Franklin, SBE, Case No. 417829, 07/17/2014, released 11/13/2014 (not to be cited as precedent).)

Idaho General Administrative Provisions — Website page for public records requests.
The Idaho State Tax Commission has launched a public records requests page (http://tax.idaho.gov/i-1163.cfm) on its website, tax.idaho.gov. That page includes a public records request form that can be downloaded, signed, and sent to the Tax Commission. The web page explains what public records are and how to request them from the Tax Commission. It also links to popular records that are available at the Tax Commission website, such as reports and statistics, agency decisions, and policy documents. (News Release, Idaho STC, 11/12/2014.)

Indiana Cigarette, Alcohol & Miscellaneous Taxes — Department of State Revenue regulations repealed.
The Indiana Department of State Revenue gave notice in the November 12, 2014 Indiana Register that it has repealed several regulations pertaining to the controlled substance excise tax, effective November 13, 2014. The repealed regulations are: 45 Ind. Admin. Code 19-1-1, 19-1-5, 19-2-2, 19-2-3, 19-3-1, 19-3-2, 19-4-1, 19-4-2, and 19-5-1.

Louisiana Real Property — Tax sale notice.
In a tax sale buyer successor’s lawsuit for recognition of his ownership rights to the real property involved against a business entity that also claimed title to the property, a Louisiana appellate court panel affirmed the trial court’s denial of the business entity’s motion for a summary judgement nullifying the tax sale. Although it was undisputed that the brothers and sisters of the property’s deceased owner or their heirs had not been notified of the pending tax sale, summary judgment here was inappropriate. Whether or not the tax sale was null hinged on whether or not the siblings of the deceased owner were entitled to notice of the tax sale. From the record thus far developed, the courts could not determine if the siblings had accepted or renounced the deceased owner’s succession and their resulting interests. Since genuine issues of material fact existed here, there was no basis for a summary judgment that the tax sale was an absolute nullity. (Breaux v. Cozy Cottages, LLC, La. Ct. App., 3rd Cir., Dkt. No. 14-486, 11/12/2014.)

Massachusetts General Administrative Provisions — Small claims procedure.
The Massachusetts Department of Revenue amended regulation, 831 CMR § 1.06, effective November 7, 2014, relating to small claims procedure for appeals filed at the Appellate Tax Board to reflect statutory changes.

Massachusetts Real Property — Tax liability of holdover lessees.
The Massachusetts Appeals Court held that wholesale fish and seafood business operators on the Boston Fish Pier, which is owned by Massport and situated in the Commonwealth Flats area of South Boston, were liable for property taxes for the period that they remained on the property after their leases expired. The provision exempting Massport properties from real estate taxes specifically excludes land located in the Commonwealth Flats from the exemption if leased for business purposes, so that the lessees were liable for the taxes under their lease agreements. The lessees originally occupied the property pursuant to written leases, agreed to a holdover provision, and, pursuant to that provision continued to be governed by the applicable lease terms during the holdover period. Therefore, the lessees, upon holding over after the lease expired, continued to remain on the property under the applicable provisions of their leases and are properly characterized as business lessees for purposes of the exemption. It defies common sense to permit the lessees, who agreed to the leases’ holdover provision and who were statutorily and contractually bound to pay taxes during the lease term to be excused from the obligation by virtue of their simply remaining on the leased property after the expiration of the lease term. (Cape Cod Shellfish & Seafood Co., Inc. v. City of Boston, Mass. App. Ct., Dkt. No. 11-P-1474, 11/12/2014.)

Minnesota Personal Income Tax — Part-year residents—physical presence test—183-day rule did not apply.
The taxpayers, former Minnesota residents who in 2007 moved back to Minnesota and who were physically present in Minnesota for more than 183 days during 2007, were residents of Minnesota for only part of the year. The court rejected the Commissioner of Revenue’s argument that because the taxpayers spent more than 183 days in Minnesota during the course of the entire 2007 calendar year, they should be considered residents for all of 2007. The two definitions of “resident” in Minn. Stat. § 290.01, Subd. 7 are mutually exclusive: at any one moment, an individual can be domiciled in Minnesota (and subject to Minn. Stat. § 290.01, Subd. 7(a) ), or domiciled outside of Minnesota (and subject to Minn. Stat. § 290.01, Subd. 7(b) ), but not both. The parties stipulated that the taxpayers were domiciled in Minnesota for only part of the 2007 tax year. Under the plain language of the statute, the definition of “resident” in Minn. Stat. § 290.01, Subd. 7(b) is expressly limited to those “domiciled outside the state,” and so the definition of “resident” in Subd. 7(b) requires three things: (1) the person be domiciled outside the state; (2) the person maintain a place of abode in the state; and (3) the person spend more than one-half of the tax year in Minnesota. In other words, the individual must be domiciled outside of Minnesota and must maintain an abode in Minnesota on each day that the individual is physically present in Minnesota in order for that day to count toward the physical presence test. Therefore, only days that may be aggregated for purposes of satisfying the 183-day physical presence requirements of Subd. 7(b) are those spent in Minnesota while “domiciled outside the state.” Applying Subd. 7(b) to individuals while they are domiciled in Minnesota is contrary to the plain meaning of the statute, which is expressly limited to those domiciled outside the state. Since at the point that the taxpayers decided to move back to Minnesota they had not already been physically present in Minnesota for 183 days or more, the taxpayers were part-year residents of Minnesota during 2007. (Marks v. Commissioner of Revenue, Minn. Tax Ct., Dkt. No. 8463-R, 10/23/2014.)

New Jersey General Administrative Provisions — Deadline for New Jersey Closing Agreement Program.
The New Jersey Division of Taxation (Division) is reminding taxpayers that the deadline for entering into a closing agreement under the terms of its Closing Agreement Program (see State & Local Tax Weekly, Vol. 25, No. 38, 09/22/2014) is Monday, November 17, 2014. Under the terms of the Program, the Division will generally waive penalties in exchange for the taxpayer paying the tax and interest due and agreeing to enter into a closing agreement. (Deadline Approaching for Taxpayers to Save Money on Back Taxes, N.J. Division of Taxation, 11/10/2014.)

New York Sales Tax Rates — Quarterly cents-per-gallon tax on certain fuel sales.
The Department of Taxation and Finance has issued a notice regarding the sales tax rates on motor fuel and diesel motor fuel for the quarter beginning December 1, 2014. The Commissioner has established the required average price applicable for this quarter, and, as a result, no adjustment is to be made to the state or local cents-per-gallon tax rate or the MCTD cents-per-gallon rate for qualified fuel for this sales tax quarter. ( New York Special Tax Department Notice N-14-13, 11/01/2014 .)

New York Sales And Use Tax — Quarterly cents-per-gallon tax on certain fuel sales.
The Department of Taxation and Finance has issued a notice regarding the sales tax rates on motor fuel and diesel motor fuel for the quarter beginning December 1, 2014. The Commissioner has established the required average price applicable for this quarter, and, as a result, no adjustment is to be made to the state or local cents-per-gallon tax rate or the MCTD cents-per-gallon rate for qualified fuel for this sales tax quarter. ( New York Special Tax Department Notice N-14-13, 11/01/2014 .)

New York Sales And Use Tax — Division miscalculated QEZE tax reduction credit tax factor.
An administrative law judge (ALJ) has determined that the Division of Taxation did not properly calculate the income of a Qualified Empire Zone Enterprise (QEZE) S corporation with regard to the tax factor portion of the tax reduction credit (TRC) under N.Y. Tax Law § 16 . The taxpayers, on their personal income tax returns, each claimed a pro-rata share of the QEZE TRC by applying the 4-factor formula and calculating the tax factor as the product of each taxpayer’s income from the corporation allocated within New York, divided by each taxpayer’s state adjusted gross income, and multiplied by each taxpayer’s state income tax. The Division contended that the taxpayers used the corporation’s aggregate income from all sources in the tax factor when only the corporation’s New York source income should have been used. The ALJ disagreed with the Division, stating that N.Y. Tax Law § 16(f)(2) provides that when the taxpayer seeking the TRC is an S corporation shareholder, the shareholder’s tax factor is the portion of his tax as determined under N.Y. Tax Law § 16(f)(1) , in this case under Article 22 (personal income tax) and not Article 9-A (corporate franchise tax), and under Article 22 all of the shareholder’s income from the S corporation is allocated to New York. (In the Matter of the Petitions of Thomas and Doreen Wendt, et al., NYS Division of Tax Appeals, ALJ, Dkt. Nos. 824856; 824857; 824858; 824859, 11/06/2014.)

Ohio General Administrative Provisions — Free tax webinar offered.
The Ohio Department of Taxation has announced that it will be offering, in conjunction with the Ohio Chamber of Commerce, a free educational webinar on Tuesday, December 9. Senior staff will be presenting on a variety of topics, including an update on the personal income and school district income tax changes for the 2014 filing season and providing an overview of the consumer’s use tax. The online program qualifies for 3.5 C.P.E. and/or 3.0 C.L.E credits. Register online at www.tax.ohio.gov/Researcher/VTA.aspx. (Free Tax Webinar 12/09/2014, Ohio Dept. Tax., 11/13/2014.)

Pennsylvania Real Property — Tax immunity—mixed-use housing project.
The Court of Common Pleas did not err in granting a public housing authority immunity from real property tax for a mixed-use apartment complex in which 20% of the apartments were reserved for low-income tenants and 80% were for rent at market rates. The taxing authority argued that the issue is controlled by Southeastern Pennsylvania Transportation Authority (SEPTA) v. Board of Revision of Taxes , 833 A2d 710 (Pa. 2003), in which the Pennsylvania Supreme Court held that the transportation authority partially forfeited its tax immunity status when it leased part of its headquarters to commercial entities. However, that case is distinguishable because the rental property bore no relationship to the core purposes for which SEPTA was created. In this case, amendments to the Housing Authorities Law specifically authorize the development and operation of mixed-use housing, so the authority was operating well within its authorized powers. Also, the fact-findings indicated that the market-rate units were essential to obtaining the financing needed for the property to be constructed, and the role of the market-rate units in the comprehensive housing scheme is consistent with, and tied to, the purposes for which the housing authority was created. (Reading Housing Authority v. Board of Assessment Appeals of Berks County, Pa. Commw. Ct., Dkt. No. 1937 C.D. 2013, 11/12/2014.)

Rhode Island Fuels And Minerals — Motor fuel refund requests denied.
The taxpayer’s two requests for refunds of motor fuel tax were denied because the refund requests were out-of-time. Statutory law requires that a refund request be filed within 240 days of purchase of the fuel. The taxpayer purchased motor fuel on July 1, 2012 and July 11, 2012. The taxpayer filed both its requests for those motor fuel tax refunds on October 18, 2013, which were beyond 240 days from the date of the two purchases. (R.I. Dept. of Rev., Div. of Tax., Administrative Hearing Decision No. 2014-27, 11/12/2014.)

Rhode Island Cigarette, Alcohol & Miscellaneous Taxes — Cigarette dealer’s license—suspension.
The taxpayer’s cigarette dealer’s license was suspended for 30 days and an administrative penalty was imposed. Statutory law authorizes the Tax Administrator or his or her duly authorized agent to enter and inspect, without a warrant during normal business hours, and with a warrant during nonbusiness hours, the facilities and records of any manufacturer, importer, distributor, or dealer. It was undisputed that two Division of Taxation inspectors attempted to conduct a tobacco compliance check of the taxpayer but were unable to complete the inspection due to the taxpayer denying access and not maintaining its records on the premises. Pursuant to statutory law, a suspension of a cigarette dealer’s license may be imposed for failing to allow such an inspection and a $1,000 penalty may be imposed for such violation. (R.I. Dept. of Rev., Div. of Tax., Administrative Hearing Decision No. 2014-28, 11/12/2014.)

South Carolina Corporate Income Tax — South Carolina—limit reached for Exceptional Needs Scholarship Credit.
The South Carolina Department of Revenue has announced that as of November 12, 2014, the amount of credits awarded under the Exceptional Needs Children Scholarship Credit has reached its limit of $8 million, and the remaining credit balance is zero (previously $635,273 as of November 7, 2014) . The credit was available for contributions made between July 1, 2014 through June 30, 2015 to nonprofit scholarship funding organizations to provide grants for tuition, transportation, and textbooks to exceptional needs children enrolled in eligible schools, provided the contribution is note designated for a specific child or school. (Exceptional Needs Children Scholarship Credit, S.C. Dept. of Rev., 11/12/2014.)

South Carolina Credits and Incentives — Exceptional Needs Scholarship Credit—limit reached.
The South Carolina Department of Revenue has announced that as of November 12, 2014, the amount of credits awarded under the Exceptional Needs Children Scholarship Credit has reached its limit of $8 million, and the remaining credit balance is zero (previously $635,273 as of November 7, 2014) . The credit was available for contributions made between July 1, 2014 through June 30, 2015 to nonprofit scholarship funding organizations to provide grants for tuition, transportation, and textbooks to exceptional needs children enrolled in eligible schools, provided the contribution is note designated for a specific child or school. (Exceptional Needs Children Scholarship Credit, S.C. Dept. of Rev., 11/12/2014.)

South Carolina Personal Income Tax — Exceptional Needs Scholarship Credit—limit reached.
The South Carolina Department of Revenue has announced that as of November 12, 2014, the amount of credits awarded under the Exceptional Needs Children Scholarship Credit has reached its limit of $8 million, and the remaining credit balance is zero (previously $635,273 as of November 7, 2014) . The credit was available for contributions made between July 1, 2014 through June 30, 2015 to nonprofit scholarship funding organizations to provide grants for tuition, transportation, and textbooks to exceptional needs children enrolled in eligible schools, provided the contribution is note designated for a specific child or school. (Exceptional Needs Children Scholarship Credit, S.C. Dept. of Rev., 11/12/2014.)

Texas Franchise Tax — Net gain from capital asset—Texas apportionment.
The Texas Court of Appeals has ruled that a company’s losses on sales of investments and capital assets must be subtracted from gross receipts in determining the apportionment factor for Texas franchise tax purposes. Texas statutory law provides that the denominator of the apportionment factor is an entity’s gross receipts from its entire business, and the gross receipts include the net gain from the sale of investment or capital assets. “Net gain” is an ambiguous term because it can be interpreted to mean the particular gain or loss that results from each individual sale when proceeds are offset by costs and, in this case, the taxpayer’s losses would not be deducted from gross receipts. The term can also be interpreted to mean the taxpayer’s cumulative gain or loss on its various investment and capital asset sales made throughout the year, which is the Texas Comptroller of Public Accounts’ interpretation under Tex. Admin. Code § 3.591(e)(2) . Here, the comptroller’s interpretation is given deference because: (1) the plain meaning of “net” leads to the proper conclusion that net gain requires that gains and losses be offset against one another in order that a net figure be obtained; and (2) the comptroller’s interpretation is reasonable. (Hallmark Marketing Co., LLC v. Combs, et al., Tex. Ct. App. (13th Dist.), Dkt. No. 13-14-00093-CV, 11/13/2014.)

Texas Partnership — Net gain from capital asset—apportionment.
The Texas Court of Appeals has ruled that a company’s losses on sales of investments and capital assets must be subtracted from gross receipts in determining the apportionment factor for Texas franchise tax purposes. Texas statutory law provides that the denominator of the apportionment factor is an entity’s gross receipts from its entire business, and the gross receipts include the net gain from the sale of investment or capital assets. “Net gain” is an ambiguous term because it can be interpreted to mean the particular gain or loss that results from each individual sale when proceeds are offset by costs and, in this case, the taxpayer’s losses would not be deducted from gross receipts. The term can also be interpreted to mean the taxpayer’s cumulative gain or loss on its various investment and capital asset sales made throughout the year, which is the Texas Comptroller of Public Accounts’ interpretation under Tex. Admin. Code § 3.591(e)(2) . Here, the comptroller’s interpretation is given deference because: (1) the plain meaning of “net” leads to the proper conclusion that net gain requires that gains and losses be offset against one another in order that a net figure be obtained; and (2) the comptroller’s interpretation is reasonable. (Hallmark Marketing Co., LLC v. Combs, et al., Tex. Ct. App. (13th Dist.), Dkt. No. 13-14-00093-CV, 11/13/2014.)

Washington Sales And Use Tax — Amended regulation.
The Washington Department of Revenue has amended Wash. Admin. Code 458-20-217 to reflect statutory changes. The updated regulation includes changes to the personal liability provisions related to collected and unremitted taxes. The regulation also specifies that spirits taxes must be held in trust. In addition, the rule incorporates a provision permitting the issuance of a lien against real property in which the taxpayer has an ownership interest.

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