State and Local Taxation Headline News and Trends

Welcome to Ramon's State and Local Taxation Headline News and Trends CPE/CLE webinar. On your monitor, you should be looking at the COVID page to the PowerPoint presentation circulated this morning. Also this morning, you should have received an evaluation form for this program. 3 housekeeping items to go over really quick. First, this program is for educational purposes only and may not be recorded or rebroadcast without Ramon's express written consent. All comments are off the record and not for publication. The presentation is general in nature and does not constitute legal advice or create any attorney-client relationship. Second, attendees are eligible for 1-hour credit or accounting law continuing professional education. To receive this credit, you must respond to the polling questions that will be displayed for 20 seconds at 4 points during this presentation. Third, you are invited to submit questions which will be addressed near the end of the presentation. David Fruchman is the chair of Ramon's state and local subnational taxation practice. David is a graduate of Harvard Law School. He filed a brief with the U.S. Supreme Court in Wayfair and is the author of Bloomberg B&A Portfolio on Income Taxes Unitary Business Principle. David has assisted clients on issues in all 50 states on matters involving income taxes, franchise taxes, sales and use taxes, real property transfer taxes, and a variety of other state and local taxes. His practice is equally divided between tax planning and tax controversy work. His planning work includes tax-efficient structuring of business and transactions and frequently requires working with tax authorities to obtain favorable rulings. In 2003, he was a special deputy attorney general to the state of Hawaii on a special tax issue. Before I turn it over to David, I just wanted to tell you all thank you for participating. Please return the evaluation forms at your earliest convenience. You will receive your CPE certificates within a week. This concludes this edition of State and Local Taxations. I'm going to turn it over to David. I appreciate everybody for joining. Thanks, David. Sorry about that.

Thanks, Chris, and welcome everybody. This is the 14th presentation of Headline News over the last bunch of years, and I think that we have more last-minute changes here than ever before. So I guess bear with me on that, and there may be circumstances if some of you have some additional insights, feel free to submit questions. We're gonna save a few minutes at the end. We always save 5 minutes at the end for for questions, or if somebody has some insights to, to contribute to the group, that would be fine as well. And I guess without any further ado, we're going to jump in. Oh, one, one more observation. When we put together these slides, we do them with the intention that if somebody can't be can't attend the webinar, they're going to have still the complete citation to the relevant authorities. And so every slide that relies on a case citation or statutory citation, it's either the citation on the slide or if there's a red asterisk in the corner, and I'll point that out when we get to it, That means that at the back, the citations are provided. So it's intended to be freestanding in that way. And I guess last, if anybody has any questions that they don't want to ask online, they should feel free to send them to me separately. Okay, so here we go. Let's see. Chris, can you give me a little help here with the moving things along? Sure, David. Yeah, it's— we're gonna go to the next slide. I don't know, it's not moving, Chris. Okay, here we go. So the— thanks, Chris. So the biggest issue is Wayfair, obviously. Although interestingly, as of Friday, something has zoomed to the top of the list, and we are going to get to that. It's in our PowerPoint deck, and we'll get to it in time. But as of the moment, the number one issue to be discussed is Wayfair. The Supreme Court litigants settled. They are going to collect taxes as of January 1st of '19. So that is in process already, and that case is concluded. Just to remind you, the court remanded the case for, for further argumentation, but nobody really expected that to occur, and it didn't occur. So the case is is concluded. So that's Wayfair. The case is concluded, but it's sort of like an earthquake out underwater, you know, a couple miles offshore, and then the tsunami is coming. And so we've got a lot of slides, and there are a lot of developments that have occurred in the aftermath of Wayfair. Okay. By the way, I should point out one other thing. We almost never get through all of the slides. Again, because they are designed to be sort of freestanding, I don't think that should be a concern. And if anybody has any questions, feel free to shoot me an email. So megatrends and developments. We're talking about wafer megatrends and developments. I'm very focused on taxation of services, sales taxation of services. It's going to be a big deal. There's really no question about it. California had, in about 2015, had looked at taxing, imposing sales tax on all services sold in the state. And the SBE had conducted an estimate of how much revenue would be generated, and it was something like 1/8 of all taxes collected by all states for the year. It was— so California imposed sales taxes on services. The amount that they were going to collect from that was an absolutely enormous number. And of course, there's lots of complications that come with that. And I frankly was hoping the Supreme Court would continue to apply Quill to service transactions as opposed to sales of goods. The Supreme Court went a different— as Potter Stewart said, there were They're not final because they're infallible. They're infallible because they're final. And the Supreme Court went a different route. They clearly want to throw this to Congress and have Congress resolve this multi-state sales tax collection of issues. And so If you look at the opinion in the first sentence or the second sentence, right up at the top, the court makes clear that its decision in Wayfair applies to sales of goods and services. And so Congress is gonna have to address sales taxation of services as well. So the Supreme Court lifted the lid on multi-state sales and use taxation of services. Raises the question of what's being sold. Where is it being sold? Where is it used? Where are the benefits received? Where is the service resold? When is the service resold? And how do you determine the credit for taxes paid to other states? This does not compare precisely with, for example, a VAT environment that I know some of you are familiar with, because VAT tends to have business-to-business exemptions. And we do not tend to have that in the sales tax area. And as a political matter, it's pretty hard for legislators to allow a business-to-business exemption for state sales taxes on services while imposing sales taxes when end users, which is consumers, voters, do not have an exemption. It looks bad. So that's going to be very difficult to get in place, and we're going to have all sorts of complications as a result. All right, so there's that amicus brief that I filed. That was a lot of fun, and I would like to think a fair amount of value added. By the way, after my last presentation, I was speaking at Georgetown, and the, the professor there, right before I was about to speak, asked me if I knew that at the American Bar Association, uh, the tax session had dedicated a lot of time at one of its panels to my brief, to discussing the points made in my brief, which I had not been aware of, which of course, uh, a great compliment and also underscores, um, the, uh, the complexity that we are all going to confront in sales taxation of services. So this is a, uh, an opportunity for everybody. I really do recommend as a practice development matter, or if you're in-house, you know, as a service matter internally, staying up to date on sales taxation service, because either you're a vendor or you're a purchaser, but the issue's there. Okay. Arizona. And by the way, you see at the top, mega trends and developments. We divide the presentation into 4 areas. And in this one, megatrends and developments is usually 5 slides or 6 slides. Here it's somewhere in the order of 20 slides because there's so much going on. Arizona has voted overwhelmingly to amend the state's constitution to ban sales taxation of most services. That was November 6th. And there you have the language of the constitutional amendment. Essentially saying that there are some issues with how the amendment is to be interpreted. The bottom, it says the section does not repeal or nullify any tax fee, etc., in effect on December 31st. And I understand that in Arizona, for local taxes on services, of which there are some already, they're reenacted annually. That's my understanding. And so they're kind of wondering, well, what does this mean? Does that section protect us or doesn't it? And the various other items there, you know, that need judicial interpretation. Any service performed in this state, what does that mean? Well, In December, several cities in Arizona, and you see them listed there, several cities in Arizona declared intention to file a lawsuit challenging the constitutional amendment. It has not yet been filed. I checked just yesterday to see whether any more states were involved, but it It seems not. Okay, so any more cities involved, but we'll see when that lawsuit is filed. But you see, taxing services is already turning into a litigated issue. Problems with taxing services. This is really, you know, skeletal, but one, defining the service. And we're gonna see a couple of slides on that coming up. That is surprisingly Not easy. Apportioning the service. Well, you know, in which jurisdiction was the service provided? Was it received? Was the benefit received? Not easy at all. And then the pyramiding issue. And you know, I'll just put all these up. Might be avoidable if not imposed on business to business. But politically difficult not to impose that business-to-business. So if a business purchases some service that it uses to provide its service, you know, if it was a manufacturer of goods, it would issue a resale certificate when it makes the purchase of the goods that it uses as a component part of what it's going to sell. But But for services, that is considerably more difficult. And so we end up with a pyramiding problem. All right, taxing services. This one is really interesting. And if you get the chance to read this decision, I recommend you do that. And not only that, but there was a decision that came out you see there's an asterisk in the right. So the decision came out in this fall. The exact date is in the materials. In October. And it's a federal court decision. It's not a sales tax decision. But a law firm provided tax advice and in the course of providing that tax advice was provided with some internal memoranda prepared by the companies, by lawyers inside of a company. And the question was, could the IRS obtain a copy of those internal memoranda? Because when they were provided to this law firm, they were Essentially, the privilege communication of the in-house lawyers when they provided their advice to the other in-house management was waived. All right, so the idea is, hey, when you provided this, these materials to somebody outside the company, the privilege is waived. But the law firm is DLA Piper. It's a huge law firm. As far as I'm aware, it provides only legal services. But the company engaged DLA Piper to assist it in valuing its claimed worthless stock. And the amount involved was huge, $500 million. So DLA Piper prepared an analysis, some numerical aspect to it, obviously. And the court held, this case has been bouncing around the federal courts. It's a federal court case, bounced around the federal courts now for a couple of years. Several years ago, the court, the lower court said that the analysis was a legal analysis and it was provided to DLA Piper, its lawyers to provide other legal analysis, and the communication is protected, and the IRS doesn't have a right to obtain that information. Uh, the matter was appealed. The Court of Appeals sent it back down to the lower court for further examination of, uh, of what was provided to DLA Piper and what DLA Piper was providing to the company. Um, and Most recently, and this is in October, the federal district court ruled that DLA Piper was not providing legal services, and which is really kind of jarring. By the way, it's just a conclusory statement. There's really no analysis that's provided in this recent decision. So, um, you know, to the extent that that first decision was sent back down for reanalysis by the district court for better analysis of whether legal services are being provided by DLA Piper, it doesn't really happen. It's just that one conclusion, conclusion statement is replaced by another one. The pertinence for our sales tax purposes is You and I and state revenue departments are going to have to decide eventually how services are taxed. And maybe legal services won't be taxed, but accounting services will. Or maybe legal services and accounting services won't be taxed, but valuation services will. And how do you know what's being provided? And so, you know, here again, we've got a law firm charging undoubtedly huge billable rates. And the court says you're not providing legal advice. And this surely could occur in a sales tax environment as well. I hope that's clear to everybody. Not a sales tax case, but a concept of how do you characterize the service that's being provided. Here's one in Ohio defining the service. What is an employment service? There's a, this Ohio, and you see there's an asterisk there, so the citation is provided. This Ohio decision really, as I was preparing for the presentation, if I had it to do over, I would put it right next to slide number 12, which is a Pennsylvania decision. And that's because the question is at what level of abstraction do you talk about what service is being provided. Here in Ohio, and this was at the State Supreme Court, the question is, is an employment service being provided? And to determine that, it needed to be— a company provided employee-type services to another company on their call it the factory floor. And so the question was, who is the employer? Because if the company that provided these people, it does not instruct these people as to what to do, then the employer is the company that owns, call it, the factory floor. And then it's an employment service that's been sold to them, and that's taxable. But if the company that, that put those employees on that factory floor is really directing them as to how to behave, then it's not an employment service and not subject to Ohio sales tax. And so you can see that the distinction here is really just a matter of where you're going to— how far you're going to pull back the lens. And it's not easy at all. In this case, it's frankly that the decision in this case is less important than the analysis. The Ohio court agreed with the company that put the employees on the floor that it was the actual employer. It was it that managed these employees' activities. As opposed to the company that owned the factory floor, which told them what it wanted those people to do generally, but not specifically. All right. So flipping over to '12, we'll come back to '11. Flipping over to '12. All right. There's this decision in Pennsylvania, also from a Supreme Court, the state Supreme Court. And I want to focus on the simulcasting. This was involved a business that had off-track betting and they would replay horse races. And there was something else going on too with casino games. And that gets involved with intellectual property aspect. Let's just put that to one side. But with respect to the horse racing that was rebroadcast, the company purchased all sorts of hardware, rented hardware from the vendor, and also purchased the broadcasting of horse races, rebroadcasting of horse races. And then the question was, is what's being sold goods, that would be the screens and everything else that went with this, is what's being sold a nontaxable service or something else? What about the true object test? What is it that they really wanted to acquire, the purchaser? The court said that the court did not accept the true object test. It didn't rejected. It just said this is a judicial concept that's not been adopted by the Pennsylvania Supreme Court, you know, us, and we're moving on. So they didn't— they did not accept the true object test in Pennsylvania. And then in deciding whether the purchaser of the hardware, the TV screens and everything that goes with this to broadcast the races, as well as the video feed, was purchasing a non-taxable service or a taxable service. They tried to look at what was the level of involvement. And they said, look, you purchased the screens, you purchased the service of the people rebroadcasting the races. However, We're not convinced that you were not involved in deciding which races are to be broadcast. And therefore, we think that, that, that the service that you— that you didn't just purchase a service, that you were involved in it. And therefore, under the Pennsylvania law, what you purchased is going to be subject to sales tax. And again, the specific decision is less important in my opinion, than the question of how the analysis is arrived at. And again, this is a matter of where you're going to focus the lens. Here, the court said essentially, yeah, take another example. Okay, you rented a tractor, a big piece of earth-moving equipment, and it's long— students of tax law have long understood that that's a rental of equipment. If you, uh, if, if instead you have a, there's a driver that comes with the equipment, you're not driving it yourself because you don't know how to drive, you know, this huge piece of, uh, you know, backhoe or whatever it is, then you're purchasing a service, not renting the equipment. But here what the court was saying in essence was, well, if you can tell the driver where where to dig the hole, then you're actually buying the equipment or renting the equipment. And I have to say, it's not a persuasive decision. I think as between Ohio's decision and Pennsylvania's, Pennsylvania got it more right than— Ohio got it more right than Pennsylvania. But really, this taxation of services is going to be a really complex area. And in each of these circumstances, we didn't have apportionment that comes up if the service is sold in multiple jurisdictions. This is just defining the service. New Mexico, where is the service performed? This was one where the taxpayer tried to argue— and I went back to slide 11 here— where the taxpayer tried to argue the service is performed in, uh, outside of New Mexico. It was doing an environmental cleanup And so would clean up all of this contaminated soil and what have you, and then ship it outside of the state. And they made contracts with a local environmental agency, a local branch of the federal environmental agency, and shipped this stuff outside of the state. And the company tried to argue, well, what everybody wants is for us to get this dirt, contaminated, whatever it is, outside of New Mexico. So the service is performed outside of New Mexico, 'cause until we've gotten it out of the state, no one's got what they want. And the court didn't agree. The court said, no, what they want is for you to get everything, all the contaminated soil and what have you, into one place, and then you ship it outside of the state. But your service is essentially completed once you've gathered everything together. So where is the service performed? This one has got a foot like over the line into that issue. Okay, I'm gonna pick up the pace a little bit here. We're not gonna get anywhere. Oh, first question. Okay, in 20 seconds, the answer: in the next 5 years, do you expect states to broaden the base of services subject to sales and use taxes? Answer yes or no. It doesn't matter what you answer. This is for attendance purposes. So, you know, hopefully you have an opinion. And but just, you know, check off something. And Chris, leave it up. OK, now it's done. So there's 3 more of those to come. You need to answer 3 of these 4 to get credit. OK, so important case out of Louisiana not long. I certainly encourage you to read it, the Walmart case. Marketplace facilitator. And the upshot was that Walmart must collect Louisiana sales tax on sales through its online mall. The— you know, the— as big as Walmart is, the biggest question is why isn't Amazon being required to collect sales through its online mall? Because a huge percentage of Amazon sales are through its Fulfillment by Amazon service or other third-party vendors on the site, but not Amazon sales itself. And that's a matter of a great deal of contention, including at least one and maybe two briefs that were filed with the US Supreme Court in Wayfair, really raising arguments about this. By the way, the whole concept of marketplace facilitators is a little confusing to me, frankly, because in reading the statute, in most sales tax, most state sales taxes, transfer of either title or possession, title or possession, is a to an end user is a retail sale. And so when someone's operating the warehouse and directing which goods are gonna be sent where, furthermore, when they're collecting the money from the sale, whether they do or don't have title is really off point. You still have a retail sale. I don't know. The states right now are enacting a lot of changes to their statutes, many states, to extend to marketplace facilitators. But I frankly think that they had reasonable arguments for a long time that marketplace facilitators were required to collect the tax. Not instead of the ultimate, of the actual vendor, But it would have been easier for the state to collect from them, the marketplace facilitator, than from a bunch of small mom-and-pop sort of shops working, especially working off of somebody's kitchen table or out of their garage and then selling on Amazon or Walmart. Okay. Amazon marketplace litigation. This is a repeat slide from the last time. There was going to be a trial scheduled for, I think it was November, October, whatever it was. It was postponed to February. I did some digging around yesterday to see what activity there has been on this. Is it still going to occur, this trial on February 4th to 8th? I didn't find anything. So as near as I can tell, this South Carolina litigation on Amazon Marketplace liability is going to occur in the coming weeks. And the exposure there for Amazon is huge numbers, huge dollars of taxes. All right. California, it's a big deal only because it's California, because a lot of states are introducing legislation regarding e-commerce malls. And this was introduced in California December 14th. And you may want to take a look at it. It's not long. And it just defines who is going to be responsible for collecting the tax. And it provides a broad definition. And it will include Amazon. Okay. Okay. So here's Wyoming. They're working through the same thing. I guess that was just by way of pointing out that here's California, huge state population-wise in terms of being an engine of the US economy. And then here's Wyoming, obviously much smaller populations, less at stake. And throughout the country, we're seeing e-commerce legislation. Here you go, New Jersey, all the way to that end. Okay, how are we doing for time here? Not great. This case, oral argument in this case, this could actually be pertinent to some of you. The question was, if— can West Virginia provide an exemption for retirement benefits for state employees, law enforcement officers, but not provide the same exemption for former employees of the United States Marshals Service. Um, and, um, uh, I predict that, uh, the state of West Virginia, uh, is gonna have a hard time winning this case. Uh, you're not permitted to treat the federal government worse than you treat yourself with your state. Uh, so, um, we'll see. And the reports from oral argument was that, uh, They had a tough time. That is the state of West Virginia. The reason why this could be pertinent to some of you, you will encounter situations in your practice where a state wants to provide certain benefits or exemptions to, to in-state agencies or actors and not to anyone else. And particularly where the federal government's involved. They have a problem. All right, this next one, the Hyatt case. This thing's been bouncing around the federal courts for years. I think this is the third time at the US Supreme Court. The question is, frankly, I'm including this because it involves the Franchise Tax Board, but does it— can California be hauled into Nevada's court system without his consent. And the principle had been no for a long time. But as the Supreme Court— an oral argument just happened last week on this, and the Supreme Court was very skeptical of California's argument. They said, listen, California, we understand this has been sort of a practice, idea of comity, C-O-M-I-T-Y, fairness and the way states want to treat each other. But we don't see anything of a constitutional dimension. So if Nevada doesn't want to give you that break, why do they have to? And so California was, is on thin ice with this argument. Okay, so that's enough about that. This is a big deal. The Supreme Court on Friday, just a couple days ago, the 11th, accepted, granted certiorari on this petition. And we're going to be reading a lot about this. This has to do— this is a taxation of trust, and the trust was established in New York. No North Carolina connection at all. Not the property involved in the trust, not the grantor of the trust, not the beneficiaries of the trust, not the trustee of the trust, nothing. 5 years later, one of the beneficiaries moved to North Carolina. This is in 1997, and I don't know what happened in the interim years, but come about Oh, it was about 2008, actually 2009. The state of North Carolina said, you know what, we think that because a beneficiary of this trust is sitting in North Carolina now, now this trust is subject to our tax jurisdiction, and we're going to require the trust to pay tax on the income that it could distribute, that it could distribute to this beneficiary but didn't. right? There's no question that if the income was distributed to the beneficiary, taxable in North Carolina, this North Carolina resident. However, here's a trust that's got nothing to do with North Carolina except that 5 years after it was formed, somebody moved there, one of the beneficiaries, and it's not even distributed income, and North Carolina says, we think we've got the right to taxes. The Supreme Court granted certiorari on a due process question and due process only. The lowest court that heard this also considered Commerce Clause issues and ruled against the state, ruled against the state on due process issues, both federal constitution, state constitution. And then the appellate court in North Carolina ruled against the state. The state Supreme Court ruled against the state, but the decision at this point was limited only to due process. And when the Supreme Court granted the petition for certiorari, it granted only on the due process question. So what that means is that if the taxpayer wins this, meaning that there's no due process, state does not have the right to make this trust taxable in the state, then the case is over. However, if the court concludes that under due process principles, this trust can be subject to the state's jurisdiction. This case is gonna get bounced back down because it's gotta be analyzed under Commerce Clause principles, and those have been left behind. Again, they were analyzed at the lowest court level and then sort of left behind. Cert was just granted on this one on Friday. We're gonna be hearing a lot about this case. This is a comparable case involving a different issue of Also taxation of trust. This one is, we're still waiting for the petition for certiorari has been filed by the state of Minnesota, and the taxpayer Fielding has until January 22nd to provide its reply, and then the court will decide whether to grant cert. This one involves a question of whether a trust is always subject to taxation in a state if when it becomes an irrevocable trust, the grantor of the trust was a resident of the state. And then like for time immemorial, for the rest of time, Minnesota believes it should be a Minnesota taxable trust. So that's the issue that's going to be in front of the court on that. Maybe it'll take this issue as well. Second question. Have you encountered states attempting to tax trusts based on the beneficiary's in-state residence? Okay, so that goes to the Kastner case that we're going to be hearing so much about. Just please answer yes or no. You'll have another few seconds and then Chris will take it off. Just, this is for attendance. Okay. We're going to move ahead actually a little bit here because we have 20 minutes left. Taxation of pass-through entities— keep an eye on this. MTC has a large report if you're into reading that kind of stuff that you might want to download. Lots of attachments to it too. Interesting. Connecticut, of course, adopted its pass-through entity tax last year. State of Wisconsin has enacted a pass-through entity tax, but it's an optional tax. And you might wonder, well, who's going to opt to be taxed at a pass-through entity level? And the reason for Wisconsin's adopting this tax is intended to be a workaround the $10,000 limitation on the deduction of state taxation. Because if instead of paying at the entity level, it's paid at the individual level, the amount of state taxes that could be deducted on the federal return is limited to $10,000. And Wisconsin is hoping that by offering taxpayers the option to be taxed at the entity level, that the deduction that will be passed through will be larger. And that'll be a workaround. Anyways, that's the idea, and that may be a trend. We'll keep an eye on that. Separate reporting apportionment. Okay, this we've talked about before.

This—

the Gore Enterprises decision was never satisfying, still not satisfying. Maryland is a separate reporting state. But they don't always like the separate reporting results, so they sort of find a way to— through a portion— to be essentially a combined reporting state. But that's just between us. Anyway, so there's this recent decision. You see the asterisk. You may want to read it, but it goes back to the principles. This was big news. About 5 years ago. New York, this is really interesting. So the— it's a little bit hard to summarize. It involved a couple of German insurers and whether they could be subject to New York state taxation, the insurers were able to demonstrate that they were subject to a different tax than a domestic insurer would be subject to. Not a greater tax, a different tax in the way that the tax functioned. And under the treaty— treaties generally are between the United States government and the government of another country, Germany in this case. And they don't apply at the state level. This is the— right, that's the common understanding. But in a number of the treaties and in this treaty, it said that subnational units, not just United States government, subnational units could not impose different taxes on foreign entities, German entities in this case, than would be imposed on domestic entities. And they were able to demonstrate here a different type of a tax. I am not sure that this decision has long legs. I'm actually not totally convinced that it's the right answer, but it was an interesting argument and the taxpayer Okay, all right, so we're— let's see, Multistate Tax Commission. And by the way, just in case nobody— in case you didn't notice it, we moved from megatrends. This was megatrends up at the top, and now we're business activity taxes. Multistate Tax Commission, these guys are always real busy. Two projects that you may be particularly interested in is that should the 86.272 policy statement be updated in the aftermath of Wayfair? And by the way, there's a very interesting article on 86.272 and how it should be interpreted. It's written by a good friend, former partner of mine, Stan Kaminsky, and he argues that 86.272 applies to digital goods. And that argument— that article was published at the most 6 weeks ago. So if you get the chance, you may wanna take a look at that. It's an interesting perspective on that. Anyways, the MTC is gonna be looking at these projects. And they also have a combined filing working group that they're gonna be looking at. So, and that's kind of always in process. Okay, I do not want to get too deep into this conformity with the federal Tax Cuts and Jobs Act. We may never emerge. But I do want to point out something in Oregon, because this is what— my former partner Paul Frankel used to call the high road. Oregon, for certain jurisdictions, for certain jurisdictions, Oregon treats them as tax havens and made income earned in those tax havens be included in Oregon tax base. This is for a number of years. Well, now under the Tax Cuts and Jobs Act, some of these jurisdictions are being treated as tax havens federally and being required to repatriate income. Well, some of this income, of course, was already included in Oregon income, and Oregon is a federal conformity jurisdiction. It would be double-counted because it would have been counted several years ago and now count it again. And Oregon, to its credit, said, not right, nothing doing. And so they have adopted a temporary rule. Permanent rule's been proposed. An excellent example of the state doing the right thing. OK, so here's New Jersey. Again, if we get deep into this, we won't be found again. There's Maryland. This decision, promotional items, got some publicity. You know, you go to the baseball game, you get these bobbleheads or bats that they give away or whatever it is, mugs. And the issue was, are these promotional items being resold? Or are they being used by the Cincinnati Reds in this case and given away for free? And the Reds argued, well, listen, this is all rolled up into the price of our tickets. We pick certain games that we expect to be lighter in attendance, and we use these dials to encourage attendance. I don't really know if it— I'm not convinced that if this case did not involve a high-profile entity such as the Reds, that the result would have been what it was. But what the state Supreme Court said was, we think that when the Reds purchased these dolls, they purchased them for— again, these are the bobblehead dolls— they purchased for resale, and they don't have to pay Sales tax on those, the sales tax is all based on the price of the ticket. 'Cause the state wanted to collect tax on the sale of ticket and on the use of the dolls to give away, right? And I frankly think the state had the better argument there, but it lost. And it probably finds the loss dissatisfying because the court in several places quotes from Cincinnati Reds announcers. And that's not usually good authority and not what you're looking for from an even-handed decision. This case from Indiana could be one of the worst decisions of the year. A taxpayer did— followed the rules. It was selling vehicles and it delivered the vehicles outside the state, Michigan or wherever else. And the Indiana Supreme Court concluded that the vehicles would be subject to Indiana tax even though they were delivered outside of the state, that it was gonna impose Indiana sales tax on those vehicles. And all of you know that if a business sells you a, I don't know, a keyboard, And they ship, you buy it, you're in Wisconsin, you go to the store, you're gonna order something, they're gonna ship it outside of the state for delivery outside of the state, right? So the thing's gonna be taxed at its destination. And the Indiana Supreme Court just simply ignored the idea of that sales tax is a destination tax, viewed this as tax planning, which he was right about, and looked askance at that and said that this seller of RVs, Richardson RV, was subject to use tax on the sale of vehicles, $250,000 or something like that. And you can be sure this company doesn't have $250,000 to pay use tax. It's not even its tax. It was the tax that the consumers were supposed to pay. Furthermore, it's in the record that these things were delivered in Michigan. So if it hadn't collected Michigan tax, which it should have done, the Michigan Department of Revenue, Treasury, I forget what they're called, Michigan could approach them and insist that tax be paid in Michigan on the delivery in Michigan. And then they can have a fight over whether tax was properly paid to Indiana or not. It's really quite a mess and not a good decision at all. Okay. Is delivering goods out of state a proper method of avoiding sales tax in the origin state? Well, I hope all of you are going to answer yes on that, but answer it Either way, it'll be up there for a few more moments. So, all right, I'm gonna talk over this while you're checking yes or no. This is, I think, quite important. These excise taxes— New York and New Jersey actively pursuing sellers of unstamped cigarettes with the involvement of Homeland Security. I had no idea Homeland Security was was involved in this until I saw the press release from the New York attorney general. So that, to me, is interesting. And just, I think, yesterday, there was a report that FedEx got fined $34 million for its involvement in delivering unstamped tobacco into New York and doing it knowingly. So this has quite a long reach to it. The states are very protective of what crosses state lines. And cigarettes, you wouldn't be surprised about, right? Tobacco is pretty heavily regulated. But this might surprise you. Bottle deposit alleged scofflaws. The state is really tough on this, on the bottle deposit laws. And the problem is the labels on these bottles are the same whether you buy them in New York or Connecticut or New Jersey. And it's easy, as I know from a particular client, to become confused as to whether the New York tax was paid or not on those bottles. You see the label that says, its 5-cent refundable bottle in New York. And so anyways, the Attorney General's office is wielding a heavy stick on this, and not entirely fairly. And by the way, in having conducted a Freedom of Information Act request, they call it a FOIL request in New York, I determined that you actually can buy outside of New York bottles that are labeled and that have proper stamps affixed to them. Again, the stamp looks the same. They just sort of activated in the state's records so that it's a valid bottle being sold. But if you buy bottles in New Jersey, sell them in New York, there can be some very serious penalties on that. All right, let's see. These— I'm going to touch on these. I really think these Pennsylvania decisions, it would— you would— taxation limited partners. We all were raised to think that a limited partner's liability was limited to its investment in the company unless it was involved in management or there was some sort of fraud. This Pennsylvania decision, series of decisions really, is very much to the contrary because Pennsylvania silos income. And here was a partner who had a loss on its investment. There was a loss on the investment and a deemed gain on the foreclosure of underwater property. The loss in the investment was siloed as intangible property, situs to the state of residence. Deemed gain on the tangible property was cited to the Pennsylvania location of the property, and the gain was passed through to the partner. So the partner lost his total investment, a limited partner, and still was subject to Pennsylvania tax on gain. There are several decisions in this, and it's educational. It's worth your time to read it, I think. Oh, this one. New Jersey tax amnesty ends today. So if you— in just a couple hours. Here we go. Let's see. Are you interested in the CP program analyzing developments in state income taxation of pass-through entities? I'm personally interested in whether you are. We can put something together on that. As I said, I think that's kind of coming our way. And anyways, it's something I did long ago at NYU. I'm happy to redo it. Okay, so there's New Jersey. Let's see, credit for taxes paid. I guess before I hold off here, Chris, we have about 5 minutes left. Are there any questions? Not procedural, but substantive questions?

There are a couple. We did get a couple. Most are, yeah, like you said, technical questions.

Well, the substantive one, not, you know, okay, go ahead, why don't you read them. Don't say the name of whoever.

Sure, sure. It says, why isn't New York adopting Wayfair's type statute? Florida too, if you have any intel.

I guess I don't know exactly what you mean, what the person means by that. If you're talking about adopting a statute that has 200 transactions or $100,000. We'll wait to see. New York already has a click-through nexus provision. So there are— there's a lot of politics at work in all these states, but certainly in New York. And New York long ago could have taken a position, in my opinion, having looked at this long ago, that marketplace facilitators were subject to sales tax collection responsibility, but they never— the Department of Taxation and Finance did not take that position. And it was for, as I understand from discussions, some discussions I had with some senior people, essentially political reasons. There were some oxes that would have been gored that were not acceptable. And so they didn't pursue Marketplace. Oh, okay, CLE code for the lawyers. Write that down and send in, right? The accountants don't need to do that, but KASTNER is the code, K-A-S-T-N-E-R. So why they're not, I don't know, and we'll just have to wait and see whether they will. What else you got, Chris? Is there another question?

Yeah, there was one more that said, should the SCOTUS be making tax policy, e.g., Wayfair? It looks like they have. Please comment.

Yeah, it's an excellent question. The Supreme Court does not want to be making tax policy, and yet they have done it. I think there is a very strong argument, very strong argument, that when Congress didn't act after Quill to permit the states to enforce collection from remote vendors, it was exercising its right not to act. If under Quill, all the court was doing was giving Congress the right to do what exactly the court wanted it to do, there's a serious separation of powers issue. Congress is not required to enact that legislation, and it didn't do it. And the brief that the House Judiciary Committee filed, Bob Goodlatte, et cetera, with the Supreme Court, is an excellent brief. And it explains, we're looking at this, we continue to look at it, we're not persuaded that we should do anything yet. So if you think— if the question is, should the Supreme Court be involved in this? My personal opinion is that they have overstepped themselves and created some problems that they won't be able to fix for a really long time, services being one example of that. I think we're actually up against the time limit here. This— let me see if there's anything else I might touch on here. Whistleblower here. This is a Sprint has to pay $330 million for horsing around with New York sales taxes. The whistleblower gonna collect $63 million. So if anybody's thinking about being a keycam lawyer, this is— you might want to do that. And by the way, if somebody thinks they have some inside information on why some business is not complying with the tax law. Take a look at that. All right. And so this sort of speaks for itself. So we're at the 1-hour limit. I knew we wouldn't get through all the slides. We never do. If you have any questions, feel free to shoot me an email, give a call. Happy to talk about it. We'll do this again in a couple of months. And thank you all for being a part of this. And then we're going to send you the, your, your CPE forms that confirm that you participated within the week. Chris, is there anything else that we need to tell people about, or should we just end?

I think that covered it basically. Like you said, most of the, most of the questions we got were for, you know, technical questions.

So yeah. Okay, everybody, thanks much. And we'll, we'll do this again soon. Bye.