Louisiana Tax Commission Sets Dates for 2025 Rules and Regulations Sessions

For anyone interested in Louisiana property tax issues, the Louisiana Tax Commission has given notice of the dates for its annual Rules and Regulations hearings. Any interested party can submit a proposal to amend the current regulations to the Commission during this process. The Commission accepts written proposals that are presented in an open Commission meeting, followed by rebuttals from any opposing interests. The Commission announces any changes during an adoption hearing. The submission deadlines and hearing dates are set forth in the linked notice. If you have any questions, contact Jay Adams or any member of the Jones Walker SALT Team.

Jones Walker Houston Maritime Seminar

The Jones Walker LLP Maritime Industry Team hosted a maritime industry seminar for professionals operating in the offshore and maritime industries and trade.

Seminar topics ranged from OFAC and Sanctions, Tax, Employment Law Compliance, Marine Finance, Maritime Transactions & Jones Act Compliance.

Jones Walker Tax Practice Group leader, Bill Backstrom, presented “Charting a Course for Taxation Navigation” which discussed how maritime operations in the US present unique state and local tax implications. Navigating the sometimes-choppy waters of state and local taxation can be tricky or even treacherous. Other times, state and local tax laws may lead to buried treasures. This session provided attendees with current developments in the world of state and local taxation of maritime operations. Attendees also learned about certain unique aspects of state and local taxation of maritime businesses that could help professionals avoid tricks and traps or take advantage of tax benefit opportunities.

Jones Walker SALT Partners Present at TEI Minnesota 38th Annual President’s Seminar

Chris Lutz, Katie Quinn, and Jeff Birdsong, partners on the state and local tax team, presented at the TEI Minnesota Chapter 38th Annual President’s Seminar in Saint Paul, Minnesota, on April 23, 2024. Their presentation “Don’t Forget the Man Behind the Curtain: A Discussion on State Audit Policies and Developments,” was a part of a larger discussion on state and local tax at the seminar.

Bill Backstrom to Present at 2024 COST Spring Conference in Boston

Jones Walker SALT Team partner, Bill Backstrom, will present on the “In-House and Outside Counsel Privilege – How to Protect It” panel at the COST Spring Conference. What is the impact of the Supreme Court’s dismissal of In re Grand Jury on privilege? This session will discuss communications involving legal and non-legal advice from both an in-house attorney and outside counsel perspective, when is that communication protected. More importantly, what should a taxpayer consider in terms of the work-product doctrine, attorney-client privilege, and how to best protect your tax positions. Click here for additional information and to register for the conference!

Join Alysse McLoughlin at 2024 COST Spring Conference in Boston

Jones Walker SALT Team partner, Alysse McLoughlin, will present on the “SALT in the Wound” panel at the COST Spring Conference. States continue to test the constitutional limitations on their taxing authority, and are sometimes successful in doing so. The panel will discuss the pivotal cases and the application of those decisions by the states to expand their reach to impose their taxes. Specifically, the application of cases covering sales factor apportionment (Moorman), separate geographic accounting (Butler Brothers), worldwide combined reporting (Container, Barclays), sales tax on services (Goldberg, Jefferson Lines), and nexus (Wayfair) will be discussed. Additionally, the panel will address the future of Complete Auto Transit’s dormant Commerce Clause restriction on state taxation. Click here for additional information and to register for the conference!

Florida DOR Proposes Update to Agricultural Real Property Appraisal Guidelines

Recently, the Florida Department of Revenue (DOR) published a Notice of Proposed Rule for rule 12D-51.001, Florida Administrative Code, titled Florida Agricultural Classified Use Real Property Appraisal Guidelines. DOR seeks to amend the guidelines, originally promulgated in 1982, to provide guidance to county property appraisers as they develop valuations for real property classified as agricultural.     

The proposed amendments update the original guidelines by describing the legislative changes that have impacted the valuation of agricultural property over the past 40 years. This includes the legislature’s rejection of the “every-reasonable-hypothesis” burden of proof and clarification surrounding how agritourism fits into the scope of the agricultural exemption, providing specific definitions for concepts such as “timberland” and “pasture land,” and generally expanding the depth of the information provided and making the document’s tone more formal.

While required to be adopted through the rulemaking process pursuant to section 195.062, Florida Statutes, the guidelines are not intended to have the force and effect of law like other rules. Instead, DOR intends for the updated guidelines to assist county property appraisers in performing their duties and hopes that the guidelines lend conformity and accuracy to appraisals statewide.

DOR is currently accepting comments on the proposed guidelines on the FL Rules Website through May 3, 2024.

State Transfer Pricing Defense Needs Deep Section 482 Analysis

Bloomberg Tax

Multinational corporations have long battled the IRS and other nations’ taxing authorities over their transfer pricing arrangements.

But transfer pricing examinations and disputes at the state level can be even more challenging due to a lack of consistency and transparency, particularly in states that require entities conducting a unitary business to file separate state income tax returns.

This leaves many corporations in a precarious position, unsure how to defend very defensible transfer pricing arrangements. However, companies have defeated state transfer pricing examinations and disputes, and there are important takeaways from these taxpayer wins.

Being Proactive

Not all state laws allow state tax departments to make transfer pricing adjustments when a taxpayer’s transfer pricing falls within the parameters of Section 482 Treasury Regulations. If a company can establish that its transfer pricing is consistent with those regulations, the state tax department may not have power to make adjustments, though that won’t always stop it from trying.

In such cases, the taxpayer only needs to prove that its transfer pricing aligns with the Section 482 regulations by providing a transfer pricing study or, even better, proof the IRS approved the taxpayer’s transfer pricing.

The taxpayer should do this before providing information and documents about its intercompany transactions and agreements. An auditor likely will demand more information, but the taxpayer should dispute the legal issue of the department’s authority at the outset when possible.

Intercompany transactions and agreements data, when provided, should be explained to state auditors, who generally aren’t experienced in transfer pricing examinations. For instance, many states have informal policies for audits of related-party transactions, and rarely undertake the requisite analysis in the Section 482 regulations to identify the best way to determine whether intercompany transactions are at arm’s length.

The overwhelming trend among states that have pursued a transfer pricing analysis has been to rely on the comparable profits method, but this often isn’t the best way to determine arm’s-length transactions.

Taxpayers must explain their transfer pricing policies, the method of analysis, and any significant intercompany transactions. Those with significant transfer pricing experience can educate auditors on how arm’s-length determinations are made and avoid unnecessary controversy.

When to Litigate

Most transfer pricing audits can be resolved without litigation because the adjustments come down to a subjective disagreement between the taxpayer and state about operating margins of in-state taxpayers. Sometimes, however, taxpayers should prepare for the possibility of litigation and appeals.

For instance, South Carolina since 2015 has aggressively adjusted the income of unitary businesses operating in the state by forcibly combining unitary businesses. While many taxpayers initially settled these audits, the state revenue department acknowledged it lacked resources to litigate all the audits that had been disputed.

Here, there was a clear legal dispute—South Carolina was using its alternative apportionment authority to adjust the income tax base of in-state taxpayers by combining them with out-of-state unitary businesses. At least a dozen taxpayers filed protests at the Administrative Law Court.

Similarly, the Louisiana Department of Revenue has consistently used the comparable profits method in its audits to the exclusion of other potentially better methods. Taxpayers are challenging the department’s perfunctory use of this method. Resolving these unique legal questions will position the state and taxpayers to better resolve future audits.

Due diligence in this respect is paramount. Taxpayers should consider whether state litigation can implicate any agreements they’ve reached with the IRS or other foreign governments.

Knowing the timeline of other taxpayers’ protests can be crucial, even if it’s not always transparent. A taxpayer with one fact pattern that is first in line may negatively affect other taxpayers. Understanding the facts of first-in-line cases could lead some taxpayers to settle their cases or push to fast-track their own case to prioritize its specific facts.

Advocacy for Change

To get ahead of costly and lengthy transfer pricing disputes, interested parties should consider advocating for a law change identifying the bounds of state transfer pricing adjustments.

For example, some state tax departments use transfer pricing adjustments to transform the state’s statutory separate company reporting system into a combined reporting system. The South Carolina Department of Revenue was one of these. Legislative outreach proved successful in South Carolina last month when Gov. Henry McMaster (R) signed into law Act No. 113, which restricted the Department of Revenue’s ability to require combined reporting under the state’s separate company reporting system.

Reining in a state tax transfer pricing dispute can be challenging. It is critical to identify any limitations on the tax department’s ability to make adjustments at the outset of the audit and hold the auditor to those limitations.

Taxpayers also must lean on state courts and legislatures to establish principles—if not clear rules—governing state transfer pricing.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Reproduced with permission. Published April 23, 2024. Copyright 2024 Bloomberg Industry Group 800-372-1033.

John Fletcher to Present at 2024 COST Spring Conference in Boston

Jones Walker SALT Team partner, John Fletcher, will present on the “Border Crossings: State Tax Complexities for Multinational Businesses” panel at the COST Spring Conference. Multinational businesses are experiencing significant state tax impacts, pitfalls, and exposure. In this session we will discuss the state tax complexities associated with a global business including the state taxation of foreign source income, state-specific considerations for foreign entities, and state tax implications of global corporate structures. Click here for additional information and to register for the conference!

Intercompany Transactions in Separate Reporting States

Reprinted from Tax Notes State, April 22, 2024

It’s hard to believe it’s been over five years since the Maryland Court of Special Appeals held in Staples Inc. that an out-of-state parent could be subject to tax in the state by virtue of royalty payments made by in-state related entities despite all intercompany transactions being at arm’s length. That case is one in a line of Maryland cases that purport to permit separate reporting in the state only when related entities have “economic substance as business entities separate from” other members of a unitary group despite being a separate reporting state. I think most would agree that this exception has swallowed the rule in Maryland, and even out-of-state entities with property, payroll, and third-party sales have fallen prey to the requirement that they be discrete business enterprises. But since at least 2006, Maryland has proposed bill after bill studying the fiscal impact that combined reporting might have, coupled with attempts to adopt various iterations of combined reporting. Proposed this February, Maryland H.B. 1007 would require a unitary business to file a combined return on its worldwide taxable income. No such bills have passed thus far.

I’m no fiscal policy expert, so I’m inclined to believe the consensus from those advocating for combined reporting that it typically has the effect of raising revenue in states, although that impact often appears minimal. Only one data point, but the first report of that study mandated by Maryland in 2006 suggested that the state would have collected an additional $109 million to $170 million had it adopted combined reporting. Nonetheless, many state policymakers reasonably prefer separate reporting for its simplicity, not to mention avoiding the technical and constitutional complexities that arise in combined reporting regimes, such as how to apportion disparate streams of income.

Maryland is hardly alone in this struggle between having a legislature stalwartly support a separate reporting framework and the taxing authority aggressively attempting to undermine that statutory framework. As recently as March 11, the governor of South Carolina signed into law S.B. 298, which limits the extent to which the Department of Revenue can force combination among unitary business affiliates. That legislation came after nine years of the DOR asserting that separate reporting is inherently distortive when a unitary business earns income outside South Carolina and that combined reporting would be required in those situations. After the department’s recent win in Tractor Supply, the General Assembly reinforced the requirement that the department look to whether intercompany transactions are at arm’s length, and it imposed numerous conditions that the state must meet in imposing alternative apportionment and requiring combined returns.

Click here to continue reading in Tax Notes State.

A Trap for the Unwary Purchaser of an IRA Credit

Reprinted from Tax Notes State, April 15, 2024

To incentivize investment in clean or renewable energy, the Inflation Reduction Act of 2022 (IRA) created — and in some cases improved on existing — federal income tax credits availablemto investors in eligible clean or renewable energy projects. Some of these credits are popular, at least in part, because they are transferable, meaning that they can be sold by the entity generating the credits. This transferability allows entities that do not expect to use the credits to monetize them by selling all or a portion of the credits to a thirdparty purchaser.

To fuel the market for IRA credits, proposed Treasury regulations provide that the purchaser will not recognize gain on its use of the credit for federal income tax purposes (which is not the case for all credits). However, in the weeds of state tax there is a trap for the unwary: Not all states will follow this federal relief provision, and some states may try to tax gain on the use of a purchased IRA credit.

Click here to continue reading on IRA credits in Tax Notes State.