1. Healthcare

24th Annual Tuesday & Wednesday, January 27‐28, 2015 Ohio Tax
Hya Regency Columbus, Columbus, Ohio Workshop CC
Regional Update …
Tax Advice for Companies
Doing Business in Michigan
& Pennsylvania
Wednesday, January 28, 2015
11:00 a.m. to 12:30 p.m.
Biographical Information
June Summers Haas, Partner, Honigman Miller Schwartz and Cohn LLP
222 North Washington Square, Lansing,MI 488933
[email protected]
517.377.0734
Fax 517.365.9534
June Summers Haas is a partner with Honigman Miller Schwartz and Cohn LLP in Lansing, Michigan
where she specializes in advising clients on a nationwide basis on multistate tax strategies, resolving tax
disputes and litigating state tax cases. She is a nationally recognized expert on nexus issues and has
been in the forefront of litigation defining the parameters of the resale exemption, establishing the
applicability of the unitary business principle to Michigan taxes, establishing Michigan’s casual transaction
exclusion, and distinguishing between sales of services and sales of tangible property. In addition, Ms.
Haas spearheaded efforts to enact procedural reform for Michigan tax administration and has been a
consultant to the Michigan Chamber of Commerce and the Legislature in drafting the Michigan Business
Tax and the Corporate Income Tax. She was a consultant to the California Commission on the 21st
Century Economy.
Prior to joining Honigman Miller Schwartz and Cohn LLP, Ms. Haas was Michigan’s Commissioner of
Revenue, administering 23 taxes, managing an 800 person tax revenue operation and advising the
Governor and Treasurer on tax policy. Ms. Haas served for three years as Director of the Multistate Tax
Commission’s National Nexus Program. Ms. Haas also has over twenty years of private law practice
experience, including extensive state tax litigation and appellate work. She is a member of the BNA State
Tax Advisory Board and the Hartman State and Local Tax Forum Advisory Board. Ms Haas has been
selected for inclusion in Best Lawyers in America and Michigan Super Lawyers since 2007. She is a
frequent speaker and author on state tax topics throughout the country. She was named to “The AllDecade State Tax Team” by State Tax Notes in January 2010. She is the author of the chapter on
Jurisdiction to Tax in the new IPT book, State Business Income Taxation.
June Summers Haas is a graduate of the University of Virginia Law School and received a bachelor’s
degree with distinction in economics from George Mason University in Virginia. She is an adjunct
professor in Thomas M. Cooley Law School LLM in Taxation Program.
Randy L. Varner, Member, McNees Wallace & Nurick LLC
100 Pine Street, P.O. Box 1166, Harrisburg, PA 17108
717.237.5464
Fax: 717.260.1672
[email protected]
Randy L. Varner is an attorney with the State and Local Tax Group at McNees Wallace and Nurick LLC,
in Harrisburg, Pennsylvania. Has over 16 years of experience in the commercial litigation and state and
local tax areas. He is an experienced litigator in administrative tribunals and courts at both the state and
federal levels, and is admitted to practice in Pennsylvania, the United States District Court for the Middle
District of Pennsylvania, the United States Court of Appeals for the Third Circuit and the Supreme Court
of the United States.
In Pennsylvania, Randy has successfully represented financial institutions, pharmaceutical companies,
computer service providers, and light and heavy manufacturers in sales and use tax, corporate net
income tax, and capital stock and franchise tax controversies before the Board of Appeals, the Board of
Finance and Revenue, the Commonwealth Court, and the Supreme Court of Pennsylvania. In addition,
Randy has secured significant tax savings for commercial developers, utilities, and industries in the
property tax assessment area.
He is a frequent author and speaker on state tax topics and is active in many tax organizations, including
IPT and COST. A co-author of the Pennsylvania Bar Institute treatise "Assessment Law and Procedure
in Pennsylvania," Randy has served as an evaluator in the advocacy program at The Dickinson School of
Law of The Pennsylvania State University, where he earned his J.D. degree magna cum laude.
Michigan Taxes: What’s
New for 2015?
June Summers Haas, Esq.
Honigman Miller Schwartz and Cohn LLP
Agenda
•
•
•
Sales and Use Tax
• Online Registration
• New Case Law
• Refund Opportunities
• New Legislation
Business Taxes
• Refund Opportunities
• Credit Ordering
• Apportionment
Tax Administration
• New Statute of Limitations
• Offer in Compromise
• Unclaimed Property Reform
• Successor and Corporate Officer Liability
Sales and Use Taxes
Online Registration
• Michigan Treasury Online Account allows:
–
–
–
–
File and pay taxes electronically for 2015 and forward.
Review and update registration information.
Update, add or delete tax types.
Add payroll service provider.
• All SUW taxpayers required to sign up and pay
online.
• No new SUW booklets.
Sales and Use Refund
Opportunities
• Manufactured property affixed to real property in
another state.
– RAB in process – Use Tax Base of Tangible Personal Property
Affixed to Real Estate by Manufacturer/Contractor or Other
Contractor.
• Parts attached to rolling stock:
– 2012 PA 467.
– RAB in process – Sales and Use Tax Treatment of Interstate
Motor Carriers.
Manufacturing/Industrial
Processing Exemption
•
•
Detroit Edison Co v Dept of Treasury, 303 Mich App 612 (2014)
pending before MI S Ct
– Holding that equipment used to change form of electricity is
exempt up to delivery to customer’s meter.
– Concurrent exempt and nonexempt use is 100% exempt.
MidAmerican Energy Co v Dep’t of Treasury, __ Mich App __
(12/4/2014)
– Holding that electricity used to create and power the
production of telecommunications signals is not
exempt under sales tax because telecom signal is not
tangible personal property.
Electronic Transaction Cases
•
Thomson Reuters (Tax & Accounting) Inc v Dep’t of Treasury, Ct of
Claims (2013), COA argument 4/8/2014
– Sale of access to database of case law information constitutes taxable sale of
software.
– Application for Leave to appeal to MI S Ct pending.
•
Auto-Owners Inc v Dep’t of Treasury, Court of Claims (2014)
– Taxpayer purchased various transactions over internet.
– Held software was not delivered in any manner; access to software on remote
computer is not taxable use; under Catalina, the transactions were purchases of
services, not software.
– Appeal to COA pending.
•
Rehmann Robson v Dep’t of Treasury, Court of Claims (11/26/14)
– “Unless and until the legislature expresses an intent to specifically tax
transactions involving the remote access to a third party provider’s technology
infrastructure, transactions such as those described in this case do not fit under
the plain meaning of the UTA and are not properly subject to use tax.”
Sales and Use Refund
Opportunities
• Refunds for payment of sales or use taxes on:
–
–
–
–
Software maintenance contracts.
Hardware maintenance contracts.
Database services accessed electronically.
Other electronic services.
Sales and Use Tax Litigation
NACG Leasing v Dep’t of Treasury, 495Mich 26
(2/6/2014)
•COA held that purchase and lease of aircraft held not a “use.” The
lessee’s possession was not interrupted.
•COA found that the lessor did not “use” the aircraft in Michigan and
therefore use tax not imposed on the lease: “a transfer of property
unaccompanied by a transfer of possession is simply not ‘use’ that is
subject to tax.”
•MSC held that execution of lease in Michigan was an exercise of control
incident to ownership constituting a taxable use, despite the
purchaser/lessor does not obtaining actual possession of the property.
WPGP1 held not applicable because addressed different facts.
Sales and Use Tax Litigation
MJR Group, Inc. v Dep’t of Treasury, unpublished
decision per curium of COA (2/25/2014)
•Theater company requested refund of sales tax on bottled water and
prepackaged candy sold at its theaters' concession stands.
•Sign above concession stand said tax is included in price. Company
specifically alleged in its petition that it did not charge sales tax to its
customers
•The Michigan Tax Tribunal (MTT) denying MJR the refund based upon
tax collection.
•Court of Appeals held that MJR did not owe sales tax on bottled water
or candy. There was a genuine issue of material fact on collection of
tax from its customers if testimony is deemed not to be credible.
Lessor Election to Pay on Lease
CDM Leasing LLC v Dept of Treasury, unpublished
opinion per curiam COA Docket No. 317987
(12/18/2014)
•Holding that election to pay tax on lease income is not available
to lessor who uses airplane for personal use.
See also FMG Leasing LLC v Dept of Treasury,
unpublished opinion per curiam COA Docket No. 312448
(6/26/2014)
No Use Tax Refunds for
Assessment on MI Sales
• Andrie, Inc v Dep’t of Treasury, 496 Mich 161; 853
NW2d 310 (6/23/2014)
– Court of Claims: Use tax does not apply to purchases from
Michigan vendors, as the Michigan Sales Tax Act imposed
sales tax on the vendor.
– Court of Appeals: Purchaser does not have the burden of
proving that the sales tax was paid in defending against an
assessment of use tax on the purchaser; the Department is
obligated to pursue the seller for sales tax.
– Michigan Supreme Court reversed: Purchaser liable for use tax
unless she can prove that she paid sales tax or seller remitted
sales tax.
Recent Legislation
Main Street Fairness Bills pass. SB 658 & 659 [MCL
205.52b & 205.92b]
•Nexus rebuttably presumed if company or an affiliated person:
– Sells similar line of products with same business name;
– Promotes or facilitates sales through employees, representatives or
independent contractors;
– Maintains office, distribution facility or other place of business;
– Uses trademarks, service marks or trade names in MI;
– Shares management systems or practices;
– Conducts activities significantly associated with establishing and
maintaining the market in MI; or
– Click through nexus agreement
Recent Legislation
•
•
No maximum discount for accelerated filers. 2014 PA 425 & 426.
Transportation funding package: House Joint Resolution UU; HB 4539;
5492; 5493 and SB 847. All are tie-barred.
– House Joint Resolution UU places following issues before the voters:
• Exempts sales of gas and diesel motor fuel from sales tax after
10/1/2015.
• Increase maximum sales and use tax by 1% (from 6 to 7%).
• Dedicate certain portions of sales tax to school aid fund, eliminate
universities from use of school aid fund; and dedicate portion to
revenue sharing with localities.
– Exempt gas and diesel from sales tax beginning 10/15/2015;
– Motor Fuel Act to change fixed taxes to taxes based on average
wholesale prices effective 10/15/2015;
– Amend Motor Fuel Carrier Tax to change per-gallon tax rates; and
– Amend Income Tax Act to increase earned income tax credit from 6% to
20%.
BUSINESS TAXES
Business Tax Refund
Opportunities
• MTC 3-Factor Election for Apportionment during 2008
through 2011.
• IBM v Dep’t of Treasury, MI S Ct opinion final.
• Lorillard v Dep’t of Treasury, on application for leave for
review.
• Anheuser-Busch v Dep’t of Treasury, pending at COA.
• Effectiveness of PA 282.
Business Tax Refund
Opportunities
• COD add back refunds for 2010 to 2014.
• PA 282 – COD add back eliminated after 2011.
• Pre-2011 refund claims required in 2015 for one
payment in 2010 to 2014.
• ITC recapture may now be refunded when no ITC taken.
Unitary Group Refund/Planning
• CIT - Elimination of intercompany transactions for
calculation of deductions and credits under 2014 PA 14.
• No similar legislation for MBT so intercompany
transactions can be utilized for calculation of deductions
and credits.
• Sales Factor Elimination – Unitary FTEs.
Unitary Group Refund/Planning
• Taxpayers can make a binding election for inclusion of
certain entities in the affiliated group – PA 266 of 2013
(SB 367).
• Department’s use of IRC 318 attribution rules for
determination of indirect ownership has been upheld.
• Labelle Management Inc v Dep’t of Treasury, Court of
Claims.
• Do you need certainty in your group configuration?
Refunds for Credit Ordering
Denials
• SBT credit carry forwards versus
compensation/ITC/R&D MBT credits.
• Hudsonville Creamery, Michigan Tax Tribunal, Docket
No. 450134.
• Ashley Capital, LLC, Court of Appeals,
Docket No. 322386.
• Vitec Inc v Dep’t Treasury, Court of Appeals Docket No.
324330.
Credit Denials
Packaging Corp of American v Dept of
Treasury, unpublished COA Docket No. 317708
(12/16/2014)
• SBT property tax credit denied because taxpayer failed
to timely file property tax statements with assessor.
Alternative Apportionment
Sidney Frank Importing Inc v Dept of Treasury,
unpublished opinion per curiam COA Docket
No. 315610 (2014)
• A failure to respond to a request for alternative
apportionment is not a denial.
• Remanded to trial court to require Department to
respond.
Get Your Factors In Order
• Document sales factor methods for sourcing
services and intangibles to location where client
receives benefit.
• Department is working on an RAB for
determining where the benefit of services are
received.
• Ensure that you are sourcing sales of tangible
personal property to the ultimate destination.
PBM Nutritionals v Dep’t of Treasury, Court of
Claims.
Sale of Partnership Interest
Robert Aikens v Dept of Treasury, unpublished
opinion per curiam COA Docket No. 310528
(2014)
• Individual’s sale of partnership interest
generated business income that must be
apportioned to MI based on factors of the
partnership.
ADMINISTRATIVE REFORM
Notice to Taxpayer
Representative
Fradco, Inc v Dep’t of Treasury, 495 Mich 104 (2014).
•MCL 205.8, “the department shall send the official representative … a copy of
each letter or notice sent to that taxpayer” (statutory notice provision enacted
as a part of 1993 Taxpayer Rights Legislation).
•In Fradco, the Department did not provide the taxpayer’s representative with a
copy of the final assessment until over 9 months after the final assessment was
initially sent to the taxpayer.
•MI Supreme Court held that notice to the representative is required once a
power of attorney is filed.
•Note: Department changed its power of attorney forms so watch what you file!
Resolutions for Next Year:
Appeal Properly
• Coventry Healthcare Inc v Dep’t of Treasury,
unpublished Court of Appeals (10/16/14)
– Pay-to-play and Court of Claims jurisdiction.
– Potential trap of unwary.
• Martin Sprocket & Gear, Inc. v Dep’t of Treasury,
unpublished Court of Appeals (10/21/14)
– Pay-to-play and perceived overpayment status.
Resolutions for Next Year:
Know Your Rights
•
Statute of Limitations; Ends Unlimited Tolling of SOL, Transparency: 2014
PA 3.
•
No Quotas and Fair Treatment: 2014 PA 277.
•
Unclaimed Property Audit Reform: 2013 PA 148.
•
Unclaimed Property Procedural Reform: 2014 PA 423.
•
Offer in compromise.
•
Additional Interest on Tardy Refunds: 2014 PA 424.
•
Standards, Limits on Indirect Audits and Transparency 2014 PA 35.
•
Sales and Use Tax Indirect Audit Reform; Standards 2014 PAs 108, 109.
•
Successor Liability: Requires 60 day response and limits exposure.
•
Corporate Officer Liability; Limited to Trust Taxes, Clarifies Existing Law,
Transparency: 2014 PA 3.
Look for Refund Opportunities
• 2014 PA 3 changed SOL rules.
• For tax years currently under audit and beyond
four year statute of limitations.
– File quickly
– Department position that SOL is open
– Taxpayers are challenging
• For tax years within 4 years, file within normal 4
year period.
Rules for Statute of Limitations
Have Changed PA 3 of 2014
• Effective February 6, 2014.
• New statute of limitations restrictions to audits
commence after September 30, 2014.
• Sets deadlines when Department must complete the
audit, provide preliminary audit determination and issue
final assessment.
• Specifies circumstances to extend SOL.
• Allows taxpayer to treat claim for refund as deemed
denied.
• Dispute on SOL for pre September 30, 2014.
Rules for Statute of Limitations
Have Changed PA 3 of 2014
• From September 30, 2014 forward:
• SOL is four years after the due date for filing the return
or the date the return was filed.
• Audit may be started within 4 year SOL.
• Audit fieldwork and issuance of the preliminary audit
determination must occur with in 1 Year after the 4 year
SOL runs UNLESS taxpayer agrees in writing to an
extension.
• Limits issuance of final assessment to 9 months after the
issuance of the preliminary audit determination.
Rules for Statute of Limitations
Have Changed PA 3 of 2014
• Extension of 9 months for issuance of Final Assessment IF
the taxpayer:
1) “requests reconsideration” or,
2) “requests informal conference”
– Discretionary with the Dept. as to whether “request for
reconsideration” extends issuance of final assessment.
• Extension for federal adjustments, audit and litigation for the
duration of the review and 1 year thereafter. No change.
• Taxpayer may deem a denial of the refund claim if no answer
received within 1 year of the date the claim was “received.”
PA 3: Statute of Limitations
• Pre-February 6, 2014.
• Department claims prior law applies so for pending
audits, statute is open for period of audit and one year
thereafter without any written waiver.
• Post-February 6, 2014 and pre-Sept 30, 2014.
• SOL suspended during the audit, without written waiver.
• Taxpayers disagree. Claim 4 year statute of limitations
applies. Failure to issue assessment within 4 years bars
assessment but also bars refund claims
What is A Refund Claim?
• Tax Return showing an amount due. MCL
205.30.
• Notice to Department that taxpayer believes the
amounts should be refunded.
• Ford Motor Co v Dep’t of Treasury, Ct of Claims.
• No sum certain to be refunded needed.
• Information to determine validity of claim not
needed.
Legislated Courtesy
2014 PA 277
Amended the Revenue Act:
•Requires the Department to propose rules for
courteous treatment of public, fair and consistent
application of statutes and rules, and no collection
goals or quotas.
•If Department intentionally used a collection goal
or quota, a taxpayer may be awarded actual
damages up to $45,000.
Offer In Compromise Program
• Effective 1/1/2015:
• Tax debt settlement based upon:
1. Doubt as to Liability;
2. Inability to pay;
3. Federal offer in compromise given for same year.
• Intended for taxpayers with severe financial
hardship.
• Mich.gov/oic for forms – under construction.
Rules for Unclaimed Property
Audits
• 2013 PA 148.
• Places limits on the use of statistical or indirect auditing
by requiring auditing ethical/professional– standards.
• Mandates departmental disclosure of audit documents:
nothing withheld.
•
Caps assessable audit costs.
• Requires submission of administrative rules.
Unclaimed Property
Procedural Reforms
2014 PA 423
•Establishes right to administrative review of audit
determination.
•Informal review process.
•Establishes right to appeal to court within 90 days.
•Establishes penalty and interest appeal.
Resolutions for Next Year:
Don’t Buy a Tax Liability
• SOL: If owner waives confidentiality, Dept. MUST
supply the known or estimated tax of to a purchaser
with 60 days.
• Successor Liability Limited, if Purchaser escrowed
the expected tax liability.
– If 60 day response is not met, successor-purchaser is not
liable.
– If 60-day response was met, liability limited to amount of
estimate.
• Otherwise limitation is the fair market value of the
owner-predecessor.
Corporate Officer Liability
2014 PA 3
• PA 3 Limitation
– Limit to Trust Taxes and require “willfulness.”
– Prioritize successor liability before COL.
– Allow challenges to the legal basis of the
assessment.
– Permit assessed Responsible Persons to sue
other unassessed Responsible Persons.
QUESTIONS?
June Summers Haas, Esq.
[email protected]
(517) 377-0734
About This Presentation
• This presentation contains general information only and the
respective speakers and their firms are not, by means of this
presentation, rendering accounting, business, financial,
investment, legal, tax, or other professional advice or
services. This presentation is not a substitute for such
professional advice or services, nor should it be used as a
basis for any decision or action that may affect your
business. Before making any decision or taking any action
that may affect your business, you should consult a qualified
professional advisor. The respective speakers and their firms
shall not be responsible for any loss sustained by any person
who relies on this presentation.
•
16240868.2
Pennsylvania
Update
Randy Varner
Jim Fritz
© 2014 McNees Wallace & Nurick LLC
www.mwn.com
↑ Trends ↓
Twists
Trepidations
© 2014 McNees Wallace & Nurick LLC
www.mwn.com
trep∙i∙da∙tion
 noun \ˌtre‐pə‐ˈdā‐shən\ : a feeling of fear that causes you to hesitate because you think something bad or unpleasant is going to happen
o
© 2014 McNees Wallace & Nurick LLC
www.merriam-webster.com/dictionary/trepidation
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Political Outlook
 ELECTION RESULTS
 WHAT DO THEY MEAN?
© 2014 McNees Wallace & Nurick LLC
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↑Trends↓
© 2014 McNees Wallace & Nurick LLC
www.mwn.com
Capital Stock & Franchise Tax
Phase-out
Year
Millage
Rate
Year
Millage
Rate
1991
13.00
2006
4.89
1992-97
12.75
2007
3.89
1998
11.99
2008-11
2.89
1999
10.99
2012
1.89
2000
8.99
2013
0.89
2001
7.49
2014
0.67
2002-3
7.24
2015
0.45
2004
2005
6.99
5.99
2016
0.00
© 2014 McNees Wallace & Nurick LLC
Last Adjustment: Act 52 of 2013
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CNI - Net Loss Carryforward
 Cap
 1995‐1998
$1 million ($500k from 88‐94)
 1999‐2006
$2 million
 2007‐2008
$3 million or 12.5% (greater)
 2009
$3 million or 15% (greater of)
 2010 & after
$3 million or 20% (greater of)
© 2014 McNees Wallace & Nurick LLC
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CNI - Net Loss Carryforward, cont’d
 Carryforward Period









1981
1982
1983‐1987
1988
1989
1990‐93
1994 1995‐97
1998 & after
© 2014 McNees Wallace & Nurick LLC
1 tax year
2 tax years
3 tax years
2 tax years + 1995 tax year
1 tax year + 1995 & 1996 3 years (starting in 1995)
1 tax year
10 tax years
20 tax years
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Single Sales Factor & Market
Sourcing
Tax Years
Pre-1999
1999-2006
2007-2008
2009
2010-2012
2013
© 2014 McNees Wallace & Nurick LLC
Property
Weight
33.33%
20%
15%
8.5%
5%
0%
Payroll
Weight
33.33%
20%
15%
8.5%
5%
0%
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Sales
Weight
33.33%
20%
70%
83%
90%
100%
Single Sales Factor & Market
Sourcing, cont’d
 Pre‐2014 Sourcing of Sales
 Tangible Personal Property Destination
 Services
COP
 Intangibles
COP
 2014 & after (Act 52 of 2013)
 Tangible Personal Property Destination
 Services
Delivery
 Intangibles
COP
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“Cost of Performance”
 “Sales, other than sales of tangible personal property, are in this State if:
 (A) The income‐producing activity is performed in this State; or
 (B) The income‐producing activity is performed both in and outside this State and a greater proportion of the income‐producing activity is performed in this State than in any other state, based on costs of performance.”

Tax Reform Code §401(3)2(a)(17)
 After 2013, COP applicable only to Intangibles
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“Cost of Performance”
 PA Revenue Dept. never issued COP regs
 Two Letter Rulings Published
 But often ignored by Audit Bureau and Taxing Division
 Other States Trending to Market Sourcing
 Inconsistent definition
© 2014 McNees Wallace & Nurick LLC
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Real Estate – post‐2013
 “Sales from the sale, lease, rental or other use of real property [are sourced to Pennsylvania] if the real property is located in this State. If a single parcel of real property is located both in and outside this State, the sale is in this State based upon the percentage of original cost of the real property located in this State.”

© 2014 McNees Wallace & Nurick LLC
Tax Reform Code §401(3)2(a)(16.1)(A
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)
Rental/Lease of TPP after 2013
 (I) Sales from the rental, lease or licensing of tangible personal property [are sourced to PA] if the customer first obtained possession of the tangible personal property in this State.
 (II) If the tangible personal property is subsequently taken out of this State, the taxpayer may use a reasonably determined estimate of usage in this State to determine the extent of sale in this State. 
© 2014 McNees Wallace & Nurick LLC
Tax Reform Code §401(3)2(a)(16.1)(B)
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Services after 2013 – “Delivered”



(I) Sales from the sale of service [are sourced to PA] if the service is delivered to a location in this State. If the service is delivered both to a location in and outside this State, the sale is in this State based upon the percentage of total value of the service delivered to a location in this State. (II) If the state or states of assignment under subparagraph (I) cannot be determined for a customer who is an individual that is not a sole proprietor, a service is deemed to be delivered at the customer's billing address. (III) If the state or states of assignment under subparagraph (I) cannot be determined for a customer, except for a customer under subparagraph (II), a service is deemed to be delivered at the location from which the services were ordered in the customer's regular course of operations. If the location from which the services were ordered in the customer's regular course of operations cannot be determined, a service is deemed to be delivered at the customer's billing address

© 2014 McNees Wallace & Nurick LLC
Tax Reform Code §401(3)2(a)(16.1)(C)
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Business Privilege Tax on
Services - Scope
 Local Transactions Only
 Distinguish Tax on Transaction from Tax on Privilege 



where Activity Outside Managed from Within ‐
Gilberti Apportion Interstate Base of Operations Required for Privilege‐based Tax
Anything Goes ‐ Rendina
Credit @ Base of Ops for Tax Paid at Location of Activity – Act 42 of 2014
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Tax Appeals Modernization
 Settlement Process dating to 1812 & “Insider” Board of Finance and Revenue dating to late‐1920’s
 Assessment Process – Act 119 of 2006 (eff. 1/1/2008)
 Formal Tax Court Avoided
 Compromises @BOA – Misc. Tax Bulletin 2011‐02
 Penalty Abatement @Audit – eff. 12/1/2011
 Independent BF&R
 Appointed Members, No More Ex Parte, Compromises, Published Decisions ‐ Act 52 of 2013 (eff. 4/1/14)
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Twists
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School Property Tax Reform
 Various Legislative Proposals
 Block of votes in PA House
 House Rejected Proposal
 SB 76
 Increase PIT & SUT Rates
 Expand SUT to Additional Services
 Eliminate Many SUT Exemptions
 Action attempted before election.
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Trepidations
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Marcellus Shale
 Extraction Tax
 Other States
 Candidate Tom Wolf: 5% Tax
o “Texas, Wyoming, Louisiana, New Mexico, West Virginia and most other states in the country currently benefit as oil and gas companies and other corporate interests cash in on those states' environmental resources.” o $500 million ‐ $1 billion
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School Funding
 Elimination of School Property Taxes 
 Replace Revenue by:
 Increasing Sales & Use Tax Rate 
 Expanding Services Subject to Sales & Use Tax 
 Eliminating Sales & Use Tax Exemptions 
 Increasing Personal Income Tax Raft 
 Increasing Local Business Privilege Taxes 
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Combined Reporting
 Addback (Act 52 of 2013) not enough?
 Democrat House & Senate
 Numerous bills over last several years
 Gubernatorial Candidate Tom Wolf  “Close the Delaware loophole and end unfair tax credit programs.”
 Possible Reduction in CNI Rate?
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Extension of CSFT
 2014‐15 FY Revenue Yield: $328,200,000
 2015‐16 FY Revenue Yield: $198,000,000
 This tax has been extended before!
 The Commonwealth will need $$$$
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State & Local Pensions
 $50 billion Unfunded PSERS & SERS Liability
 “can repeatedly kicked down the road”
 “Pension Reform Act” (Act 120 of 2010)
 Multiplier Reduced from 2.5% to 2%
 Max Pension Capped @ Final Avg
 Vesting increased from 5 years to 10 years
 $33 billion savings over 30 years
 Current employees locked‐in
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Administrative Activity
 Board of Finance and Revenue
 "New" Board began in April 2014
 Adversarial Process
 Compromises Possible
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Administrative Activity
 Computer System Implementation
 Delayed
 No traditional "ledgers"
 New "notice" correspondence from Department
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Regulatory Activity
 Natural Gas Drilling Sales and Use Tax Bulletin (2014‐02)
 Intangible Drilling Costs Personal Income Tax Bulletin (2013‐04)
 Market Sourcing for Services Guidance in Development
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Cases of Note
 Wirth v. Commonwealth, 82‐85 MAP 2014 (June 17, 2014)
 Nonresident Nonrecourse Debt Forgiveness
 Investors lost entire investment
 Interest accumulated
 Court held taxable on entire amount of loan forgiveness, including interest
© 2014 McNees Wallace & Nurick LLC
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Cases of Note
 Fish, Hrabrick and Briskin v. Township of Lower Merion, No. 1940 C.D. 2013 (September 19, 2014)
 Court held that lease receipts not taxable  Local Tax Enabling Act forbids taxation of leases or lease transactions
 Township argued that it was taxing privilege of doing business
 Broad refund implications
© 2014 McNees Wallace & Nurick LLC
www.mwn.com
QUESTIONS?
Randy L. Varner
McNees Wallace & Nurick LLC
[email protected]
717‐237‐5464
© 2014 McNees Wallace & Nurick LLC
www.mwn.com