Hot Topics in Taxation Around the U.S.

1. Hot Topics in Taxation Around the U.S. Arizona Tax Conference Flagstaff, Arizona October 15, 2015 Nikki Dobay, Council On State Taxation Fred Nicely, Council On State Taxation

2. Agenda US Supreme Court Cases Federal Legislation Corporate Income Tax Cases and Issues Sales & Use Tax Updates Property Tax Updates Nexus Tax Amnesties

3. 2014/2015 US Supreme Court Cases

4. SCOTUS’ SALT Cases 2015 Was Close to a Banner Year: • MD Comptroller v. Wynne • CSX v. AL DOR • DMA v. Brohl 1992 Was “the” Banner Year: • Allied Signal v. New Jersey – Commerce Clause forbids New Jersey from including gain on a sales of stock in taxpayer’s apportionable tax base • Kraft v. Iowa – Statute discriminates against foreign commerce by taxing dividends received from foreign subsidiaries but not dividends received from U.S. subsidiaries • Quill v. North Dakota – Physical nexus required • Wrigley v. Wisconsin – Construing P.L. 86-272, which restricts states from imposing income tax on out-of-state companies’ activities limited to solicitation in the taxing state

5. Wynne – U.S. Supreme Court Comptroller of the Treasury v. Wynne, 575 U.S. __ (May 18, 2015). • Question Presented: Does the U.S. Constitution require a state taxing all of the income of its residents (i.e., not apportioned) -- wherever earned – to provide a credit for taxes paid on income earned in other states? • Answer: Yes. Taxing individual residents of a state on their worldwide income without the state apportioning or providing credit for taxes paid to other states unconstitutionally creates the risk of multiple taxation, in violation of the dormant Commerce Clause’s prohibition (i.e., internal consistency) against unfairly apportioned taxes • How far does this apply – sales/use taxes, piggyback and non-piggyback local income taxes, etc.? • Vigorous dissent by Justice Scalia & Thomas • Justice Ginsburg dissent more limited to just allowing states to tax its residents differently

6. Alabama v. CSX – U.S. Supreme Court CSX Transp., Inc. v. Ala. Dep’t of Revenue, 135 S.Ct. 1136 (Mar. 3, 2015). • Held: A rail carrier can show discrimination under the 4-R Act (49 U.S.C. § 11501(b)(4)) by demonstrating that it is subject to differential tax treatment as compared to its competitors. • The tax disparity is permissible if the competitors are subject to another “roughly comparable” tax from which the rail carrier is exempt or if the state offers another sufficient justification. • The Supreme Court remanded the case to the 11th Circuit to determine whether Alabama’s sales tax on diesel fuel is roughly equivalent to Alabama’s diesel fuel excise tax. • The court must also consider Alabama’s alternative justifications for the sales/use tax exemption for water carriers. • Another 4-R case from TN is pending in the 6th Circuit to address a tax on diesel applied to both motor and rail carriers at the same rate; however, the revenue is distributed differently

7. DMA – Does TIA Bar Federal Challenge? • Tax Injunction Act provides that federal district courts “shall not enjoin, suspend or restrainthe assessment, levy or collectionof any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” 28 USC § 1341. • Colorado use tax reporting scheme not an assessment, levy, or collection of tax – so – not barred by TIA • More state cases in federal court? But, what about Comity Doctrine? • TIA, along with Comity Doctrine, create hurdles • SCOTUS did not address Comity Doctrine (which counsels federal courts to refrain from interfering with fiscal operations of state governments)

8. DMA’s Majority, Concurring, and Dissenting Opinions • Direct Mktg. Ass’n v. Brohl, 135 S.Ct. 1124 (Mar. 3, 2015). • Justice Thomas explains that DMA’s suit does not “restrain” Colorado from assessing, levying, or collecting a tax within the context of how “restrain” is used for purposes of the TIA. Case remanded back to 10th Circuit to see if non-jurisdictional comity doctrine is still a viable argument. • Justice Kennedy gives “unqualified” concurrence to majority opinion; however, he goes out of his way to say Quill needs to be reconsidered – it “now harms States to a degree far greater than could have been anticipated earlier.” • Justice Ginsburg joined by Justice Breyer and partially by Justice Sotomayor also concur on the understanding that this case does not address whether refund claims are barred by the TIA. She also indicated the Court’s decision is consistent with Hibbs. • On April 13th, 2015, the 10th Circuit ordered a full briefing on the Commerce Clause claims and whether the comity doctrine bars the suit in federal court.

9. Case SCOTUS Agreed to Review California FTB v. Hyatt, Docket 14-1175, granted 6/30/15 • Second time this case will be reviewed by SCOTUS • Can Nevada subject CA FTB auditors to intentional tort actions in NV that NV auditors are immune to? • Mr. Hyatt has been fighting CA FTB over his residency (CA versus NV) and he has asserted the CA FTB acted in bad faith and argued for damages in NV courts

10. Some SALT Cases Pending Review at SCOTUS Estate of Hambleton v. Washington (Docket 14-1436) – can the State of Washington pass corrective legislation eight years after the state enacted its stand alone estate tax? (Conf. 10/9/2015) DircecTV v. Mass. Dept. of Rev. & Roberts(Docket 14-1499 & 14-1524) – DirecTV is appealing MA Supreme Judicial Court and a TN Court of Appeals determination that different tax treatment of satellite (out-of-state) and cable (instate) providers is constitutional (i.e., not discriminatory) (Conf. 9/28/15 rescheduled) First Marblehead v. Mass. Comm. of Rev. (Docket 14-1422) - Did MA DOR’s application of the MTC apportionment for financial institutions run afoul of the internal consistency test required by the fair apportionment prong of Complete Auto? (conf. 10/9/2015) City of Cleveland v. Hillenmeyer (pending docket) – Does it violate Due Process rights (and/or equal protection) for a city to tax NFL players’ income using “game days” rather than “duty days”? Sierra Pacific Power Co. v. NV Dep’t of Tax (Docket 15-25) – Nevada imposes sales tax only on out-of-state coal – refund of tax sought (Response Req. due 11/16/15)

11. Federal Legislation

12. Federal Legislation: Overview of the Proposals Giving States Remote Seller Collection Authority Since 2005, the following types of legislative bills have been introduced or proposed: • Main Street Fairness Acts (MSFA) • Marketplace Equity Act (MEA) • Marketplace Fairness Acts (MFA) • Retail Transaction Parity Act (RTPA) • Online Sales Simplification Act (draft) • 1099-Sales Reporting to States (testimony) • Prohibit Unauthorized Shipments (testimony)

13. Streamlined Sales Tax States available at streamlinedsalestax.org

14. States’ “Self-Help” Legislative Efforts States’ efforts to force remote vendors to collect sales tax: • Use Tax 1099-like Information Reporting (CO & NC) • Amazon Laws NY’s 2008 law: Click-through nexus statutes (agreement with resident to refer customers via an internet link or otherwise) and rebuttable presumption of nexus • Affiliate Nexus Laws [MTC Model Statute based on CA] • In-State Delivery Arrangements: Arrangements, with other than a common carrier, to facilitate delivery of property to in-state customer at an in-state location • Indiana 2014 proposed legislation (did not pass) • Use Tax Notification: Requirement to notify customers of requirement to report use tax (e.g., CO, KY & OK)

15. States’ “Self-Help” Legislative Efforts States’ efforts to force remote vendors to collect sales tax: • Warranty Nexus: In-state contractors performing warranty & repair work • Marketplace Facilitator – New York (recently rejected) and Washington (HB 2224) had proposals to attribute nexus if sales made through a facilitator (e.g. E-Bay) – they did not pass • Credit Card Payment Facilitator - Washington had proposal to attribute nexus based on the credit card or other payment facilitator • MTC Factor Nexus – Washington also had proposal to use factor nexus ($267k in sales) • Remote Seller Single Rate – Alabama allows remote sellers to volunteer to collect State’s tax using an 8% rate, no additional use tax owed and purchaser (w/limitations) can file for refund if use tax rate in jurisdiction lower than 8% (AL SB 437, eff. 10/1/15)

16. Click-Through Nexus Laws – Part 1

17. Click-Through Nexus Laws – Part 2

18. Sales Tax – “Click-through” Nexus Provision Source – BBNA 2015 Survey of State Tax Administrators

19. Federal Legislation Internet Tax Freedom Act (ITFA) • Service providers and consumers faced a 11/14/14 expiration of the ban on state or local taxes on Internet access and on multiple or discriminatory taxes on e-commerce • Current grandfathering provisions allow states and local jurisdictions that implemented taxes on Internet access before 1998 to keep them (HI, NM, ND, OH, SD, TX, WA, WI) • On 9/18/14, President Obama signed HJR 124, extending ITFA through 12/11/14; On 12/16/14, Pres. Obama signed H.R. 83 to extend ITFA to 10/1/15 • H.R. 235 passed House 6/9/15; 191 cosponsors (permanent w/no grandfathering) • S. 431 pending in Senate; 50 cosponsors (permanent w/no grandfathering) 19

20. Federal Legislation • Digital Goods and Services Tax Fairness Act of 2015 • S. 851 was introduced by Senator John Thune (R-SD) on 3/24/2015 • H.R. 1646 was introduced by Lamar Smith (R-TX) on 3/26/2015 • Bill would prevent multiple and discriminatory taxes on digital goods or services • Provide specific sourcing mechanism based on “customer address” which is hierarchical and similar to the sourcing under the SSUTA • Requires states to have “reasonable” direct pay procedure for qualified customers to self remit tax

21. Federal Legislation • Mobile Workforce State Income Tax Simplification Act (MWF) • S. 386 has been introduced by Senator John Thune (R-SD) and Senator Sherrod Brown (D-OH) • H.R. 2315 introduced by Mike Bishop (R-MI) • MWF Act creates a bright-line 30-day threshold to determine nonresident income tax liability • Many industry members and organizations (260+) support the bill • Voted out of House Judiciary June 17, 2015 by a 23-4 vote • 128 House Cosponsors; 10 Senate Cosponsors • #1 Legislative Priority of AICPA • Exception for entertainer, athletes & prominent public figures

22. Federal Legislation Business Activity Tax Simplification Act (BATSA) • H.R. 2584 introduced by Steve Chabot (R-OH) • Legislation would modernizes P.L. 86-272 • Expands beyond sales of tangible personal property • Applies more broadly than just net income taxes imposed by the states • Puts in a bright line 14-day presence test, with exceptions, before an entity is subject to a state’s business taxes • Would not allow Finnigan apportionment (including a unitary entity’s sales in the group’s sales factor even when that entity does not have substantial nexus with the taxing state)

23. Corporate Income Tax Cases & Issues

24. Multistate Tax Compact Litigation • Gillette Co. v. California Franchise Tax Board, No. A130803 (Cal. Ct. App. Oct. 2, 2012). MTC is a valid compact; compact law supersedes conflicting state law – appealed to the California Supreme Court. In June 2012, California Legislature formally withdrew from the Compact. CA Sup. Ct Oral arguments held 10/6/15; questioning from the bench did not favor Gillette. • Graphic Packaging Corp. v. Combs, No. 03-14-00197-CV, Travis Cty. Dis. Ct. (TX 2014). Held franchise tax was not an income tax. On July 28, 2015, Third District of Texas Court of Appeals affirmed. • Health Net, Inc. v. Oregon Department of Revenue, T.C.-MD No. 120649D (Sept. 9, 2015). Oregon Tax Court held the MTC Compact was not a binding interstate compact.

25. Multistate Tax Compact Litigation • Kimberly-Clark Corp. v. Comm'r of Rev., MN Tax Ct. Dkt. No.08670 (filed Dec. 12, 2013). On June 19, 2015, Minnesota Tax Court upheld 1987 repeal of election on “unmistakability doctrine.” • IBM v. Michigan Dept. of Treas. (Mich. S.Ct. Jul. 14, 2014). • Compact election available in 2008. • Both income and gross receipts bases are “income taxes.” • 2011 Amendment amending Compact to prevent the election was intended to apply to tax years 2011 and beyond. • Michigan Court of Appeals on 9/30/15 rejected 50 appeals raising an issue with the retroactive legislation passed to avoid Michigan paying out over $1.1 billion in refunds (see Yaskawa America Inc. v. MI Treasury).

26. MTC Transfer Pricing Program MTC’s Transfer Pricing Program – Arm’s Length Adjustment Service (ALAS) • ALAS contract for Taxpayer Compliance Services (DRAFT - Mar. 2, 2015) • “The service will enable states to overcome a key obstacle to curbing tax avoidance through related party transactions: the nearly prohibitive cost of outside economics expertise to analyze taxpayers’ transfer pricing documentation. The service makes this expertise affordable by pooling state resources and acquiring the necessary analytical capability through both contractors and staff development. The service then combines this expertise with training and other assistance….” • Interested States: AL, CT, DC, FL, GA, IA, KY, LA, NJ, NC, PA • Committed States (6) as of May 7, 2015: Alabama, Iowa, Kentucky, New Jersey, North Carolina, and Pennsylvania • Training held March 31 to April 1, 2015 at NC DOR (conducted by former IRS economic advisor that helped develop may IRC § 482 rules – Ednaldo Silva) • Final Program Design approved by Executive Committee on May 7, 2015.

27. Apportionment – Throw-back or Throw-out Rules“Subject to Tax” Provision– What’s the Constitutional Standard? • Whirlpool Properties, Inc. v. Director, Div. of Taxation, 208 N.J. 141 (N.J. 2011) • New Jersey Supreme Court addressed whether a throwout provision was facially unconstitutional • The court held the provision was not facially unconstitutional and, to do so, addressed what sales were not subject to tax in another state for throwout purposes • To uphold the statute, the court held New Jersey could only throwout receipts where another state lacks the jurisdiction to impose a tax • Case was decided, but not the issue • Lorillard Licensing Co., LLC v. Director, Div. of Taxation, Tax Court (Jan. 14, 2014) (appeal pending) • Judge held that New Jersey’s standard for determining who is subject to tax in New Jersey must be used for all other states – New Jersey has the Lanco, Inc. v. Director, Div. of Taxation (App. Div. 2005) case upholding the imposition of New Jersey’s business tax without a taxpayer having a physical presence • The test is not whether there was actual taxation by another state, but whether the other state using New Jersey’s position on what constitutes “substantial nexus” could impose a tax (same should apply w/interpretations of PL 86-272)

28. Other Noteworthy State Tax Cases • Tax Incentives: CDR Systems Corporation v. Oklahoma Tax Commission; 2014 OK 31; Case No. 109886; Settled to avoid appeal to SCOTUS (constitutionality of favorable capital gains treatment for home state companies) • IRS Adjustments: Citibank v. SD Dept. or Revenue, 2015 S.D. 67 (2015); South Dakota bank franchise tax refund must be filed w/3 years of paying tax – no extension allowed for IRS audits • Interplay of Economic Presence Nexus and Addback: Spring Licensing Grp., Inc. v. Dir., Div. of Taxation, No. 010001-2010 (N.J. Tax Ct. Aug. 14, 2015); New Jersey Division of Taxation properly asserted economic presence nexus against foreign corporation for licensing revenue from parent attributable to New Jersey despite the parent’s royalty expense addback

29. Sales & Use Tax Developments

30. Sales & Use Tax Developments – Is It Always Cloudy in Michigan? Auto Owners Ins. Co. v. Dep’t of Treasury, No. 12-000082-MT (Mich. Ct. Claims, Mar. 20, 2014). • Access to third party software hosted remotely was properly characterized as a nontaxable service; taxpayer did not take “delivery” of the software • Although computer software was involved in the transactions, the taxpayer did not obtain the requisite level of control required to satisfy the definition of “use” of the software; even if software was delivered to the taxpayer, the software was in fact “simply an incidental component of the principal transactions for the various services” Thomson Reuters Inc. v. Dep’t of Treasury, No. 313825 (Mich. Ct. App. May 13, 2014). • Taxpayer provided numerous information products, including subscriptions to Checkpoint; MI Treasurer argued customers purchased prewritten computer software • Court of Appeals applied the “true object” test and found that the transfer of tangible personal property was incidental to the service that the taxpayer provided

31. Other Noteworthy State Tax Cases • What Constitutes Further Processing: Cynthia Bridges v. Nelson Industrial Steam Company; 2015 WL 3875400 (La. App. 3 Cir. 6/24/2015) – Is the sale of ash, a byproduct from burning coal and limestone to produce electricity, exempt (burden on taxpayer) or excluded (liberal construction in favor of taxpayer) from LA sales/use tax. Or is it subject to double taxation (purchase of limestone and again as sale of ash)? Appeal pending before LA Supreme Court. • False Claims Act/Qui Tam Actions: People v. Sprint Nextel Corp (NY), multitude of cases filed in IL, along with DE seeking unclaimed property against “sham” gift card entities. • Food Preparation Qualifies as Manufacturing: Aztec v. Dep’t of State Revenue, No. 49T10-1210-SC-00067(Ind. Jun. 23, 2015), Electricity used to power equipment used to prepare food qualified for consumption exemption.

32. Property Tax Update

33. Property Tax Burden – Global Perspective • Taxes on property as a % of GDP • (OECD figures - 2012): • United Kingdom 4.2 • Canada 3.3 • USA 3.0 • Israel 2.9 • Korea 2.8 • Japan 2.7 • Australia 2.3 • New Zealand 2.1 Source: International Property Tax Institute

34. Importance of Property Tax as State & Local Government Revenue Source 31% 29% 38% 39% 28% 12% 34% 38% 31% 37% 35% 34% 28% 27% 30% 33% 28% 36% 29% 38% 26% 33% 20% 28% 3.5% 34% 43% 31% 21% 65% 31% 26% 28% 37% 19% 26% 45% 17% 41% 19% 38% 34% 32% 48% 18% 27% 17% 27% 21% LEGEND 32% 17% Lowest Middle Highest 18% 38%

35. Funding Public Education • Approximately 70% of the revenue from local property taxes are used to fund public K-12 education. • Over 90% of the local property taxes in Texas and Illinois fund public K-12 education • Rhode Island and Vermont use less than 10% • However, local property taxes, on average, only fund 36% of public education -- other local revenue and state taxes pick up 54% -- the federal government contributes 10% Sources: National Center for Education Statistics (2011-2012) and U.S. Census – Public Ed. Finances 2005

36. Property Taxes Make Up Largest Portion of Business SALT 36

37. WA ME MT ND MN OR VT NH ID WI SD MI MA NY WY CT RI PA IA NV NE NJ OH IN DE IL UT MD CA WV CO VA KS DC MO KY NC TN OK AZ NM AR SC GA AL MS AK TX LA HI FL Types of Personal Property Taxed – All States Tax Real Property LEGEND Only Personal Property (Not Inventory) Personal Property Including Inventory Partial Personal Property or Phase-Out No Personal Property Tax Note: IA and NY tax some personal property as real property

38. Property Tax Rate Disparity Scenario: Property tax manager for a company has been asked to look at the following locations to build a plant. The facility will cost $25 million, 50/50 split between real and personal property. Where would you build the plant? Lowest Tax Locations (50 largest US Cities) • Seattle, WA $284.9k in yearly property taxes Eff. Tax Rate: 1.14% • Virginia Beach, VA $293.1k in yearly property taxes Eff. Tax Rate: 1.172% • Raleigh, NC$308.0k in yearly property taxes Eff. Tax Rate: 1.232% Highest Tax Locations (50 largest US Cities) • Detroit, MI $1,264.3k in yearly property taxes Eff. Tax Rate: 5.057% • New York City, NY $1,189.9k in yearly property taxes Eff. Tax Rate: 4.76% • Chicago, IL $1,158.1k in yearly property taxes Eff. Tax Rate: 4.632% Source: Lincoln Land Institute & Minnesota Center for Fiscal Excellence, 2015 50-State Property Tax Comparison Study

39. Valuation Issues • Obsolescence • Location, outdated process, recession, government regulation, etc. • Financing value versus arms length valuation • Sale/leaseback transactions • Value in use versus value in exchange • Agricultural land versus manufacturing site • Excluding intangible values • Centrally assessed properties (public utility & former public utility properties) • Exemptions • Documentation (e.g., Freeport exemptions) • Comparable sales • Vacant property issues and location (proximity) of comparable property • Third-Party appeals • Some school districts and other government agencies have separate appeal right • Contingency audits • Correct value versus highest value and confidentiality

40. “Big Box” Retail Stores Litigation • 2008 U.S. recession not only impacted residential property values, commercial properties also hit • Meijer Stores LP v. Marion County Assessor, Indiana Board of Tax Review, decided 12/1/2014 • Court allowed use of comparable sales that favored property owner’s comparable sales to that used by the assessor • Multiple years were at issue, with tax paid, creating fairly large refund issues • Indiana’s legislature reacted by passing H.B. 436 • Legislation limits use of comparable sales when property is less than 10 years old • COST approach is the preferred approach for such properties • J.C. Penney v. City of Grandville, Michigan Tax Tribunal, decided April 10, 2015 • Court rejected property owner’s use of comparable sales to lower value • Court also rejected assessors of the cost approach to increase value • Court used modified income approach to essentially restore value to original assessment amount • Michigan legislature has legislation pending that would prohibit use of restrictive covenants based on them creating issues with blight

41. Controlling Property Tax Increases Welcome Stranger Control – Valuation Caps Example – 2% cap until property sold – 2% tax rate – Similar properties Alternative – Tax Rate Controls Example - $1million valuation base year 1; 1.5% tax rate; net $15,000 tax; maximum growth 2% Year 2 – 10% increase in valuation base - ($15,000*1.02) / $1,100,000 = $15,300 / $1,100,000 New tax rate for year 2 – 1.39%

42. The Bad Not based on ability to pay Valuations can be subjective Complex appeals and battle over appraisals Refunds create budget issues Property Tax – Good versus Bad The Good • Stable revenue source • Mass appraisal valuation data • Fairly easy to administer • Funds local government operations

43. Good Property Tax Administrative Practices COST and the International Property Tax Institute (IPTI) collaborated to put together a 2014 International Property Tax Scorecard grading national and subnational jurisdictions’ property tax administration practices. • Three core areas for good property tax administration: • Transparency • Simplicity • Fairness 43

44. Transparency • Centralized Website – Provide taxpayers with easy access to property laws, regulations, and forms fro filing tax documents and exemption requests • Explanation of Tax – Layperson understand tax, including appeals process • Actual Notice – Mailing of valuation changes, including appeal process • Compare Properties – Provide assessor’s valuation for public to see (excluding confidential information) • Arizona’s overall transparency grade - B

45. Simplicity & Consistency • Central Oversight – Central control over all actions of local assessors, including reviewing rolls and issuing mandatory procedures and forms • Standardization– Standardized forms and due dates for filing and making payments • De Minimis Exclusion – Very important for small amounts of personal property • Equal Assessment – Between residential and business and business to business • Appraisal Cycle – Actual appraisal every 2/3 years • Exclude Intangibles – Good will, etc. should not be in property tax base • Arizona’s overall simplicity & consistency grade - C

46. Procedural Fairness • Equal Interest Rate – Interest should reflect time value of money • Adequate Appeal Period – Ideally at least 60 days from notice of valuation change • Burden of Proof – Unlike other taxes, assessor often has more valuation information than property owner • De Novo Appeal – Appeal to independent tribunal should not restrict issues or information available for court to review • Escrow/Defer Pay – Paying disputed tax value creates revenue issue for local governments when overpayments are refunded • Arizona’s overall procedural fairness grade - C

47. Nexus

48. Factor Nexus Crutchfield, Inc. (Ohio BTA App. 2/26/2015) Newegg, Inc. (Ohio BTA App. 2/26/2015) & Mason Companies (Ohio BTA App. 4/20/2015) • In 2005, Ohio was the first state to adopt a version of the MTC’s factor nexus provision (adopted by the MTC in 2002) that only applies to Ohio’s Commercial Activity Tax (CAT) • $500,000 in annual sales; • $50,000 in property or payroll; or • More than 25% of the above sourced to Ohio • In 2014, the Ohio Supreme Court was set to hear L.L. Bean, Inc.’s case that raised issues with the constitutionality of Ohio’s factor nexus provision – in November, 2014 that case was settled • Ohio BTA cannot address constitutional issues – only held the Ohio Dept. of Taxation followed the statute • Should have decision early next year • Court will have to address Quantitative v. Qualitative factors to establish sufficient contacts under Due Process Clause and substantial nexus under Commerce Clause

49. Economic Nexus – Disregarding Legal Entity Gore Enterprise Holdings, Inc., Case No. 36 (MD Ct. App. Mar. 24, 2014). • W. L. Gore & Associates (“Gore”), a manufacturer with Maryland operations, wholly owned Gore Enterprise Holdings, Inc. (“GEH”), engaged in intercompany licensing of intangible property / patents, and Future Value, Inc. (“FVI”), an investment company and intercompany lender. Neither GEH nor FVI had a physical presence in the state and did not file Maryland income tax returns. • Court found GEH and FVI to be subject to Maryland income tax under the principle that they had no real economic substance that created “nexus sufficient to justify taxation [] from the economic reality that a parent’s business in the taxing state produces a subsidiary’s income.” • The court further upheld the Comptroller’s attribution of Gore’s Maryland apportionment factor to GEH and FVI.

50. Economic Nexus – Saga In Maryland Continues ConAgra Brands, Inc. v. Comptroller, Case No. 09-IN-00-0150 (MD Tax Ct. Feb. 24, 2015) (pending review at MD circuit court). • Maryland’s Tax Court affirmed MD Comptroller's assessment against a intangible holding company, holding the subsidiary lacked any real economic substance separate from its parent. The court followed the Maryland’s Court of Appeal (highest court) decision in Gore. • Fortunately, the Tax Court abated the penalties and interest accrued during ConAgra Brand’s appeal based on the murkiness of Maryland’s law and the taxpayer having a good-faith basis in challenging the Comptroller’s assessment. • Can this case be distinguished from the ConAgra Brands case in West Virginia where the taxpayer was not found to have substantial nexus? • This may not be the last case we see, there are several other cases pending before Maryland’s Tax Court and Maryland’s Governor Hogan (R) has requested $1 million more for the Comptroller’s budget to produce an additional $12 million in state revenue—largely based from the Gore decision.