Oklahoma ~ Corporate, Personal Income Taxes: Headquarters Requirement for Capital Gains Deduction Upheld

The Oklahoma Supreme Court, in reversing the Oklahoma Court of Civil Appeals, affirmed the order of the Tax Commission that denied the capital gains deduction available against corporate and personal income tax liabilities under 68 O.S. §2358(D) claimed by the taxpayer since the taxpayer was not headquartered in Oklahoma for three years prior to the sale. (TAXDAY, 2014/06/19, S. 23)

Under Oklahoma law, companies primarily headquartered in Oklahoma are provided a three-year holding period for sales to qualify for capital gains treatment. However, companies that do not meet the definition of “primarily headquartered” in Oklahoma must meet a five-year holding period requirement for similar sales in order to qualify for the same capital gains treatment. The deduction was passed by the Legislature to promote significant business investment in Oklahoma’s economy. As the Tax Commissioner points out, the deduction does not target any particular industry or market and is available to a qualifying entity participating in any market or industry regardless of whether that entity participates in interstate commerce or intrastate commerce. According to the court, there is no discrimination against interstate commerce to which the dormant Commerce Clause applies, and even if the dormant Commerce Clause applies in this case, the deduction does not facially discriminate against interstate commerce, it does not have a discriminatory purpose, and the deduction has no discriminatory effect on interstate commerce.

CDR Systems Corporation v. Oklahoma Tax Commission, Oklahoma Supreme Court, No. 109886, April 22, 2014, ¶201-142


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Hawaii ~ Corporate, Personal Income Taxes: Senate Approves House Version of IRC Conformity Bill

The Hawaii Senate has approved a House of Representatives version of a bill that would generally conform Hawaii corporate and personal income tax laws to the Internal Revenue Code (IRC) as amended as of December 31, 2013, for all taxable years beginning after December 31, 2013. As previously reported (TAXDAY, 2014/04/10, S.6), the version of the bill passed by the House contains technical, nonsubstantive amendments to the version of the bill previously passed by the Senate. The bill now awaits the governor’s action.

S.B. 2886, as passed by the Hawaii Senate on April 21, 2014


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California ~ Corporate, Personal Income Taxes: FAQs on California Competes Credit Updated

Frequently asked questions (FAQs) concerning the California competes credit (CCC) against personal and corporation franchise and income taxes have been updated to address a variety of questions concerning credit eligibility, the application mechanics, the evaluation process, and claiming the credit. Specifically, the FAQs clarify the following:

— Any business can apply for the CCC. The credit is available statewide to all industries.

— The application period for fiscal year 2013/2014 is closed but the Governor’s Office for Business and Economic Development (GO-Biz) will announce future application periods prior to July 1 of each year.

— There is no fee to apply and no limit as to how many times an applicant may apply or how many times the applicant may be awarded a credit. In addition, there is no minimum amount of credit that must be awarded.

— Applicants not awarded a credit during an application period will automatically be considered during the next application period within the same fiscal year. Applicants not awarded a credit by the end of the fiscal year must reapply in the next fiscal year.

— The “Aggregate Employee Compensation Package” figure that applicants must include in the application is an estimate of the total projected salaries of the new full-time employees hired in California by a business over a period of up to 5 years compared to the “base year” of existing employees employed in California by the business (determined on an annual full-time equivalent basis). It does not include the compensation paid to existing employees and does not include the reimbursements, rebates, tax credits, or other incentives related to the compensation paid. Only employees working a minimum of 35 hours per week may be included.

— The $2 million cap beyond which taxpayers will not be considered a small business eligible for the 25% credit set aside is based on a taxpayer’s total worldwide gross receipts. If a taxpayer is a member of a combined reporting group, the group’s gross receipts is used to determine if the $2 million cap has been exceeded. If the taxpayer is a sole proprietorship with more than one Schedule C business, each Schedule C business is treated separately for purposes of determining whether the $2 million cap has been exceeded.

— The application evaluation process is divided into two phases. The Phase I evaluation is a quantitative analysis in which the credit amount requested is compared to the hiring and investment commitments of each applicant. Phase II brings into consideration a variety of qualitative factors, including local unemployment, competing incentives, economic impact, and industry outlook. Phase II allows for a discretionary balancing of these factors based on the varied regional needs within California. The following criteria, among others, will be considered during the Phase II of the evaluation process: whether the applicant is in a new industry/sectors emerging, whether other grants/incentives are available to the applicant, whether the applicant has local government support, and whether the applicant has a good idea as to where the project will be located (a signed lease is not required).

— GO-Biz may automatically move an application to Phase II if the owner, president, chief executive officer, chief financial officer, or other equivalent person of the applicant certifies to GO-Biz that absent consideration for the credit the applicant is at risk of terminating or relocating its employees to another state.

— GO-Biz is subject to the California Public Records Act (PRA). Technically, the applications could be subject to a PRA, but GO-Biz will work to protect the information by excluding proprietary information, financial information, and trade secret type information. GO-Biz will also apply the balancing test to protect the information, as needed. GO-Biz will notify an applicant in the event their data is requested and will work with the applicant to protect the data, to the extent GO-Biz can.

California Competes Tax Credit FAQ, California Office of Business and Economic Development (GO-Biz), April 8, 2014, ¶406-126


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Sustaining Levy Not Abuse of Discretion; IRS Not Required to Levy Trust (Kraft, TC)

An IRS settlement officer (SO) did not abuse her discretion in sustaining a proposed levy action on an individual’s income. The SO was not required to grant the individual’s request to levy his irrevocable spendthrift trust, which he proposed as an substitute asset.

Although taxpayers with self-reported tax liability generally are not considered to have had an opportunity to dispute the liability, the individual failed to raise his underlying tax liability at his Collection Due Process (CDP) hearing. Moreover, he only contended that the CDP hearing was inappropriate because the SO did not also consider his tax liabilities for two subsequent years. Therefore, abuse of discretion was the proper standard for review.

In addition, the SO did not abuse her discretion by not considering the taxpayer’s subsequent tax years at the CDP hearing. While generally a CDP hearing with respect to one tax period will be combined with any and all other CDP hearings the taxpayer has requested, the IRS had not yet sent the taxpayer a written notice of levy for the subsequent tax years. Therefore, those years were not properly before the SO.

Further, the SO did not abuse her discretion by discussing an installment agreement as a collection alternative in her determination letter. While the taxpayer did not request an installment agreement during the CDP hearing, his Form 12153, Request for a Collection Due Process or Equivalent Hearing, indicated that he wanted to discuss an installment agreement as a collection alternative.

Finally, the SO did not abuse her discretion by refusing to levy on the taxpayer’s irrevocable spendthrift trust. Even if the IRS were inclined to specifically levy the trust, there would first need to be a thorough investigation into the status of the specific property. However, the IRS’s failure to conduct such an investigation was not the basis for overturning the SO’s determination that levying on the individual’s income was the least intrusive way to collect the tax debt.

B.M. Kraft, 142 TC —, No. 14, Dec. 59,884

Other References:

Code Sec. 6330

CCH Reference – 2014FED ¶38,184.12

CCH Reference – 2014FED ¶38,184.62

Tax Research Consultant

CCH Reference – TRC IRS: 51,056.25


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Push for Federal Gas Tax Hike Heats Up as Highway Funding Deadline Near

Two lawmakers sitting on the tax-writing committees in both chambers are aggressively pushing for a federal gas tax increase to help sustain the Federal Highway Trust Fund (HTF), which gets its revenue from gasoline taxes. Both say the need is urgent as the trust fund is set to run out of cash by August (TAXDAY, 2014/04/17, C.3).

Sen. Tom Carper, D-Del., who chairs the Transportation and Infrastructure Subcommittee of the Senate Environment and Public Works Committee, which is responsible for writing a new bill to renew surface transportation projects, supports raising the 18.4-cent federal gas tax three or four cents a year for up to four years, then linking increases in the tax to increases in inflation. He also plans to discuss with members of the committee other ways to come up with the funds.

“I think it’s one of those things where people know we have to summon the political courage to do something,” Carper said recently in an interview with Gannet News Service. “Ultimately, I may come out of those meetings and say, “There is no appetite for doing anything until after the election.” Maybe that will be the case. I hope not.”

Carper has pointed out that, while the gas tax – which funds transportation programs – has not changed since 1993, the price of steel, concrete, asphalt, and labor has gone up. And, Americans are driving more fuel-efficient vehicles, including hybrids, so they are using less gas and generating less revenue to fund transportation programs. Carper has not, however, proposed any formal legislation to address the issue.

In the House, Rep. Earl Blumenauer, D-Ore., proposed legislation in December 2013, the Update, Promote, and Develop America’s Transportation Essentials (UPDATE) Bill (HR 3636), to increase the gas tax by 15 cents over three years, then index it to inflation. He also plans to take his case to the House Ways and Means Committee which is expected soon to hold a hearing on transportation financing.

Because Congress did not index the gas tax to inflation, it has not kept up with spending since it was last raised in 1992. “By increasing the gas tax by 15 cents, which is what has been recommended by multiple bipartisan budget commissions, my legislation basically makes the same change that would have occurred had we tied the gas tax to inflation back in the early 1990s,” said Blumenauer about his bill.

Blumenauer’s bill would increase the rate of tax on gasoline other than aviation gasoline to 33.3 cents per gallon after 2015 and before 2025, diesel fuel or kerosene to 39.3 cents per gallon after 2015 and before 2025, and diesel-water fuel emulsion. It would delay the termination of the increased rates from the end of fiscal year 2016 to December 31, 2024. The measure also would impose a floor stocks tax on rate increases for gasoline, diesel fuel and kerosene (other than aviation-grade kerosene), subject to specified exemptions for exempt uses and low-volume producers.

Blumenauer’s bill has support from organizations across the political spectrum. It is supported by the Chamber of Commerce, the American Public Transit Association, Transportation for America, the AAA, the American Road and Transportation Builders Association, the American Trucking Association, and several labor organizations. Other lawmakers have also expressed their concern over the rapidly approaching deadline for funding the highway trust fund. Senate Budget Committee Chairman Patty Murray, D-Wash., said figures recently released by the Transportation Department highlight the urgency of the situation and must be taken seriously by lawmakers (TAXDAY, 2014/04/17, C.3). In the House, Rep. Bill Schuster, R-Pa., has held several hearings of the House Transportation Committee to determine a path forward.


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