New Hampshire ~ Miscellaneous Tax: Superior Court Holds Medicaid Enhancement Tax Unconstitutional

In a challenge by three hospitals to the New Hampshire Medicaid enhancement tax (MET), a state superior court held that the MET violated the equal protection clause of the New Hampshire Constitution. The hospitals argued that the MET was unconstitutional because it taxed hospitals but not non-hospitals, despite the fact that the two provided oftentimes identical medical or health services. The court noted that in contrast to other health care laws, the MET did not limit expenditure of funds collected from hospitals on uncompensated care payments to hospitals. Instead, the MET called for about 50% to lapse to the general fund. The Department of Revenue Administration had failed to articulate a sufficient basis for requiring hospitals, but not non-hospitals, to pay a tax on their net patient services revenue where only a portion of the money was reserved for hospital-related purposes. The court concluded that hospital and non-hospital health service providers were similarly situated taxpayers that impermissibly received discriminatory treatment under the MET. Further, there was no rational basis to support the imposition of the MET on hospitals but not non-hospitals. Finally, the court would not sever any portion of the MET, but found it unconstitutional on its face and in its entirety.

Catholic Medical Center v. N.H. Department of Revenue Administration, New Hampshire Superior Court, Nos. 216-2011-CV-00955, 216-2011-CV-00850, and 218-2011-CV-01394, April 8, 2014, ¶200-883

 

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Missouri ~ Sales and Use Tax: Sales of Hot Air Balloon Rides Not Taxable

The Missouri Supreme Court, in reversing part of a decision of the Administrative Hearing Commission (AHC), held that a company’s sales of hot air balloon rides, including those purchased directly from the taxpayer in Missouri and those purchased by flight certificates from an out-of-state third-party vendor, were not subject to Missouri sales tax because the taxes on those gross receipts were state taxes on “air commerce,” which were prohibited by the federal Anti-Head Tax Act (AHTA). The court looked at various statutes, regulations and guidelines and held that the operation of untethered, pilot-driven hot air balloons had the potential to endanger safety in interstate air commerce. Indeed, if hot air balloons did not have the potential to endanger safety in interstate commerce, then the Federal Aviation Administration (FAA) could not regulate them under its broad authority to regulate air safety. But the FAA does regulate hot air balloons, which demonstrated to the court that hot air balloons did have the potential to endanger safety in interstate air commerce. Because hot air balloons had the potential to endanger safety in interstate commerce, they fell within the definition of “air commerce” and were not taxable. The taxpayer’s claim that it did not owe sales taxes on balloon rides sold by out-of-state third-party vendors under the resale exemption in §144.210.1, RSMo, was rendered moot by the finding that none of its sales were subject to tax. Accordingly, the rulings by the AHC on the taxpayer’s claims for a refund on sales taxes and assessment of future sales tax were reversed. However, the court upheld the use tax assessment on the company’s out-of-state purchase of the hot air balloon and inflator fan because the taxpayer was not a common carrier for use tax exemption purposes.

Balloons Over The Rainbow, Inc. v. Director of Revenue, Missouri Supreme Court, No. SC93039, April 15, 2014, ¶203-876

 

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California ~ Multiple Taxes: Governor Calls Special Session for Rainy Day Fund

California Gov. Edmund G. Brown has issued a proclamation calling the Legislature into extraordinary session on April 24, 2014, to replace a rainy day fund proposal on the November 2014 ballot with a “dedicated reserve that would allow the state to pay down its debts and unfunded liabilities.” The current ballot proposal, which was approved by the Legislature in 2010, “does not address the volatility of capital gains revenue, does not provide a reserve for schools to help cushion future downturns and constrains the state’s ability to pay down long-term liabilities.” Among other things, the governor proposes an increase in rainy day fund deposits “when the state experiences spikes in capital gains revenues, the state’s most volatile tax revenue.”

 

 

Release, Office of California Gov. Edmund G. Brown, April 16, 2014

 

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CCH Tax Briefing: 2014 Post-Filing Season Update

With all the focus on compliance during the return filing season, practitioners and their clients may have only skimmed some of the important federal tax developments that have occurred since the start of 2014. The latest CCH Tax Briefing, 2014 Post-Filing Season Update, is designed to bring you up to speed on federal tax developments in January, February, March and early April 2014, with pointers on how these developments may unfold, and how they may affect taxpayers and the next filing season.

 

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Koskinen Says IRS Will Move Ahead on Clarifying Code Sec. 401 (c) (4) Rules

The IRS has no intention of dropping proposed rules on tax-exempt groups (NPRM REG-134417-13, TAXDAY, 2013/11/27, I.5); rather, it plans to clarify the language to make the rules less controversial, IRS Commissioner John Koskinen said in an April 16 interview with The Washington Post.

“My bottom line is that it’s in everyone’s interest to have clarification,” Koskinen told the Post. “My position since I started more than four months ago is that we ought to have clarity, and that any rule that comes out ought to be fair and easy to administer.” Although he shed little light on what the revised guidelines would look like, Koskinen did reveal that the Service will hold a hearing on the subject sometime in midsummer, and that he expects the rule-making process to continue through the end of the year.

Senate Finance Committee member Pat Roberts, R-Kan., claimed in an April 15 press release that the legislation he co-authored with Rep. Jeff Flake, R-Ariz., the Stop Targeting of Political Beliefs by the IRS Bill of 2014 (Sen 2011), led Koskinen to drop the proposed rules.

“Just last week I asked IRS Commissioner Koskinen to scrap the rules once and for all,” said Roberts in the release.”I am pleased the Commissioner has come to agree with me and Senator Flake that the agency must stop all actions on these regulations given the controversy and ongoing investigations into the IRS’ unlawful abuse of conservative groups.”

The Flake-Roberts bill would protect Code Sec. 501(c)(4) organizations by prohibiting for one year the finalization of the proposed regulation, which would set guidelines for the advocacy and educational activities of these groups. The bill also would prevent additional targeting of Code Sec. 501(c)(4) organizations by restoring the standards and definitions that were in place before the start of the Service’s targeting of conservative groups in 2010.

By Jeff Carlson, CCH News Staff

 

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