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Texas ~ Corporate Income Tax: Senate Passes Bill to Extend Exemption Threshold

Cch — Thu, 23 May 2013 10:36:27 +0000

The Texas Senate passed a bill that would create a $600 million franchise tax cut for businesses in Texas and create a permanent exemption for small businesses. H.B. 500 would make permanent the $1 million exclusion to the Texas franchise tax, up from the previous floor of $600,000. It would also implement a two-year, 5% across the board tax cut for all businesses in Texas, regardless of size.

The Texas House of Representatives passed the bill on May 8, 2013, and Gov. Rick Perry has indicated that tax relief is a top priority. (TAXDAY, 2013/05/10, S.25 )

H.B. 500 , as passed by the Texas Senate May 21, 2013; Release , Texas Senate, May 22, 2013

Iowa ~ Sales and Use Tax: Affiliate Nexus Bill Passes House

Cch — Thu, 23 May 2013 10:35:27 +0000

A bill has passed the Iowa House of Representatives that would, if enacted, add affiliate nexus provisions to Iowa sales and use tax laws. The bill was previously reported on in detail upon introduction. (TAXDAY, 2013/03/26, S.5 ) H.F. 626 … Continue reading →

Alaska ~ Corporate Income Tax: Oil and Gas Service Industry Credit Enacted

Cch — Thu, 23 May 2013 10:34:31 +0000

Alaska Gov. Sean Parnell has signed legislation creating a nonrefundable oil and gas service industry credit that may be claimed against corporation net income tax liability for manufacturing expenses incurred in Alaska attributable to depreciable property for use in the exploration or production of oil or gas deposits. The credit is effective for tax years after 2013. Provisions of the legislation relating to oil tax reform are covered in a separate story. (TAXDAY, 2013/05/22, S.2 )

The maximum credit a taxpayer may claim in a tax year is equal to the lesser of 10% of qualified oil and gas service industry expenditures incurred in the state during the tax year or $10 million. However, the credit may not reduce the taxpayer’s Alaska income tax liability to below zero. Any unused credit may be carried forward for up to five years.

An expenditure that is the basis of the credit also may not be the basis for any other corporate income tax deduction or portion of any federal credit claimed under Alaska income tax law.

S.B. 21 , Laws 2013, effective as noted

Limitations Period Precluded Deficiency Against Virgin Islands Resident Filing Territorial Returns (Appleton, Jr., TC)

Cch — Thu, 23 May 2013 10:33:31 +0000

The statute of limitations prevented the IRS from assessing deficiencies against a U.S. citizen who was a permanent resident of the U.S. Virgin Islands because the territorial returns he filed served as properly filed federal income tax returns, triggering the running of the limitation period. The taxpayer filed returns with the U.S. Virgin Islands Bureau of Internal Revenue (VIBIR) for the three years at issue. However, he did not file returns separately with the IRS, claiming exemption under Code Sec. 932(c)(4) . The VIBIR forwarded copies of the taxpayer’s returns to the IRS. More than three years after the filing of the returns with the VIBIR, the IRS issued a notice of deficiency to the taxpayer.

The taxpayer asserted that: (1) he was a bona fide resident of the Virgin Islands, (2) he reported all income to the VIBIR, and (3) he fully paid his tax liability to the VIBIR with respect to that income. Therefore, the taxpayer argued, having met the three conditions of Code Sec. 932(c)(4) , he was not required to file a federal tax return. Further, he argued, the statute of limitations set forth in Code Sec. 6501(a) barred the deficiency notice.

The court assumed failure by the taxpayer to meet the requirements of Code Sec. 932(c)(4) in analyzing the limitations issue. The IRS argued that the taxpayer had not filed federal returns as required by Code Sec. 6012 , thus precluding application of the statute of limitations. However, the forms filed by the taxpayer constituted returns, and regulations applicable to the years at issue stated that filing returns with the VIBIR was the proper procedure to file a federal income tax return for permanent residents of the Virgin Islands such as the taxpayer.

A related decision is at 2011-1 ustc ¶50,429 .

A.I. Appleton, Jr., 140 TC —, No. 14, Dec. 59,543

Other References:

Code Sec. 932

CCH Reference - 2013FED ¶28,281.11

Code Sec. 6012

CCH Reference - 2013FED ¶35,150.026

Code Sec. 6501

CCH Reference - 2013FED ¶38,963.79

Tax Research Consultant
- CCH Reference – TRC INTL: 24,100
- CCH Reference – TRC INTL: 24,102.05

Indian-Tribe-Owned Corporation Not Exempt from Tax; Invalid Consolidated Returns Where No Affiliated Group Existed; Employee Expense Deductions Reduced by Indian Employment Credit (Uniband, Inc., TC)

Cch — Thu, 23 May 2013 10:31:23 +0000

A state-chartered corporation that was wholly owned by an Indian tribe was a separate and distinct entity from the tribe and was not exempt from corporate income tax. Even though Indian tribes are not subject to federal income tax, the taxpayer, as a corporation chartered in Delaware, was a separate taxable entity and it was not an integral part of its owner. The taxpayer also was not entitled to sovereign immunity derived from the tribe.

The corporation was not chartered by the tribe and it did not demonstrate that it was established to promote the tribe’s economic development as opposed to simply generating revenue or that it was funded by the tribe. Being an Indian tribal organization also did not mean that the taxpayer was an integral part of the tribe for federal income tax purposes. Moreover, the taxpayer differed radically from a section 17 corporation, which is exempt from federal income tax.

In addition, the consolidated returns filed by the taxpayer and sister company for the years at issue were invalid since the tribe, as the sole owner of the two corporations, was not a corporation, and therefore was not eligible to join in the filing of the consolidated returns. As a result, the taxpayer and the sister company did not constitute an affiliated group of corporations. Even if the tribe were treated as a corporation, the consolidated returns would still have been invalid because the tribe, as the common parent, neither made the returns nor joined in the returns and therefore never consented to them. In addition, the tribe’s income, gain, deductions, loss and credits did not appear on the consolidated returns and subsidiaries are not entitled to file a consolidated return that does not include the common parent’s tax items for the consolidated return year.

Finally, the taxpayer’s wage and employment expense deductions for the years at issue should have been reduced, pursuant to Code Sec. 280C , by the Indian employment credit amount determined under Code Sec. 45A without regard to limitations on the allowable amount of the credit. The Indian employment credit is not elective, and the determination of the credit amount under Code Sec. 45A , and consequently, the deduction limitation under Code Sec. 280C , occur independently of whether the general business credit is fully allowed under Code Sec. 38(a) or limited by Code Sec. 38(c)(1) .

Uniband, Inc., 140 TC —, No. 13, Dec. 59,542

Other References:

Code Sec. 11

CCH Reference - 2013FED ¶3375.01

Code Sec. 45A

CCH Reference - 2013FED ¶4440.01

Code Sec. 280C

CCH Reference - 2013FED ¶14,954.01
CCH Reference - 2013FED ¶14,954.12

Code Sec. 1502

CCH Reference - 2013FED ¶33,168.57
CCH Reference - 2013FED ¶33,168.724

Code Sec. 7701

CCH Reference - 2013FED ¶43,084.20

Tax Research Consultant
- CCH Reference – TRC STAGES: 24,102
- CCH Reference – TRC STAGES: 24,200
- CCH Reference – TRC BUSEXP: 54,700
- CCH Reference – TRC CONSOL: 7,000
- CCH Reference – TRC CONSOL: 9,000