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INSIDE SALT
In-Depth Coverage of Issues Surrounding State and Local Tax
INSIDE SALT
In-Depth Coverage of Issues Surrounding State and Local Tax
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Is 2015 the Beginning of Mandatory Single Sales Factor Apportionment for D.C. Taxpayers?

by and | Aug 13, 2014 | , , , , ,

On July 14, 2014, the Fiscal Year 2015 Budget Support Emergency Act of 2014 (2015 BSEA) was enacted after the D.C. Council voted to override Mayor Vincent Gray’s veto.  The act includes a tax relief package recommended by the D.C. Tax Revision Commission, and includes a change to D.C.’s apportionment formula, moving the city to single sales factor apportionment.

Since January 1, 2011, D.C. has required taxpayers to apportion their business income by the property-payroll double-weighted sales factor formula.  D.C. Code Ann. § 47-1810.02(d-1).  Among the provisions enacted in the 2015 BSEA, the District will require the apportionment of business income via a single sales factor formula, starting with tax years beginning after December 31, 2014.  D.C. Act 20-0377, § 7012(c)(10) (2014).  While the 2015 BSEA has only a temporary effect and expires on October 12, 2014, it serves as a stopgap until the process of enacting the permanent version, the Fiscal Year 2015 Budget Support Act of 2014 (2015 BSA) is completed.  (See the single sales factor apportionment provision at D.C. Bill 20-0750, § 7012(a)(10) (2014).)  The 2015 BSA has not yet been enrolled and transmitted to the mayor.  After the mayor signs the 2015 BSA or the D.C. Council overrides his veto, the 2015 BSA will be sent to Congress for review.  If Congress and the President do not enact a joint resolution disapproving of the 2015 BSA, the 2015 BSA will become law, and the switch to single sales factor apportionment will be effective as of January 1, 2015. 

Even with this legislative change, D.C. taxpayers may have an argument for apportioning their business income under the three-factor apportionment formula.  In 1981, the District adopted the Multistate Tax Compact (Compact) as 1981 D.C. Law 4-17.  The Compact provides for the use of the evenly weighted three-factor sales-property-payroll formula.  Multistate Tax Compact, art. IV, sec. 9.  The Compact permits the taxpayer to elect to apportion his business income under the city’s apportionment formula or under the Compact’s three-factor formula.  Multistate Tax Compact, art. III, sec. 1.  In 2013, D.C. repealed and reenacted the statute codifying the Compact, D.C. Code § 47-441.  However, D.C. did not re-enact Article III, Elements of Income Tax Laws, and Article IV, Division of Income.  The repeal of the two articles was effective as of July 30, 2013.  D.C. Act 20-130, §§ 7342(a), (b) (2013); D.C. Act 20-204, §§ 7342(a), (b) (2013); D.C. Law 20-61, §§ 7342(a), (b) (2013).

D.C. repealed and reenacted the Compact in reaction to litigation involving taxpayers that elected to use the three-factor apportionment formula under the Compact instead of the state-mandated apportionment formulas.  See Gillette Co. et al. v. Franchise Tax Bd., 209 Cal.App. 4th 938 (2012); Int’l Bus. Mach. Corp. v. Dep’t of Treasury, No. 146440 (Mich. Jul. 14, 2014); Health Net, Inc. v. Dep’t of Revenue, No. TC 5127 (Or. T.C. 2014).  The California Court of Appeal and Michigan Supreme Court have upheld the taxpayers’ use of the Compact election.

Following the theories being advanced in [...]

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Illinois Appellate Court’s Expansive Interpretation of a Taxing Ordinance Swallows a Sale for Resale Exemption

by | Jul 30, 2014 | , , , , ,

The First District of the Illinois Appellate Court, in Ford Motor Company v. Chicago Department of Revenue, 2014 IL App (1st) 130597 (June 27, 2014), recently held that Ford Motor Company (Ford) owes City of Chicago vehicle fuel tax on 100 percent of the fuel it purchased and dispensed into the tanks of cars it manufactured in Chicago, even though Ford offered proof that 98 percent of the fuel was resold to car dealerships around that nation.

The court relied on the language of the taxing ordinance, which imposes tax on the “privilege of purchasing or using, in the City of Chicago, vehicle fuel purchased in a sale at retail.”  The court, focusing only on the first portion of that provision, found Ford “used” the fuel in Chicago, on the basis that “use” is defined to include “dispensing fuel into a vehicle’s fuel tank,” an activity Ford did when it transferred fuel from its storage tanks into the tanks of the cars it manufactured.

For the “sale at retail” element, defined as “any sale to a person for that person’s use or consumption and not for resale to another,” the court rejected Ford’s argument that it resold 98 percent of its purchased fuel to dealerships on the basis that Ford had introduced insufficient proof.  The court disregarded Ford’s sample invoice that included a line item charge for 10 gallons of fuel because a supporting affidavit from Ford did not confirm that the invoiced amount was the amount actually in the tank of that specific car at the time of delivery.  The court then, somewhat presumptively, inferred that the invoiced amount must be the amount that Ford initially dispensed into the car, before consuming some fuel during delivery, so that “the amount invoiced was to reimburse Ford Motor Company for fuel that it purchased and used to produce and prepare its new cars for delivery. …”  Additionally, the court considered Ford’s failure to rebut the City’s evidence that no Ford dealership in Chicago had remitted fuel tax consistent with the conclusion that Ford was not reselling fuel; the court did not cite any authority for the proposition that subsequent tax collection is a necessary element of the statutory “resale” provision.

Ford also raised constitutional concerns that were not considered very seriously by the court.  For example, was there sufficient nexus between the City and Ford’s use of the fuel placed into cars it transferred to dealerships?  Moreover, the court did not consider the conceptual tax issue of pyramiding, as the ultimate vehicle purchaser will presumably pay tax (in almost all locations in the country) on the full price paid for the vehicle, which will cover the cost of the fuel.  In any event, by focusing on the “use” and not the “resale” aspect of the taxing ordinance, the court fails to consider that the ordinance may not apply to Ford at all.



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If At First You Don’t Succeed, Try, Try Again: Illinois General Assembly Sends Revised Version of Click-Through Nexus Law to the Governor for Signature

by and | Jul 30, 2014 | , , , , ,

In 2011, Illinois became one of the first states to follow New York’s lead by enacting “click-through nexus” legislation.  The Illinois law created nexus for any out-of-state retailer that contracted with a person in Illinois who displayed a link on his, her or its website that had the ability to connect an Internet user to the remote retailer’s website, when those referrals generated over $10,000 per year in sales.  Pub. Act 96-1544, §§5, 10 (eff. Mar. 10, 2011) (codified at 35 ILCS 105/2(1.1) and 35 ILCS 110/2(1.1) (West 2010).  On October 13, 2013, the Illinois Supreme Court held that the click-through nexus law violated the Internet Tax Freedom Act (ITFA) by imposing a discriminatory tax on electronic commerce.  Performance Marketing Ass’n v. Hamer, 2013 IL 114496.  The court held that the statute unlawfully discriminated against Internet retailers by imposing a use tax collection obligation based only on Internet referrals but not on print or over-the-air broadcasting referrals.  The court did not reach the question whether the law also violated the Commerce Clause of the United States Constitution (although the trial court had also rejected the law on this basis).

In its recently completed Spring 2014 legislative session, the Illinois General Assembly approved an amendment to the click-through law that was designed to correct the deficiencies found by the Illinois Supreme Court.  SB0352 (the Bill).  The Bill expands the definition of a “retailer maintaining a place of business in this State” under the Illinois Use Tax and Service Occupation Tax Acts (Acts) to include retailers who contract with Illinois persons who refer potential customers to the retailer by providing a promotional code or other mechanism that allows the retailer to track purchases referred by the person (referring activities).  The referring activities can include an Internet link, a promotional code distributed through hand-delivered or mailed material or promotional codes distributed by persons through broadcast media.  The Bill goes on to provide that retailers can rebut the presumption of nexus created by the use of promotional codes or other tracking mechanisms by submitting proof that the referring activities are not sufficient to meet the nexus standards of the United States Constitution.  Presumably, under the principles of Scripto and Tyler, if a remote seller can demonstrate that the Illinois referrals are not “significantly associated” with its ability to “establish or maintain” the Illinois market, the presumption will be rebutted.

As amended, the Bill appears to address the ITFA concerns expressed by the Illinois Supreme Court by not singling out internet-type referrals.  It also attempts to resolve any due process constitutional concerns by providing an opportunity for retailers to rebut the presumption of nexus created by their use of referring activities.  The Bill was sent to the Illinois governor for signature on June 27.  The Bill will take immediate effect upon becoming law.

At present, four other states (Georgia, Kansas, Maine and Missouri) have click-through nexus laws that expressly extend the presumption of nexus to non-Internet based referring activities.  [...]

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Was It Wirth It? The Pennsylvania Supreme Court Sets a Low Bar for Minimum Contacts

by and | Jul 28, 2014 | , , ,

In Wirth v. Commonwealth, the Supreme Court of Pennsylvania held that Pennsylvania personal income tax applied to non-resident limited partners whose only connection with the state was the ownership of a small interest in a partnership that owned Pennsylvania property.  This ruling has weakened the effectiveness of the Due Process Clause as a defense against Pennsylvania taxation.

In 1984 and 1985, the non-resident appellants purchased interests in a Connecticut limited partnership organized solely for the purchase and management of a skyscraper located in Pittsburgh.  The appellants each owned between one-quarter of a unit to one unit of the partnership.  One unit equated to a 0.151281 percent interest.  The opinion does not indicate whether any of the numerous non-appellant partners owned significantly larger shares.  Further, all of the appellants were only passive investors and did not take “an active role in managing the [p]roperty.”  After 20 years of losses, the lender foreclosed on the property.  The appellants lost their entire investments, but the partnership reported a gain on its tax filings consisting of the unpaid balance of the nonrecourse note’s principal and the accrued interest, totaling $2,628,491,551.  As a result, the Pennsylvania Department of Revenue assessed personal income tax against the appellants, plus interest and penalties.

The appellants argued that the Commerce and Due Process Clauses prohibited the imposition of the Pennsylvania personal income tax on them.  The court did not determine whether the Commerce Clause bars the imposition of the personal income tax on these non-residents because the appellants waived this defense by not sufficiently distinguishing between the Commerce Clause and Due Process Clause arguments.

The court did reach a decision on whether the Due Process Clause would bar relief and held that the limited interest in the partnership amounted to minimum contacts with Pennsylvania.  The court agreed with the Department, which argued that the appellants’ interests, while limited, were “hardly passive” because of the large amount of money invested by each appellant, the extensive lifespan of the partnership and the partnership’s ownership of the Pennsylvania skyscraper.  (Interestingly, this statement from the court’s opinion echoes the Department’s brief; however, the Department instead describes the appellants’ actions as passive “on a technical level” and describes the appellants’ involvement with the partnership as “hardly trivial.”  The Department’s statement works to clear up confusion as to how an interest that is, by definition, passive  could not be passive, but does raise the question as to why the court would opt to affirmatively state that the appellants’ involvement was “hardly passive.”)  The court was also particularly concerned by the fact that had the appellants not had minimum contacts with Pennsylvania, any income earned by the appellants would escape Pennsylvania tax.

Practice Note: This case does not mean that other non-resident limited partners should accept Pennsylvania taxation.  Because the appellants did not adequately argue the Commerce Clause issues, this line of argument remains viable.  Further, the court’s concern with the possibility that income related to Pennsylvania property could escape Pennsylvania tax should be a question [...]

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Tax Reform in New York: Implications for Corporate America

by | Jul 17, 2014 | , , , , ,

The corporate tax reform portion of the New York State 2014–15 Budget Bill resulted in major changes for virtually all corporations—even many that are not currently New York taxpayers.  In this video (produced by SmartPros), McDermott partners Arthur Rosen, Maria Eberle, Lindsay LaCava and Leah Robinson will discuss the implications of New York State’s sweeping corporate tax reform, including changes to the Article 9-A traditional nexus standards, the combined reporting provisions, the composition of the tax bases and computation of tax, the apportionment provisions and the net operating loss calculation.

For more information on these issues, please click here for our Special Report, “Inside the New York Budget Bill: Corporate Tax Reform Enacted.”



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Allied Domecq: Nexus-Combined Reporting

by and | Jul 16, 2014 | , , ,

In Allied Domecq Spirits & Wines USA, Inc. v. Commissioner of Revenue, the Massachusetts Court of Appeals held that the parent company of a Massachusetts taxpayer could not be included in the taxpayer’s Massachusetts nexus-combined returns because the parent’s nexus with Massachusetts was a sham.  Regardless of the validity of the parent’s presence in the state, an argument exists that the nexus limitation on filing combined returns as it existed during the tax years discriminated against interstate commerce in violation of the Commerce Clause.

The parent company, ADNAC, was incorporated in Delaware and headquartered in Canada.  ADNAC carried substantial losses.  Beginning in August 1996, ADNAC engaged in activities to create a Massachusetts presence, such as reimbursing an affiliate with Massachusetts nexus for the salaries of insurance and tax employees and renting Massachusetts office space from the affiliate to house the employees.  Further, ADNAC’s Massachusetts’ affiliate transferred three internal audit department employees working in Massachusetts to ADNAC.  For the years in question, 1996 – 2004, Massachusetts required corporations to have in-state nexus in order to file combined reports and share losses with affiliated entities.  Mass. Gen. Laws ch. 63, § 32B.  As a result of these transactions, the taxpayer believed ADNAC had established nexus with Massachusetts and included ADNAC in its Massachusetts combined returns.

The Massachusetts Court of Appeals held that, because of the sham transaction doctrine, ADNAC did not have nexus with Massachusetts for tax purposes and could not file on a combined basis in the state.  The court ruled, in part, that the transactions involving insurance and tax employees were shams because two memos developed by the taxpayer’s tax department described the plan as a “state tax planning project,” indicated the favorable tax consequences of the transaction, and stated that the plan would have “no impact to the management results.”  The court viewed these communications as the taxpayer admitting that the transactions involving tax and insurance employees were conceived of entirely for tax planning purposes and for no business purpose.  While the court could not point to any documents stating a tax purpose behind the movement of the internal audit department employees to Massachusetts, the court decided that because no contemporaneous records indicated a business motivation, the court would grant the use of the sham transaction doctrine.

Practice Note:  The taxpayer did not argue that Massachusetts’ requirement of in-state nexus to file on a combined basis discriminated against interstate commerce and violated the Commerce Clause.  Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977).  Allied Domecq is similar to USX Corporation v. Revenue Cabinet, Kentucky, in which a Kentucky Circuit Court declared that a provision of Kentucky’s capital stock tax that limited to domestic corporations the ability to file on a combined basis or exclude investments in subsidiaries from its tax base discriminated against interstate commerce.  USX Corp. v. Revenue Cabinet, No. 91-CI-01864 (Ky. Cir. Ct. 1992); see also Hellerstein & Hellerstein, State Taxation 4.14[3][j] (Thomson Reuters/Tax & Accounting, 3rd ed. 2001 & Supp. 2014-1).  The court held [...]

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State and Local Tax Supreme Court Update: June 2014

by and | Jun 25, 2014 | , , , , , , , , ,

On June 10, 2014, the Supreme Court of the United States distributed three state and local tax cases for a conference to be held on June 26, 2014: Equifax, Inc. v. Mississippi Department of Revenue, Direct Marketing Association v. Brohl, and Alabama Department of Revenue v. CSX Transportation, Inc.  The Supreme Court previously agreed to hear Comptroller of the Treasury v. Wynne and determine whether Maryland’s disallowance of a credit against its county income tax for taxes paid to other jurisdictions violated the Commerce Clause.  We are eager to see if the Court will opt to hear the remaining three cases, clarifying answers to questions in the world of state taxation.

The taxpayer in Equifax filed a petition for a writ of certiorari on February 19, 2014, appealing a decision by the Mississippi Supreme Court.  The state court upheld the Mississippi Department of Revenue’s application of market-based sourcing as an alternative apportionment formula instead of the statutory cost-of-performance sourcing for apportioning the income of Equifax, a credit reporting company.  In making this determination, the court required the Mississippi chancery courts to use a highly deferential standard of review.  The Institute for Professionals in Taxation, the Georgia Chamber of Commerce and the Council On State Taxation filed amicus curiae briefs.

The Direct Marketing Association filed a petition for a writ of certiorari on February 25, 2014.  The Direct Marketing Association seeks review of a decision by the U.S. Court of Appeals for the Tenth Circuit that held that the Tax Injunction Act barred federal court jurisdiction over the Direct Marketing Association’s challenge to a Colorado sales and use tax reporting law.  The law requires remote sellers that do not collect Colorado sales or use tax and have total annual gross sales in Colorado of $100,000 or more to inform the customer at the time of sale of the customer’s use tax obligation, to send annual notices to customers who purchased $500 or more in goods from the seller and to file a report with the state regarding a customer’s total purchases.  An amicus curiae brief was filed by the Council On State Taxation.  If the Supreme Court were to hear Direct Marketing Association v. Brohl, it would likely clarify the holding of Hibbs v. Winn to better clarify the scope of the TIA’s protection.

On October 30, 2013, the Alabama Department of Revenue filed a petition for a writ of certiorari in CSX Transportation.  The Alabama Department of Revenue is challenging the U.S. Court of Appeals for the Eleventh Circuit’s decision that Alabama’s sales tax on diesel fuel discriminates against rail carriers in violation of the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act) because motor carriers and interstate water carriers are not required to pay the 4 percent sales tax.  The Supreme Court had previously issued a 2011 opinion stating that the taxpayer could challenge sales and use taxes under the 4-R Act, but the Supreme Court remanded the case to determine whether the tax was discriminatory.  Amicus [...]

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Pennsylvania Issues Draft Guidance on Market-Based Sourcing of Services

by | Jun 24, 2014 | , , ,

The Pennsylvania Department of Revenue (PA Department) released a draft Information Notice containing guidance on how to source services under Pennsylvania’s new market-based sourcing scheme for tax years beginning after December 31, 2013. 72 Pa. Stat. Ann. § 7401(3)(2)(a)(16.1)(C).  By statute, service receipts are sourced to Pennsylvania if the service is delivered to a location in Pennsylvania.  If the service is delivered both to a location in and outside Pennsylvania, the sale is sourced to Pennsylvania based upon the portion of the total value of the service delivered to a location in Pennsylvania.  In the case of customers who are individuals (other than sole proprietors), if the state or states of delivery cannot be determined for the customer, the service is deemed to be delivered at the customer’s billing address.  In the case of other customers (e.g., corporations), if the state or states of delivery cannot be determined for the customer, the service is deemed to be delivered at the location from which the service was ordered in the customer’s regular course of operations.  If the location from which the service was ordered in the customer’s regular course of operations cannot be determined, the service is deemed to be delivered at the customer’s billing address.

Despite the new statutory scheme, taxpayers have been wondering exactly what “delivery” of a service to a Pennsylvania location means.  The draft Information Notice released by the PA Department on June 16, 2014, attempts to answer that question.

According to the PA Department, delivery occurs “at a location where a person or entity may use the service.”  The PA Department believes that this definition eliminates those parties that simply pay for the service (but do not actually use it) or other intermediaries.  The PA Department’s view is that the statute’s use of billing address (for individual customers) and location of purchase or billing address (for corporate customers) are mere “defaults”—neither of which may represent the true marketplace for the service and should only be used as a last resort.

The PA Department’s guidance also addresses delivery in the context of electronically delivered services, stating that delivery may be established through IP address records or other network data.  Interestingly, the PA Department’s guidance also provides that delivery of certain electronic data services to “the cloud” or other data storage device does not constitute delivery of those services—because those locations are not considered to be the locations of the user.

While the PA Department’s guidance provides some clarity it also exemplifies the ever divergent market sourcing regimes.  See our article discussing the wide variety of market-based sourcing rules.  For example, the PA Department draft guidance contains the following example:

Taxpayer is a provider of third-party payroll processing services for Company A. Half of Company A’s employees are located in PA and half are located in New York. Company A’s headquarters and human resources functions are located in PA. Taxpayer sources all of the payroll services to PA.  Note in this example that payroll [...]

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Recent Legislation in Virginia Retroactively Amending the Addback Statute Exacerbates a Potentially Unfair Law

by | Jun 13, 2014 | , , ,

Separate return state addback statutes, such as the Virginia addback statute, can overreach to produce an unfair and potentially unconstitutional overstatement of income assigned to the state.  Recently Virginia amended its addback statute retroactively 10 years to taxable years beginning on or after January 1, 2004.  The legislation is intended to codify an administrative interpretation that significantly limited an addback exception to the extent the income received by a related member is subject to taxes based on net income or capital imposed by Virginia, another state, or a foreign government with a comprehensive tax treaty with the United States (H.B. 5001, enacted April 1, 2004).  The legislation limits the subject-to-tax exception so that it applies only on a post-apportionment basis, as illustrated in two rulings of the Commissioner, Ruling 07-153 (Oct 2, 2007) and Ruling 13-140 (July 19, 2013).

Taxpayers, in particular taxpayers that have a significant presence in unitary tax states, should not blindly add back legitimate business expenses to income where the result would be an overstatement of income.  Consider this common situation as an example: a parent corporation, a manufacturer of high-tech products, pays a royalty for technology licensed to it by an R&D subsidiary.  The R&D subsidiary is based in California, a combined report state.  The parent corporation has $1,000 in gross receipts, pays $200 in royalties to R&D subsidiary, has $600 of other expenses and a net income of $200.  The R&D subsidiary has gross receipts of the $200 in royalties, deductions for R&D expenses of $100 and a net income of $100.  Together the federal consolidated income of the two entities (as well as GAAP income) is $300.  The R&D subsidiary conducts R&D activities in California and in many foreign countries (some with U.S. tax treaties, some without) and has taxable nexus in one separate return state to which it apportions 1 percent of its net income of $100.  Here is how Virginia applies its addback statute:  Virginia adds the $200 royalty paid to the R&D subsidiary to the parent corporation’s income, but excepts from the addback 1 percent of the royalty, or $2, to reflect the separate return state.  No exception from the addback is provided for the portion of the royalty apportioned to California.  Thus, the parent corporation’s taxable income in Virginia is $398, an amount almost equal to the combined net income of the parent and the subsidiary, plus the bona fide amounts paid by the subsidiary in R&D expenses. 

Taxpayers should carefully examine returns filed in addback statute states to see if they fail a sanity test, like the result in the hypothetical example.  If the State Department of Revenue doesn’t agree to rational exceptions to the expense disallowance, there are multiple grounds for challenge in the courts. 

Plain Meaning of the Statute

A typical addback statute provides an exception when the related member is subject to tax on net income in that state, another state, or a foreign government with a comprehensive tax treaty with the United States.  Where the [...]

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You Do the Math: Unclaimed Property Lawsuit Filed Against Kelmar

by , and | Jun 9, 2014 | , , ,

Mark McQuillen, president of Kelmar Associates, LLC, was misinformed when he was quoted as saying “I’ve never been sued” on May 26—less than one week after suit was filed against Kelmar and three Delaware state officials in a Delaware Federal District Court. See 72 State Tax Notes 455 (May 26, 2014). While the timing of this statement was an unfortunate – but likely  honest – mistake, the lawsuit filed by Temple-Inland Inc. asserts the conduct of Kelmar in conducting an unclaimed property audit on behalf of the state of Delaware was anything but.

According to the complaint, Temple-Inland was initially asked to pay over $2 million to the state based on the “fatally flawed” extrapolation methodology used by Kelmar to calculate Temple-Inland’s liability (and Kelmar’s paycheck from Delaware). While the demand was reduced to $1.38 million after the plaintiff initiated administrative review, the result and details of how they got there remains alarming. Of note, Kelmar estimated that nearly $1 million was due to Delaware for the seven-year period of 1986 through 2003 after identifying a single unreported check for $147.30 during a subsequent six-year period (Complaint ¶ 84). The complaint contains countless examples of voided and reissued checks (even checks that escheated to other states) that were used in Kelmar’s extrapolation formula. Ultimately the result for Temple-Inland was a demand from Delaware alone of over $100,000 escheatable for prior year’s accounts payable, despite having only around $15,000 escheatable to all other states on these accounts for a five year period actually reviewed.

Based on these practices, Temple-Inland asserts that Kelmar and the state auditing officials have unconstitutionally applied the amendment to Delaware Escheat Law allowing for estimations of unclaimed property liability to years prior to its enactment in violation of the Ex Post Facto Clause. Along those same lines, the state penalized Temple-Inland for failing to maintain records for periods prior to 2010, when a substantive document retention requirement was imposed in the state (see S.B. 272 § 4). Nonetheless, Temple-Inland asserts that the methodology used by Kelmar violates federal common law, the Full Faith and Credit Clause, Commerce Clause and Takings Clause of the U.S. Constitution.

The opening brief filed on behalf of Temple-Inland is available here

Practice Note: While Delaware has settled every suit raising these questions and has an economic incentive to keep them from reaching what would likely be an adverse decision to the state’s (and Kelmar’s) financial interest, the discussion should not end there. Temple-Inland Inc. had a long history of solid compliance with the unclaimed property laws across several states, yet still was the target of a flawed and likely unconstitutional audit by Kelmar on behalf of the state of Delaware. The company was forced to hire counsel and litigate against Kelmar’s questionable practices. While two new Delaware bills have been introduced in an effort to eliminate unclaimed property contingent fee auditing practices (S.B. 215 and S.B. 228), holders should stand firm in opposition to Kelmar’s aggressive extrapolation methods and keep [...]

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