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Procedure

QHTC You Later: DC Bids Farewell to Historic QHTC Certification Process

by Diann Smith, Eric D. Carstens and Stephen P. Kranz | Feb 8, 2019 | District of Columbia, Incentives, Local Tax, Procedure

The District of Columbia (DC) Office of Tax & Revenue (OTR) implemented sweeping changes to the Qualified High Technology Company (QHTC) certification process this year. As you may remember, beginning last year, OTR implemented a new online QHTC self-certification process for companies to obtain exempt purchase certificates. This year, OTR is expanding the scope of this online self-certification requirement to all QHTC benefits—including exempt sales as a QHTC and other non-sales tax benefits available to a QHTC (summarized here). This change was accomplished through amendments to the QHTC certification regulation (DC Mun. Regs. tit. 9, § 1101) that were proposed by OTR in November 2018 and became final on January 4, 2019. The changes apply to all tax returns due on or after January 1, 2019.

So What Changed?

Historically, the relevant OTR regulation provided that to claim a credit or other benefit, a QHTC was required to attach a form prescribed by OTR (i.e., Form QHTC-CERT) to each applicable tax return or claim for refund. See DC Mun. Regs. tit. 9, § 1101 (prior to Jan. 4, 2019). Effective January 4, 2019 with the finalization of the amended regulation, this procedure now requires every QHTC to submit a Self-Certification request online via MyTax.DC.gov on an annual basis and obtain a “certificate of benefits” letter from OTR each year. No tax exemptions or benefits will be allowed without a valid certificate of benefits letter that is obtained prior to or concurrently with the filing of a return on which the benefits are claimed. Thus, to claim QHTC benefits on a monthly sales tax return for January 2019, the certificate of benefits will need to be requested from OTR for review/processing prior to the upcoming mid-February return deadline. Unlike the procedure in the past, the certificate of benefits letter obtained online will be deemed to attach to any tax return due and filed during the period for which the certificate is valid and unexpired. The certificate of benefits is expected to be valid for one (1) calendar year from the date it is issued/approved by OTR. Unlike prior years, the new regulation requires all benefits applications filed by a QHTC to include all of the following information:

Taxpayer ID Number
Name
Address
Sales Tax Account Number
NAICS Code
Information demonstrating QHTC eligibility (including attaching proof of DC office location, such as a current lease agreement)
First year certified as QHTC
Explanation of principal business activity
Amount of QHTC Exempt Sales/Purchases from the prior year (broken down by period)
Number of QHTC employees hired
Number of QHTC employees hired who are District residents
Schedules detailing QHTC employee credits
Number of QHTC jobs created in the past year
Gross revenue
Gross revenue earned from QHTC activities in the District

Practice Note: Companies that have historically claimed one or more of the tax benefits available to QHTCs and wish to continue to do so in 2019 need to carefully review [...]

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Court Strikes Down New York Opioid Surcharge on Manufacturers and Distributers

by McDermott Will & Emery, Diann Smith, Eric Hageman and Stephen P. Kranz | Jan 11, 2019 | Constitutional Issues, Nationwide Importance, New York, Procedure

On December 19, 2018, the US District Court for the Southern District of New York ruled in favor of McDermott’s client, the Healthcare Distribution Alliance (HDA), the trade association for pharmaceutical distributors. In Healthcare Distribution Alliance v. Zucker, the court granted summary judgment and enjoined enforcement of the New York Opioid Stewardship Act, which imposed a $600 million surcharge on manufacturers and distributors of opioid pharmaceutical products. The first $100 million installment was due on January 1, 2019. (more…)

Illinois Department of Revenue to Waive Penalty for Late Filing of Business Income Tax Returns Due October 15

by Mary Kay McCalla Martire and McDermott Will & Emery | Oct 12, 2018 | Federal Tax, Illinois, Income Tax, Interest and Penalties, Procedure

The Illinois Department of Revenue (Department) announced that it will grant abatement of late filing penalties for taxpayers that file their Illinois business income tax returns on or before November 15 and request penalty waivers for reasonable cause. The Department stated that it will waive late penalties due to the “complexity” of recent federal tax reform and possible taxpayer challenges in meeting the October 15 extended filing deadline for federal and state purposes.

Illinois Appellate Court Overturns Tax Tribunal Ruling for the First Time

by Mary Kay McCalla Martire | Jan 9, 2018 | Illinois, Procedure, Sales Tax

On December 29, 2017, the Illinois Appellate Court issued a ruling reversing the decision of the Illinois Independent Tax Tribunal (Tribunal) in Waste Management of Ill., Inc. v. Ill. Independent Tax Tribunal, 2017 IL App (1st) 162830-U. This is the second appellate court to consider a Tax Tribunal ruling, and the first to overturn a decision of the Tribunal. The appellate court overturned the Tribunal’s grant of summary judgment in favor of the Illinois Department of Revenue (Department) and held that for the time periods at issue, the Motor Fuel Tax Law (Tax) (35 ILCS 505/1 et seq.) did not impose tax on compressed natural gas (CNG). In this case, Waste Management filed monthly returns reporting and paying the Tax on its usage of CNG. Following an amendment to a Department regulation that explicitly provided that CNG was subject to the Tax (see 86 Ill. Admin. Code § 500.200(c)), Waste Management amended its returns and sought a refund of Tax paid on CNG-powered vehicles for time periods prior to the amendment. The Department denied the refund claims, and Waste Management appealed the Department’s denial to the Tribunal. On the parties’ cross motions for summary judgement, the Tribunal found in the Department’s favor, on the basis that CNG was a taxable “motor fuel” under the Tax statutes. A copy of the Tribunal’s Order (Order) is linked here. (more…)

Illinois’ Invest in Kids Tax Credit

by Nick Furtwengler | Dec 18, 2017 | Illinois, Procedure

Overview

Illinois’ July 2017 Revenue Bill for the 2018 fiscal year included the Invest in Kids Act (Act), which creates a new program, effective January 1, 2018, that provides up to $75 million in income tax credits for Illinois taxpayers making contributions to eligible organizations that grant scholarships to students attending private and parochial schools in Illinois. The Act allows approved Illinois taxpayers to receive state income tax credits of 75 percent of their total qualified contributions to Scholarship Granting Organizations (SGOs), up to $1 million annually per taxpayer. For example, a contribution of $100,000 to an SGO allows an approved taxpayer to claim a $75,000 income tax credit. The program is administered by the Illinois Department of Revenue (Department). The Department will allocate the credits among taxpayers on a first-come, first-served basis.

Who Benefits?

The Act is intended to benefit students who are members of households whose federal adjusted gross income does not exceed 300 percent of the federal poverty level before the scholarship and does not exceed 400 percent of the federal poverty level once the scholarship is received. The Illinois State Board of Education will annually provide the Department with a list of eligible private and parochial schools that may participate in the program and receive scholarship contributions from SGOs. As of December 18, 2017, the list of eligible private and parochial schools for 2018 has not been published. (more…)

Litigation Alert | Third Circuit Reaffirms Scope of Federal Priority Rules

by Diann Smith, Eric D. Carstens and Stephen P. Kranz | Dec 7, 2017 | Audits, Delaware, Procedure, Unclaimed Property

On December 4, 2017, the US Court of Appeals for the Third Circuit issued its much-anticipated precedential opinion in Marathon Petroleum Corp. et al., v. Secretary of Finance et al., No. 16-4011. The opinion affirms the Third Circuit’s existing view (described in its 2012 New Jersey Retailers Association decision) that US Supreme Court precedent permits a private cause of action to enforce the federal priority rules, overruling the federal district court’s conclusion (in this case and Temple-Inland) that the priority rules only apply to disputes between states. (more…)

Preparing for the Repeal of Cook County’s Beverage Tax: Requesting Credits and Refunds

by Mary Kay McCalla Martire and McDermott Will & Emery | Nov 21, 2017 | Illinois, Local Tax, Michigan, Procedure

Earlier this fall, the Cook County Board voted to repeal its constitutionally suspect, politically unpopular one cent per ounce sweetened beverage tax (Tax). The short-lived Tax will expire at the end of the County’s fiscal year on November 30, 2017.

Having been tasked with implementing the Tax, the Cook County Department of Revenue (Department) is now charged with unwinding it. Distributors and retailers who have paid the Tax are entitled to credits or refunds on their unsold inventory at month’s end. The Department recently issued guidance on the credit/refund procedure.

Retailers that have paid Tax to their distributors may claim a credit/refund from their distributors for Tax paid on their unsold inventory by completing the Department form entitled “2017 Sweetened Beverage Retailer Inventory Credit Request Form and Schedule A.” Retailers should complete and submit the form to their distributors, not the Department.

Distributors must file a final Tax return with the Department on or before December 20 (Final Return). To the extent a distributor already has refunded or credited Tax to its retailers, the distributor may claim a credit for the amount refunded on the “other deductions” line of its Final Return. Distributors must file the Department’s standard refund application, found on the Department’s website, to claim refunds for amounts refunded or credited to retailers after December 20. The Department has issued a new form (the “Sweetened Beverage Tax Distributor Credit Form Schedule”) to be submitted by distributors to the Department in support of any credit or refund claims. The form requires distributors to identify the retailers to which it has provided credits/refunds and the amounts thereof.

Retailers who self-remit the Tax may take a credit on their Final Return with supporting documentation. In addition, retailers that have unsold inventory as of December 1, on which they previously remitted floor tax, may obtain a refund of the floor tax through the Department’s standard refund procedure.

Practice Notes:

To the extent possible, Taxpayers should take advantage of the opportunity to claim a credit on their Final Returns in order to avoid the time and expense associated with the County’s standard refund procedure.
Since the Tax was repealed, enthusiasm has waned for various Illinois House Bills (HB 4082-84) proposing to limit the authority of localities to impose beverage taxes. It’s difficult to predict whether the bills will be enacted.
However, the State of Michigan has passed legislation, signed into law by Governor Snyder on October 26, 2017, which prohibits municipalities from levying local taxes on food or beverages.

New California Office of Tax Appeals Discusses Emergency Regulations

by Roy E. Crawford | Nov 15, 2017 | California, Income Tax, Procedure, Sales Tax

The New California Office of Tax Appeals (OTA) on November 6, 2017, held an interested parties meeting in Sacramento to discuss the contents of a draft of emergency regulations to guide both income tax appeals from the California Franchise Tax Board and sales and use tax appeals from the California Department of Tax and Fee Appeals (CDTFA). The meeting was chaired by Kristen Kane, the newly appointed Chief Counsel and Acting Director of the OTA, and by Zack Morazzini, the Director and Chief Administrative Law Judge (ALJ) in the Office of Administrative Hearings. Ms. Kane and Mr. Morazzini provided helpful insight on how the new OTA will operate, including the following:

The OTA is in the process of hiring 18 new ALJs.
Hearings will be held in Sacramento, Los Angeles and Fresno.
Hearings are expected to commence in late January, after a crash training program for the new ALJs.
Both Ms. Kane and Mr. Morazzini stressed the intention that the hearings be as informal and conversational as possible, bearing in mind that many, if not most, taxpayers will either appear pro per or be represented by non-attorneys.
Taxpayers will open the process by making a written submission, and the agencies will file a written brief in response. The procedures may be similar to the current practice before the State Board of Equalization, where the taxpayer submits a statement of facts and discussion of the law, and the facts as stated by the taxpayer are accepted unless the tax agency objects.
Where there is a disagreement on the facts, the burden will be on the taxpayer to come forward with supporting evidence.

In an informal discussion after the conclusion of the meeting, Mr. Morazzini said that the Office of Administrative Hearings is proud of their long and successful run at conducting fair hearings in many contexts with flexibility being a paramount concern. At least at the outset, there will be no written rules on the presentation of evidence. Mr. Morazzini said that the Administrative Procedures Act and, generally, the rules of evidence allow ALJs to fashion orders responsive to discovery requests by either or both of the taxpayer or the agency, as required under the circumstance. Either party will have the right to request a preliminary meeting with an ALJ, or the ALJ can order a preliminary meeting. The preliminary meeting is intended to be informal, and will give taxpayers the opportunity to request the production of documents, stipulations and admissions. Note that OTA anticipates that the preliminary meeting will be attended by only one ALJ, although A.B. 102, the authorizing legislation, calls for a panel of three ALJs.

(more…)

California’s New Office of Tax Appeals Issues Preliminary Draft of Procedural Rules that Is Silent on Discovery Matters

by Roy E. Crawford | Nov 1, 2017 | California, Income Tax, Procedure, Sales Tax

As part of Governor Jerry Brown’s 2017 budget bill, the California State Board of Equalization (SBE) was stripped of its functions that had been authorized by statute, leaving principally property tax matters deriving from the state constitution. Sales and use tax and fee functions were moved to a newly created California Department of Tax and Fee Administration (CDTFA). Jurisdiction to hear appeals from the Franchise Tax Board (FTB) as well as appeals in sales and use tax and fee matters from CDTFA was vested in a new Office of Tax Appeals (OTA), to become effective January 1, 2018. The OTA is scurrying to adopt rules before opening for business on January 1, 2018. It recently released an early draft of what will become emergency regulations. An informal public discussion meeting of the draft has been scheduled for November 6, 2017, in Sacramento. (more…)

Massachusetts Department of Revenue Repeals Directive 17-1

by Arthur R. Rosen and Richard C. Call | Jun 29, 2017 | Constitutional Issues, Massachusetts, Nexus, Procedure, Sales Tax, Transaction Taxes

The Massachusetts Department of Revenue (Department) has just issued Directive 17-2 revoking Directive 17-1 which adopted an economic nexus standard for sales tax purposes. Directive 17-2 states that the revocation is in anticipation of the Department proposing a regulation that would presumably adopt the standards of Directive 17-1. It appears that the Department took seriously, perhaps among other concerns, internet sellers’ arguments that Directive 17-1 was an improperly promulgated rule. Internet sellers that recently received letters from the Department regarding Directive 17-1 (see our previous blog post) may need to reconsider their approach.

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