Bloomberg News

States’ Agreement Risks Unraveling With California Ruling: Taxes

October 04, 2012

A multistate agreement for taxing business is at risk of coming unraveled following a California appeals court ruling this week.

The state appellate court said California must let corporate taxpayers apportion multistate income based on the so- called Multistate Tax Compact, and that the only way to eliminate the formula is to repeal the compact. The compact is an agreement among participating states designed to promote uniformity in tax procedures among the states.

If other states view participation in the compact as a threat to their revenue collection, as California did, these states may move to repeal it. That could end an effort to create tax uniformity for businesses that operate across state lines.

Affirming its July ruling, the Court of Appeal for the First Appellate District said the compact is a binding contract that obligates member states to let taxpayers apportion their income using a three-factor formula based equally on property, payroll and sales. The only way to eliminate the three-factor formula is to repeal the compact, the court said.

The court’s new ruling makes two clarifications that reflect issues raised by Gillette Co. and the Franchise Tax Board in court filings. These clarifications are minor and don’t change the core outcome of the case, Amy Silverstein, an attorney with Silverstein and Pomerantz in San Francisco, representing Gillette, told Bloomberg BNA.

With the core holdings of the ruling intact, the viability of the Multistate Compact and its promise of tax law uniformity among states remains in doubt. Fourteen of the 19 places that have adopted the compact also strayed from the apportionment formula in the compact and adopted alternatives. Taxpayers in those in states could have claims similar to those raised by Gillette.

The 19 members are: Alabama, Alaska, Arkansas, Colorado, Hawaii, Idaho, Kansas, Michigan, Minnesota, Missouri, Montana, New Mexico, North Dakota, Oregon, South Dakota, Texas, Utah, Washington and Washington, D.C.

California repealed the compact in June as a hedge against an unfavorable ruling in Gillette and a potential loss of at least $500 million in tax revenue. It enacted the repeal in between the time that oral arguments were presented in the case and the court issued its original ruling in July.

Religious Leaders to Preach in Defiance of IRS Political Rules

More than 1,300 pastors from across the U.S. are preparing to give sermons Oct. 7 that endorse or oppose political candidates for office, in an event that deliberately puts the churches in violation of Internal Revenue Service rules for tax exemption.

The pastors have signed up to participate in Pulpit Freedom Sunday, a yearly event the first weekend in October, in which the pastors protest IRS rules against campaign intervention by openly endorsing or opposing candidates by name, or by referring to their agendas in a way that makes them readily identifiable. Involvement is up this year in part because it is an election year, says Erik Stanley, an attorney with Alliance Defending Freedom, the group sponsoring the event.

Meanwhile, the IRS has yet to remove the tax exemption of any church that has participated in the past in Pulpit Freedom Sunday, even after complaints lodged by Americans United for Separation of Church and State and other watchdog groups, who say tax exemption is a benefit that requires these churches to play by the rules.

Argentina Says Bunge Evades $255 Million in Taxes

Argentina cuts tax benefits to the local unit of Bunge Ltd. (BG:US) again, accusing the company of evading 1.2 billion pesos ($255 million) in tax payments between 2006 and 2009.

The Federal Administration of Public Revenues removed the company from the exporters register in a move that will lead it to pay 15 percent income tax instead of 2 percent and 10.5 percent sales tax instead of 8 percent, agency officials told BNA.

The local unit of the Bahamas-incorporated, White Plains, New York-based Bunge was first taken out of the Argentine exporters register last year. The company appealed and a court ordered the tax agency to reinstate the tax benefits awarded to major agrifood players. However, an appellate court in September overturned that verdict, paving the way for the new suspension.

Medical Device Producers May Use Revised IRS Form

Medical device manufacturers, producers, importers and some purchasers may now use an updated form to register with the Internal Revenue Service for tax-free sales of their products.

IRS published the revised Form 637, Application for Registration (For Certain Excise Tax Activities), and related information on its website to allow these groups to apply for IRS Letters of Registration. Though the companies aren’t required to register, they must do so using Form 637 if they wish to conduct tax-free sales.

Medical devices weren’t previously subject to excise taxes. They will be levied with a 2.3 percent tax beginning Jan. 1, 2013 under the Affordable Care Act. This category of goods was added to tax code Section 4191 by the Health Care and Education Reconciliation Act of 2010.

To contact the editor responsible for this story: Cesca Antonelli at fantonelli@bloomberg.net


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Companies Mentioned

  • BG
    (Bunge Ltd)
    • $90.4 USD
    • 1.54
    • 1.7%
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