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Alternative apportionment

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A Colorado district court held that Target Brands, Inc. (“TBI”), a subsidiary intangible holding company of Target Corporation (“Target”), had economic nexus with Colorado but the Department of Revenue (the “Department”) failed to use a reasonable alternative apportionment method when it assessed nearly $20 million in state corporate income tax for tax years 1999 through 2009 (the “Tax Years at Issue”). The case, Target Brands Inc. v. Department of Revenue, 2015CV33831, decided by the District Court of the City and County of Denver on January 27, 2017, highlights yet another example of aggressive economic nexus and alterative apportionment arguments of state revenue agencies to expand their revenue base by capturing income from out-of-state intangible holding companies.

The U.S. Supreme Court has requested Michigan’s response to several certiorari appeals from taxpayers seeking relief from Michigan’s retroactive repeal of its Multistate Tax Compact (“MTC”) election.  The Court was originally scheduled to review the Michigan petitions at its conference on January 19, but has now provided a February 9 deadline for Michigan’s response.  Additionally, the Court’s January 19 conference to discuss Dot Foods, Inc., another state tax retroactivity case appealed to the Court several months ago dealing with the interpretation of a Washington business and occupation tax exemption, has been put on hold. See Dot Foods, Inc. v. Wash. Dept of Revenue, U.S., No. 16-308, cert. petition filed 9/9/16 and cert response filed 12/5/16.  These recent actions by the Court appear to signal an interest in retroactivity cases, with heightened potential to take one or both cases.

The South Carolina Department of Revenue (“Department”) appealed the South Carolina Court of Appeal’s decision in Rent-A-Center West, Inc. v. South Carolina Dep’t of Revenue on November 30, 2016.  The Court of Appeals held, on October 26, 2016, that the Department did not satisfy its burden to apply alternative apportionment to Rent-A-Center West, Inc. (“RAC West”).  The Court of Appeal’s decision is a big win for taxpayers in South Carolina as it reaffirms that the Department cannot rely on bald assertions to apply alternative apportionment.