The Idaho Supreme Court recently affirmed a District Court’s judgment that the gain from the sale of a 78.54% membership interest in a limited liability company did not constitute “business income” under Idaho Code section 63-3027. In Noell Indus. Inc. v. Idaho State Tax Comm’n, Docket No. 46941 (Idaho 2020), the court determined that “this type of gain does not meet the definition of ‘business income’ under either the transactional test or functional test (including the unitary business test),” and was therefore not apportionable income.
On the heels of its loss in Matter of TransCanada Facility USA, Inc. DTA NO. 827332, on May 14, the New York State Department of Taxation and Finance proposed draft regulations addressing the Article 9-A Franchise Tax treatment of Qualified New York Manufacturers (“QNYMs”). These draft regulations, which are not currently in effect but which do shed light on the Department’s current thinking, amplify a position that the Department has taken in prior informal guidance and on audit regarding contract manufacturing arrangements and the scope of activities that constitute “manufacturing” that is not in the statute. The position that a taxpayer that engages in contract manufacturing cannot qualify as a QNYM is contrary to prior New York authorities addressing “manufacturing” in the investment tax credit context and contrary to judicial authorities defining “manufacturing” under relevant federal tax law. In addition, the draft regulations set out a new position—again, one not found in the statute—that “digital manufacturing” is not manufacturing, and that only manufacturing that results in the production of “tangible” goods will qualify for QNYM treatment.
The Texas Court of Appeals recently issued a decision that applied market-based sourcing for services, despite the state’s statute that requires the sourcing of receipts to the location where the service is performed. In Hegar v. Sirius XM Radio Inc., No. 03-18-00573-CV (Tex. App. Austin, 2020), the court narrowly defined the scope of “performance” as the final act that gets the service to the customer, thereby ignoring all of the costs that went into the performance and production of the service up to that point. Such an application produces a result that equates to market-based sourcing.
Numerous states have provided tax relief in response to the COVID-19 outbreak, often in the form of tax filing and payment deadline extensions. At this time, 41 states and Washington, D.C. have provided a corporate income tax filing and/or payment deadline extension. Most recently, Florida extended its May 1, 2020 corporate income tax deadlines to August 3, 2020 for filing and June 1, 2020 for payment. Since the payment deadline is sooner than the filing deadline, the Florida Department of Revenue advised corporate taxpayers to submit payments based on their best estimate of the tax that would be due with the return. Some states have also extended income tax deadlines for partnerships and other business entities and many states have extended individual income tax deadlines.