The California real estate transfer tax landscape experienced a seismic shift when the Supreme Court of California upheld the imposition of Los Angeles County’s Documentary Transfer Tax (“L.A. Transfer Tax”) on the transfer of a controlling interest in a partnership that indirectly owned Los Angeles real estate through an LLC. 926 North Ardmore Avenue, LLC v. County of Los Angeles, 219 Cal. Rptr. 3d 695 (Cal. June 29, 2017). Specifically, the Court held “that the tax may be imposed if the document reflects a sale: that is, an actual transfer of legal beneficial ownership made for consideration.”
Transfer pricing has occupied the state tax spotlight in recent years, as taxing authorities continue to challenge intercompany transactions (see “Keeping the State at Arm’s Length: State Transfer Pricing Recent Developments” for prior coverage of state transfer pricing developments). Because state revenue departments often lack the resources and expertise necessary to perform a thorough transfer pricing audit, some states have engaged third-party service providers—often on a contingent-fee basis—to conduct transfer pricing examinations or to prepare transfer pricing reports and analyses on their behalf. The District of Columbia Office of Tax and Revenue (“OTR”) is one example of a local taxing agency that has for years relied on a third-party “expert,” Chainbridge Software LLC (“Chainbridge”), to perform transfer pricing analyses.
On January 20, 2017, the Illinois Supreme Court issued a taxpayer-friendly opinion in The Hertz Corporation, et al v. The City of Chicago, 2017 IL 119945. At issue was whether the City of Chicago (the “City”) could mandate collection of its Personal Property Lease Transaction Tax (the “Transaction Tax”) from certain car rental agencies located outside its borders based on presumptive, but not actual, use of property within the City. Hertz Corporation and Enterprise Leasing, Inc. challenged the City’s extraterritorial tax scheme as a violation of both the Illinois Constitution and the U.S. Constitution. The Illinois Supreme Court struck down the tax, holding that it violated the Illinois Constitution.