Workshop S. U.S. Supreme Court Decision on South Dakota v. Wayfair, Inc. Major Direct Tax Ramifications

Transcription

1 28th Annual Tuesday & Wednesday, January 29 30, 2019 Hya Regency Columbus, Columbus, Ohio Workshop S U.S. Supreme Court Decision on South Dakota v. Wayfair, Inc. Major Direct Tax Ramifications Tuesday, January 29, :15 p.m. to 5:15 p.m.

2 Biographical Information Jim Taylor, VP of State & Local Tax, Alliance Data 3095 Loyalty Circle, Columbus, Ohio Jim has been with Alliance Data for the last 14 years. He is a CPA and attorney licensed to practice in Ohio. At Alliance Data, Jim oversees all state and local tax functions, including state income tax, franchise tax, sales and use tax, and personal property tax. He also manages the company s escheat area. Jim is involved in state tax controversy, tax planning, governmental affairs, and incentives. Prior to joining Alliance Data, Jim spent approximately 10 years working for national and regional public accounting firms in Columbus, Ohio. Most of his time in public accounting was devoted to advising and assisting clients with regard to state and local tax matters. Jim also spent 5 years as a partner in a law firm in Westerville, Ohio where he advised clients in a multitude of areas, including state and local tax matters. Jim is a graduate of The Ohio State University with a B.S.B.A. in Accounting and Finance, and he received his J.D. from The Ohio State University Moritz College of Law. David J. Adler, BBA, MBA, Managing Director of Multi-State Tax Services Deloitte Tax LLP, 180 East Broad St., Suite 1400, Columbus, OH Fax: daadler@deloitte.com Dave is the Practice Leader for the Columbus Office Multistate Tax Services Group and Ohio s State Desk Leader. Dave s responsibilities include providing Multistate Tax consulting services for Columbus clients and services for all Firm clients with respect to Ohio matters. Dave has over 35 years of Big 4 experience, serving real estate clients. He has worked extensively in all areas of state and local taxation, specializing in multistate income tax planning and consulting, and has worked in the real estate, media, retail, financial services, construction, manufacturing, hospitality and regulated industries. Dave has significant experience in audit representation for clients, including providing full service representation from commencement of an audit through appeals representation, as well as settlement negotiations. He has assisted a wide variety of clients with Ohio Commercial Activity Tax Audits including various clients in real estate industry. He has established strong relationships with key members of the Ohio Department of Taxation including the Executive Administrator of the CAT Division, and the various Deputy Tax Commissioners including Chief Legal Counsel. Dave is a regular presenter on advanced Ohio CAT technical issues at The Ohio Tax Conference, Ohio s premier tax forum. He is a past Chair of the Ohio Society of Certified Public Accountants (OSCPA), Tax Policy Committee, and a current member of the Tax Committee of the Ohio Chamber of Commerce. Dave attended the University of Toledo and earned his MBA & BBA. His professional affiliations include Ohio Society of CPAs, Ohio Chamber of Commerce (Tax Committee), and the American Institute of Certified Public Accountants.

3 Biographical Information David M. Vistica, Managing Director of Multi-State Tax Services Deloitte Tax, LLP, th St. NW., Suite 400, Washington, DC Fax: David is a Managing Director in Deloitte s Washington National Tax Practice, Multistate Tax Group. Mr. Vistica has over 38 years of experience serving the tax needs of sophisticated and complex clients. Mr. Vistica serves many of Deloitte s large clients, assisting them with tax planning, controversy and compliance needs. Mr. Vistica consults regularly with clients regarding combined unitary groups and reporting, apportionment issues, nexus, and nonbusiness income. He also assists with the firm s multistate tax quality assurance functions, as well as technical responsibilities for state reportable transactions. Mr. Vistica handles state technical lead responsibilities for Virginia tax matters, as well as general multistate issues and combined reporting. Before joining Deloitte, Mr. Vistica was with Gannett Co., Inc, in McLean, Virginia. David was also formerly a state and local tax partner with KPMG in McLean, Virginia, where he focused on manufacturing, energy, retail, publishing, federal contractor, transportation and communications clients, and served as their Virginia specialist. Mr. Vistica also served 4 years in the Virginia Office of Tax Policy. While there, he drafted legislation, regulations, rulings, and resolved several hundred protests for corporate and individual income taxes and sales taxes. Mr. Vistica has been involved with large multistate controversies including complex issues such as unitary groups and nonbusiness income. He is a frequent speaker on state and local tax topics, and has been an adjunct professor for accounting. Mr. Vistica is a certified public accountant (DC, VA and ME), a member of the American Institute of Certified Public Accountants, and a member of the Virginia Society of CPA s. Diann L. Smith, Counsel, McDermott Will & Emery 500 N. Capitol St. NW Washington, DC dlsmith@mwe.com Fax Diann Smith is counsel in the law firm of McDermott Will & Emery LLP and is based in the Firm s Washington, D.C., office. Diann focuses her practice on state and local taxation with an emphasis on tax challenges relating to compliance, controversy, planning and legislative activity. Diann has experience representing clients in nexus, tax base, business and non-business income classification, apportionment and FIN 48 compliance issues. She has also counseled clients on multi-state unclaimed property compliance and voluntary disclosure opportunities. Diann has represented clients from a broad range of industries, including retail, insurance and communications services. Diann has significant experience representing clients before the Multistate Tax Commission (MTC). Prior to joining McDermott, Diann was counsel at another international law firm, where she also focused on state and local taxation. She also previously served as general counsel for the Council On State Taxation (COST). While at COST, Diann worked on nearly every major state and local tax issue confronting multi-state businesses. From 1998 to 2005, Diann was an adjunct professor at Georgetown University Law Center for the LL.M. in taxation program. Diann received her J.D. from the Georgetown University Law Center, where she was an editor of the Georgetown Law Journal. She received her B.A. from Miami University. Diann served as a law clerk to the Honorable Alan E. Norris of the U.S. Court of Appeals for the Sixth Circuit in 1991 and Diann is admitted to practice in the District of Columbia, Ohio and New York.

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5 State taxes Wayfair - Beyond Sales & Use Tax Major Direct Tax Ramifications

6 Agenda Consequences of Wayfair Questions Copyright 2019 Deloitte Development LLC. All rights reserved. 28 th Annual Ohio Tax Conference January 29-30,

7 Consequences of Wayfair

8 Wayfair US Supreme Court decision on nexus On March 22, 2016, Governor Dennis Daugaard signed Senate Bill 106 (S.B. 106) amending S.D. Codified Laws and 10 52, effective May 1, 2016, to require the collection of South Dakota sales tax on sales into South Dakota if, in the previous or current calendar year: The seller s sales into South Dakota higher than $100,000, or The seller had two hundred or more separate transactions into South Dakota. Quill overturned Substantial nexus does not require physical presence In its June 21, 2018 decision in Wayfair, the U.S. Supreme Court overruled Quill and National Bellas Hess finding the physical presence rule promulgated under these decisions were unsound and incorrect. Copyright 2019 Deloitte Development LLC. All rights reserved. 28 th Annual Ohio Tax Conference January 29-30,

9 Wayfair US Supreme Court decision on nexus 5 4 decision Justices Kennedy with Ginsburg, Alito, with Justices Gorsuch and Thomas concurring; and Chief Justice Roberts with Justices Breyer, Sotomayor, and Kagan dissenting. The main reasons the court found for overturning Quill The application of a physical presence requirement is an incorrect interpretation of the Commerce Clause particularly when measured in a vastly expanded e commerce marketplace. South Dakota s law does not violate substantial nexus requirements because remote sellers have the potential to maintain a significant virtual presence in the state. The principle of stare decisis cannot stand when it prohibits states from exercising lawful powers. Copyright 2019 Deloitte Development LLC. All rights reserved. 28 th Annual Ohio Tax Conference January 29-30,

10 Income Tax Nexus Implications of Wayfair While Wayfair will have a significant impact on sales and use tax collection obligations, the decision may also impact nexus positions taxpayers have taken with regard to income tax. Whether physical presence is necessary for the imposition of income taxes has been the subject of uncertainty for the last several decades. In light of the Court s unequivocal statement in Wayfair that physical presence is not a necessary element for substantial nexus, and the Court s comments regarding South Dakota s economic nexus sales tax statute, taxpayers will need to revisit positions they may have taken regarding both sales/use taxes and other taxes and the need for physical presence in order the establish substantial nexus. Copyright 2019 Deloitte Development LLC. All rights reserved. 28 th Annual Ohio Tax Conference January 29-30,

11 State Income Tax Considerations of Wayfair Uncertainty in the income tax arena In 1993, South Carolina Supreme Court held that physical presence was not required for the imposition of income tax, and that Quill s physical presence standard was limited to only sales and use tax. To date, the U.S. Supreme Court has not granted certiorari in any case pertaining to economic nexus and income taxes. Number of states have enacted so-called factor-based economic nexus presence standards for income or gross-receipts type taxes. Taxpayers will need to revisit positions that they may have taken regarding the need for physical presence in order to establish substantial nexus. Potential retroactive application and enforcement to the effective date of a state s applicable income tax nexus statute or rule is possible. Wayfair will also receive careful consideration by other states, which may seek to enforce or adopt economic factor-based presence nexus provisions. P.L remains in force and prohibits states from levying a net income tax upon an out-of-state company if the company s activities in a state are limited to the solicitation of orders for the sale of tangible personal property and the orders are approved and filled from outside the state. Any sales of services can void this protection. Financial reporting considerations. Copyright 2019 Deloitte Development LLC. All rights reserved. 28 th Annual Ohio Tax Conference January 29-30,

12 States with Factor Presence Tests State Property Payroll Sales >25% of Any Factor Alabama $50,000 $50,000 $500,000 Yes California $58,387 $58,387 $583,867 Yes Colorado $50,000 $50,000 $500,000 Yes Connecticut N/A N/A $500,000 No Michigan N/A N/A $350,000 No New York N/A N/A $1,000,000 No Ohio $50,000 $50,000 $500,000 Yes Tennessee $50,000 $50,000 $500,000 Yes Copyright 2019 Deloitte Development LLC. All rights reserved. 28 th Annual Ohio Tax Conference January 29-30,

13 Unrecognized Tax Benefits Considerations Were positions taken on previous financial statements that could be affected by the Wayfair decision? Is the tax position more likely to be sustained than not on the basis of its technical merits? If no, record UTB for the full amount Need to understand tax law in local jurisdictions Nexus issues/considerations are intensively fact sensitive o PL o Consider the limitations of PL o Factor-based nexus standards under a bright-line factor-based standard, nexus is created with a state when a minimum amount of payroll, property or sales in the state is met. o What are the reserve requirements if not filing in a state with a bright-line nexus statute based on a specified amount of in-state revenue that is lower than a company s sales into that state? o What are the reserve requirements if not filing in a state with a broad nexus statute, but no specific threshold based on a defined amount if sales into the state? o Economic nexus Will the Wayfair decision influence the number of states asserting economic nexus from an income tax perspective? Calculate interest and penalties Copyright 2019 Deloitte Development LLC. All rights reserved. 28 th Annual Ohio Tax Conference January 29-30,

14 Administrative Practice and Precedent and Remediation Focal point in determining the number of years for which UTBs are recognized when returns have not been filed but are MLTN required Unless an administrative practice or precedent limits the look-back periods, UTBs are recorded for all nexus years when the recognition standard is not satisfied Deferred taxes must also be recognized if nexus is ongoing Administrative practices and precedents need to be widely understood Opportunity may exist to remediate nexus issues through voluntary disclosure agreements (VDAs) or state amnesty programs The lack of a statute of limitations period means that nexus exposures may continue to build year-overyear As nexus exposures can relate to periods many times the typical three year statute of limitations periods, they may be more likely to be material to a financial statement audit. Copyright 2019 Deloitte Development LLC. All rights reserved. 28 th Annual Ohio Tax Conference January 29-30,

15 Consider Impact of Nexus on Combined/Consolidated Filings Joyce states include the apportionment factor information of entities that individually have nexus with the state As a result of Wayfair, some affiliated groups may no longer have support for a position that in-state sales of an affiliate may be excluded from the combined group s sales factor Copyright 2019 Deloitte Development LLC. All rights reserved. 28 th Annual Ohio Tax Conference January 29-30,

16 Questions