State income and franchise tax quarterly update

Transcription

1 First quarter 2014 State income tax developments State income and franchise tax quarterly update First-quarter 2014 state tax developments The following provides a summary of the legislative, administrative and judicial state income and franchise tax updates that occurred during the first quarter of Key developments New York enacts budget bill containing significant corporate tax reform On 31 March 2014, Governor Andrew Cuomo signed the fiscal year budget bill (A. 8559D/S. 6359D), which includes significant corporate tax reform. The most notable changes are as follows: Repeal the existing bank franchise tax and merge it into a substantially modified general corporation franchise tax Reduce the general corporation franchise tax rate from 7.1% to 6.5% (beginning in 2016) Adopt a bright-line, economic presence nexus standard ($1 million of New York receipts applicable to all businesses in New York) Change the computation of New York state s net operating losses (NOL) from a preapportioned NOL to a post-apportioned NOL, and provide an NOL conversion subtraction for NOLs carried over from periods prior to enactment of the new NOL rules, subject to limitations Adopt a single receipts factor for all New York taxpayers (not previously available to Article 32 taxpayers, e.g., banks and financial institutions) Modify combined reporting rules, adopting mandatory water s edge unitary combined filing Adjust the way in which sales are sourced to New York for factor apportionment purposes to provide for customer sourcing (i.e., to the state where the benefit is received) and to

2 provide for a specific election for income from qualified financial instruments Eliminate the current subsidiary capital and related franchise tax provisions, including the additional modification for expenses directly/ indirectly attributable to subsidiary capital (with substantial modifications to the definitions and treatment of investment income and capital) Increase New York state s Metropolitan Transportation Business Tax Surcharge rate Phase out the capital base tax through 2020 Reduce the tax rate on the business income base for all qualified New York manufacturers to 0% These corporate income and franchise tax changes are effective for tax years beginning on or after 1 January 2015, with certain notable exceptions. For a more in-depth discussion of these many significant changes to New York state s corporate tax system, see Tax Alert Ernst & Young LLP s take: These legislative changes will dramatically change New York s business tax system and affect a variety of New York taxpayers. They will be generally effective in 2015; however, some provisions take effect in 2014 or are delayed until 2016 and later years. Corporations need to consider the effect of the changes brought about by the budget bill on their quarterly state tax provisions. Further, New York City, which imposes a separate general corporations tax modeled on the New York corporate franchise tax, has not yet adopted similar changes, although city officials have indicated that they are considering proposing adoption of many of the key provisions of the state tax reform for city purposes. In the meantime, an extension of the Gramm-Leach-Bliley Act transition provisions currently in the New York City Administrative Code, are contained in the budget bill. California revised intercompany transaction regulations approved On 8 January 2014, the California Office of Administrative Law (OAL) approved amendments to California s intercompany transaction regulation, Cal. Code Regs. titl. 18, section Key changes include: Rolling forward the conformity date to the regulation s federal counterpart to 1 April 2012 (formerly 17 March 1997), thus conforming to federal relaxed provisions related to intercompany debt Significant changes to the deferred intercompany stock account (DISA) provisions, 1 including: (1) tiered distribution relief (e.g., DISA reduced by subsequent capital contributions, annual DISA reporting requirements expanded to include DISA balances reduced or eliminated by capital contributions); (2) guidance for merger and acquisition (M&A) transactions, explaining that the merger of combined group members does not trigger DISA recognition if a majority of shares are owned by other members of the group (e.g., DISA is not triggered for brother/ sister mergers but is triggered for redemptions or liquidations or parent/subsidiary liquidations); (3) adding redemption as a disposition triggering DISA gain recognition; (4) ability to cure a DISA with a subsequent capital contribution (similar to the mechanisms to eliminate an excess loss account (ELA) under the federal consolidated return regulations) Amends the simplifying rules to prevent potential sales factor dilution that resulted from tracking intercompany transactions on a separate-company basis The changes are effective 1 April 2014 and will apply to all intercompany transactions occurring on or after 1 January 2001 (i.e., retroactively to the effective date of the original regulation), although taxpayers may elect to have amendments related to existing DISAs apply prospectively as of the effective date of the changes. For an in-depth discussion of these changes, see Tax Alert , dated 20 January Ernst & Young LLP s take: These amendments should be welcomed by most taxpayers and come after years of collaboration by the Franchise Tax Board (FTB) and taxpayers. Taxpayers that benefit from the amendments to the California regulations may revise their DISA computations to reflect the regulatory changes. Specifically, taxpayers that are part of a combined reporting group that reported DISAs related to merger transactions should review or recalculate the DISA balance related to the surviving member s stock to make sure it conforms to the DISA rules as amended. Due to the retroactive effect of the amended regulations, taxpayers that reported 2 State income/franchise tax quarterly update

3 a DISA that had been triggered and on which a gain was reported and subject to tax, should consider filing an amended return and claim for refund. Unless electing to apply the amendments prospectively, taxpayers should correct their DISA balances for capital contributions made after the creation of the DISA. The amendments addressing subsequent capital contributions provide for recalculation of a DISA for capital contributions made since If a taxpayer had reported a gain or income from a triggered DISA that can be reduced under the new capital contribution adjustments, refund claims should be considered if the statute of limitations is open. If the statute of limitations is closed for the taxable year the DISA was triggered, a taxpayer should keep track of the overstated DISA gain or income as a potential offset item during the course of a California FTB audit. Also, taxpayers should consider making future capital contributions to reduce an existing DISA balance. Regardless, even though the new California regulations provide for a cure to a DISA balance similar to that provided for an ELA, the impact can be very different and taxpayers should carefully consider the California consequences of implementing any DISA cure. Maryland high court upholds corporate income tax on outof-state subsidiaries based on parent s in-state presence In its ruling in Gore Enterprise Holdings, the Maryland Court of Appeals, the highest appellate court in the state (the Court), held that the Comptroller of Treasury (the Comptroller) had the authority to impose corporate income tax on both an out-of-state subsidiary that held patents as well as an out-ofstate financing subsidiary (collectively subsidiaries), because the subsidiaries had no real economic substance as separate business entities from their parent, a multistate manufacturing corporation. 2 After concluding that both of the subsidiaries had nexus with the state on an agency nexus theory through the parent s activities in the state, the Court upheld the Comptroller s use of the parent s Maryland apportionment factor to compute the subsidiaries state tax obligations in lieu of the statutory two-factor (property and payroll) standard applicable to intangible holding companies, which would have resulted in no apportioned income to the state. Ernst & Young LLP s take: Although a taxpayer loss, the Court s ruling at least clarifies what it first said in its 2003 ruling in SYL 3 with respect to Maryland s view of nexus: there is no unitary nexus principle in Maryland. Instead, once finding limited economic substance, the Court will apply an agency nexus rule to determine whether an out-of-state subsidiary is subject to Maryland taxation. Once nexus is determined in this way, then the inquiry shifts to the amount of income that is subject to tax. In this case, the Court affirmed the Comptroller s use of an alternative apportionment method, which looked to the parent s apportionment to the state in determining how much income of each of the out-of-state subsidiaries should be subject to tax in the state. Businesses that have intellectual property holding companies, finance companies or other similar businesses in their organizational structure and are not filing returns in Maryland should consider the impact of the ruling in this case on their particular circumstances, notably because if such entities have not filed returns with Maryland, it is the Comptroller s view that the statute of limitations with respect to such entities remains open indefinitely, and statutory interest at the rate of 13% will apply to any confirmed assessments. Other noteworthy developments Legislative Idaho: Legislation (HB 402) enacted on 13 March 2014, modifies Idaho s income tax provisions to provide guidance for calculating NOLs when taxable income is determined by excess inclusion income, as determined by Internal Revenue Code (IRC) section 860E (which deals with the treatment of income in excess of daily accruals on residual interests in a real estate mortgage investment conduit). Provisions of HB 402 also amend combined reporting rules to include a new provision addressing excess inclusion income and NOL carryforwards. The new subsection provides that a member of the combined group may use the NOL deduction carried forward from previous years. These changes took effect 1 January State income/franchise tax quarterly update 3

4 Indiana: Provisions of SB 1 reduce the corporate income and bank franchise tax rates. The current 7.5% corporate income tax rate applies to adjusted gross income derived from Indiana sources of every corporation after 30 June 2013 and before 1 July The rate will continue with a previously enacted reduction and will be decreased to 7.0% for periods after 30 June 2014 and before 1 July Under SB 1, additional reductions will apply as follows: 6.5% for periods after 30 June 2015 and before 1 July % for periods after 30 June 2016 and before 1 July % for periods after 30 June 2017 and before 1 July % for periods after 30 June 2018 and before 1 July % for periods after 30 June 2019 and before 1 July % for periods after 30 June 2020 and before 1 July % for periods after 30 June 2021 The current bank franchise tax rate is reduced 0.5% in each year through 2018 (from 8.0% to 6.5%). The bank franchise tax is reduced as follows: 6.25% for % for % for % for % for 2023 and thereafter SB 1 was enacted on 25 March Michigan: On 25 February 2014, Michigan s Governor Snyder signed legislation (HBs 5008, 5009, 5010 and 5011) enacting various changes to the Michigan Corporate Income Tax (CIT) law. Most of these changes are retroactive to 1 January 2012 (the beginning of CIT) and thus, in essence, are intended to be clarifying. Highlights include: Clarification of Michigan s conformity to the federal income tax treatment of successor status in asset acquisitions described under IRC sections 381(a)(1) or 381(a)(2), which allow the taxpayer to deduct any business loss (incurred after 31 December 2011) attributable to that distributor or transferor corporation. Clarification of the sourcing rules with respect to the sales of tangible personal property. Under the clarifying law, product stored in transit, or in the case of a dock sale property not picked up, for 60 days or more will be deemed to have arrived at its ultimate destination. Expanding the list of persons exempt from CIT to include domestic international sales corporations (DISC), as defined in IRC section 992, that have a valid DISC election for federal income tax purposes. Confirming that sales between a CIT taxpayer and a flow-through entity with which it is deemed to be unitary, or between multiple flowthrough entities that are deemed to be unitary with a CIT taxpayer, must be eliminated to the extent of the taxpayer s interest in the flowthrough entity when calculating the CIT sales apportionment factor. Revising the calculation for investment tax credit recapture. Additionally, for tax years beginning after 31 December 2013, certain provisions of HB 2009 clarify the rules for eliminating intercompany transactions among members of a unitary group for purposes of determining exemptions, credits and filing thresholds. Mississippi: Legislation (SB 2933) enacted on 31 March 2014, sets forth the apportionment method to be used by a major medical or pharmaceutical supplier of a Mississippi distribution facility. Under the new law, which took effect 1 January 2014, such entities shall apportion business income using a three-factor payroll, property and sales factor, with the property and payroll factors each being weighted twice, over a denominator of five. The legislation specifies what is included in the payroll, property and sales factors and defines major medical or pharmaceutical supplier and Mississippi distribution facility. New Mexico: Legislation (SB 106) enacted on 10 March 2014 extends the period in which corporate and individual NOLs can be carried forward to 20 years (from 5 years). This change is retroactively applicable to 1 January South Dakota: HB 1200, enacted on 10 March 2014, amends the bank franchise tax to allow a deduction for NOL or capital loss (collectively, NOL). Applicable to NOLs incurred on or after 1 January 2015, NOLs may be carried forward for seven years. NOL carry-backs cannot be deducted from net income for South Dakota bank franchise tax purposes. 4 State income/franchise tax quarterly update

5 HB 1201, enacted on 14 March 2014, amends the bank franchise tax apportionment provisions. The denominator of the property, payroll and receipts factors is amended to include the financial institution s real and tangible personal property owned or rented and used or total compensation paid or total receipts of the financial institution everywhere during the tax period. The receipts factor is further amended to specify that interest, fees and penalties in the nature of interest (collectively, interest and fees); discount, and net gain from loans (including federal funds sold and acceptances); and other installment obligations are included in the numerator as follows: Interest and fees from loans secured by real property if the property is located in South Dakota. If the property is located within and without South Dakota, the receipts are included in the numerator if more than 50% of the fair market value of the real property is located within South Dakota. If more than 50% of the property s fair market value is not located within any one state, the receipts are in the numerator if the borrower s billing address is in South Dakota. Interest and fees not secured by real property if the borrower s billing address is located in South Dakota. Interest and fees from credit card receivables and receipts from fees charged to cardholders if their billing address is in the state. A portion of net gains (but not less than zero) from the sale of credit card receivables or from the sale of loans secured by real property or not secured by real property (provisions of HB 1201 include the portion of net gains should be calculated). These changes to the bank franchise tax are effective 1 January Virginia: Effective for taxable years beginning on or after 1 January 2014, provisions of HB 480 exempt DISCs from the corporate income tax; the minimum tax on telecommunications companies, and the tax imposed on electric suppliers, pipeline distribution companies, gas utilities and gas suppliers. HB 480 was enacted on 27 February Wisconsin: Beginning 1 January 2014, provisions of SB 1, increase the period in which net business losses can be carried forward to 20 years (up from 15 years). SB 1 was enacted on 24 March Judicial California: In ComCon Production, 4 a California superior court held that a global media and entertainment company that operates cable television systems around the world did not operate a unitary business with its subsidiary, a home shopping television network, during tax years Further, the court held that the media company s $1.5 billion gain from liquidated damages in a separate merger transaction involving a telecommunications provider was business income. Mississippi: In Isle of Capri Casino, the Mississippi Supreme Court held that a casino is permitted to credit the license fees of its affiliates to offset its combined income tax liability. In reaching this conclusion, the Court rejected the Department of Revenue s assertion that the tax liability must be determined individually for purposes of applying the license fee credits, and held that Mississippi law permitted the casino to combine the income or loss of individual entities to get the net income of the affiliated group. 5 New Jersey: The New Jersey Tax Court issued a written, unpublished letter opinion in Lorillard Licensing Co., 6 confirming its verbal bench ruling holding that there are not two nexus standards under the since-repealed Throwout Rule for corporate business tax apportionment purposes (one to establish nexus and the other to determine whether receipts to another state are subject to Throwout). Instead, the court held that the Division of Taxation must apply the same standard used for nexus to New Jersey to determine if throw-out is applied to receipts sourced to other states, citing the New Jersey Supreme Court s ruling in Whirlpool. 7 Texas: In Titan Transportation, the Texas Court of Appeals held that a transportation company qualified for the revenue exclusion for payments made to subcontractors in former franchise tax statute section (g)(3). 8 The critical question in regard to whether the taxpayer qualifies for the revenue exclusion is whether there is a reasonable connection between the services, labor or materials provided and the construction, remodeling, design State income/franchise tax quarterly update 5

6 or repair work to the real property performed by the subcontractors. In this instance, the court found nexus was established by the evidence that Titan s aggregate hauling and delivery were essential, and thus reasonably connected, to the construction work on real property. The service Titan provides in picking up, transporting, and depositing the aggregate is more efficient for the construction companies and saves them from having to use additional labor to put the aggregate to a useful purpose. Titan provided services that were logically and reasonably connected with the construction of improvements on real property, and were directly related to the construction of such improvements. Lastly, the court found that imposing the more stringent requirements the State suggested would have resulted in judicial rewriting of the statute. On 15 January 2014, a district court judge dismissed a motion for summary judgment filed by Graphic Packing Corp. (Graphic Packaging), in which it argued that it properly elected to use the Multistate Tax Compact s equally weighted three factor apportionment formula to apportion its taxable margin under the Revised Texas Franchise Tax (the Franchise Tax), instead of using the single sales factor apportionment formula mandated by the Franchise Tax. 9 Other, as-applied arguments are still pending before the court. Administrative California: In Notice (issued 17 January 2014), the FTB announced that it had withdrawn Notice (3 December 2010), which provided general guidance on whether the Texas Margins Tax is eligible for an Other State Tax Credit (OSTC) or allowed as a deduction when computing California income taxes, including the corporate franchise tax and the personal income tax. The FTB explained that since Notice was issued, it has continued to receive questions regarding the proper treatment of the Margins Tax for California purposes. Therefore, the FTB is evaluating its position and exploring alternative methods to issue authoritative guidance. In the February 2014 issue of Taxnews, the FTB provided guidance on NOL deduction carry-back provisions enacted as part of the budget (as amended by the budget). California law provides that NOLs attributable to taxable years beginning on or after 1 January 2013 shall be carried back to the two preceding taxable years. NOLs attributable to taxable years beginning before 1 January 2013 cannot be carried back. Election to waive a NOL carryback, however, is irrevocable. NOL carry-backs are limited to: (1) 50% of an NOL created in tax year 2013; and (2) 75% of an NOL created in tax year For taxable years beginning with 2015, the full amount of the NOL is carried back. The remaining portion of an NOL not applied as a carry-back is carried forward. Taxpayers may elect to waive the carry-back period and instead carry an NOL forward. Indiana: In Letter of Findings (issued 27 March 2014), the Department of Revenue (Department) denied a corporation s protest of imposition of adjusted gross income tax based on a Department auditor s add back of the revised Texas Franchise Tax and the gross receipts portion of the Michigan Business Tax. The Department found both taxes were based on or measured by income and, therefore, were required to be added back under Indiana law. In Letter of Findings No (issued 26 February 2014), the Department is allowed to throw back sales from states in which one entity of a manufacturer s consolidated group has nexus because the Finnigan Rule does not apply to corporations filing consolidated returns, rather it only applies to corporations filing a combined return. In Letter of Findings No (issued 26 February 2014), the Department held that a fashion retailer and a service subsidiary that operated a distribution and consumer service facility outside Indiana are required to file a combined return because the companies are in a unitary relationship. In reaching this conclusion, the Department rejected the viability of the retailer s transfer pricing study because it was outdated, limited in scope in that it did not account for all intercompany transactions and used improper comparables to analogize the relationship. The Department also found that the study failed to consider the value that the retailer s brand recognition and intellectual property bring to the service subsidiary. In Letter of Findings No (issued 29 January 2014), the Department held that a multistate company s income from licensing intangibles and selling services to franchisees in Indiana should be 6 State income/franchise tax quarterly update

7 sourced to Indiana for purposes of apportionment. The Department reasoned that the company receives income because it licenses intellectual property to Indiana franchisees and routinely conducts business activities to ensure the fulfillment of the franchise agreements in Indiana. The income-producing activity is deemed performed in Indiana because Indiana franchisees pay the company various fees in exchange for employing the company s intangible property and services in Indiana. Thus, the company s income from Indiana franchisees are sourced to the state. Michigan: In Revenue Administrative Bulletin (issued 29 January 2014), the Department of Treasury (Department) released guidance on the standards it uses to establish whether businesses have nexus with Michigan for CIT purposes. Under statutory law, CIT nexus is created if a taxpayer: (1) has a physical presence in the state for more than one day during the year, or (2) actively solicits sales in Michigan and has $350,000 or more of gross receipts sourced to the state, or (3) has an ownership interest or a beneficial interest in a flow-through entity that has nexus with the state. This guidance applies to nexus standards that became effective as of 1 January Missouri: An adopted regulation (Mo. Code of State Reg. (CSR) ) implements the optional alternative apportionment method enacted in 2013 under HB 128. An adoption notice appears in the Missouri Register issued 3 February In Letter Ruling 7366 (issued 24 February 2014), the Department of Revenue explained that for singlefactor apportionment method purposes, tangible property produced in Missouri and subsequently moved outside the state prior to the sale by an unrelated logistics provider is considered partly within the state if the ultimate customer is within Missouri, but is entirely outside the state if the customer is located outside the state. New Jersey: The New Jersey Division of Taxation (Division) announced an intangible asset nexus initiative that will run from 15 March 2014 through 15 May Under the terms of the intangible asset nexus initiative, companies with New Jersey source income from the use of intangible assets (including, but not limited to, embedded intangibles and fees for use of the intangible that have been integrated into an intercompany pricing analysis) that voluntarily come forward and comply with their corporation business tax (CBT) filing obligations will have all penalties waived and will be subject to a look-back period that is limited to the periods beginning after 1 July 2010 or the date business commenced, whichever is later. New York City: In In re McGraw-Hill Companies, Inc., 10 the New York City Tax Appeals Tribunal held that a credit ratings agency (CRA) that publishes public ratings online is allowed to source its receipts according to an audience-based and circulation-based methodology for New York City General Corporation Tax (GCT) purposes. Texas: In Letter Ruling No L (issued 30 January 2014), the Comptroller of Public Accounts (Comptroller) clarified that when a taxpayer includes federal bonus depreciation on eligible assets in calculating its franchise tax depreciation deduction, the taxpayer must recompute the franchise tax depreciation using the appropriate federal depreciation method in effect for the federal tax year beginning 1 January The Comptroller noted that for costs of goods sold, when an eligible asset s federal and franchise tax depreciation are different, the adjusted basis for federal and franchise tax also will be different. Because this difference could affect the amount of gain or loss reportable when the asset is sold, the gain or loss reported on the taxpayer s federal return may have to be recalculated for franchise tax purposes. Virginia: In PD 14-8 (issued 24 January 2014), the Department of Taxation (Department) allowed a company providing management and technology consulting services globally to subtract foreign-source income (FSI) based on contracts it entered into with non-us customers to license and develop software in order to determine its Virginia taxable income. Virginia does not allow a subtraction for FSI related to fees associated with any service that is technical in nature, except if such fees are incidental to the rental of real property or the licensing of a patent or other similar property outside the US. After reviewing the company s contracts concerning technology and trademark licenses outside the US, the tax commissioner reversed the Department s denial, finding that the company s service fees qualify for the FSI subtraction because State income/franchise tax quarterly update 7

8 the services enable foreign customers to utilize the licensed technology, and, as such, are technical fees incidental to the licensing of intangible property. Developments to watch Alaska: The US Supreme Court has been asked to review Tesoro Corp., 11 in which the Alaska Supreme Court held that an oil company and its subsidiaries are a unitary business for income tax purposes and that the use of an alternative apportionment formula used to determine taxable income was reasonable and appropriate. Massachusetts: The Department of Revenue (Department) issued a working draft of proposed corporate apportionment regulation, 830 CMR , to address a 2013 law change that requires the use of market-based sourcing for purposes of apportioning gross receipts from the sale of services and intangible property to Massachusetts for corporate excise tax purposes. The proposed regulations in the working draft: Revise the sales factor apportionment rules set forth in 830 CMR (9)(d) to adopt a market-based sourcing approach for sales other than sales of tangible personal property Provide guidance as to the instances in which a taxpayer can use a reasonable approximation for sourcing sales other than sales of tangible personal property when other means of sourcing cannot be reasonably determined Address the application of a throw out rule for sales receipts, other than sales of tangible personal property that the taxpayer either (i) sources to a state in which it is not taxable, or (ii) cannot reasonably determine or approximate the state to which such sales receipts should be assigned The relevant provisions of the 2013 law change and this working draft are generally effective for tax years beginning on or after 1 January Michigan: On 15 January 2014, the Michigan Supreme Court heard oral arguments in IBM. The court has been asked to decide whether the threefactor apportionment formula election permitted under the Multistate Tax Compact is allowed for determining tax liability under the Michigan Business Tax Act. We anticipate a decision will be issued by July Mississippi: The US Supreme Court has been asked to review the Mississippi Supreme Court s ruling in Equifax, in which it upheld the Tax Commission s use of an alternative apportionment method. 12 At the same time, on 1 April 2014, the Mississippi legislature approved an Equifax fix bill (HB 799). If enacted, the new law would establish alternative apportionment provisions that can be used when either the taxpayer or the taxing authority claims that the standard apportionment method does not fairly represent the extent of the taxpayer s business activity in the state. In addition, the new law would make clear that the party requesting or requiring an alternative method that differs from the standard method bears the burden of proving first, that the standard method does not fairly represent the extent of the taxpayer s business activity in Mississippi, and then that the proponent s alternative method more fairly represents the taxpayer s activity in Mississippi than any other reasonable method presented. In addition, the new law would prohibit the commissioner from requiring the filing of a combined return until the Department adopts regulations specifying specific information. Virginia: Legislation (HB 5001, st Special Sess.) retroactively amends an exception to Virginia s related-party intangible and interest expense add-back provisions to its corporate income tax. Under the new law, the tax paid to another state exception 13 is limited and applies only to the portion of income received by the related member that is attributed to a state or foreign government in which the related member has sufficient nexus to be subject to such tax. The related member derives at least one-third of its gross revenues from the licensing of intangible property to unrelated parties exception 14 is limited and applies only to the portion of such income derived from licensing agreements for which the rates and terms are comparable to the rates and terms of agreements that the related member has actually entered into with unrelated entities. These changes apply retroactively to taxable years beginning on and after 1 January HB 5001 was signed by the governor on 1 April State income/franchise tax quarterly update

9 Endnotes: 1 A DISA is created when a member of a combined reporting group receives a non-dividend distribution in excess of the basis. 2 Gore Enterprise Holdings, Inc. v. Comptroller of the Treasury and Future Value, Inc. v. Comptroller of the Treasury, No. 36 (Md. App. Ct.)( 24 March 2014). 3 Comptroller of the Treasury v. SYL, Inc., 375 Md. 78, 825 A.2d 399 (2003). 4 ComCon Production Services I, Inc. v. California Franchise Tax Bd., No. BC (bench ruling Cal. Superior Ct., Los Angeles City and County)(6 March 2014). 5 Mississippi Dept. of Rev. v. Isle of Capri Casinos, Inc., No CA SCT (Miss. Sup. Ct.)(13 February 2014). 6 Lorillard Licensing Co., LLC v. Director, Division of Taxation, No. A T1 (N.J. Tax Ct.)(14 January 2014 unpublished). 7 Whirlpool Properties, Inc. v. Director, Division of Taxation, 208 N.J. 141 (N.J. Sup. Ct.)(28 July 2011). 8 Titan Transportation, LP v. Combs, No CV (Tex. Ct. App.)(14 March 2014). 9 Graphic Packaging Corp. v. Combs, No. D-1-GN (Tx. Dist. Ct., Travis County, motion for summary judgment denied)(15 January 2014). 10 In re McGraw-Hill Companies, Inc., No. TAT(H)10-19(GC) (N.Y.C. Tax App. Trib., ALJ Div.)(24 February 2014). 11 Tesoro Corp. v. Alaska, No. S (Alaska Sup. Ct.)(25 October 2013), petition for cert. filed, Dkt. No (US Sup. Ct.)(24 February 2014). 12 Equifax v. Mississippi Dept. of Rev., No CT SCT (Miss. Sup. Ct. 24 June 2013), rehearing denied (21 November 2013), petition for cert. filed, Dkt. No (US Sup. Ct.)(19 February 2014). 13 Va. Code Ann (B)(a)(1)(as amended by Va. Laws 2014). 14 Va. Code Ann (B)(a)(2)(as amended by Va. Laws 2014). 9 State income/franchise tax quarterly update

10 EY Assurance Tax Transactions Advisory About EY For additional information, please contact one of the following Ernst & Young LLP professionals: National Tax Chris Gunder East Central Region Michael Lake Financial Services Office Michael Memmolo Midwest Region Bryan Dixon Northeast Region Scott Gilefsky Southeast Region Sid Silhan Southwest Region David Jackson West Region Todd Carper EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US Ernst & Young LLP. All Rights Reserved. SCORE No. YY3290 ey.com Erntst & Young LLP (Canada) Kathryn Toal Follow us on Twitter at EY_USStateTax 10 State income/franchise tax quarterly update