Current corporate income tax developments.

EXECUTIVE SUMMARY

* Oklahoma became the thirty-seventh state to join the MTC National Nexus Program.

* Courts in seven states addressed the definition of apportionable business income.

* The Florida intangibles tax on accounts receivable is being phased out.

An avalanche of state and local tax statutes, cases, regulations and rulings were issued in late 1997 and throughout 1998. This article focuses largely on corporate state income tax developments in the nexus and apportionment areas, but also highlights other significant corporate legislation, court decisions, regulations and rulings.

During 1998, an overwhelming number of state statutes were added, deleted or modified; court cases were decided; regulations were proposed, issued and modified; and bulletins and rulings were issued, released and withdrawn. Because it is impractical to summarize all of these activities, this article focuses on some of the more interesting items in the following four corporate income tax areas: nexus; tax base; and apportionment(1); it also includes some other significant income and non-income tax developments.

Nexus

Application of P.L. 86-272

P.L. 86-272 prohibits a state from taxing a business whose only connection with the state is the solicitation of orders for sales of tangible personal property sent out of the state for approval or rejection, and, if approved, filled and shipped by the business from a point outside the state. Several rulings addressed whether a taxpayer's in-state activities fall within the protection of P.L. 86-272.

Kansas

The Department of Revenue (DOR) ruled that a Texas corporation that licensed the use of software to residents and occasionally held a one- or two-day seminar was liable for corporation income tax.(2) The taxpayer develops and distributes educational curricula (including computer software) for private, public and home schooling; this activity is centralized at its headquarters in Texas. Any income from Kansas would stem from telephone or mail orders to the headquarters for materials shipped from Texas; however, on occasion, the company may hold a one-to two-day educator's convention in Kansas, during which it may sell some incidental items on site.

The DOR noted that only the solicitation to sell tangible personal property is afforded immunity under P.L. 86-272; the leasing, renting, licensing or other disposition of tangible personal property, or transactions involving intangibles (e.g., franchises, patents, copyrights, trademarks, service marks, etc.) or any other type of property are not protected activities. Thus, the license to use software and the holding of seminars in Kansas subjected the taxpayer to corporate income tax.

Massachusetts

In Amgen, Inc. v. Comm'r of Rev.,(3) the Supreme Judicial Court affirmed a decision of the Appellate Tax Board that the taxpayer was liable for Massachusetts corporate income tax because its activities in the state exceeded mere order solicitation. The taxpayer was a Delaware corporation with its primary place of business in California. It developed two new pharmaceutical products; its activities in Massachusetts were primarily the sales of these products. The taxpayer also monitored the research and clinical studies performed in that state, provided multi-day educational seminars, maintained ownership and control of the supplies used in such studies and retained employees to review specific patient charts and answer patient-specific questions. Additionally, the taxpayer was involved in patent infringement litigation in the state.

The taxpayer asserted that these activities were protected, as they were ancillary to order solicitation and, therefore, should not subject the company to Massachusetts taxation. However, the Appellate Tax Board ruled, and the Supreme Judicial Court affirmed, that the activities were not ancillary to the solicitation of orders; rather, they had an independent business purpose. The company was therefore subject to the state's corporate income tax.

* New York 

A foreign corporation stores its inventory of food products in unaffiliated public warehouses throughout the U.S., including three warehouses located in New York (the New York Warehouses). The company ships the food products from its processing facilities outside New York to the warehouses by common carrier; unrelated third-party brokers take orders for the sale of food products in New York. The company's corporate offices in another stare approve the orders taken by the independent contractors and arrange for the shipping from the warehouses directly to customers by common carrier. In addition, the company has two sales managers, based in offices located outside New York, who travel to New York once or twice a year for one-week periods to meet customers and inspect the New York Warehouses.

The New York State Department of Taxation and Finance (Department) ruled(4) that the storage of the company's product at public warehouses would not subject it to corporate income tax, if the New York Warehouses are providing fulfillment services for the company and the storage of the company's product in New York is in conjunction with the use of such services. As to the sales managers' activities in New York of inspecting the warehouses, these activities are conducted in connection with the use of the fulfillment services of the New York Warehouses; thus, they would not cause the company to be deemed to be doing business, employing capital, owning or leasing property or maintaining an office in New York.

In addition, even if the sales managers' activities in New York when meeting with customers constitute the solicitation of orders under P.L. 86-272 and Business Corporation Franchise Tax Regulations Section 1-3.4(b)(9), these activities in New York would not cause the company to be taxable. However, it was concluded that insufficient facts were presented to determine whether the sales managers activities in New York are sufficient to subject the company to corporate tax.

* New York

A manufacturing company's primary New York customer operates its manufacturing process using a "just in time" inventory delivery concept. To protect the customer's continued supply, a small quantity (approximately one day's usage) of the company's shipments to this customer are stored in transit at a warehouse operated by a common carrier of freight in New York. The company pays storage and handling charges separate from delivery charges for this service.

In addition, the company uses an account team approach in marketing to this customer. The team includes members from marketing, engineering, finance, manufacturing and quality assurance. Marketing members visit the customer's location on a regular basis, usually at least once a month. To assure the customer's satisfaction, all team members stay in regular contact with the assigned customer, usually by telephone, mail or e-mail, with a face-to-face meeting only once or twice per year.

The Department ruled(5) that the company's account team approach in marketing, as described in the ruling request, made it impossible to determine whether a particular incidental activity is related to the sale that precedes it or the sale that follows it. However, if the account team's activities in New York do not serve any independent business function apart from their connection to the solicitation of orders, they would not subject the company to the corporate income tax. As to the storage of product at an instate warehouse, that activity falls within the fulfillment services nexus exception under New York Tax Law Section 209.2(f) and thus, does not subject the company to the corporate income tax.

* North Carolina 

A North Carolina DOR Directive(6) clarifies that P.L. 86-272 does not apply to the franchise tax, because that Federal law prohibits a state from imposing an income tax on income derived in the state by a corporation if its only activity in the state is the solicitation of sales of tangible property. As stated in G.S. 105-114(a), the franchise tax is a privilege tax or an excise tax, not a tax on income. Thus, a corporation protected from the payment of income tax under P.L. 86-272 is not protected from the payment of franchise tax.

* North Carolina

Included in the stare Budget Bill(7) is a directive that the General Assembly's "Revenue Laws Commission shall study the issue of when a corporation is doing business in North Carolina for the purposes of G.S. 105-130.3" (i.e., the corporate income tax).

* Virginia

An out-of-state corporation, employing salespeople in Virginia who solicit sales of its tangible products, established a "car stock program" under which salespeople can acquire inventory on a voluntary basis for resale to the corporation's customers. The salespeople acquire the stock from the corporation or an outside party, hold title and bear all risks of loss. Because of the nature of the car stock program, participation requires that inventory be maintained in the state.

The Department of Taxation determined(8) that the salespeople are not acting as independent contractors when participating in the car stock program and that the following activities conducted under this program were not ancillary to solicitation: acceptance, approval and fulfillment of the car stock program order; maintenance of inventory in Virginia; and collection of some payments for orders. These nonancillary activities, on the whole, were more than de minimis and subjected the corporation to Virginia corporate income tax.

Other Nexus-Creating Activities

* Florida

The authors understands that the Florida DOR withdrew an income tax assessment(9) against Aaron Investment Co., a Delaware corporation that owns certain trademarks used by Aaron Rents. The taxpayer argued that (1) it lacks nexus and (2) even if it were found to be subject to tax, its interest and royalty income is excluded from the sales factor; therefore, it would have no income apportioned to Florida.

* Louisiana

New law(10) provides a minimal nexus standard for certain trucking companies before their income is apportioned to Louisiana for income tax purposes or corporation franchise tax is imposed. Under the new law, a trucking company is not required to apportion its income to Louisiana and is not subject to franchise tax if, during the course of the year (1) it does not own or rent any real or personal property in the state other than mobile property; (2) it makes no pickups or deliveries within the state; and (3) it makes no more than 12 trips into the state. The provision regarding apportioning income applies to tax years beginning after 1997.

* Maine

The Maine Revenue Service has proposed to amend rule 18-125 CMR 808 to provide that when determining whether a foreign corporation is subject to Maine income tax, the activities of an independent contractor will be imputed to the corporation to the extent allowed by the U.S. Constitution and Federal law. The proposal also provides that nexus is created by the instate monitoring, inspecting or approving work by an independent contractor under a warranty or similar contractual arrangement.

* Massachusetts

The Supreme Judicial Court affirmed(11) the Appellate Tax Board's decision that an Illinois-based shipping company had sufficient nexus with Massachusetts, because its in-state delivery and pickup services were regular, ongoing and substantial during the tax year. During 1986, the taxpayer had made 54 trips to Massachusetts, serviced customers in 32 Massachusetts cities and towns and logged 10,926 miles on Massachusetts roads.

* North Carolina

The North Carolina Assistant Secretary of Revenue (SOR) ruled(12) that a corporate limited partner that otherwise had no activities in the state, was subject to corporate franchise and income taxes by virtue of its ownership interest in a partnership that owned a limited interest in a partnership doing business in North Carolina.

* Oklahoma

Oklahoma became the thirty-seventh state to join the Multistate Tax Commission (MTC) National Nexus Program, a voluntary disclosure program under which nonfilers or their representatives can work out a multistate disclosure agreement before being identified as nonfilers.

* Oklahoma

The Oklahoma Tax Commission (OTC) found(13) that the presence of employees in other states did not give rise to nexus in those stares. The taxpayer was a contract carrier that did not own any of its own trucking equipment; rather, it provided a driveaway service. When the company (ABC) with which the taxpayer has a continuing contract needs equipment moved to another location, the taxpayer supplies a driver to drive ABC's truck; the taxpayer is responsible for the safe delivery of the vehicle.

Not all of the equipment that the taxpayer hauls for ABC originates in Oklahoma. There are approximately 100 locations to which the taxpayer makes delivery or pickup of equipment belonging to ABC; the trips may or may not require travel through Oklahoma. If the trip does not originate or terminate in Oklahoma, the driver flies to the place of origination or from the termination place; the taxpayer pays for the driver's airline ticket.

According to the OTC, at most, the taxpayer has only a slight presence in any of the other states; the states through which taxpayer's employees travel could not require it to file corporate income tax returns and apportion its income without violating the Commerce Clause. Thus, the taxpayer was subject to Oklahoma tax on 100% of its income.

* South Carolina 

The South Carolina Supreme Court recently heard oral arguments in GEICO v. City of Charleston,(14) involving an insurance company and the Charleston business license tax. While the company insures property located in Charleston, its only physical presence with the city occurs when its appraisers enter it to appraise property damage. Relying on the South Carolina Supreme Court's decision in Geoffrey, Inc. v. S.C. Tax Comm'n(15) in part, the city claims that the presence of an insurance risk in the city is sufficient to impose the business license tax. The taxpayer prevailed in lower court with the arguments that it failed all four prongs of Complete Auto Transit v. Brady(16) and that Geoffrey was wrongly decided.

* Tennessee

In J.C. Penney National Bank v. Comm'r of Rev.,(17) a Tennessee trial court found that the taxpayer (JCPNB) had sufficient nexus with the State to satisfy Commerce Clause concerns and that the single-factor receipts formula used to apportion financial institutions' income does not violate the Due Process Clause. While the court rejected JCPNB's argument that the physical presence standard set forth in Quill v. North Dakota(18) should apply to franchise and excise taxes, it nevertheless found that JCPNB had established substantial nexus with Tennessee via tangible personal property that it owned there (i.e., approximately 17,000 credit cards it had issued to its Tennessee customers).

* Texas

The Texas Comptroller of Public Accounts approved(19) the decision of an administrative law judge (ALJ) that an interstate motor carrier did not have significant nexus to be subject to the interstate motor carrier tax. The Tax Division (Division) had assessed tax against the taxpayer on the basis that its officers attended football games several times a year (often accompanied by its major customers) and employees visited Texas to preview truck prototypes. In assessing the tax, the Division speculated that "one can only conclude that solicitation" also took place in addition to reviewing prototypes and that the expenses for the football tickets were recorded as sales expenses. The ALJ ruled that the Division had not provided the necessary evidence that the taxpayer's employees were in Texas to solicit business or execute sales; accordingly, it held that the taxpayer was not subject to the interstate motor carrier tax.

* West Virginia 

An out-of-state company that makes no sales into West Virginia and has no employees there, contracted with an instate company to manufacture parts for it. Some of the manufacturing equipment used by the West Virginia company is owned by the out-of-state company; a quality assurance engineer visits the in-state plant once a month to check on the parts used. In addition, a purchasing manager visits West Virginia annually to negotiate prices.

The Department of Tax and Revenue (DTN) concluded(20) that the out-of-state company's business did not constitute "doing business in the state"; thus, it was not subject to the corporate income tax. The DTR also concluded that the out-of-state company owned tangible personal property in the stare, so it was subject to the business franchise tax and the business registration tax. No West Virginia personal income tax withholding was required as to employees visiting the state, because those employees were not carrying on a trade or business there.

* State Tax Base

The majority of states imposing a corporate income-based tax begin the computation of state taxable income with taxable income as shown on the Federal corporate income tax return (Form 1120, U.S. Corporation Income Tax Return). These states use either taxable income before net operating loss and special deductions (Line 28) or taxable income (Line 30); certain state-specific addition and subtraction modifications are then applied to arrive at the state tax base. Below is a summary of the recent significant changes to the stares' addition and subtraction modifications.

Business/Nonbusiness Income

Under the Uniform Division of Income for Tax Purposes Act (UDITPA), a multistate corporate taxpayer's income is divided into two classes--business income and nonbusiness income. Business income is apportioned among all of the states in which the corporation has nexus by use of a statutory apportionment formula; nonbusiness income generally is assigned to the stare in which the corporation is domiciled or the property that was disposed of is located. UDITPA generally defines business income as income arising from transactions and activity in the regular course of the corporation's trade or business and includes income from tangible and intangible property, if the acquisition, management and/or disposition of the property constitutes integral parts of the corporation's regular trade or business. All other income is nonbusiness income.

The courts are split as to whether the UDITPA business income definition requires that both the transaction giving rise to the income is in the regular course of the corporation's income (transactional test) and the acquisition, management, use and disposition of the property are integral parts of the corporation's regular business operations (functional test).

* Alabama

In response to a hostile takeover attempt, Uniroyal Inc. spun-off its tire division to Uniroyal Tire Co., Inc. (Uniroyal Tire) in 1985. In 1986, Uniroyal Tire and B.F. Goodrich entered into a joint partnership venture and transferred their assets to the partnership. Uniroyal Tire sold its partnership interest in 1990, realizing a significant capital gain.

In Ala. DOR v. Uniroyal Tire Company, Inc.,(21) a state Circuit Court reversed an ALJ decision, and concluded that the Alabama definition of business income includes both a transactional and a functional test. The court also found that Reg. 810-3-31-02(1)(a)4(ii) was not in conflict with Ala. Code Section 40-27-1, Art. IV, 1 (a); thus, Uniroyal's gain on the sale of the partnership interest constituted business income.

* California

In Robert Ha[f International, Inc. v. Franchise Tax Board(22) (FTB), the California Court of Appeal ruled that a corporation could deduct a nonbusiness loss against it's state corporation franchise tax. Pursuant to a statutory merger in 1980, Robert Half International, Inc. (Robert Half), which is domiciled in California, assumed an obligation to issue its own shares under a warrant held by a third party. (A warrant is an option to purchase the shares of a corporation at , specified time for a specified price.) In 1981, Robert Half paid a third party $7.5 million to repurchase and cancel the warrant; it deducted the payment as a nonbusiness loss allocable to California.

On audit, the FTB determined the payment was a business loss that should have been apportioned among the various states. The court concluded that Robert Half's loss cannot reasonably be interpreted as a business loss within the meaning of the functional test set forth in Revenue and Taxation Code Section 25120(a), because it was not in the business of acquiring warrants. Accordingly, the nonbusiness loss was allocable to California.

* Illinois

In Texaco-Cities Service Pipeline Co. v. McGaw,(23) the Illinois Supreme Court ruled that gain from an oil company's extraordinary disposition of pipeline assets constituted business income apportionable under the state's single-factor "barrel-miles" formula. The taxpayer sold the majority of its pipeline property and classified the proceeds as nonbusiness income. On audit, the DOR reclassified the income as business income.

The Appeals Court had ruled that Illinois recognized two alternate tests for classifying business income, the transactional test and the functional test. Further, because the pipeline was used in Texaco's business, the proceeds constituted business income. The Illinois Supreme Court affirmed that Illinois has both a transactional test and a functional test for business income.

* Maryland

The Maryland statutes do not distinguish between business and nonbusiness income (i.e., the law requires apportionment of all of a corporation's income). However, following the criteria established by the U.S. Supreme Court in Allied-Signal, Inc. v. Dir., Div. of Tax'n,(24) the Maryland Court of Appeals reversed(25) a lower court's decision and held that the gain Hercules Inc., a Delaware corporation, recognized on the sale of its 37.5% stock interest in HIMONT Inc. did not serve an operational function and that there was insufficient flow of value to create a unitary relationship. Therefore, the gain was not subject to Maryland corporate income tax.

* Minnesota

In Hercules Inc. v. Comm'r of Rev.(26) and Firstar Corp. v. Comm'r of Rev.,(27) the Minnesota Supreme Court held that Minnesota uses only a transactional test for determining business income. In both cases, the court held that the taxpayer's gain was not apportionable because it did not result from its day-to-day business operations or activities. The DOR had initially indicated that it would not actively seek potential nonbusiness items, allocable to Minnesota, when auditing Minnesota-based companies. However, in several recent large audits of such companies, the DOR has assessed additional taxes based on the position that gains should be characterized as nonbusiness income and allocated to Minnesota. The DOR, Minnesota Chamber of Commerce and tax professionals are discussing this issue; potential action may include adopting an election process similar to that in Kansas, or legislation to adopt a statutory functional test.

* North Carolina

In Polaroid Corp. v. Offerman,(28) the North Carolina Supreme Court reversed a Court of Appeals decision holding that the state recognizes only one meaning of business income, the transactional test. The taxpayer had received damages from a patent infringement suit. Because it was not in the business of licensing patents to other companies, the protection of its patents was not an integral part of its regular trade or business; accordingly, the Court of Appeals had held that the income from the lawsuit was nonbusiness income.

The state Supreme Court held that the business income definition includes both transactional and functional tests; the satisfaction of either test will result in business income. The court also held that because the taxpayer's recovery constituted income in lieu of profits, that income should be classified as business income; it represented the disposition of assets integral to the taxpayer's regular trade or business.

* North Carolina

Immediately before the state Court of Appeals' ruling in Polaroid Corp., that North Carolina recognizes only the transactional test, the DOR issued proposed regulations in response to SOR Decision No. 95-144,(29) which defined business income to include both transactional and functional tests. That decision stated that the gain or loss on the sale of the stock of a unitary subsidiary must be included in apportionable business income; likewise, dividends received from a unitary subsidiary should be considered apportionable business income.

However, in a major policy shift, the SOR also stated that the taxpayer had engaged in transactions to distort its net income apportioned to North Carolina; thus, the taxpayer had to calculate its gain from the sale of its subsidiary on a unitary basis. Further, the most accurate methodology to calculate this gain was for the taxpayer and its subsidiaries to file a unitary combined return. This decision represents an aggressive push on North Carolina's part in favor of combination when an intercompany transaction that creates distortion is identified.

* North Carolina

The DOR continues to propose an amendment to Rule 17 NCAC 5C.0703, which currently categorizes all dividend income received by a company that does not deal in securities as nonbusiness income. This conflicts with the position the DOR has followed since the issuance of SOR Decision No. 95-144.

N.C.G.S. Section 105-130.7(b) has been amended to state that a corporation may deduct all dividends received from corporations in which it owns more than 50% of the outstanding voting stock, thus eliminating the requirement that the recipient corporation be domiciled within the state.(30)

* Oregon

In Simpson Timber Co. v. DOR,(31) the Oregon Supreme Court ruled that just and delay compensation paid to a timber company because the Federal government condemned its property was taxable business income. The taxpayer had argued that the condemnation of its timber and land did not represent a voluntary disposition constituting an integral part of its regular business operations.

The court refused to read "voluntary" into the statute, reasoning that nothing in the business income statute suggests that income from an involuntary disposition of property is not business income. The court ruled that Oregon defined business income with two clauses (effectively, the transactional and functional tests). Further, the involuntary disposition of the taxpayer's land produced business income, because the land was acquired, managed, used and disposed of in the taxpayer's regular business. Both the just and the delay compensation resulted from the disposition of the land; thus, both had to be classified as business income.

Other Modifications

* California

In Hunt-Wesson, Inc. v. FTB,(32) the California Court of Appeals reversed a trial court and held that the interest offset is not a tax on dividends of nonunitary *subsidiaries and does not discriminate against interstate commerce.

* California

In Ceridian Corp. v. FTB,(33) the Superior Court declared unconstitutional state law that limits franchise tax deductions for dividends received from insurance company subsidies to California-domiciled corporations. Ceridian, a Minnesota-based corporation, owned several insurance companies that paid dividends in tax years 1978-1982. The subsidiary insurance companies were not domiciled in California, but derived some premium income from California sources. Because Ceridian was not domiciled in California, under Revenue and Taxation Code Section 24410, it could not deduct the dividends. The court concluded that the statute imposes a higher burden on out-of-state corporations than on similarly situated in-state corporations; thus, it violates the Commerce Clause. The court also concluded that refunds were the appropriate relief rather than an attempt by the FTB to retroactively raise taxes on Ceridian's competitors.

* Connecticut

Effective for income years beginning after 1998, corporations are required to add back related-party expenses attributable to intangible property.(34) The types of intangible expenses that are added back include interest, royalty, patent, technical and copyright fees, and other similar expenses and costs. However, the adjustment does not apply if the corporation establishes by clear and convincing evidence that it is unreasonable or the parties agree "to the application or use of an alternative method of apportionment" The new law also provides other rules that effectively limit the tax to that resulting from a nexus consolidated return.

* Minnesota

Effective for tax years beginning after 1997, Minnesota's charitable deduction for gifts of appreciated property or inventory is conformed to the Federal rules. Taxpayers will not be allowed to deduct the fair market value of the property. The state charitable deduction remains limited to contributions to Minnesota charities.

* North Carolina

The General Assembly extended the time limit for the corporate income tax carryforward of net economic loss.(35) Effective for tax years beginning after 1998, for losses incurred for tax years beginning after 1992, corporations can carry forward net economic losses accumulated within the past 15 years. Before this amendment, the carry-forward was limited to five years. The new law provides that until 2002, a loss more than five years old may offset no more than 15% of any one year's taxable income; once this threshold has been met, the loss can be carried forward to a succeeding year. For tax years beginning after 2001, the 15% limit is removed. The law also allows an item originating in a closed tax year to be redetermined in computing the net economic loss that can be carried forward to an open year.

* South Carolina

In Rev. Rul. 98-14,(36) the DOR stated that commissions paid to a foreign sales corporation (FSC) are deductible and are not an expense related to dividends if the FSC has economic substance and incurs expenses in connection with selling the U.S. producer's product outside the U.S.

* Wisconsin

A Circuit Court reversed(37) a Tax Appeals Commission (TAC) decision and held that the Michigan single business tax (SBT) is deductible for years prior to a 1994 legislative change specifying that single business and value-added taxes are not deductible in computing the franchise tax base. Unlike the TAC, the Circuit Court found that the SBT is a form of value-added tax, not a nondeductible tax measured by all or a portion of income or gross receipts. The DOR is appealing.

Apportionment

A multistate corporation's business income is apportioned among the states in which it does business using an apportionment percentage for each state having jurisdiction to tax the corporation. To determine the apportionment percentage, a ratio is established for each of the factors included in the state's formula; each ratio is calculated by comparing the corporation's level of a specific business activity in the state to the total corporate activity of that type everywhere. The ratios are then summed, weighted (if required) and averaged to determine the corporation's apportionment percentage for the state; the apportionment percentage is then multiplied by total corporate business income to determine the income subject to tax by the state.

Although apportionment formulas vary among jurisdictions, most states use a three-factor formula that includes sales, payroll and property factors. However, over the past several years, legislative changes to the apportionment formula have become common; more than half of the states now accord more weight to the sales factor than to the payroll or property factors. Use of a double-weighted sales factor tends to pull a larger percentage of an out-of-state corporation's income into the state's jurisdiction, but generally provides tax relief for in-state corporations. Changes in the apportionment formula may also be used to provide special relief or tax benefits to specific industries or to properly reflect the operations of a special industry. Apportionment formula changes that became effective or were enacted during the past year are summarized below.

* Alabama

In Dial Bank v. DOR,(38) an ALJ held that the taxpayer, which had issued credit cards to numerous Alabama residents and leased two magnetic resonance imaging machines to an in-state customer, was subject to franchise and income taxes. Although not at issue, the ALJ determined that "the presence of presumably hundreds or thousands of tangible credit cards owned by the Taxpayer in Alabama could arguably constitute substantial nexus for Commerce Clause purposes."

As to the DOR's request for a 50-state apportionment spreadsheet, the ALJ held that for franchise tax purposes, the production of the spreadsheet was not required. However, the ALJ found that the DOR is authorized to require any corporation to provide a 50-state apportionment spreadsheet for income tax purposes.

* California

During 1997, the FTB released two versions of draft regulations addressing combined report mechanics; one version was consistent with Appeal of Finnigan Corp.(39) and the other with Appeal of Joyce, Inc.(40) In addition to the Finnigan/Joyce issue, the draft regulations include items such as treatment of capital gains and losses in a combined group, tax credits in a combined group, combined reporting for members on different fiscal years and short-period combination. During 1998, the FTB held hearings on these versions. Based on the hearings, it appears that the FTB is leaning toward adoption of the Joyce version; however, action on adoption has been delayed pending the decisions in one or more cases.

* Connecticut

New law(41) affects the taxation of financial service companies and domestic insurance companies. Effective for tax years beginning on or after 1998, a single-factor receipts formula applies for the apportionment of net income of "financial service companies." Such companies are broadly defined to include state and national banks, savings associations, thrift institutions, certain credit unions and companies deriving 50% or more of their gross income from various lending and investment activities. Under the new law, the receipts factor is principally based on the location of a financial service company's customers or loan collateral, rather than on where the business performs its services. A financial service company can use this methodology even if it is not taxable in another state.

* Illinois

Illinois adopted the single-sales-factor apportionment method, to be phased in over the next three years, beginning with tax years ending on or after Dec. 31, 1998.(42)

* Louisiana

Recently enacted legislation(43) provides apportionment guidance for common paymaster situations. For tax periods beginning after 1998, the new law provides that an affiliated group member that serves as a common paymaster must eliminate from its payroll ratio all payrolls paid on an affiliate's behalf, charged to the affiliate and not representing salary, wage or other compensation of the common paymaster. These amounts must be included in the affiliated corporations' numerator and denominator of the payroll factors.

* Missouri

The Administrative Hearing Commission ruled(44) that under Missouri's single-factor apportionment method, sales picked up at a Missouri facility and transported out of the state by the purchaser using other than a common carrier (i.e., "dock sales") are sales transacted partly within and partly without Missouri; thus, only one-half of such sales were includible in the numerator of the Missouri sales factor. The Director of Revenue had argued that the purchaser's destination point is at the taxpayer's dock, because that is where the sale is consummated.

* New Mexico 

The New Mexico Taxation and Revenue Department amended 3 NMAC 5.14.8 to clarify the treatment of leased employees. The amended regulation provides that "employee" includes a leased employee whenever the taxpayer is the employer or joint employer of the leased employee.

* North Carolina

Exempt interest income from U.S. obligations must be excluded from the sales factor denominator of the state apportionment formula. The taxpayer, a domestic corporation, was principally engaged in business as a financial institution. The taxpayer had sufficient activities outside the state to apportion its income under G.S. 105-130.4. It received interest income from Treasury securities, including bonds, notes and other U.S. obligations.

The taxpayer had filed amended returns seeking to include the exempt interest income in the calculation of the statutory formula and requesting a refund. The taxpayer's primary contention was that interest received from such obligations was an integral part of its trade or business and was therefore "business income" under G.S. 105130.4(a)(1) for purposes of inclusion in the sales factor.

The SOP, concluded(45) that the mechanics of the statutory scheme for allocating and apportioning income clearly dictated that exempt income is excluded from the computation of the portion of a taxpayer's income subject to taxation by the state. In addition, that exempt income cannot constitute business income taxable by North Carolina. Finally, the SOR reasoned that 31 U.S.C. Section 3124(a) expressly prohibits consideration of interest income from U.S. obligations in the computation of state net income; accordingly, exempt interest income from U.S. obligations cannot be considered in the computation of state taxable income and cannot be included in the computation of either the numerator or the denominator of any of the factors in the statutory formula.

* Oregon

In Sherwin-Williams Co. v. DOR,(46) the Oregon Tax Court ruled that the DOB. erred in excluding gross receipts from the company's investment securities in the sales factor when apportioning income for corporate excise tax purposes. The court noted that while OAR 150-314.665(1)(A) expounds on what constitutes a sale, it does not contain any provision that would exclude gross receipts from the sale of intangible assets. The DOR also had argued that if gross receipts are included in the sales factor, k would result in a misrepresentation or distortion of the taxpayers' true business activities. The court explained that while this may be true, if a statute results in distortion, the legislature is the party to correct the problem.

* Oregon

The DOR amended Rule 314.650 to provide that, effective Dec. 31, 1998, in computing the apportionment factors, transactions between the partner and partnership shall be eliminated to the extent of the partner's percentage interest in the partnership.

* Tennessee

The Tennessee Court of Appeals affirmed(47) a trial court's ruling on the inclusion of return of capital from a taxpayer's Ohio short-term cash investments in the sales factor denominator of Tennessee's apportionment formula, and the Commissioner's exclusion of same under a statute permitting the implementation of a variation of the standard apportionment provisions. The court held that the plain language of the statute requires that return of capital be included in the sales factor denominator; however, the Commissioner's exclusion of return of capital was justified under the Tennessee variance statute, T.C.A. Section 67-4-812, which allows the Commissioner to require use of an alternative, equitable method of apportionment when the standard apportionment results do not fairly represent the extent of the taxpayer's business in the state.

The court rejected the taxpayer's argument that the variance statute could be invoked only when the standard provisions yielded a "grossly disproportionate" result. The court concluded that, because inclusion of return of capital in the denominator did not fairly represent the taxpayer's income attributable to Tennessee, the Commissioner was justified in excluding return of capital under T.C.A. Section 67-4-812.

Other Important Corporate Income Tax Developments

Amnesty

* South Dakota 

South Dakota will implement a tax amnesty program from April 1 through May 15, 1999. While the DOR has not fully determined which taxes the program will include, it will include sales and use taxes and the contractor's excise tax.(48) Taxpayers that have been audited or received audit notification are not eligible for the program.

Voluntary Disclosure Programs

* District of Columbia 

The Office of Tax and Revenue has developed a voluntary disclosure program to be administered by its Audit Division. Delinquent taxpayers that have not already been contacted may submit anonymous offers to settle prior deficiencies. The general lookback period is three years, but may be extended to five, if nexus existed for 10 or more years. The lookback period may also be longer in cases in which tax has been collected (but not remitted) by the seller. Shorter lookback periods or prospective filing may result if nexus is questionable. Penalties will be waived if tax and interest are paid; interest abatements are rare.

* Pennsylvania

The voluntary disclosure program has been modified to limit to three years, rather than four, the exposure of companies and individuals with responsibility for payment and filing of all taxes except corporate net income tax and capital stock tax. The limitation does not apply to business trust fund taxes (i.e., sales tax and income tax withholding), that have been collected but never remitted. Taxpayers who have failed to remit collected taxes must comply from the date the tax was collected. Responsibility for the payment and filing of corporate net income taxes and capital stock taxes for taxpayers accepted into the program remains unlimited.(49)

Filing Methods

* Alabama

For tax years beginning after 1998, an Alabama affiliated group of corporations filing a Federal consolidated return may elect to file an Alabama consolidated return under Ala. Code Section 40-18-39. The Alabama consolidated return must include all corporations that are members of the affiliated group (as defined by IRC Sec. 1504(a)), except members subject to the insurance premium license tax or the financial institution excise tax. The election generally is binding for eight years and requires an annual fee. For the privilege of filing a consolidated return, an affiliated group will be assessed an annual fee based on the aggregate amount of the group's total assets, as follows:

* If total assets are less than $2.5 million, the fee is $2,500.

* If total assets exceed $2.5 million but do not exceed $5 million, the fee is $5,000.

* If total assets exceed $5 million but do not exceed $7.5 million, the fee is $7,500.

* If total assets exceed $7.5 million but do not exceed $10 million, the fee is $10,000.

* If total assets exceed $10 million, the fee is $12,500.

* Arizona

Legislation(50) enacted during 1998 specifies when affiliated groups are considered to have made a valid election to file corporate income tax returns on a retroactive consolidated basis for periods after 1985. The new law allows the retroactive filing of pre-1994 Arizona consolidated returns if all of the following requirements are met:

* The only reason the original retroactive consolidated election was not accepted by the DOR was the absence of consents from affiliated group members in the retroactive years that were no longer members of the group as of Dec. 31, 1994 (the deadline for the original retroactive election).

* The parent agrees with the DOR in writing to assume any liabilities of the members that did not give consent.

* The parent assumes liability for any overpayments of refunds that may occur as the result of the elections.

* The parent submitted an application for relief to the DOR by Dec. 31, 1998.

* Missouri

In General Motors Corp. v. Dir. of Rev.,(51) the Missouri Supreme Court held that the 50% apportionment requirement under Missouri Statutes Section 143.431.3(1) violates the Commerce Clause. The section provides that an affiliated group must derive at least 50% percent of its income from sources within the state to elect to file a Missouri consolidated income tax return. Thus, only taxpayers with a Missouri apportionment factor of 50% or more could file on a consolidated basis and take advantage of offsetting profitable and non-profitable corporations, combining apportionment factors, etc.

Entity Classification/Check-the-Box Conformity

* Alabama

Rev. Proc. 98-001(52) clarifies that for Alabama tax purposes, the classification of all limited liability companies (LLCs), including both single-member LLCs (SMLLCs) and multiple-member LLCs organized after 1996, conforms to the Federal check-the-box regulations. For LLCs organized before 1997, the DOR will respect the LLC's classification under the Federal check-the-box regulations for tax years before 1997.

* Florida

The DOR clarified(53) 1998 legislation(54) on the classification and taxation of qualified subchapter S subsidiaries (QSSSs) and LLCs; highlights include:

QSSSs (income tax): The law is effective retroactively to tax years beginning after 1996. QSSSs are no longer treated as separate entities from parent corporations for Florida corporate income tax purposes. QSSSs are now required to file an informational return with the DOR. The DOR will not assess a penalty for failure to file an informational return due before July 1, 1998, the new law's effective date.

QSSSs (intangibles tax): QSSSs will be treated as separate entities, but may file intangibles tax returns on a consolidated basis with related companies. An election to do so must be made annually.

LLCs (income tax): The new law is effective July 1, 1998, and applies to tax years ending on or after that date. LLCs and foreign LLCs qualified to do business in Florida will be treated for state purposes as they are for Federal income tax purposes. SMLLCs will be treated as they are for Federal tax purposes, including the filing election (i.e., the check-the-box rules apply). The tax attributes of formerly taxable LLCs do not carry over to another entity. If an LLC made estimated tax payments, but was not required to file a return, it will need to file for refund of such payment. A parent member will have nexus with Florida for state income tax purposes if it fries a consolidated return with an LLC that is disregarded for Federal purposes. LLCs treated as partnerships in Florida with corporate members will be required to file Florida partnership returns, Forms F-1065. Corporate members must file Florida corporate income tax returns. If required to file a Florida corporate income tax return, a corporate member must include its share of the LLC's sales, payroll and property factors in its apportionment factor.

LLCs (intangibles tax): LLCs will be treated as separate entities but cannot file on a consolidated basis for Florida's intangibles tax, even if a corporate parent owns 80% or more.

* Kentucky

Effective July 15, 1998, for state income tax purposes, an LLC will be treated in the same manner as for Federal income tax purposes.(55) Prior to this legislation, state law did not address LLCs treated as disregarded entities. The prior law provided that an LLC treated as a partnership for Federal income tax purposes would be treated as a partnership for state tax purposes; an LLC treated as a corporation for Federal tax purposes would be treated as a corporation for state tax purposes.

* Louisiana

For tax periods beginning after 1997, any Louisiana entity taxed as a corporation for Federal income tax purposes will also be taxed as a corporation for Louisiana income tax purposes.(56)

* Minnesota

The DOR announced(57) that it will follow the check-the-box election made by either a domestic-or foreign eligible entity electing to be classified either as an association taxable as a corporation or as a partnership. It also will follow a check-the-box election made by a domestic eligible entity with a single owner electing to be disregarded as a separate entity.

However, the DOR cannot recognize the check-the-box election made by a foreign eligible entity with a single C corporation owner electing to be disregarded as a separate entity for Federal tax purposes; Minn. Stat. Section 290.17, subdiv. 4(f), does not permit the net income or the apportionment factors of foreign corporations or foreign entities to be included in a combined report, even though they may be part of a unitary business. A foreign corporation required to file a return in Minnesota must file on a separate return basis. This revenue notice is effective for elections made after Jan. 1, 1997.

* Mississippi

New law clarifies that organizations treated as corporations for Federal income tax purposes will be treated as corporations for Mississippi franchise tax purposes.(58)

Miscellaneous

* Arizona

For the 1998 tax year and thereafter, the corporate tax rate was reduced to 8% from 9%; however, there is no longer a deduction for Arizona income taxes paid or accrued.(59)

* Connecticut

Legislation enacted during the 1998 Regular Session(60) amended the safe harbor provision for corporate estimated income tax payments for tax years beginning after 1998. The new law provides that to use the 100% safe harbor, the preceding year had to be 12 months, and the company must have filed a return showing a tax liability. In addition, the new law allows corporations to make estimated tax payments based on an annualized income method.

* Connecticut

For the financial services and insurance industries, tax legislation provides for income years beginning after 1998, for the creation of "mortgage passive investment companies" (MPICs), whose income is exempt from the state's corporation business tax.(61) Under the new law, a company can transfer all (or a portion) of its mortgage portfolio into an MPIC; all income generated thereby will be exempt from Connecticut taxation. in addition, dividends received from the MPIC will be excluded from Connecticut taxable net income.

To qualify, an MPIC must (1) be related to a "financial service company" or an "insurance company;" (2) employ not fewer than five full-time equivalent employees in Connecticut; (3) maintain an office in the state; and (4) confine its activities to the receipt, maintenance, management and sale of loans secured by real property.

* Idaho

Effective for returns filed after 1998, taxpayers will receive an automatic six-month extension to file a corporate franchise (income) tax return if, by the unextended return due date, they have paid in the required percentage of estimated taxes. If the required payments have been made, taxpayers need not file an application for extension.(62)

* Illinois

The DOR recently adopted new sections and amendments to 86 Ill. Adm. Code 100, the combined return regulations. The purpose was to provide guidance on the DOR's administration of the statutory concept that all of the members of a unitary business group (with the exception of S corporations) should be treated as one taxpayer. The regulation provides that the "one taxpayer" concept should only apply to unitary business groups with multiple Illinois taxpayer members. Notwithstanding the "one taxpayer" concept, the DOB, still follows a Joyce(63) analysis in determining throwback and inbound sales.

* Maryland

Reversing a decision of the Maryland Tax Court, the Montgomery County Circuit Court ruled in Gannett Co. Inc. v. Comptroller(64) that the Maryland Comptroller of the Treasury (Comptroller) does not have the authority to assess additional income tax on the basis of IRC Sec. 482. The Comptroller had imputed income tax from intercompany accounts held between the taxpayer and its subsidiaries. Although Maryland uses Federal taxable income as the starting point for the corporate income tax base, the court held that the IRC cannot be read as an extension of Maryland's law. According to the court, the Comptroller cannot exercise discretion not specifically provided by the Maryland General Assembly. The Comptroller has appealed.

* Maryland

Shortly before the issuance of Gannett, the Comptroller proposed amending COMAR 03.04.03 to bolster its authority to adjust intercompany transactions. The amendment provided that "[t]he Comptroller may redetermine the Maryland taxable income of a taxpayer to the extent consistent with its proper determination under the provisions of" the IRC. The proposed amendment was withdrawn by the Comptroller.(65)

* Minnesota

The Minnesota DOR adopted Rule 8019.0500, governing the aggregation of capital gains and losses of a unitary business. In a given tax year, a member of the combined group must first apply any capital loss to its capital gains; any remaining capital loss must then be aggregated with the capital gains and capital losses of the other group members. Any capital loss not applied through aggregation must be retained by the member sustaining the loss and carried forward.

When more than one member of a combined group has a capital loss and the combined group sustains a net capital loss, proration is required. In any tax year in which a combined group has two or more members with capital losses, and the combined group has a net capital loss, each member's capital loss must be aggregated based on its pro rata share of the combined group's total capital loss.

A capital loss incurred in a year in which a corporation did not file a Minnesota tax return, or was a member of a combined group in which no member fried such a return, is not available for carryover to offset gains, either on a separate or combined return. When a combined group member has a change in ownership, the member must aggregate its capital gains or capital losses recognized during the tax year immediately preceding the change with the capital gains and losses recognized during the same tax year by all members of the combined group. Any capital losses not applied through aggregation must be carried forward and may only be aggregated with capital gains and losses recognized by the corporation's new combined group for the portion of the corporation's tax year immediately following the ownership change. These rules will be applied retroactive to 1987; refund claims can be fried.

* Mississippi/South Carolina

During 1998, Mississippi and South Carolina joined the MTC as associate members. Accordingly, MTC membership currently includes 21 full member states, one sovereignty member, 18 associate member states and four project member states.

* Wisconsin

In American Family Mutual Insurance Co. v. DOR,(66) the Wisconsin Supreme Court reversed a Court of Appeals decision and concluded that, although the interest income from three state and local obligations identified by the taxpayer is excludable from the state income tax, the legislature did not intend to exclude Federal interest income from the franchise tax. Accordingly, the court held that the Wisconsin franchise tax is a nondiscriminatory franchise tax within 31 U.S.C. Section 3124(a)(1). The taxpayer will not be seeking certiorari from the U.S. Supreme Court.

Significant Non-Income Tax Developments

* Alabama Franchise Tax Contested

The U.S. Supreme Court recently heard oral arguments in South Central Bell Telephone Co. v. State of Alabama.(67) The issues in this case are whether the Alabama foreign franchise tax violates the Constitution, because it impermissibly discriminates against foreign taxpayers, and whether the taxpayer and other named plaintiffs were precluded from relitigating the constitutional issues based on res judicata. Taxpayers should consider filing protective refund claims for past years pending the U.S. Supreme Court's decision.

* Alabama Local License Tax Invalid

In M & Associates, Inc. v. City of Irondale,(68) the Alabama Supreme Court ruled that a municipal business license tax that taxed a business's total gross receipts without apportionment, violated the Commerce Clause. The court relied primarily on an "internal consistency" analysis--i.e., if every jurisdiction were to impose a tax similar to the business license tax imposed by the City of Irondale, multiple taxation would result.

* Florida Provides Intangibles Tax Legislation

New law(69) provides a phase-out of the two-mill intangibles tax on accounts receivable. The legislature's intent was that the phase-out begin Jan. 1, 1999, with one-third of accounts receivable exempted from the tax; in 2000, two-thirds are to be exempt. By 2001, the tax should be completely phased out; however, the phase-out will require legislative approval each year.

The legislation also exempts insurance companies and banks, effective for taxes due after June 30, 1999; it increased the minimum tax payment for individuals from $5 to $60, and exempted Roth individual retirement accounts, real estate mortgage investment conduits and certain financial asset securitization investment trusts from the tax, effective July 1, 1998.

* New Jersey Allows Setoff of Tax Debts for State Vendors

New rules permit the setoff of individual and business tax debts of a vendor for goods, services and construction work provided to the state. Effective Sept. 8, 1998, N.J.A.C. 18:2-8 enables the Division of Taxation to collect certain debts without seeking judgments, entering certificates of debt or seeking warrants to levy against the taxpayer's property. Once the claims are perfected, the Division may collect the amounts owed by the taxpayer by instructing the Office of Management and Budget to send all or part of the monies otherwise payable to the taxpayer directly to the Division of Taxation.

* Oklahoma Election to Change Franchise Tax Return Due Date

Legislation(70) enacted during 1997 gives corporations an option to elect to change the filing period (i.e., tax year) of their franchise tax returns due after Sept. 1, 1998. The OTC amended OAC 710:40-1-6 to implement new procedures for the optional franchise tax return filing date. According to the amended rule, if the optional due date was not selected by Sept. 1, 1998, it may be selected for subsequent years if done so in writing at the time of filing of the corporation's franchise tax return, due on July 1.

A corporation that has exercised its option to select its income tax year-end date as the due date for payment and filing of its franchise tax return is not required to file a franchise tax return for the first year after the option is exercised on a date carter than the franchise tax return would have been due had the option not been exercised. For franchise tax years beginning on or after July 1, 1999, for corporations that have elected to file and pay franchise tax on their next corporate income tax year due date, the franchise tax must be paid by the 15th day of the third month following the close of the corporate income tax year. However, if the income tax due date has been extended, the franchise tax return due date is also extended. The extension for fling the franchise tax return does not extend the date on which the franchise tax payment is due.

(1) For highlights of significant state corporate income tax developments occurring in 1997 and early 1998, see the State & Local Taxes Column that appeared in the June 1998, August 1998 and September 1998 issues of The Tax Adviser. For a discussion of the Internet Tax Freedom Act, see Tax Technology, "Internet Tax Freedom Act," 30 The Tax Adviser 53 (January 1999).

(2) Kan. DOR, Ltr. Rul. No. P-1998-207 (12/14/98).

(3) Amgen, Inc. v. Comm'r of Rev., Mass. Sup. Jud'l Ct., No. SJC-07563 (4/23/98).

(4) TSB-A-98(26)C (12/2/98).

(5) TSB-A-98(25)C (12/2/98).

(6) N.C. DOR Directive CD-98-4 (11/19/98).

(7) S.B. 1366, Laws 1998.

(8) Va. Ruling of Comm'r, P.D. 97-447 (11/10/97).

(9) Aaron Investment Co. v. DOR, Leon Cty. Cir. Ct., Case No. 97-4135.

(10) S.B. 54, Laws 1998.

(11) Aloha Freightways, Inc. v. Comm'r of Rev., Mass. Sup. Jud'l Ct., No. STC-07658 (11/19/98), aff'g App. Tax Bd., No. 169-514 (3/12/97).

(12) N.C. SOP,, Dec. No. 97-548 (4/24/98).

(13) OTC Order No. 96-08-29-019 (8/29/96).

(14) GEICO v. City of Charleston, S.C. Ct. of Common Pleas, 9th Jud'l Cir., No. 93-CP-10-2567 (9/15/98).

(15) Geoffrey, Inc. v. S.C. Tax Comm'n, 437 SE2d 13 (1993), cert. den.

(16) Complete Auto Transit v. Brady, 430 US 274 (1977), reh'g den.

(17) J. C. Penney National Bank v. Ruth Johnson, Comm'r of Rev., Davidson Cty. Chancery Court, No. 96-276-I (10/16/98).

(18) Quill v. North Dakota, 540 US 298 (1992).

(19) Comptroller's Decision, Hearing No. 36,678 (9/22/98).

(20) W. Va. Tech. Assist. Adv. 98-002 (7/24/98).

(21) Ala. DOR v. Uniroyal Tire Co., Inc., Montgomery Cty. Cir. Ct., No. CV 97-854-PR (5/12/98).

(22) Robert Half Int'l, Inc. v. FTB, Cal. Ct. of App., No. A079671 (9/21/98).

(23) Texaco-Cities Service Pipeline Co. v. Sam McGaw, Acting Dir. of Rev., Ill. Sup. Ct., No. 82988 (4/16/98), reh'g den.

(24) Allied-Signal, Inc. v. Dir., Div. of Tax'n, 504 US 768 (1992).

(25) Hercules Inc. v. Comptroller, Md. Ct. of Apps., No. 122 (9/1/98).

(26) Hercules Inc. v. Comm'r of Rev., Minn. Sup. Ct., Nos. C2-97-574 and C6-97-576 (3/12/98).

(27) Firstar Corp. v. Comm'r of Rev., Minn. Sup. Ct., No. CX-97-600 (3/12/98).

(28) Polaroid Corp. v. Muriel K. Offerman, Sec'y of Rev., N.C. Ct. Apps., No. 96-CVS-763 (1/20/98), rev'd, N.C. Sup. Ct., No. 70PA98 (10/12/98).

(29) N.C. SOR Dec. No. 95-144 (8/26/97).

(30) Ch. 98, Laws 1998.

(31) Simpson Timber Co. v. DOR, Stare of Ore., 953 P2d 266 (Ore. Sup. Ct., 1998).

(32) Hunt-Wesson, Inc. v. FTB, Cal. Ct. Apps., No. A079969 (12/11/98).

(33) Ceridian Corp. v. FTB, Cal: Super. Ct., No. 983377 (5/7/98).

(34) S.B. 416, Laws 1998.

(35) H.B. 1326, Laws 1998.

(36) S.C. Rev. Rul. 98-14 (6/22/98).

(37) Delco Electronics Corp. v. DOR, Wisc. Cir. Ct. for Dane Cty., Branch 6, No. 97-CV-1908 (3/20/98).

(38) Dial Bank v. DOR, Admin. Law Div., Nos. INC. 95-289 and F. 95-308 (8/10/98).

(39) Appeal of Finnigan Corp., Cal. State Board of Equalization (SBE), No. 88-SBE-022 (8/25/88), which held that in computing the numerator of the sales factor for sales to other states, P.L. 86-272 must be applied on a unitary group basis, not on a corporate entity basis.

(40) Appeal of Joyce, Inc., Cal. SBE, No. 066-SBE-069 (11/23/66), which held that in computing the numerator of the sales factor for sales into California, P.L. 86-272 must be applied on a corporate entity basis, not on a unitary group basis.

(41) S.B. 416, Laws 1998.

(42) H.B. 2363, Laws 1998.

(43) H.B. 43, Laws 1998.

(44) The Rival Company v. Dir. of Rev., Mo. Admin. Hearing Comm'n, No. 97001155 RI (9/16/98).

(45) N.C. SOR Decision No. 97-985 (3/30/98).

(46) Sherwin-Williams Co. v. DOR, Ore. Tax Ct., No. 4127 (10/9/98).

(47) Sherwin-Williams Co. v. Ruth Johnson, Comm'r of Rev., Tenn. Ct. Apps., No. 01A-01-9711-CH-00651 (10/21/98).

(48) South Dakota does not impose a general corporate income tax, but does impose sales and use taxes.

(49) Pa. DOR Tax Update No. 76 (July/August 1998).

(50) Section 1, Chapter 89.

(51) General Motors Corp. v. Dir. of Rev., Mo. Sup. Ct., No. 80853 (12/22/98).

(52) Ala. DOR Rev. Proc. 98-001 (3/16/98), superseding Rev. Proc. 97-002 (7/23/97).

(53) Fla. DOR, Taxpayer Info. Pub. No. 98(C)1-05 (7/1/98).

(54) S.B. 704, Laws 1998.

(55) H.B. 666, Laws 1998.

(56) H.B. 56, Laws 1998.

(57) Minn. DOR Rev, Notice 98-08 (5/26/98), superseding Rev. Notice 97-03 (3/17/97).

(58) S.B. 2964, Laws 1998.

(59) S.B. 1007, Laws 1998.

(60) P.A. 98-244.

(61) S.B. 416, Laws 1998.

(62) H.B. 486, Laws 1998.

(63) Appeal of Joyce, Inc., note 40.

(64) Gannett Co. Inc. v. Comptroller, Montgomery Cry. Cir. Ct., No. 179812 (11/19/98).

(65) 25:26 Md. R. 1927 (12/18/98).

(66) American Family Mutual Insurance Co. v. DOR, Wisc. Sup. Ct., Nos. 97-1105 and 97-1106 (12/16/98).

(67) South Central Bell Telephone Co. v. State, So.2d 1005 (Ala. Sup Ct., 1998).

(68) M & Associates, Inc. v. City of Irondale, Ala. S. Ct., No. 1962143 (7/31/98).

(69) S.B. 1450, Laws 1998.

(70) S.B. 237, 1997 Laws.

For more information about this article, contact Ms. Boucher at karen.j.boucher@ us.arthurandersen.com.

Karen J. Boucher, MST, CPA Senior Tax Manager Arthur Andersen LLP Milwaukee, WI