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25th Annual Tuesday & Wednesday, January 2627, 2016 HyaƩ Regency Columbus, Columbus, Ohio Ohio Tax Workshop PP Commercial Activity Tax … What Can Ohio Learn from the Texas Franchise Tax and the Washington Business & Occupations Tax? Wednesday, January 27 2:00 p.m. to 3:00 p.m.

January Hya © Regency Columbus, Columbus, Ohio … · is past president of the Washington State Bar Association Tax ... His practice focuses on state and local taxation, ... Royalties

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25th Annual 

Tuesday & Wednesday, January 26‐27, 2016 Hya Regency Columbus, Columbus, Ohio

Oh

io T

ax

Workshop PP

Commercial Activity Tax … What Can Ohio Learn from

the Texas Franchise Tax and the Washington

Business & Occupations Tax?

Wednesday, January 27 2:00 p.m. to 3:00 p.m.

Biographical Information

Kelvin M. Lawrence, Associate, Baker & Hostetler LLP 65 E. State Street, Suite 2100, Columbus, OH 43215

(614) 462-2664 [email protected]

Kelvin Lawrence is a tax advocate and counselor in the Columbus office of BakerHostetler. He advises clients on Ohio, multi-state, and federal tax and unclaimed property matters. His practice focuses on Ohio property tax, sales tax and use tax, income tax, and commercial activity tax appeals and voluntary disclosures. He has appeared on behalf of clients before the Ohio Supreme Court, Ohio Board of Tax Appeals, Ohio Department of Taxation, Internal Revenue Service and County Boards of Revision. He also counsels business and nonprofit clients on entity selection, formation, organization, capitalization, tax exemption, and governance matters.

Mr. Lawrence is Chair of the Ohio State Bar Association Taxation Law Committee for 2014-16, is a former Co-chair of the Columbus Bar Association Business Tax Committee, and frequently speaks on Ohio and multi-state tax matters. He serves on the boards of the Columbus Chapter of The Entrepreneurship Institute and the John Mercer Langston Bar Association. Mr. Lawrence is a member of the American, Ohio State, Columbus, and John Mercer Langston Bar Associations, and was recognized as an Ohio Super Lawyers “Rising Star” in 2014 and 2015.

Holly B. Hykes, Manager, State Income Tax Compliance The Wendy’s Company, One Dave Thomas Blvd, Dublin, OH 43017

614-764-8438 [email protected]

Holly started her career with PricewaterhouseCoopers, LLP in Columbus, Ohio in 2007 working on a wide range of clients, both in audit and tax. She joined The Wendy’s Company in Dublin, Ohio in 2012. Her primary responsibilities include state and local income and franchise tax compliance, including the Ohio CAT and the Texas Franchise Tax. Holly is a graduate of The University of Kentucky and has been licensed as a Certified Public Accountant in the state of Ohio since 2007.

Robert L. Mahon, Partner, Perkins Coie LLP 1201 Third Avenue, Suite 4900, Seattle, WA 98112 (206) 359-6360 [email protected]

Bob Mahon is a partner in the Seattle office of Perkins Coie, a law firm with more than 1,000 lawyers in 19 offices in the United States and Asia. Bob has almost twenty years of experience helping clients minimize and comply with state and local taxes. Bob represents clients in state and local tax audits, refunds, appeals, and litigation, as well as assists clients with tax planning and business transactions. His practice focuses primarily in the Pacific Northwest, including Washington, Oregon, and Alaska.

Bob serves as Editor-in-Chief of the Journal of Multistate Taxation and Incentives and Editor-in-Chief of the American Bar Association Sales and Use Tax Deskbook. He also teaches state and local taxation as an adjunct professor at the University of Washington School of Law. Bob is past president of the Washington State Bar Association Tax Section and is listed in The Best Lawyers in America for Tax Law and as Best Lawyers’ Seattle Tax Law Lawyer of the Year for 2015.

Bob received his B.A. with honors from Grinnell College (1992); his J.D. with high distinction from the University of Iowa (1995); and his LL.M. in Taxation from the University of Washington (1996).

Biographical Information

Doug Sigel, Partner, Ryan Law 100 Congress Avenue, Suite 950, Austin, Texas 78701

512.459.6611 [email protected]

Doug Sigel has 26 years of experience trying and settling disputes in hearings and courts across the nation. His practice focuses on state and local taxation, especially litigation at the administrative, trial, and appellate levels. Examples of the types of matters Doug handles include: sales and use tax, state corporate income tax (including the Texas margin tax), Texas property tax, motor vehicle sales tax, oil and gas severance tax, insurance tax, motor fuels tax, mixed beverage tax, unclaimed property, tax credits/incentives, nexus disputes, audits, hearings, trials and appeals, tax collection cases, voluntary disclosure agreements, letter rulings, and open records requests. Doug handles his large docket of administrative, district court, and appeals cases in an aggressive yet efficient matter and always seeks the best outcome possible for his clients. Doug strives to streamline the resolution of his cases through innovative approaches to each of his cases. This usually involves gaining a thorough understanding of the issues, personalities, and facts early in a dispute and crafting a strategy to achieve an expedited settlement of the dispute through a collaborative interaction with counsel for the taxing authority. If necessary, Doug will take the case to trial as quickly as possible and leverage the strengths of the taxpayer’s position and evidence to present the taxpayer’s argument in a focused and creative manner. Doug has spoken on a variety of sales and use and income tax topics at seminars sponsored by IPT, COST, Texas Taxpayers and Research Association, TEI, The Hartman Forum, New York University, the Texas Society of CPAs, the Tulane Tax Institute, the State Bar of Texas, the National Association of State Bar Tax Sections, and the ABA Tax Section. He is also a frequent author on state and local tax topics. For example, Doug has authored a chapter for the IPT Income Tax Deskbook published in 2012. He is on the executive board of the state and local tax committee of the ABA tax section. He is IPT’s overall chair for sales tax. He was the chair of the 2014 IPT Sales and Use Tax Symposium and is on the planning committee for the 2016 ABA/IPT Sales Tax Seminar. He is the immediate past chair of the National Association of State Bar Tax Sections.

2015 OHIO TAX CONFERENCE

What Can Ohio Learn from the Texas Franchise Tax and the Washington 

Business & Occupations Tax?

Columbus, OhioJanuary 27, 2016

1

Moderator:

Holly HykesThe Wendy’s CompanyDublin, [email protected]

Presenters:

Kelvin LawrenceBakerHostetlerColumbus, [email protected]

Robert MahonPerkins Coie LLPSeattle, [email protected]

Doug SigelRyan Law LLPAustin, [email protected]

2

Ohio − Overview

Ohio Commercial Activity Tax (CAT) Broad base, low rate – essentially a gross receipts 

tax: Rate is .0026 <$150 K annually:  no tax $150 K to $1M:  a tax of $150 Minimum tax now tiered Must aggregate related parties, which reduces 

benefit of thresholds

3

Ohio − Overview

Ohio Commercial Activity Tax (CAT)

Broader than net income tax and broader than sales tax, especially for services

Targets out‐of‐state businesses –generally taxes imports and excludes exports

Broad definition of taxable “Person”

4

Ohio − Overview

Ohio Commercial Activity Tax (CAT) Related entities (including individual owners) 

taxed as a single taxpayer

The CAT generally cannot be separately invoiced through to customers but can be included in the price

Few credits, principally:

Job creation and retention

R&D

5

Texas − Overview

• Margin tax effective January 1, 2008• Tax on the privilege of doing business in 

Texas.• Modified gross receipts tax• Broad definition of taxable entity• New reduced rates for 2016

6

Texas − OverviewMargin Tax Calculation (Tex. Tax Code § 171.101)

Total revenue — General deduction (COGS, compensation, 30%, 

$1M)

= Marginx Apportionment factor (percent of gross 

receipts in Texas)= Taxable margin x Tax rate= Margin tax

7

Texas − Overview

Texas Public Policy Foundation (December 2015) Report

• $2.8 billion shortfall in margin tax collections since 2008 compared with Comptroller projections reflects complexity of the tax

• Substantial compliance costs > tax liability• Burden often falls on Texans, not businesses• Burden often falls on those with lowest income (% of 

total household income)• Recommends eliminating the margin tax in a four‐year 

phase out

8

Washington − Overview

Classification Nexus Standard Rate Measure/Base Apportionment

Service Factor presence 1.500% Gross income of business Apportionment

Retailing Physical presence 0.471% Gross proceeds of sales Allocation

Wholesaling Factor presence 0.484% Gross proceeds of sales Apportionment

Manufacturing Physical presence 0.484% Value of products Allocation

Royalties Factor presence 1.500% Gross income from royalties Apportionment

40 OtherClassifications Varies

Varies(3.30% -0.130%)

Varies Varies

9

Ohio − Taxable Person

CAT Applies broadly to entities and includes individuals, pass‐through entities and federally disregarded entities;

Certain persons are specifically excluded: Less than $150,000 in gross receipts Certain public  utilities, but some public utilities 

subject to both CAT and public utility taxes Financial institutions subject to the Financial 

Institutions Tax Insurance companies subject to the Insurance  

Company Premiums Tax

10

Texas − Taxable PersonFranchise Tax – Taxable “Entity”

• corporations; • limited liability companies

(LLCs), including series LLCs; • banks; • state limited banking

associations; • savings and loan associations; • S corporations; • professional corporations; • partnerships (general, limited

and limited liability); • trusts; • professional associations; • business associations; • joint ventures; and • other legal entities

This does not apply to:• certain sole proprietorships • certain general partnerships • entities exempt under Subchapter

B of Chapter 171, Tax Code;• certain unincorporated passive

entities;• certain grantor trusts, estates of

natural persons and escrows;• real estate mortgage investment

conduits and certain qualified real estate investment trusts;

• a nonprofit self-insurance trust created under Chapter 2212, Insurance Code;

• a trust qualified under Section 401(a), Internal Revenue Code;

• a trust exempt under Section 501(c)(9), Internal Revenue Code; or

• unincorporated political committees.

11

Washington − Taxable Person

• Each legal entity or individual is separate “person” Includes entities disregarded for federal tax 

purposes (e.g., SMLLCs)

• Person must be engaging in business

• Person must have substantial nexus

12

Ohio − Repor ng

Reporting Methodology for the CAT Taxpayer can elect “consolidated elected 

taxpayer” status: 

Can choose to include all or no non‐U.S. affiliates;

Election applies to next 8 calendar quarters; Statute purports to require taxpayer group to 

waive Constitutional rights and include receipts of non‐unitary affiliates with no nexus with Ohio; and

Tax Department normally denies retroactive consolidated elected taxpayers filing.

13

Ohio − Repor ng

Reporting Methodology for the CAT

Combined taxpayer versus consolidated elected taxpayer:

14

Combined Taxpayer Consolidated Elected Taxpayer‐ More than 50% ownership‐ Include all entities with at least

50% common ownership andOhio nexus 

‐ Include all non‐US entities withOhio nexus

‐ Intercompany receipts taxable

‐ At least 50% or 80% ownership‐ All domestic entities must be included

irrespective of nexus

‐ Option to include or excludenon‐US entities

‐ Intercompany receipts exempt

Ohio − Repor ng

Definition of “Person” and Methodology for the CAT ‐ Ohio Disputes have arisen as to proper composition of combined 

taxpayer:

Classification of combined group is based solely on ownership –must combine even when non‐unitary;

Audits have resulted in “combining” multiple distinct groups; and

Problems have arisen with respect to equity investors such as venture capital funds with multiple business segments.

15

Ohio − Repor ng

Returns and Reporting• Mandatory Electronic Filing on OBG or Telefile• Returns due on 10th day of the second month 

after the end of each quarter• Mandatory Electronic Payment on OBG or 

Telefile• Annual reporting for some taxpayers• Specific Forms to Add/Remove Entities• Joint Venture Issues• Merger & Acquisition , Successor Issues

16

Texas − Reporting• Taxpayers now are allowed to amend reports

• To change election between COGS and compensation. • To elect to use COGS or compensation.• To switch from E‐Z computation or No‐Tax‐Due to long form electing COGS or 

compensation. • Amended reports may be filed for any period within statute of 

limitations. Election also can be changed on audit. 34 TAC §3.588(c)(3)• HB 2891‐ Reporting Requirements for Limited Partnerships and Professional 

Associations • Eliminates duplicate reporting requirements between the Comptroller and the Secretary 

of State • Eliminates: certain professional associations’ and partnerships’ reporting 

requirements and filing fees• Change to eliminate roughly $2.4 million in annual fees• Effective January 1, 2016

• SB 1364• E‐Reporting Requirements ‐ Requires electronic filing of information reports by 

taxpayers with no tax due• Currently in effect.

17

Texas − Repor ng

• Related Entities – Combined Reporting• Reporting for entities that are a part of an affiliated group and engaged in a 

unitary business• Mandatory combined reporting for affiliated groups (based on > 50% 

ownership)• Unitary business reporting – require reporting for entities within a commonly 

controlled group that are interrelated, interdependent, and integrated through their activities, providing synergy and a mutual benefit.

• All commonly controlled entities must report even if they do not have nexus with Texas unless they meet certain exceptions.

• In re Nestle (Tex. 2012): Texas Supreme Court held new margin tax is constitutional under the Equal and Uniform clause in the Texas Constitution and the Equal Protection and Due Process clauses of the U.S. Constitution

• Combined reporting is constitutional—even though it forces all members to choose one standard deduction

• Tax rate structure is constitutional—even though a taxpayer may only have retail or wholesale business in Texas, but its manufacturing business in other states disqualifies it from the lower tax rate. 

18

Washington − Reporting

• Separate reporting

• No combination or consolidation

• Tax designed to pyramid Favors integrated businesses that conduct multiple 

activities in single entity Generally disfavors unintegrated businesses or 

businesses that use multiple entities Transactions between affiliated entities are taxable 

19

Ohio – Nexus

Nexus for CAT ‐ Ohio

Statutory Bright Line Test:

Property at cost of $50,000;

Payroll of $50,000;

Receipts of $500,000;

Domiciled in Ohio; or

At least 25% of property, payroll or sales in Ohio.

20

Ohio – Nexus

Nexus for CAT ‐ Ohio Challenges to Bright Line Nexus Before Ohio Supreme Court:

L.L. Bean, Inc. v. Levin, Ohio BTA No. 2010‐2853 (Mar. 6, 2014) settled on appeal, Ohio Supreme Court Case Announcements, 2014‐Ohio‐5119 (Nov. 20, 2014)

Crutchfield, Inc. v. Testa, Ohio Bta No. 2012‐926, 2012‐3068, 2013‐2021 (Feb. 26, 2015)

NewEgg, Inc. v. Testa, Ohio BTA No. 2012‐234 (Feb. 26, 2015)

Mason Companies, Inc. v. Testa, Ohio BTA No. 2012‐1169, 2012‐2806 (Apr. 20, 2015)

21

Texas – Nexus• Nexus is based on:

• Organization in Texas• Some form of physical presence in Texas, or

• Advertising, delivery, consignments, franchisee, leasing, partnership, real estate, services, etc. (34 Admin. Code § 3.586).

• Affiliation and engagement in “unitary business” with an entity who meets either of those requirements and is not excluded under the “water’s edge” provision even if they have no nexus with Texas

• All commonly controlled entities must report even if they do not have nexus with Texas except:

• 80/20 Affiliates‐‐if an affiliate has 80% of its property or payroll outside of the US. • Exempt Entities‐‐entities that have an exemption from the franchise tax under 

Subchapter B of Chapter 171. • Insurance Companies‐‐that pay gross premiums tax. • Passive Entities‐‐not included in the combined group; however, the pro rata share of 

net income from a passive entity shall be included in total revenue to the extent it was not generated by the margin of another taxable entity. 

• Broadcasters – “location of payor”• HB 2896 clarified term “location of the payor” ‐ A “broadcaster” will be 

required to include licensing income in the numerator of their sales factor if their customer is legally domiciled in Texas.

• Effective with reports due on or after 1 January 2018.

22

Washington − Nexus Factor Presence Nexus

• Nexus based on any of the following: Formation or commercial domicile in WA > $53K of property in WA during prior CY > $53K of payroll in WA during prior CY > $267K of receipts from WA during prior CY ≥ 25% of total property, payroll or receipts in WA during prior CY

• Applies to:  “Apportionable activities” (e.g., services not classified as 

retailing/wholesaling, royalties) Wholesale selling  (effective 9/1/2015)

• Trailing nexus = 1 CY after end of factor presence nexus (effectively 2‐year trailing nexus)

23

Washington − NexusPhysical Presence Nexus

• Applies to: Non‐apportionable activities (e.g., retailing, manufacturing) Wholesale selling before 9/1/2015 Apportionable activities before 6/1/2010

• “Demonstrably more than a slightest presence” Property, employee, or representative engaging in activities in 

WA that are “significantly associated with the person's ability to establish or maintain a market for its products in this state.”

“Click‐through” nexus presumption (effective August 1, 2015)

• Trailing nexus = end of CY in which physical presence ends + 1 CY

24

Ohio – Tax Base

Elements of the CAT Tax Base “Gross Receipts” broadly defined

Audits by Ohio Tax Department have revealed items determined to be receipts although not normally a focus of the federal income tax, e.g., negative expenses and pass‐throughs.

Specific exclusions including interest and sale of capital assets.

25

Texas – Tax Base

• Total Revenue (Tex. Tax Code § 171.1011)• Income reported for federal income tax purposes• Exclude

• Bad debts expensed for federal income tax purposes• Flow‐through funds 

• Sales commissions to non‐employees, subcontracting payments to provide services, labor, or materials in connection with construction, design, remodeling, remediation (new), etc., of real property

• Combined group: determine total revenue under §171.1011 for each member and then add all members’ total revenues together

26

Texas – Tax Base• Based on Gross Receipts

• Credits• Revised Business loss carryforwards (STAR document 201404878L) (April 2014)

• COGS update• Combined group is single taxpayer for COGS purposes (Combs v. Newpark Resources, Inc., 422 S.W.3d 46 (Tex. Ct. 

App. 2013))

• Taxpayers can deduct as compensation certain benefit costs that are deductible for federal income tax purposes. (Winstead PC v. Combs, (No. D‐1‐GN‐12‐000141, March 18, 2013)).

• Benefits paid to retirees disallowed as COGS. (Hearing No. 110,597, State Office of Administrative Hearings, Nov. 3, 2014.) 

• Concessionaire payments concluded to be selling costs excluded from COGS. (Letter No. 201412007L, Texas Comptroller of Public Accounts, Dec. 30, 2014.) 

• A claim by a taxpayer that settlement costs stemming from a lawsuit should be included in the COGS deduction was rejected. (Hearing No. 110,183, State Office of Administrative Hearings, March 17, 2015.)

• R&D costs to non‐producers of goods (Letter No. 201504069L, Texas Comptroller of Public Accounts, April 24, 2015. )

• Rent‐to‐own businesses that sell merchandise can claim the lower tax rate Texas offers to retailers. (Rent‐a‐Center, Inc. v. Hegar (Tex. App.—Austin 2015, no pet.))

27

Texas – Tax Base

• Current COGS cases on appeal• CGGVeritas Services v. Combs 

• Issue: Whether the materials and labor that CGGVeritas furnishes can be subtracted as COGS.

• Hegar v. AutoHaus • Issue: Whether installation of new and replacement 

automotive parts constitutes COGS.

• American Multi‐Cinema v. Hegar• Issue: Whether film exhibition costs in a movie 

theater can be excluded as COGS.

28

Washington − Tax Base

• Measures Value of products Gross proceeds of sales Gross income of the business

• Significant exclusions/deductions Employment income Real property sales and leases Investment income (ex financial businesses) Interest on loans between affiliated entities Dividends/distributions/contributions

29

Ohio – Apportionment

Apportionment (Allocation) of Receipts for CAT Generally assigned based on the location of receipt of 

goods or benefit received.

CAT not apportioned in classic sense – individual transactions are sourced within and outside Ohio.

Statute assigns receipts for service on the basis of the location of the receipt of the benefit of the service.

30

Ohio – ApportionmentApportionment (Allocation) of Receipts for CAT The Ohio Tax Department has a rule situsing receipts by industry on 

its website – Ohio Adm. Rule 5703‐29‐17.

Generally a taxpayer must use a reasonable, consistent and uniform method.

An open question exists as to whether a seller can look through to the ultimate destination of a product or service if known when the good or service is “initially” delivered into Ohio – See e.g.,  Ohio Tax Commissioner’s Final Determination, Lexmark International, Inc. (July 15, 2014)

Receipt outside Ohio and transfer into the state could give rise to CAT liability, if intended to avoid the tax – See, e.g., A.H. Jamra Co., Inc., v. Testa, Ohio BTA No. 2013‐4534 (Feb. 26, 2015)

31

Texas – Apportionment

Single‐Factor Based on Gross Revenue (Tex. Tax Code §§ 171.106, 171.103, 171.105)

Margin x

Gross Revenue from business done in TexasGross Revenue from entire business

=Taxable margin

(Tex. Tax Code § 171.101)32

Texas – Apportionment

• Changes to Apportionment• Hallmark Marketing Co. v. Hegar

• Issue: Whether Hallmark’s net loss from the sale of investment and capital assets can be included in the denominator of the apportionment fraction used to calculate Hallmark’s taxable margin under the Texas franchise tax?

• Graphic Packaging Co. v. Hegar• Issue: Is the Texas Franchise Tax an “income tax” as defined with 

the Multistate Tax Compact, allowing the three‐factor apportionment formula to be used in calculating taxable margin?

• Broadcasters – (Tex. Tax Code § 171.106(h)) • Includes “apportionment factor receipts arising from licensing 

income from broadcasting or otherwise distributing film programming by any means”

33

Washington − ApportionmentSingle Factor Receipts Apportionment• Receipts generally attributed to location where 

the customer “received the benefit of the taxpayer’s service” or “used the taxpayer’s intangible property.” 

• Throwout rule for receipts attributed to locations where taxpayer does not pay tax and does not have nexus under WA’s factor presence standard

• Applies to “apportionable activities” Cost apportionment before 6/1/2010

34

Washington − Appor onmentAllocation

• Receipts from non‐apportionable activities (e.g., retailing, wholesaling, manufacturing) generally allocated Manufacturing (value of product) allocated to 

location of manufacture Retailing and wholesale selling (gross proceeds of 

sales) allocated to location of purchaser’s “receipt”

• No throwout or throwback of retailing or wholesaling receipts attributed to locations where taxpayer is not taxable

35

Ohio – Rates and Exclusions

Single .26% rate

Graduated minimum tax

Excluded Persons Less than $150,000 in gross receipts Certain public  utilities, but some public utilities subject to 

both CAT and public utility taxes  Financial institutions subject to the Financial Institutions 

Tax Insurance companies subject to the Insurance  Company 

Premiums Tax

36

Texas – Rates and Exclusions

Computing a Taxable Entity’s Margin Total Revenue minus the greater of

• 30% taxable entity’s total revenue;• Cost of Goods Sold (COGS);• Compensation; or• $1 million *if total revenue is less than $1.11 million, no margin tax is due (effective January 1, 2016)

37

Texas – Rates and Exclusions

• Cost of Goods Sold (Tex. Tax Code § 171.1012)• All direct costs of acquiring or producing goods sold in the 

ordinary course of business• Direct and indirect costs: laundry list in 171.1012(c) and (d). • 4% of indirect and administrative overhead costs (security 

services, legal services, data processing services) allocable to acquisition or production of goods

• Goods• Tangible personal and real property

• TPP includes any personal property perceptible to the senses; films, music recordings, books; computer programs

• NOT services

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Texas – Rates and Exclusions• Tax Rate Changes – HB 32

• Cut margin tax by 25%• Cut tax rate from 1 percent to 0.75 percent of taxable margin for 

all taxpayers not primarily engaged in retail or wholesale trade and not filing an EZ Computation Report.

• For taxpayers engaged in retail or wholesale trade, cut tax rate from 0.5 percent to 0.375 percent of taxable margin.

• Cut EZ rate by 42% and extended to businesses with up to $20 million in total revenue  an increase of $10 million.

• Entities using the EZ computation will not be allowed to take any credits or margin deductions (i.e., no deductions for cost of goods sold or compensation) for the applicable report year. The franchise tax rate for EZ filers will be reduced from 0.575 percent to 0.331 percent. 

• Effective for reports originally due on or after January 1, 2016.

39

Texas – Rates and Exclusions

• Updated expense definition for tax credit for rehabilitation of historic structures 

• A tax credit for certified rehabilitation of certified historic structures became available in the amount of 25 percent of the total eligible costs and expenses incurred in the rehabilitation of a single structure.

• HB 3230 ‐ amends the definition of “eligible costs and expenses” to clarify that a nonprofit corporation exempt under Tex. Tax Code §171.063 would be entitled to include eligible costs and expenses incurred when determining the tax credit 

• Credit is now available for costs incurred by certain tax exempt entities. • Effective for reports originally due on or after January 1, 2016.

• SB 1049 – temporary exemption for veteran‐owned businesses

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Washington − Rates

• Retailing = 0.471%• Wholesaling/Manufacturing = 0.484%• Service/Royalty = 1.5%• 40 Other Classifications = 0.13% ‐ 3.3%

41

Ohio − Pass Through of Tax The CAT is a tax for the privilege of doing

business in Ohio

Invoicing the CAT is expressly prohibited, however it may be included in the price charged

Mosser Construction Inc. v. City of Toledo,2007-Ohio-4910 (Ohio Ct. App. 6th Dist., Sept. 21, 2007)

Mohmed v. Certified Oil Co., 2015-Ohio-2398, 37 N.E.3d 814 (Ohio 8th Dist. Ct. App. 2015)

42

Texas – Pass Through of Tax

• The Texas Franchise Tax a tax for the privilege of doing business in Texas

• The cost is passed on to different consumers• Landlords pass tax onto tenants• About one-third of tax paid by Texas businesses is

passed to out-of-state consumers or shareholders (Center for Public Policy Priorities)

• Businesses pass the tax on to consumers (Texas Public Policy Foundation)

43

Washington − Pass Through of Tax

• WA B&O tax is taxpayer’s cost of doing business

• Pass through of B&O tax to individual consumers is extremely disfavored

– Peck v. AT&T Mobility (Wash. 2012) (wireless carrier prohibited from passing through its B&O tax as part of tax recovery charge despite prior disclosure to the customer).

– Riensche v. Cingular Wireless, LLC (9th Cir. Ct. App. 2012) (wireless carrier’s practice of recovering B&O tax violated WA’s Consumer Protection Act).

• Pass through of B&O tax to business customers theoretically possible

44

Washington − City Tax Issues

• 42 cities, including Seattle, Tacoma, Bellevue

• Separate local administration

• Limited uniformity with significant differences−e.g.: Physical presence nexus Two‐factor apportionment (payroll and receipts)

• Rates can be significant Seattle service/royalty rate = 0.415%  Seattle retailing/wholesaling/manufacturing rate = 0.215%

45

Ohio – Other Developments

CAT Developments

Failed CAT increase to .32% in Biennial Budget (H.B. 64) and to .30% during Mid‐Biennium Review (H.B. 472)

Dana Corp. (n/k/a Dana Holding Corp.) v. Testa, Ohio BTA No. 2011‐2287 (Feb. 18, 2015)

Navistar, Inc. (f/k/a International Truck & Engine Co.) v. Levin, 2010‐575, (Nov. 30, 2015) on remand from Ohio Supreme Court decision Navistar, Inc. v. Testa, Slip Opinion No. 2015‐Ohio‐3283 (Aug. 18, 2015)

46

Ohio – Other Developments

CAT Developments

S.B. 208 – Modification of definition of “Qualifying integrated supply chain receipts” in R.C. 5751.01(jj)

Ohio Adm. Code 5703‐29‐16 revised to explain exclusion of “qualifying distribution center receipts”

Ohio Adm. Code 5703‐29‐04 revised to reflect change to graduated minimum tax

47

Washington − Other Developments

• No transactional nexus  Avnet, Inc. v. Wash. Dep’t of Revenue, 187 Wash. App. 427, 348 P.3d 

1273 (2015)(eliminating long‐standing transactional nexus requirement for B&O tax). 

Interstate sale rule, WAC 458‐20‐193, amended effective August 7, 2015 to eliminate provision allowing taxpayers to “dissociate” and not pay B&O tax on WA sales that were not associated with taxpayer’s in‐state activities.

• Place of sale = place of “receipt” by purchaser Receipt = “purchaser first either taking physical possession of, or 

having dominion and control over, tangible personal property.“ Purchaser includes purchaser’s “agent or designee,” but not a 

“shipping company” Commercial law delivery terms not relevant to place of sale

48

Comments? Questions?

49

Moderator:Holly HykesThe Wendy’s CompanyDublin, [email protected]

Presenters:

Kelvin LawrenceBakerHostetlerColumbus, [email protected]

Robert MahonPerkins Coie LLPSeattle, [email protected]

Doug SigelRyan Law LLPAustin, [email protected]