U.S. State + Local Tax

Excellent technical knowledge and experience handling state tax cases and issues. They are always very timely to respond.
Chambers USA 2019

As the first U.S. State + Local Tax (SALT) practice established at a large U.S. law firm, our SALT Group has helped to shape the field. We have been involved in many of the most important SALT cases, including several that were argued before the U.S. Supreme Court, and the current members of our group have handled cases in 49 of the 50 states as well as in many local jurisdictions.

We counsel clients and litigate matters involving every type of U.S. state and local tax law, including:

  • Corporate franchise and income tax
  • Sales and use tax
  • Personal income tax
  • Real and personal property tax
  • Local business license tax
  • Gross receipts tax
  • Transfer tax
  • Severance tax
  • Other areas, including unclaimed property

We also regularly advise clients on the state and local tax implications of corporate transactions and reorganizations, including multistate mergers and acquisitions.

The broad range of industries that we serve includes:

  • Automotive
  • Banking
  • Chemical
  • Computer technology
  • Credit card
  • Consumer finance
  • Energy
  • Food
  • Industrial manufacturing
  • Pharmaceutical
  • Retail
  • Telecommunications

Our group pioneered the practice of SALT. In fact, all three of the prominent awards bestowed annually for excellence in U.S. state and local tax work—the BNA Bloomberg Frank Latcham Award for Distinguished Service in State and Local Tax Law, the NYU School of Professional Studies Paul H. Frankel Award, and the COST/Paul H. Frankel Excellence in State Taxation Award—were named after two of our group’s founding members.

The SALT Group has been actively involved in many of the most important U.S. Supreme Court decisions shaping the field over the last 30 years, including the taxpayer win in MeadWestvaco Corporation v. Illinois Department of Revenue et al.

While we have successfully litigated SALT controversies across the country, we resolve most of our clients’ matters without the necessity of trial and large companies regularly consult us regarding transactional work.

Our lawyers approach state and local tax issues from a nationwide perspective, taking into account the similarities and differences in state and local tax systems throughout the U.S. and, from a state-specific perspective, taking into account unique aspects of state and local tax law.

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Experience

  • The U.S. Supreme Court rejected Illinois’ attempt to tax the $1 billion plus gain realized by Mead Corporation from its sale of the electronic publisher LexisNexis (“Lexis”) on the theory that Lexis served an operational purpose in Mead’s business. The U.S. Supreme Court clarified that the “operational function” concept was not intended to add another basis for apportionment and that it merely recognizes that an asset may be unitary even if a payor and payee are not in a unitary relationship. However, when the asset is another business, as was the case with Lexis, the proper concepts to consider are functional integration, centralized management, and economies of scale.

  • The New York City Department of Finance sought to combine Astoria Bank with its investment subsidiary that principally held non-New York mortgage loans. The New York City Tax Appeals Tribunal (“Tribunal”) affirmed that the subsidiary had a business purpose apart from tax benefits, had economic substance, and conducted its transactions with Astoria Bank at arm’s length. The Tribunal also held that the Matter of Interaudi Bank, in which the New York State Tax Appeals Tribunal found distortion resulting from a “mismatch of income and related expense” between a bank and its investment subsidiary, was inapplicable because the facts were materially distinguishable.

  • A New York State Administrative Law Judge (ALJ) agreed that our client changed his domicile and, therefore, could not be taxed as a New York resident. Our client, a senior corporate executive who married his high school sweetheart after being apart for more than 40 years, had moved from New York to Paris upon retiring from his executive position to be with his new wife. The ALJ concluded that, based upon an analysis of the facts, even though the former executive maintained an apartment in New York City, and continued to spend considerable time in the City, much of which was for medical treatment, he no longer intended New York to be his permanent home and, therefore, was not a New York domiciliary.

  • The Colorado Supreme Court unanimously held that the Colorado Department of Revenue cannot force Agilent Technologies, Inc. to file a combined tax return with its subsidiary, a holding company with no property and payroll that derived its income solely from investments in foreign entities. Under Colorado law, only corporations with more than 20% of their property or payroll in the U.S. are includable in a combined report. The Court held that the subsidiary was properly excluded from the combined report because a corporation with no property and payroll cannot have more than 20% of its property and payroll in the U.S. The Court also concluded that the subsidiary could not otherwise be included in the combined report under the State’s authority to reallocate income to avoid abuse and to clearly reflect income.

  • In a precedential published opinion, the New Jersey Tax Court ruled for and held that a royalty payor was not required to add back to taxable income any portion of the royalties that it paid to a related licensor under the unreasonable exception when the licensor filed New Jersey Corporation Business Tax returns, included the royalties in its tax base, and allocated its income to New Jersey under its own allocation factor. The ruling in this case has resulted in hundreds of refund claims being filed by companies around the country.

  • The Indiana Tax Court agreed that the company’s gain from the sale of partnership interests could not be apportioned to Indiana inasmuch as it was non-business income and also that the company properly deducted its intercompany interest expenses. With respect to the gain issue, the Court concluded that the gain was non-business income under both the transactional test and the functional test. In addition, the Court held that there was no functional integration, centralization of management, or economies of scale between the company and the partnership and, therefore, the gain was nonapportionable under the U.S. Constitution as well. For the intercompany interest expense issue, the Court ruled that the state could not disallow the deductions because the intercompany loan arrangement had business purpose and economic substance and the interest was at arm’s-length rates.

  • The Virginia Supreme Court granted Kohl’s Department Stores, Inc.’s petition for rehearing and held that the Department of Taxation’s interpretation of the law is entitled to no weight if it is not set forth in a duly promulgated regulation. The Court held that the subject-to-tax safe-harbor of the state’s royalty addback statute applied only where the royalties are included in a post-apportioned tax base and actually taxed in another state. The Court also accepted our alternative arguments that the safe-harbor to the addback applies when the royalties are subject to tax in a combined filing in another state and when the royalties are added back to the payor’s taxable income in another state.

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