Morrison & Foerster Hits Three Home Runs!

Client Alert

The State and Local Tax team at Morrison & Foerster scored three big victories in recent months. First, after appearing before the San Francisco Assessment Appeals Board, the team secured a $100 million reduction in the assessed value of a sports team’s stadium. Second, the team successfully argued before the Illinois Appellate Court that two publicly traded companies with separate boards of directors were not unitary. Third, the team successfully demonstrated to the Missouri Administrative Hearing Commission that the gain from an IRC Section 338(h)(10) transaction recognized by a Connecticut power company, with a facility in Missouri, constituted nonbusiness allocable income for Missouri tax purposes.

The San Francisco Giants’ Property Tax Victory

Morrison & Foerster represented the San Francisco Giants baseball team in its property tax appeal before the San Francisco Assessment Appeals Board in a case that presented novel issues regarding how major league sports facilities should be valued and assessed. During a lengthy hearing this past spring, the Giants and the Assessor presented evidence on the fair market value of the team’s possessory interest in SBC Park stadium. Following the hearing, the Board reduced the assessed value of the Giants’ ball park by approximately $100 million for each of the years appealed, which will generate a refund of approximately $3.6 million. Although the Board announced its decision in July, it has yet to issue its findings and determinations. We will provide a detailed analysis of the Board’s findings in a later edition of this newsletter once those findings have been issued. Peter Kanter, Troy Van Dongen, and Jeff Terraciano of Morrison & Foerster’s San Francisco Office litigated the case.

Illinois Finds That Two Publicly Traded Companies Are Not Unitary

Morrison & Foerster also represented The Dow Chemical Company ("Dow") in its unitary appeal in Illinois. Dow sold its pharmaceutical subsidiary to Marion Laboratories, Inc. ("Marion") and received stock in Marion. Contrary to the evidence, the Illinois Department of Revenue asserted that Dow and Marion were unitary businesses based on facts that predated the years at issue. The Administrative Law Judge agreed with the State.

When Dow called on Morrison & Foerster to step in and handle the appeal before the Circuit Court, the Morrison & Foerster team demonstrated that during the years at issue, Dow and Marion, two publicly traded companies with separate boards, were not unitary, although there were many arm’s-length agreements between the companies. The Circuit Court agreed with Morrison & Foerster for three out of four years, siding with the Department only on the one year during which that court found (in our view, incorrectly) that Dow’s subsidiary was being transitioned to Marion. The Illinois Appellate Court agreed with the Circuit Court, and the State has not appealed. Paul Frankel, Craig Fields, Roberta Moseley Nero, and Mitchell Newmark of the New York Office handled the appeal.

Missouri Finds Section 338(h)(10) Gain Is Nonbusiness Income

The Morrison & Foerster State and Local Tax team also represented ABB C-E Nuclear Power, Inc. ("ABB") after the Missouri Department of Revenue issued an assessment contending that gain recognized by ABB in an IRC Section 338(h)(10) transaction constituted business income for Missouri tax purposes. The team argued that although the stock sale of a subsidiary was deemed to be a sale of assets pursuant to ABB’s IRC Section 338(h)(10) election, the deemed sale of assets was not made in the regular course of the subsidiary’s trade or business – it was made in the course of liquidating that business as a result of the deemed liquidation component of the election. The Hearing Commission agreed with Morrison & Foerster that the gain on the sale was nonbusiness income. Paul Frankel and Craig Fields of the New York Office litigated the matter.

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