TWIST–QA Quarterly Roundup of This Week in State Tax | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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On August 11, 2008, the California Court of Appeals, First Appellate District issued an opinion in Ventas Finance I, LLC v. California Franchise Tax Board addressing the constitutionality of California’s LLC (limited liability company) fee. During the tax years at issue in Ventas, the LLC fee was applied to a taxpayer’s unapportioned income. The appellate court affirmed a lower court’s holding that, as applied to Ventas, a taxpayer doing business both within and outside California, the fee was unconstitutional as it was an unapportioned tax. The more critical issue on appeal—and one that potentially has implications beyond the scope of the LLC fee refunds—was the appropriate remedy due Ventas. After determining that it was inappropriate to judicially reform the statute to include an apportionment mechanism, the trial court had ordered Ventas a full refund. The appellate court agreed with the lower court’s decision that judicial reformation was improper because the California legislature had considered and rejected adding an apportionment mechanism to the LLC fee statute. However, the court disagreed with the taxpayer’s argument that the only appropriate remedy for an unfairly apportioned tax is a full refund of the tax paid. The court held that due process considerations did not require the FTB to issue a full refund—only the amount necessary to cure the unconstitutionality of the fee. Thus, the court determined the FTB’s proposed remedy—refunding the difference between what Ventas paid and what it would have paid if the fee were based on income apportioned to California—substantively redressed the due process violation. Ventas has petitioned the California Supreme Court for review.
The California State Board of Equalization (SBE) has determined that (1) a unitary insurance subsidiary should be included in a taxpayer’s California combined report and (2) the sales factor should include the premiums received by the subsidiary from Texas insurance activities. In re Appeal of Electronic Data Systems Corp. (August 8, 2008). The subsidiary was licensed and regulated as an insurance company in Texas, but engaged only in non-insurance business activities in California and was not regulated as a California insurance company. Relying on a previous legal ruling, Franchise Tax Board Legal Ruling 385, the taxpayer excluded the insurance company from its combined report. Later, the taxpayer revised its position and filed amended returns seeking a refund as a result of including the insurance subsidiary in the combined report. The SBE observed at the outset that Legal Ruling 385’s basic holding was that in-state insurance affiliates must be excluded from the combined report. Language in the ruling provided that it applied equally to out-of-state insurance company affiliates that operated entirely outside California. However, the SBE determined it was not clear whether the ruling applied when, as in this case, the insurance affiliate performed all of its insurance activities outside California, but conducted non-insurance business in the state. Although the decision does not detail the SBE’s reasoning, the SBE concluded that the taxpayer’s combined report should include the insurance subsidiary and that the calculation of the sales factor should include the premium income received by the subsidiary from Texas insurance activities.
After weeks of debate, the California legislature and the Governor have finally agreed on a budget. The final budget measures, signed into law on September 23, 2008, contain several provisions that can affect business taxpayers. The measures seek to temporarily raise revenues for tax years beginning on or after January 1, 2008, but before January 1, 2010, by (1) suspending net operating losses (NOLs) and (2) limiting certain business credits taken against corporate and personal income taxes to 50 percent of the tax due. In addition, the legislation makes significant changes to the NOL carryback and carryforward provisions and provides that taxpayers can, under certain circumstances, assign credits to members of their combined groups. Another revenue raiser is the adoption of a new 20 percent understatement penalty for corporate taxpayers and a provision requiring taxpayers to estimate and accelerate payment of the annual California LLC fee so that it is paid on or before the sixth month of the current taxable year. Finally, California’s use tax laws are revised to include a rebuttable presumption that certain vehicles, vessels, and aircraft brought into California within 12 months of their out-of-state purchase are subject to California's use tax.
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Legislation has been signed into law in Illinois limiting the power of the Director of the Department of Revenue to adjust a taxpayer’s income in order to properly determine the taxpayer’s income attributed to Illinois. [House Bill 5069 (signed August 29, 2008)] Under the revised law, the Director cannot adjust a taxpayer’s base income if the adjustment has the same effect as retroactively applying certain recent legislative changes, including the adoption of related-party expense disallowance rules in 2004, the expansion of those rules in 2007, and the adoption of a provision requiring an addback for certain dividends paid by captive real estate investment trusts.
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An Iowa Administrative Law Judge (ALJ) has issued a ruling upholding a corporate income tax assessment against an out-of-state taxpayer with no physical presence in Iowa that derived income from licensing certain intangibles to in-state franchisees. KFC Corp. v. Department of Revenue (August 8, 2008). Under Iowa law, corporate income tax is imposed on corporations deriving income from intangible property that becomes an integral part of some business activity occurring regularly in state. After determining that the royalty income from Iowa franchisees was clearly income from Iowa sources, the ALJ next addressed the taxpayer’s constitutional arguments. Unlike other courts that have recently addressed economic nexus, the ALJ did not examine the frequency, quantity, and systematic nature of the taxpayer’s economic contacts in determining whether the taxpayer had “substantial nexus” with the taxing state. However, after noting that the franchise right was an intangible with a direct connection to Iowa, the ALJ observed that KFC received benefits from the state in the form of police, fire, and other governmental services that allowed its franchisees’ businesses to prosper. The ALJ concluded that the “franchise agreement does create an economic nexus with the Iowa franchisees” and that “there is nexus because with every Iowa purchase by an Iowan at a franchisee’s location, the franchisee is obligated to pay KFC based on the gross revenue.”
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On July 3, 2008, legislation was signed into law adopting significant changes to Massachusetts’ business tax laws. Unless otherwise noted, all tax provisions are effective for tax years beginning on or after January 1, 2009.
Key provisions of the bill include:
Additionally, for tax years beginning on or after January 1, 2010, the bill provides for incremental financial institution and corporate excise tax rate reductions.
As part of the Budget Bill, Massachusetts law was amended to expand the Commissioner of Revenue's authority to require nonemployer withholding. Shortly thereafter, regulation 830 CMR 62B.2.2 was promulgated requiring withholding on a pass-through entity member’s distributive share amounts representing Massachusetts taxable income and allocated on or after January 1, 2009, that are attributed to a tax year beginning on or after January 1, 2009. All pass-through entities are required to withhold unless either the entity or the member is exempt. Exempt entities include (1) investment partnerships, as defined, (2) certain trusts required to withhold under other provisions of Massachusetts law, and (3) upper-tier pass-through entities in a tiered partnership structure where the lower-tier pass-through entity has already withheld. The regulation also provides that a pass-through entity is not required to withhold on behalf of certain exempt members, including a member that is (1) exempt from tax under IRC § 501, provided that the income is exempt from Massachusetts tax, (2) a Massachusetts resident individual, estate, or trust, (3) a corporation with income, not including pass-through entity income, that is subject to tax and is filing a return, and (4) a nonresident who establishes compliance with Massachusetts tax laws. A nonresident can establish compliance by participating in a composite return prepared by the pass-through entity or by filing a certification with the pass-through entity that the nonresident will file returns, make quarterly payments, and accept Massachusetts jurisdiction. If a pass-through entity fails to obtain an annual certification from an exempt member in a timely manner, it will be required to withhold on such member’s Massachusetts distributive share income. A pass-through entity required to withhold will be jointly and severally liable with each member subject to withholding for taxes, together with related interest and penalties, imposed on the member by Massachusetts with respect to the income of the pass-through entity. Any pass-through entity that fails to withhold as required shall be subject to all applicable penalties.
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An Ohio appellate court has held that the Ohio Commercial Activity Tax (CAT) as applied to certain retail and wholesale food sellers violates an Ohio constitutional prohibition against imposing excise and sales taxes on certain retail and wholesale food sales. Ohio Grocers Association v. Wilkins (September 2, 2008). The CAT, “similar to certain sales and transaction taxes,” uses gross receipts as its base. Accordingly, the taxpayers argued that because the CAT uses gross receipts from food sales to determine the tax owed, the CAT, as applied to the taxpayers, violates Ohio’s Constitution because it is essentially akin to the imposition of a transactional or sales tax on the sale of food. The appellate court agreed and held that in both name and operation the CAT is an excise or transactional tax on the sale of food. The court noted that although the CAT is deemed to be a franchise tax on the privilege of doing business in Ohio, the Ohio courts have consistently held that a franchise tax is a type of excise tax, the very sort that the Ohio Constitution prohibits. In addition, the court observed that although the law specifically states that the CAT is not a transactional tax, when applied to gross receipts derived from the sales of food a transactional tax is precisely what the CAT becomes. In the court’s view, while the CAT is not based on each transaction or each individual sale, the CAT is based on the aggregate of all sales within a specified time frame. Therefore, if the legislature is prohibited from collecting a tax on the individual sale, it logically follows that the legislature should be prohibited from collecting a tax on the aggregate of those same sales. Ohio’s Tax Commissioner is appealing the decision to the Ohio Supreme Court. In the interim, on September 9, 2008, a motion for a stay of the judgment pending the appeal was granted. Therefore, taxpayers should continue to file all applicable returns and to make all applicable payments of their CAT liability. However, affected taxpayers may wish to file protective refund claims.
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In Bellsouth Advertising and Publishing Corp. v. Chumley (July 31, 2008), a Tennessee chancery court has held that the Commissioner of the Department of Revenue was not entitled to invoke statutory authority to apply an alternative apportionment formula to determine a taxpayer’s Tennessee excise tax liability. Under Tennessee law, receipts from sales of other than tangible personal property are sourced to Tennessee if a greater proportion of the earnings-producing activity giving rise to the receipts is performed in Tennessee than in any other state, based on the costs of performance. The Commissioner disagreed with the taxpayer’s application of the cost of performance method and invoked her right to use an alternative apportionment formula. Observing that the statutory formula is presumed to be correct and the variance provision is to be narrowly construed, the court noted that the Commissioner appeared to reject the cost of performance method because it resulted in receipts from Tennessee markets not being included in the Tennessee receipts factor. However, the Commissioner did not demonstrate why the standard provisions did not fairly represent the extent of business activities conducted by the taxpayer in Tennessee. The court further noted that the plain language of the statute recognizes that receipts are apportioned to Tennessee only if a greater proportion of the activity that produces the revenue occurs in state. Thus, the fact that a significant amount of revenue was generated from Tennessee sales did not in itself justify a variance.
Just as companies are becoming familiar with the application of the Financial Accounting Standards Board’s (FASB’s) Interpretation No. 48, Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109 (FIN 48) to uncertain state and local tax positions, another set of accounting standards seems to be looming on the horizon—International Financial Reporting Standards (IFRS).
In 2002, the FASB and the International Accounting Standards Board (IASB) began working on a number of convergence projects to achieve compatibility between U.S. GAAP and IFRS.1 In December 2007 the Securities and Exchange Commission (SEC) announced that foreign private issuers are no longer required to reconcile financial results to U.S. GAAP if they prepare financial statements in accordance with IFRS as issued by the IASB.2 Further, in late August, the SEC announced a proposed roadmap for the potential adoption of IFRS by domestic issuers. The proposed roadmap is expected to be issued in the next few weeks for a 60-day comment period.3
As a result, audit committees and tax directors are asking about the implications of IFRS conversion on their companies’ state and local taxes. For example, how would a company compute its tax provision under IFRS? Does IFRS treat uncertain tax positions in a manner similar to FIN 48? How might the conversion to IFRS affect the company’s state tax liability and filing obligations? This is the first in a series of articles that will explore these and other questions.
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As many taxpayers are all too aware, under U.S. GAAP companies calculate income tax assets and liabilities based on FASB Statement No. 109, Accounting for Income Taxes (FAS 109) and FIN 48. FIN 48 clarifies the accounting for uncertainty in income tax positions.
Under IFRS, the income tax provision is determined in accordance with IAS 12, Income Taxes.4 The basic concepts of IAS 12 are similar to FAS 109. For example, IAS 12 uses a balance sheet approach and a company recognizes deferred tax assets and liabilities for temporary differences and for net operating losses and tax credit carryforwards (deferred tax assets are recognized only to the extent that they are probable of realization). However, there are differences in the way IAS 12 and FAS 109 are applied. Further, FIN 48 has prescriptive guidance for accounting for uncertainty in income taxes whereas IAS 12 does not specifically address the topic.
Like FAS 109, IAS 12 does not provide directed guidance on accounting for income tax uncertainties. In fact, the FASB’s stated reason for issuing FIN 48 was:
Statement 109 contains no specific guidance on how to address uncertainty in accounting for income tax assets and liabilities. As a result, diverse accounting practices have developed resulting in inconsistency in the criteria used to recognize, derecognize, and measure benefits related to income taxes. This diversity in practice has resulted in noncomparability in reporting income tax assets and liabilities.5
FIN 48 established a two-step process: The first step is recognition - the enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including any related appeals or litigation process, based on the technical merits of the position.6 In the second step, measurement, the amount of benefit recorded, if any, is determined. For those positions that are at least more likely than not to be sustained, the enterprise recognizes "the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information."7 For those positions that do not meet the more-likely-than-not threshold, no benefit is recognized.
As noted above, there currently is no specific IFRS guidance regarding uncertain tax positions. An exposure draft for IAS 12 is expected in the fourth quarter of 2008 and it is expected to provide some guidance on accounting for income tax uncertainties. However, it is not expected that the IASB will develop a model similar to that in FIN 48.
Based on comments from IASB officials, it is anticipated that the treatment of uncertain tax positions will be based on the guidance on accounting for contingent liabilities and contingent assets found in IAS 37.8 Under the exposure draft of IAS 37, there would be no recognition threshold and any uncertainty would be reflected in the measurement of liability.9 Tax uncertainties would, therefore, be recorded based on the weighted average probability of the possible outcomes.10
To illustrate how the two standards might be applied, assume Company A incurs intercompany interest expense. The recipient of the interest files in several states. It is unclear how State A will apply its related-party expense disallowance rules. Some exceptions to the related-party expense disallowance rules might apply but it is uncertain if these exceptions will result in a full or partial deduction.
Under FIN 48, Company A would evaluate the likelihood that the company would sustain the interest deduction. In making the determination, Company A would assume that the taxing authority would examine the position with full knowledge of all relevant information. The more-likely-than-not determination would be based on sources of authorities in the tax law (legislation and statutes, legislative intent, regulations, rulings and case law) and their applicability to the facts and circumstances of the position. Widely understood administrative practices would also be taken into account.11 Assuming Company A supported a conclusion that it was more likely than not that the deduction would be sustained based on its technical merits, the next step in FIN 48 is to determine how much benefit to recognize. FIN 48 provides that a tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement.12
Assume that the following table represents the amounts and probabilities of the possible estimated outcomes.13
| Amount of Benefit Expected to be Sustained | Individual Probability (%) | Cumulative Probability (%) |
| $1000 | 35 | 35 |
| 800 | 20 | 55 |
| 100 | 30 | 85 |
| 0 | 15 | 100 |
Under FIN 48, because $800 is the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement, the enterprise would recognize a tax benefit of $800 in the financial statements.
As noted above, the IASB has indicated that the measurement of liabilities for uncertain tax positions will likely be consistent with the proposed IAS 37 treatment for contingent liabilities and contingent assets.14 Accordingly, the amount of benefit recognized is the weighted average probability of all possible outcomes.15
Drawing on our earlier example, consider the following information:
| Amount of Benefit Expected to be Sustained | Individual Probability (%) | Weighted Average |
| $1000 | 35 | $350 |
| 800 | 20 | 160 |
| 100 | 30 | 30 |
| 0 | 15 | 0 |
| Weighted average $540 (assuming discounting of the liability is not significant) | ||
Under the IFRS guidance expected to be proposed later this year, Company A would recognize a tax benefit of $540. Accordingly, in this example Company A would recognize $260 more benefit under U.S. GAAP ($800) than under IFRS ($540).
While the proposed accounting under IFRS results in less benefit being recognized in this example, it is easy to envision scenarios where the proposed accounting under IFRS would result in more benefit being recognized—particularly when the tax benefit does not meet the more-likely-than-not test. In the state and local tax context, the treatment of potential nexus issues comes to mind.
Assume Company B has a nexus exposure in State X. Company B has determined that it is not more likely that no tax liability is due in State X. Under FIN 48, Company B does not meet the more-likely-than-not recognition threshold and therefore cannot record any benefit related to non-filing in State X. If Company B has determined that the potential liability for filing in State B is $500, the full $500 liability must be recorded. In other words, Company B must accrue a liability as if it had filed a return in State X.
Under the expected IFRS proposed guidance, however, Company B would not be required to clear the recognition threshold to record any benefits associated with not filing in State B. Assume Company B has determined the possible outcomes had the following probabilities:
| Amount of Benefit Expected to be Sustained | Individual Probability (%) | Weighted Average |
| $500 | 10 | 50 |
| 250 | 20 | 50 |
| 0 | 70 | 0 |
| Weighted average $100 (assuming discounting of the liability is not significant) | ||
Under the expected IFRS proposed guidance, Company B would record a $100 tax benefit (and $400 of tax liability) related to not filing in State X.
Finally, even positions that are considered highly certain under FIN 48 may not escape scrutiny under the expected IAS 12 proposal. Under FIN 48, a company that is 95 percent certain of sustaining a tax position would likely book the entire tax benefit. Under the expected IAS 12 proposal, however, a position with a $1,000 tax benefit that has a 95 percent likelihood of being sustained would result in the recognition of a tax benefit of $950 and a tax liability of $50. Such an application would have the potential for a high volume of small tax liabilities being recognized, which may prove to be one of the more challenging aspects of the expected IAS 12 approach.
As demonstrated in the examples above, a striking difference between FIN 48 and the expected IFRS proposal is the potential for the lack of a recognition threshold under IFRS. During the adoption of FIN 48, companies often struggled with whether a position met the more-likely-than-not standard. If the IFRS rules ultimately do not contain a recognition threshold, the importance of reaching more likely than not is greatly diminished. That said, one might wonder whether the struggle will simply shift from the confidence level of the position to the determination of possible outcomes and their respective probabilities.
Nevertheless, the examples above demonstrate that the amount of tax benefit booked for tax uncertainties can differ under the expected IFRS proposal versus U.S. GAAP. These differences can either positively or negatively affect income. Having just gone through the adoption of FIN 48, some companies may cringe at the thought of changing again their process of accounting for uncertain tax positions. At least, it is likely that much of the information gathered in the FIN 48 process can be leveraged when adopting IAS 12.
It remains to be seen what form the proposed changes to IAS 12 will take and whether those proposals will be finalized as proposed.16 Stay tuned.
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For tax years beginning on or after December 31, 2005, and before January 1, 2011, the Maryland legislature adopted extensive data-reporting requirements for certain corporate taxpayers. The data is required to be reported electronically, and on September 12, 2008, the Comptroller’s electronic filing system became operational.
The filing system requires taxpayers to manually enter the required data on the Web site. However, a single member of a corporate group can enter the required information on behalf of all members of the corporate group.
Until recently, guidance was not available for taxpayers on (1) how to comply with these reporting requirements and (2) when the 2006 and 2007 tax-year reports were due.
However, recently issued emergency regulations provide that the 2006 tax-year reports are due October 15, 2008, and the 2007 tax-year reports are due by the extension due date for the 2007 return, i.e., October 15, 2008, for calendar-year taxpayers. These due dates are critical because the emergency regulations also provide that failure-to-file penalties of $5,000 per day can be imposed for the first 30 days the reports are not final. The penalties are raised to $10,000 per day for each day thereafter for each late report. Although the emergency regulations are not yet finalized, it is not clear at this time whether the penalty provisions or other provisions will ultimately be revised.
Practically speaking, here are a few items taxpayers may want to consider when filing their reports:
Navjeet Bal |
This past summer, the Massachusetts legislature enacted sweeping changes to the Commonwealth’s business tax law—including but not limited to the adoption of unitary combined reporting, financial institution and corporate excise tax rate reductions, and conformity to the federal “check-the-box” rules. Many of the provisions take effect January 1, 2009. The task of implementing the recent tax law changes and issuing corresponding regulations falls to the Department of Revenue (the Department) under the leadership of Commissioner Navjeet Bal. In a conversation last month with Sarah McGahan of KPMG’s Washington National Tax SALT group and David Sheehan of KPMG's Boston office, Commissioner Bal:
Recent changes to Massachusetts tax law includes provisions that:
To help implement these changes, the Department will be required to modify its existing systems, develop new tax forms, and train its staff to properly administer the new laws.
“The Department is now tasked with a significant undertaking,” said Commissioner Bal. To tackle these tasks, Bal said, she has convened a working group with staff members from various offices within the Department, including the taxpayer services, audit, appeals, legal, taxpayer advocacy, and training offices. The working group meets monthly, and the specialized groups have smaller, separate meetings.
Commissioner Bal says the Department is “triaging” to help determine priorities for training and other necessary activities. The new law is “going to affect every aspect of the way we process corporate tax forms,” said Bal. One of the Department’s top priorities, she adds, is to issue regulations interpreting the combined reporting requirements and check-the-box conformity provisions.
The Department also plans to start training its auditors right away, even though it will be some years before combined reporting and check-the-box issues start appearing in audits.
Data processing system upgrades will have to be in place to accept corporate returns starting in 2010, when the first returns will be filed under the new law, the Commissioner said. Because the tax reductions will be phased in starting in 2010, forms and system changes to accommodate the new rates are more of a “mid-burner issue,” she said, although tax-rate changes affecting certain S corporations will have to be implemented sooner.
Commissioner Bal pointed to the Department’s success in implementing recent state healthcare reforms requiring Massachusetts residents to show proof of health coverage when filing their returns as evidence that the Department has “a good system in place for implementing complex law changes that require a coordinated effort across our various departments.”
To help implement the recent statutory changes, the legislation directs the Department to adopt regulations addressing the Commonwealth’s move to combined reporting, such as the elimination of intercompany transactions between members of a combined group, the sharing of net operating losses and credits among group members, and the relationship of the expense disallowance rules and other provisions to the new combined reporting provisions.
The first step will be for the Department to issue and seek public comment on working draft regulations, according to the Commissioner. The Department’s goal is to issue comprehensive final regulations by the end of the calendar year that will resolve “ambiguities that we have noted or that taxpayers have brought to our attention,” she said. The Department has already issued a technical information release (TIR 08-11) summarizing the statutory provisions under the new law; it will also issue other forms of guidance to accommodate taxpayer concerns about end-of-year fiscal and accounting issues, Commissioner Bal said. For example, forthcoming guidance may include information on how safe harbors for estimated tax payments will apply to the 2009 tax year —“a real issue not only for combined reporting but also for check-the-box conformity,” the commissioner said. “It’s one of those critical transition issues.” In addition, the Commissioner confirmed that guidance would be forthcoming on the FAS 109 deduction for taxpayers whose net deferred tax liability increases due to the new combined reporting mandate. In fact, just days after our interview, the Department released a statement entitled “Statement of Anticipated Regulatory Positions Relating to Implementation of Combined Reporting,” which contains guidance on the FAS 109 deduction.
Another provision of the new law requires the Department to prepare a feasibility study and draft legislation that would bring Massachusetts into full compliance with the Streamlined Sales and Use Tax Agreement (SSUTA). The Commonwealth’s Study Commission on Corporate Taxation last December “strongly recommended” that Massachusetts adopt the SSUTA (for the commission’s report, see Study Commission on Corporate Taxation - Final Report). Because Massachusetts levies sales tax only at the state level and not at local levels, “that minimizes the logistical barriers to adopting the agreement,” Commissioner Bal said, but Massachusetts will also have to examine related issues such as threshold triggers, like the “luxury clothing” taxation threshold Massachusetts currently follows. “That’s something we’ll be taking a look at,” she said.
Asked about Massachusetts’ plans to become a full member of the Streamlined Sales Tax Governing Board, Commissioner Bal noted that Massachusetts already serves as an “adviser state” to the board. She pointed out that U.S. Rep. William D. Delahunt (D-MA) has sponsored the House version of federal streamlined legislation.
The Department is currently updating its computer systems to make them more user-friendly and to modernize the technology. The Department’s current computerized tax processing system is in “desperate need of updating and replacement,” said Commissioner Bal, noting that the system was built in the 1980s using 1970s technology. “We’re clearly approaching the end of its useful life and the limits of its functionality,” she said.
The Department is in the process of replacing its old system with a new integrated system, dubbed “Mass Tax 2.” The Department hopes that upgrading the system will enhance compliance; provide easier access to forms and compliance information for Department staff, taxpayers, and other “stakeholders” such as the legislature and the governor’s office; capture and process data at its source; reduce mistakes due to scanning; and adopt legislative changes more quickly.
The Department intends to use a service-oriented architecture with “plug and play” capability to allow for quick software changes and upgrades to help keep the system from becoming obsolete. In late August, the Department issued a request for information and a draft request for response inviting vendors to discuss solutions for implementing the service-oriented architecture.
“It’s going to be an intense project and it’s going to require years of work,” said the Commissioner, noting that the Department has already put significant work into designing the business requirements for the project. “I think we’ve got a really good framework, and we’re just anxious to get going,” she said.
The Department is currently offering a special voluntary disclosure program for financial institutions and certain intangible holding companies; entities have until September 30, 2008, to express their interest in participating in the program. Commissioner Bal said the Department has received a “good amount of interest and inquiries” already, but is expecting most of its responses to arrive just before the September 30 deadline.
Commissioner Bal said that communication with the Department is a key factor in audits and litigation, as is providing the Department with necessary information on a timely basis. A “fruitful negotiation or settlement discussion” is more likely to take place when the Department is confident that information received is complete and timely and allows for a thorough analysis of the facts. She acknowledged that taxpayers may have to be “circumspect” when litigation is a potential outcome, but she said that if negotiating a settlement is the primary goal, timely provision of information on request is vital.
For taxpayers seeking to reduce delays and errors in filings with the Department, Commissioner Bal said filing electronically is the leading way to prevent processing mistakes. “Most of the problems we see are on the paper filed returns that we end up processing,” she said, including “forms that are not filled out correctly, incorrect federal ID numbers…problems like that.” Filing electronically, in addition to being a “greener” option, helps reduce those kinds of errors.
KPMG thanks Commissioner Bal for her time and interest in providing her comments to TWIST-Q readers. We continue to welcome suggestions from our readers on states in which they are interested and topics they would like to see addressed by state tax officials.
TWIST–Q is a quarterly publication produced by KPMG's State and Local Tax practice. Each issue will focus on the last quarter to provide our readers with select state legislative and regulatory updates which can help you stay current in the fast-changing world of state and local tax. Each issue may also include articles on industry trends in the marketplace, interviews with high-level state tax officials and frequently asked questions.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
These articles represent the views of the authors only, and do not necessarily represent the views or professional advice of KPMG LLP.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
Just When You Thought It Was Safe to Get Back in the Water – The Application of IFRS to Uncertain State and Local Tax Positions Is Lurking
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