Larry's Tax Law

Prologue

Kyle N. Richard recently joined Foster Garvey.  Kyle’s practice is primarily focused on assisting our municipal clients in bond and tax matters.  With his tax experience, however, he assists our tax practice group clients on broader federal, state and local tax matters.  We are excited to have Kyle join our tax team, adding to our already robust bench strength.

The article below was authored by Kyle.  Expect to see more of Kyle’s contributions to Larry’s Tax Law in the future.

Larry

On September 30, 2021, the Washington State Supreme Court upheld the constitutionality of the additional 1.2 percent business and occupation (B&O) tax imposed by the 2019 Substitute House Bill 2167 (“SHB 2167”) on “specified financial institutions”—financial institutions with annual net income of more than $1 billion.  SHB 2167 increases the tax rate for these institutions from 1.5 percent (the rate generally applicable to financial institutions) to 2.7 percent.

The tax was codified in Section 82.04.29004 Revised Code of Washington (“RCW”).  Like other B&O taxes in Washington, the amount of tax due is measured by the amount of the specified financial institution’s gross revenues attributed to Washington State, which is generally based on an apportionment formula (contained in RCW 82.04.460-.462).  The effect of this apportionment regime is that a certain percentage of a financial institution’s total gross income for the year is treated as earned in Washington and taxed under Washington law.

The Washington Bankers Association and American Bankers Association (taxpayers) commenced a lawsuit, arguing that the tax violated the U.S. Constitution’s Dormant Commerce Clause (“DCC”).  At trial, the court concluded that the taxpayers had standing to challenge the tax under the Uniform Declaratory Judgments Act (“UDJA”) and held that the additional graduated tax rate discriminated against out-of-state businesses, in violation of the DCC.  The trial court denied reconsideration of its decision.  The Washington Department of Revenue then appealed directly to the Washington State Supreme Court.

As I previously reported, on May 4, 2021, Washington State Governor Jay Inslee signed Senate Bill 5096 ("SB 5096") into law, creating the state's first capital gains tax.  It is set to go into effect on January 1, 2022. 

The new law has had a turbulent ride during its infancy.  Before Governor Inslee could even sign the bill into law, opponents to the legislation filed a lawsuit in the Superior Court of Washington for Douglas County, challenging the new tax regime as a tax on income – a violation of the state’s constitution.  The plaintiffs in that case seek to enjoin the taxing authorities from assessing and collecting the tax or otherwise enforcing the new law. 

On May 4, 2021, Washington Governor Jay Inslee signed Senate Bill 5096 ("SB 5096") into law, creating a capital gains tax regime in Washington.  The bill has had a brief, but colorful journey so far.  It appears that the journey is continuing.

Will Washington's capital gains tax be here to stay?  At this point, it is anyone's guess.

SB 5096 was originally introduced to the Washington State Senate on January 6, 2021.  It was passed by the Senate on March 6, 2021, after a hearing in the Senate Committee on Ways and Means, three readings and some floor amendments.  The bill's passage margin in the Senate was narrow, receiving 25 affirmative votes and 24 negative votes. 

On April 25, 2021, the Washington State Legislature passed Senate Bill 5096 (SB 5096).  The bill was immediately sent to Governor's Inslee's desk for signature.  It brings a new tax regime to the state of Washington.

Before we go into the details surrounding the new tax, I have to mention that it was challenged even before the governor had the opportunity to sign it into law.  A group of potentially affected taxpayers filed a lawsuit in Douglas County, Washington, to strike down the new law as being unconstitutional.  So, it is possible that SB 5096 will never breathe life. 

Knowing that the new tax regime is under attack, it is still important to have a good understanding of it in the event it survives the battle.

Last week, we reported on Maryland’s new gross receipts tax on revenues derived from digital advertising services (the “Tax”), the first of its kind in the nation.  Affected taxpayers and tax practitioners alike can breathe a sigh of relief—the Tax will not apply to tax years beginning before 2022.  Additionally, the broadcast news industry secured a significant victory by obtaining an exclusion from the Tax.

Maryland recently enacted the nation’s first tax on digital advertising.  The new tax, the Digital Advertising Gross Revenues Tax (the “Tax”), became law on February 12, 2021. 

The Tax has been surrounded by controversy from the very moment it was introduced in the Maryland House of Delegates.  In fact, a lawsuit to prevent the Comptroller of the Treasury of Maryland from enforcing the Tax was recently filed by a group of affected taxpayers.

Oregon State Senator Fred Girod, a Republican from Stayton, Oregon (District 9), is sponsoring Senate Bill 787 ("SB 787").  If passed, SB 787 would repeal the Oregon Corporate Activity Tax (the "CAT").  So far, the bill does not appear to have much momentum behind it, but time will tell.

Cats have a "righting reflex," allowing them to twist in midair if they fall from a high place so that they can land upright on their feet.  Because of this uncanny ability to potentially avoid disaster, it is often said cats have nine lives.  Well, the CAT has avoided death in the Oregon Legislature already on a number of occasions.  The question is whether the CAT can avoid another attempt to repeal it once and for all.

Senator Girod is a strong advocate for making a quality college education affordable for all students.  He is not, however, a friend of the CAT.  SB 787 is aimed at killing the CAT.

In the wake of the coronavirus pandemic, companies in wide-ranging industries across the country have unprecedented numbers of employees working from remote locations.  In a prior post, we discussed numerous issues that may arise from this new normal of teleworking, including tax, labor and employment, liability, and business registration implications. 

In this post, we drill down a bit further with respect to employers’ state tax reporting and payment obligations that may result from having employees working remotely in states other than where the employers maintain physical offices.  This is especially relevant in metropolitan areas that straddle multiple states, like here in Portland, Oregon.

Earlier this year, the Idaho Supreme Court, in Noell Industries, Inc. v. Idaho State Tax Comm’n, --- P.3d ---- (2020), ruled that gain from the sale of membership interests in a limited liability company that had business operations in Idaho by a taxpayer domiciled outside of Idaho was not business income.  As a result, the gain was not taxable in Idaho.

The court, in a 3-2 decision, upheld the district court’s reversal of the Idaho Tax Commission’s determination to tax the income.  The sharks were circling the taxpayer, ready to attack, but the majority of the justices on the Idaho Supreme Court intervened, saving the taxpayer from a savage death (or at least a boatload of taxes).

During the first special session of 2020, the Oregon legislature passed House Bill 4212 (“HB 4212”).  Governor Kate Brown (the “Governor”) signed HB 4212 into law on June 30, 2020. 

HB 4212 extends the time periods that apply to court proceedings, including those in the Oregon Tax Court (“Tax Court”), to provide relief to litigants who may be impacted by the COVID-19 pandemic.

On July 21, 2020, the Chief Justice of the Oregon Supreme Court (the “Chief Justice”) issued Order No. 20-027 (the “Order”) to facilitate the implementation of HB 4212.  In this post, we address the impact that HB 4212 and the Order may have on Tax Court cases.

Taxpayers with cases pending in either the magistrate or regular division of the Tax Court may be able to utilize these extended time periods.  Additionally, taxpayers may still have the ability to initiate or continue Tax Court proceedings if they missed the time period for doing so originally, including appealing adverse determinations to the magistrate division, regular division, or even the Oregon Supreme Court.