Corporate Tax – The Surly Subgroup

By Leandra Lederman

Tax professors are of course among the many people affected by the recent, significant changes to federal tax law. I have heard from several people wondering how best to adapt their courses starting in January to these changes. I think that exchanging ideas and sharing syllabi, etc., may be very helpful.

Accordingly, several of us have each agreed to serve as the point person for a particular course. The point person can set up an email list for those who express interest by email, and then use that list to exchange questions, ideas, syllabi, URLs, handouts, etc. with others teaching the same course. Of course, casebook authors may also be working on updates, and other listservs may be helpful, but these distribution lists will allow those interested to participate in topic-focused groups to exchange materials and ideas in advance of and throughout the semester.

The point people thus far are the following Surly bloggers, for the following courses:

Individual Income Tax: Jennifer Bird-Pollan (email jbirdpollan@uky.edu)

Corporate Tax: Leandra Lederman (email llederma@indiana.edu)

Partnership Tax: Phil Hackney (email phackney@lsu.edu)

To get on an email list, please email the applicable point person. And folks interested in serving as a point person for another course (i.e., in setting up the email list and getting it started), please post in the comments below, with the course name and your email address.

Happy new year, everyone!

By: David J. Herzig

Earlier this year, the Washington Supreme Court held that the retroactive application of the legislature’s amendment to a Business & Occupation (B&O) tax exemption revising the definition of “direct seller’s representative” to conform to the Washington Department of Revenue’s interpretation of the exemption did not violate a taxpayer’s rights under due process, collateral estoppel, or separation of powers principle.

Like most states, Washington had a B&O tax for “the act or privilege of engaging in business activities.” Under the original law, out-of-state sellers were exempt if they acted through a representative. DOT Foods shows up in Washington and sells through a wholly owned subsidiary to avoid the B&O tax.

In 1999, the Washington Department of Revenue changed its interpretation of the statute to subject DOT and others to the B&O tax. Dot challenged that change (215 P.3d 185 (Wash. 2009) “DOT I”)) and won. DOT I applied for the tax periods 2000-2006.

DOT then sought a refund for the period Jan. 2005 – Aug. 2009 (not the time period of DOT I). In the meantime, in 2010 the Washington State Legislature changed Wash. Rev. Code Sec. 82.04.423(2) in response to the DOT I ruling. The statute both retroactively and prospectively changed the statute. Based on the statutory change, the Washington Department of Revenue rejected the refund claim.

For the period covered by DOT I, DOT and Washington agreed on a settlement for a 97% refund for B&O taxes paid. For the May 2006 to December 2007 period (after DOT I), the refund request was denied. DOT challenged the retroactive application under the theories of collateral estoppel, separation of powers, and due process. DOT lost in the Washington Supreme Court and now has appealed to the US Supreme Court.

The test for whether or not retroactive tax legislation satisfies Due Process is United States v. Carlton, 512 U.S. 26 (1994). Carlton applied a rational basis test. The Court stated retroactive tax legislation would not violate due process if, “legitimate legislative purpose furthered by rational means.” According to the ACTC brief, “The Washington Supreme Court ignored the unique circumstances of the Carlton case, which involved the correction of an obvious legislative error that was identified very soon after the statute was enacted and which the taxpayer was admittedly exploiting for its own benefit.”

Continue reading “Will the Supreme Court Hear a Retroactive Taxation Case This Term?” →