The Williams Mullen Southeast State and Local Tax (SESALT) team is pleased to provide you with a comprehensive recap of important tax developments around the Southeast.
U.S. SUPREME COURT
The United States Supreme Court has granted petitions for writ of certiorari in three state and local tax cases for its October Term 2014.
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Comptroller of the Treasury v. Wynne. In Wynne, the U.S. Supreme Court will consider whether a state or locality has to allow a credit for taxes paid on income earned in other states. Previously, the Maryland Court of Appeals ruled that the federal Commerce Clause is violated by Maryland’s failure to allow a credit against Maryland county taxes for income earned in another state and taxed in that state. This decision may have a significant impact on a locality’s ability to collect revenue. While most states provide full credits for income taxes paid to other states, many local jurisdictions do not.Comptroller of the Treasury v. Wynne, 431 Md. 147 (Md. Ct. App. 2013); cert. granted U.S. Dkt. 13-485 (May 27, 2014).
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Alabama Department of Revenue v. CSX Transportation, Inc. In CSX Transportation, the U.S. Supreme Court will consider whether a state discriminates against a rail carrier in violation of 49 U.S.C. § 11501(b)(4) when the state generally requires commercial and industrial businesses to pay a sales-and-use tax but grants exemptions from the tax to the railroads' competitors. While the case is specific to rail carriers, the case could be instructive for challenges of current or potential future federal laws that prohibit discriminatory state taxation. Alabama Department of Revenue v. CSX Transportation, Inc., 720 F.3d 863 (11th Cir. 2013); cert. granted U.S. Dkt. 13-553 (July 1, 2014).
- Direct Marketing Association v. Brohl. In Direct Marketing, the U.S. Supreme Court will consider whether the federal Tax Injunction Act (“TIA”) prohibits third-party, non-taxpayer plaintiffs from challenging a state tax information reporting requirement in federal court. It is doubtful that the Court will consider the broader question of whether Colorado’s use tax reporting requirements are constitutional. It is expected that the Court’s decision will clarify protections provided by the TIA and be instructive to out-of-state taxpayers on nexus issues. Direct Marketing Ass’n v. Brohl, 735 F.3d 904 (10th Cir. 2013); cert. granted U.S. Dkt. 13-1032 (July 1, 2014).
VIRGINIA
WORKER CLASSIFICATION
- Worker Classification Task Force Established. On August 14, 2014, Virginia Governor Terry McAuliffe signed Executive Order 24 to establish an inter-agency task force on worker misclassification and payroll fraud. The task force is a response to a 2012 report of the Joint Legislative Audit and Review Commission finding that one-third of audited employers in certain industries misclassify their employees. As part of the initiatives, the task force will review statutes, regulations and enforcement practices related to worker misclassification and payroll fraud. The task force’s findings may have a significant impact on ensuring taxpayers’ compliance with Virginia payroll and employment tax laws. See Va. EO-24 (Aug. 14, 2014).
TAX CREDITS
- Qualified Equity and Subordinated Debt Investments Credit. Virginia taxpayers are permitted a credit equal to 50% of the cash investment in a qualified business in the form of equity or subordinated debt. The aggregate amount of the credit that may be used per taxable year by the taxpayer cannot exceed the lesser of the tax imposed for the tax year or $50,000. The tax credit cap will increase to $5 million for Taxable Year 2014 and remain...
