28th Annual Tuesday & Wednesday, January 29‐30, 2019 Hya� Regency Columbus, Columbus, Ohio Workshop Q Tax Advice for Companies Doing Business in Pennsylvania & New Jersey Tuesday, January 29, 2019 3 p.m. to 4 p.m.
Biographical Information Holly B. Hykes, Manager, State Income Tax The Wendy’s Company One Dave Thomas Blvd, Dublin, OH 43017 614-764-8438 Holly.Hykes@wendys.com Holly started her career with PricewaterhouseCoopers, LLP in Columbus, Ohio in 2007 working on a wide range of clients, both in audit and tax. She joined The Wendy’s Company in Dublin, Ohio in 2012. Her primary responsibilities include managing state and local income and franchise tax compliance and audits. Holly is a graduate of The University of Kentucky and has been licensed as a Certified Public Accountant in the state of Ohio since 2007. Timothy D. Adams, Shareholder State and Local Tax Schneider Downs & Co., Inc. One PPG Place, Suite 1700, Pittsburgh, PA 15222 (412) 697-5250 Fax (412) 261-4876 tadams@schneiderdowns.com Tim has more than 20 years of experience in public accounting, including more than 10 years with a national accounting firm. His focus is in state and local tax matters, including multi-state income and franchise tax, sales and use tax, gross receipts tax, incentives/credits and unclaimed property. Tim has successfully represented or assisted clients in state and local tax matters in nearly every state across the country, including audit representation and appeals, refund reviews, and multi-state consulting and planning that have yielded significant value to his clients. Member- PICPA State Tax Committee The Ohio Society of CPAs - Ohio Tax Reform Task Force Member – American and Pennsylvania Institutes of Certified Public Accountants Board Member – National Aviary Past Chair – Western Pennsylvania Tax Conference Committee Executive Committee Member – PICPA Pittsburgh Chapter Past President – Economic Club of Pittsburgh Tim is a graduate of Grove City College with a B.S. in Accounting.
Biographical Information Paul Melniczak, Partner, Reed Smith LLP 1717 Arch Street, Suite 3100, Philadelphia, PA 19103 215 851 8853 pmelniczak@reedsmith.com Paul joined Reed Smith in 2010 and is a partner in the State Tax Group. Paul assists clients with income, sales, and gross receipts tax issues around the country, including Pennsylvania, Ohio, and New Jersey. Paul is a leader in Reed Smith’s Ohio Tax Practice, which represents numerous taxpayers on a wide-range of Ohio CAT, FIT, and sales tax issues at audit and through the Board of Tax Appeals and Ohio Supreme Court. Paul is a member of the Ohio Bar and is active in the Ohio Chamber of Commerce Tax Committee, as well as the Ohio Tax Conference planning committee. Paul earned his undergraduate degree from Liberty University and his law school degree from Duke University School of Law. He is admitted to practice law in Pennsylvania and Ohio. Prior to joining Reed Smith, Paul worked at another international law firm where he was a member of the firm’s federal tax group. Ashley Rivera, Associate, Reed Smith LLP 1717 Arch Street, Suite 3100, Philadelphia, PA 19103 215 851 8867 arivera@reedsmith.com Ashley joined Reed Smith’s State Tax Group in 2016. She represents multinational companies in matters of state and local tax controversy. Her practice focuses primarily on sales and use taxes, as well as gross receipts taxes, in Pennsylvania and her home state of Washington. Prior to joining Reed Smith, Ashley worked on state tax matters at a Big 4 accounting firm. There, she focused on multistate credit and incentive opportunities from the site selection process to the post-award compliance period. Ashley earned her undergraduate degree from the University of Washington and her law degree and LL.M. from Temple University Beasley School of Law. Ashley has also been a volunteer for the IRS’s Volunteer Income Tax Assistance program for the last 10 years and assists in training other volunteers at Temple Law each year.
Ohio Tax Conference – January 29, 2019 Regional Update: Tax Advice for Companies Doing Business in Pennsylvania and New Jersey Timothy D. Adams, Schneider Downs & Co. Holly Hykes, The Wendy’s Company Paul E. Melniczak, Reed Smith Ashley R. Rivera, Reed Smith
Polling Question • Is your primary area of focus income or sales/use tax? A. Income tax B. Sales/use tax That’s what this presentation is about? C. RESULTS
Agenda • Income Tax • Federal tax reform • Pennsylvania overview • New Jersey tax reform • New Jersey litigation • Sales and Use Tax • Wayfair • Pennsylvania • New Jersey
Polling Question • Did the Tax Cuts and Jobs Act help your business? A. Yes, very much B. Yes, a bit C. Neutral D. Not at all, it was a detriment RESULTS
Federal Tax Reform ‐ New Jersey • Highlights • Legislation permits localities to establish charitable funds that will function as workarounds for SALT cap • Clarifications set forth for state consequences resulting from: • Federal deemed repatriation rules and taxpayer reporting requirements of IRC Sec. 965 • Repeal of federal domestic production activities deduction (DPAD)
Federal Tax Reform ‐ Pennsylvania • Highlights • Clarifications set forth for state consequences resulting from: • Federal deemed repatriation rules and taxpayer reporting requirements of IRC Sec. 965 • Disallowance of depreciation deduction of qualified property under IRC Sec. 168(k) • Legislation permits depreciation under IRC Secs. 167 and 168 as amended (except for 168(k))
Pennsylvania NOL Cap • Nextel • Court severs flat cap, leaves percentage cap • Results in no refund for Nextel in 2007 • But, still not uniform ‐ small taxpayers got benefit of flat cap, statute closed • Open years? Department will not assess. • Remaining question: Does lack of remedy violate due process ( McKesson )? • Current litigation • Dates to remember • ~February 11: Appeal BOA decisions • April 15: File refund claim
Polling Question • Does your company have NOLs in Pennsylvania? A. Yes, and we have a pending NOL cap appeal B. Yes, but we haven’t filed an appeal C. No D. N/A, I’m not an industry professional RESULTS
Pennsylvania Sourcing • Pre‐2014 : COP for “all other receipts” • But, inconsistent application for in‐state vs. out‐of‐state taxpayers • 2014‐forward : Market for services, still COP for all other receipts • Service or intangible? • Hedging : Exclude from factor?
New Jersey Legislative Developments • Amnesty • It’s over! • Additional 5% penalty ( i.e. , a non‐participation penalty) will be added to any tax liabilities not satisfied during the amnesty period
New Jersey Legislative Developments • Dividends Received Deduction (“DRD”) • For tax years beginning after 12/31/16, DRD is reduced from 100% to 95% for 80%‐owned subsidiaries • Relative to deemed dividends included in entire net income resulting from the new DRD provisions, taxpayers should use the lower of their three‐year average apportionment factor (2015‐ 2017) or 3.5%
New Jersey Legislative Developments • Corporation Business Taxes Surtax • For tax years 2018 and 2019, a 2.5% surtax will be imposed on CBT taxpayers with entire net income greater than $1 million; and • For tax years 2020 and 2021, a 1.5% surtax will be imposed.
New Jersey Legislative Developments • Mandatory Unitary Combined Reporting • Effective for tax years beginning on or after 1/1/19 • Combined group is defined as a group of companies with 50% common ownership engaged in a unitary business • A water’s‐edge group election will be the default position unless a world‐ wide unitary or federal affiliated group election is made on the original return
New Jersey Legislative Developments • Market‐Based Sourcing • Beginning 1/1/19, sales of services will be sourced to New Jersey if the benefit of the service is received in New Jersey; • If the benefit is received inside and outside New Jersey, gross receipts will be sourced based on reasonable approximation of benefit received in as compared to outside New Jersey.
New Jersey Legislative Developments • Market‐Based Sourcing • If benefit cannot be determined: • Receipts are sourced to the billing address of an individual customer; or • For a business customer, receipts are sourced to the location where the customer ordered the services, if known, or the customer’s billing address. • Existing sourcing rules relative to intangibles will continue to apply
New Jersey CBT Case Update • Sourcing: Market or COP? • Pre‐2019: “performed within state” • 2019‐forward: Market sourcing • Current regulations: 25:50:25 for certain services • Xpedite : 25:50:25 broadly applied • Bank of America : Benefit received • UPS : Location of equipment • Addback • Unreasonable Exception: look to totality of circumstances ( Beneficial/Morgan Stanley ) • Payee pays tax on income stream • Economic substance/credible non‐tax reasons • Duplicative taxation • Constitutionality • BMC Software : Arm’s length/similarity to third‐party agreements? • Kraft: Pushdown of debt ‐ look to ultimate rate and whether guarantor of third‐party debt
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