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State Business Taxes

edited and co-authored Walter Nagel, with Contributing Authors

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When does a business have a sufficient nexus with a state for sales tax purposes? Why are certain sales and use tax returns singled out for audit? Written by leading private sector and government attorneys, State Business Taxes answers these questions and many others. It will help corporate, tax and trial counsel and accountants deal with all aspects of state tax matters, from constitutional issues to the taxation of digital goods.

State Business Taxes discusses the six types of state taxes affecting businesses: income, franchise, sales, use, property, and unclaimed property. It also addresses topics relevant to all types of taxation: audits, appeals and legal challenges. Whether you are computing your client's state taxable income or litigating a commerce clause issue, this thorough and practical guide helps you master the rules and the exceptions.

State Business Taxes examines representative statutes, regulations, and leading cases from coast-to-coast, making it useful in every jurisdiction. It will help you give expert counsel advice to business clients on virtually any state tax matter that may arise.

Book #00699; looseleaf, one volume, approximately 566 pages; published in 2009, updated as needed; no additional charge for updates during your subscription. Looseleaf print subscribers receive supplements. The online edition is updated automatically. ISBN: 978-1-58852-161-3

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  • Brand: Law Journal Press
  • Product Type: Books
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  • Page Count: 566
  • ISBN: 978-1-58852-161-3
  • Pub#/SKU#: 699
  • Volume(s): 1

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  • Walter Nagel

Walter Nagel is a Partner with Crowell & Moring LLP resident in the Washington D.C. office. Mr. Nagel represents well known clients on tax and business matters, including multi-million dollar controversies. He is a past Chair of the American Bar Association State & Local Tax Committee, a former member of the District of Columbia Tax Revision Commission, and on governors task forces in New York and Virginia. He also served as counsel to the United States Advisory Commission on Electronic Commerce, and represented the American Bar Association on the steering committee of the National Tax Association Communications and Electronic Commerce Tax Project. Mr. Nagel was chief tax executive for MCI Communications where he held the title of Vice President and General Tax Counsel and previously held tax management positions at TWA and AT&T. He was president of Peracon, an on-line commercial real estate portfolio company. Mr. Nagel has authored or co-authored dozens of published works, including the law school textbook Leading U.S. Supreme Court State Tax Cases, and has lectured extensively. He has served as chair of various continuing legal education programs of the Georgetown University Law Center and on the advisory boards of several legal publications. Mr. Nagel has a B.A. from Rutgers College, a M.B.A. from Rutgers School of Business, a J.D. from Rutgers University School of Law and an LL.M. from Georgetown University Law Center. Mr. Nagel is admitted to practice law in the District of Columbia, New Jersey and before the U.S. Supreme Court.


Also by Walter Nagel:
Mutual Funds: Law and Practice


Author Image
  • with Contributing Authors

John A. Biek (author Chapter 6 Unclaimed Property) is a partner with Neal, Gerber & Eisenberg LLP in their Chicago office where he devotes a substantial part of his practice to representing and advising clients in a broad range of industries with complex multistate unclaimed property audits, litigation, voluntary disclosure and transactional matters. Mr. Biek is an adjunct professor of law in the IIT Chicago-Kent College of Law Graduate Tax Program. He currently serves as the chair of the Unclaimed Property Subcommittee of the American Bar Association Tax Section’s State & Local Tax Committee. He is also a frequent speaker and author on state tax and unclaimed property issues. Mr. Biek has a B.S. from Yale University and is admitted to practice law in Illinois and Ohio.

Richard W. Bell (co-author Chapter 5 Property Taxes) is the managing member of the Atlanta office of Richard W. Bell, LLC, where his business practice focuses on state and local taxation. Formerly Senior Tax Counsel for BellSouth Corporation he advises clients on a wide variety of multi-state planning and controversy issues. Mr. Bell speaks frequently on state and local tax issues

Kevin Hennessy (co-author Chapter 8 Audits) is the Director of Tax at Feld Entertainment, Inc., the largest producer of live family entertainment in the world, where he oversees domestic and international tax issues. Mr. Hennessy held a variety of management positions at MCI Communications in income, consumption, and property taxes. Prior to MCI Mr. Hennessy worked at PriceWaterhouseCoopers. Mr. Hennessy is admitted to practice law in the District of Columbia and is a CPA.

Lindsay M. LaCava (co-author Chapter 9 Appeals) is an associate in the law firm of McDermott Will & Emery LLP based in the firm’s New York office where her practice focuses on state and local taxation. Ms. LaCava is admitted to practice law in New York, Connecticut, and the United States Tax Court.

James W. McBride (co-author Chapter 5 Property Taxes) is a shareholder in the Washington, D.C. office of Baker, Donelson, Bearman, Caldwell, & Berkowitz, P.C. where he is senior counsel leading a group of lawyers that maintain a nationwide practice in the state and local tax area. That group has represented taxpayers in numerous states on a wide range of tax issues before a number of different agencies and tribunals. Mr. McBride has spoken and written extensively on state and local tax matters.

David Mahida (co-author Chapter 8 Audits) is an Executive Director responsible for tax research and planning with Verizon Wireless in New Jersey. Mr. Mahida is a CPA with a Master of Science in taxation from Walsh College of Accountancy and Business Administration in Troy, Michigan.

Douglas A. Richards (co-author Chapter 10 Constitutional Limitations on State Taxation) is the Senior Vice President, Tax for Level 3 Communications, LLC where he is responsible for all corporate tax matters. Mr. Richards is admitted to practice law in Ohio and Virginia.

Arthur R. Rosen (co-author Chapter 4 Sales and Use Taxes and Chapter 9 Appeals) is a partner in the New York City office of McDermott Will & Emery LLP, from where he chairs the firm’s nationwide state and local tax practice. His practice focuses on tax planning and litigation relating to state and local tax matters for corporations, partnerships, and individuals. Mr. Rosen is a Fellow of the American College of Tax Counsel and is listed in the Best Lawyers in America and in the Best Lawyers in New York. Mr. Rosen is the editor of the monthly newsletter Inside New York Taxes, co-editor of the semi-monthly newsletters New York Tax Highlights and New York Tax Cases; he was the original editor-in-chief of CCH’s E-Commerce Tax Alert, and was the monthly tax columnist for the E-Commerce Law Journal

William Ruehl (co-author Chapter 4 Sales and Use Taxes) is an associate in the New York office of the law firm of Alston & Bird LLP. His practice focuses on state and local taxation. Mr. Ruehl is a faculty member for the Institute for Professionals in Taxation Advanced and Basic State Income Tax Schools. He is admitted to practice law in New York and Connecticut.

Leah (Samit) Robinson (co-author Chapter 9 Appeals) is an attorney in the New York office of the law firm of McDermott Will & Emery LLP where she focuses on state and local taxation. Ms. Robinson assists her clients in all phases of state tax controversies and also provides extensive guidance related to FIN 48 and the related attorney-client privilege and work product doctrine concerns. Prior to joining McDermott, Ms. Robinson worked at the IRS Office of Chief Counsel in Manhattan where she was a member of the strategic trial attorney litigation team handling the largest transfer pricing controversy in history.

Shirley Klenda Sicilian (author Chapter 2 Income Taxes) is General Counsel for the Multistate Tax Commission (MTC), an inter-governmental agency whose membership includes forty-seven states and the District of Columbia. She is responsible for supporting the MTC in its development of model regulations interpreting the Multi-state Tax Compact, which incorporates the Uniform Division of Income for Tax Purposes Act. Prior to her employment with the MTC, Ms. Sicilian was General Counsel and Director of Policy & Research for the Kansas Department of Revenue, where she also served as the Department’s legislative representative. Ms. Sicilian is admitted to practice law in Kansas.

Michael Shaikh (co-author Chapter 4 Sales and Use Taxes) is an associate in the law firm of McDermott Will & Emery LLP based in the Firm’s Silicon Valley office where his practice focuses on state and local tax. Mr. Shaikh is admitted to practice law in California.

The views expressed herein are those of the editor and/or the individual authors and do not necessarily reflect the views of any organization nor client with whom they are, may have been, or will be associated. This work does not constitute legal advice.


CHAPTER 1
Introduction

§ 1.01 The Significance of State Taxes to the Economy
§ 1.02 Discussions and Authorities

CHAPTER 2
State Corporate Income Tax Laws

§ 2.01 Brief History and Overview
[1] Corporations and the Federal Corporate Income Tax
[2] State Corporate Income Taxes
§ 2.02 Federal Constitutional Provisions Applicable to State Corporate Income Taxes
[1] Due Process Clause and Commerce Clauses
[2] Foreign Commerce Clause
[3] Other Constitutional Parameters
§ 2.02A Federal Statutory Provisions Applicable to State Corporate Income Taxes
§ 2.03 Summary Computation of State Corporate Income Tax
§ 2.04 The State Tax Base
[1] Starting with Federal Taxable Income
[2] Some Common State Modifications
§ 2.05 Apportionment and Allocation Principles
[1] Overview
[2] The Unitary Business Principle
§ 2.06 Formulary Apportionment
[1] Apportionment Under the Uniform Division of Income for Tax Purposes Act (UDITPA)
[2] UDITPA Formula
[3] Property Factor
[4] Payroll Factor
[5] Sales Factor
[6] Deviations from the Standard Formula: Distortion Relief
§ 2.07 Income Subject to Apportionment
[1] Constitutional Test: Unitary Income
[2] UDITPA: Business Income
[3] Other Statutory Tests for Apportionable Income
[4] Expenses
§ 2.08 Combined Reporting
[1] Overview
[2] Mechanics of Combined Reporting
§ 2.09 Allocation of Non-Business Income
§ 2.10 Special State Situations
[1]  Introduction
[2] Michigan
[3]  Texas
[4]  Ohio

CHAPTER 3
Franchise Taxes

§ 3.01 Introduction
§ 3.02 Scope of Franchise Taxes
[1] Tax Base
[2] Valuation
[3] Domestic and Out-of-State Corporations
[4] Minimum Tax
[5] Maximum Tax
§ 3.03 Allocation and Apportionment of Franchise Tax Base
§ 3.04 The Inclusion of Related Party Value and Ratios
[1] The Unitary Business
[2] Limited Liability Companies

CHAPTER 4
Sales and Use Tax

§ 4.01 General Background
§ 4.02 Basis of Sales Tax
[1] Definition of Sale
[2] Taxable Items
[3] Measure of Tax in Specific Circumstances
[4] Legal vs. Economic Incidence of Tax
§ 4.03 Sales Tax Exemptions
[1] Exempt Entities
[2] Exempt Property
[3] Exempt Transactions
[4] Exemption Certificates
§ 4.04 Collection Obligations
[1] Registration Requirement
[2] Remittance Requirement
[3] Personal Liability
[4] Procurement Cards
§ 4.05 Multistate Transactions
§ 4.06 Use Tax
[1] Basis of Use Tax
[2] Property Used in State Without Charge
[3] Self-Produced Property
[4] Property in State Temporarily
§ 4.07 Remote Sellers
[1] The Physical Presence Requirement
[2] Internet Sales
[3] Drop Shipments
§ 4.08 Streamlined Sales and Use Tax Agreement
[1] Centralized Registration
[2] Uniform Product Definitions
[3] Uniform Administrative Definitions
[4] Uniform Sourcing Rules
[5] Exemption Certificates
[6] Single State Rate for the Entire Tax Base
[7] Centralized Administration
[8] Local Tax Base Conformity
[9] Elimination of Caps and Thresholds
[10] Uniform Procedures
[11] Certified Service Providers and Certified Software

CHAPTER 5
Property Taxes

§ 5.01 Introduction
§ 5.02 The Property Tax Cycle
[1] Lien Date
[2] Returns, Exemptions and Tax Incentives
[3] Property Appraiser Review
[4] Audits and Reassessments of Property
[5] Assessment Notice to Property Owner
[6] Highest and Best Use
[7] Equalization of Tax Rolls
[8] Assessment of Public Utilities, Airlines and Railroads
§ 5.03 Issues on Appeal
[1] Classification of Property
[2] Real Property
[3] Natural Subsurface Improvements
[4] Tangible Personal Property
[5] Inventory
[6] Intangible Property
[7] Leased Property
§ 5.04 Valuation
[1] Estimating Property Fair Market Value
[2] Market Approach
[4] Income Method
[5] Obsolescence
[6] Selecting the Proper Method
§ 5.05 Appeals
[1] Developing an Appeal Strategy
[2] Expect Data Requests
[3] Evidence
[4] Appraisals
[5] Factors to Consider Before Taking an Appeal
[6] Notice of Appeal
[7] Informal Conference
[8] Administrative Appeals
[9] Administrative Hearings
[10] Board Decisions
[11] Final Assessment and Payment of Taxes
§ 5.06 Litigation
[1] Presumption of Correctness and Burden Of Proof
[2] Equitable Jurisdiction
[3] Class Action Suits
§ 5.07 Tax Injunction Act
§ 5.08 The Railroad Revitalization and Regulatory Reform Act of 1976

CHAPTER 6
Unclaimed Property

§ 6.01 Introduction
[1] What Are Unclaimed Property Laws?
[2] Purposes of Unclaimed Property Laws
[3] The Uniform Acts
§ 6.02 Types of Unclaimed Property
[1] Broad Application of State Abandoned Property Laws
[2] Definitions of “Property” in the Uniform Acts
[3] “Anti-Limitations” or “Private Escheat” Provisions
[4] Problematic Types of Holder Liabilities
§ 6.03 Statutory Dormancy Periods
[1] Uniform Act Recommendations
[2] Contact with Holder Restarts the Dormancy Period
§ 6.04 Priority Rules for Identifying Which State May Claim Custody of Property
[1] Background: The Supreme Court’s Unworkable Due Process Jurisdictional Standard
[2] The Texas v. New Jersey Priority Rules
[3] The Continued Applicability of the Texas v. New Jersey Priority Rules
[4] The Uniform Act Priority Rule Provisions
[5] Unresolved Priority Rule Issues
§ 6.05 Unclaimed Property Exemptions
[1] Gift Certificates and Gift Cards
[2] Business-to-Business Exemptions
[3] Foreign Transactions
[4] Special Exemptions
§ 6.06 Holder Reporting of Unclaimed Property
[1] Holder Monitoring of Outstanding Liabilities [2] Due Diligence Letters
[3] Holder Annual Reports
[4] The Holder’s Delivery of Unclaimed Property to the State and Indemnification by the State
[5] State Notification of Owners of Unclaimed Property Delivered to the State
[6] State Refunds of Unclaimed Property
§ 6.07 State Audits of Holders
[1] Limitations Periods—Statute of Limitations
[2] The State Auditor’s Use of Estimations of the Holder’s Liability
[3] Contract State Auditors
[4] Interest and Penalties

CHAPTER 7
Taxation of Digital Products

§ 7.01 Introduction
§ 7.02 Policy Implications
§ 7.03 Definition of Digital Products
§ 7.04 Applying Existing Taxation to Digital Goods
[1] Sales and Use Taxes
[2] Income Taxes
[3] A Nuanced Approach
§ 7.05 Specific Digital Products
[1] Satellite Radio
[2] Satellite Television
[3] Music Downloads
[4] E-Books
[5] Movie Downloads
[6] Ringtones
[7] Bricks and Mortar Stores with Virtual Siblings
[8] On-Line (Internet) Travel Sites
§ 7.06 The Internet Tax Freedom Acts
[1] The Various Internet Tax Acts
[2] Protections from Taxation
§ 7.07 The Streamlined Sales and Use tax Agreement or SSTP
[1] Digital Products and Specified Digital Products
[2] Key SSTP Terms
§ 7.08 Traditional Protections
[1] Public Law 86-272
[2] Constitutional Defenses
[3] New York’s Amazon Tax

CHAPTER 8
Audits

§ 8.01 Introduction
[1] General Background
[2] Alternatives
§ 8.02 Statute of Limitations
[1] Assessment
[2] Refund Claims
[3] Extended Statute
[4] Net Operating Losses
§ 8.03 Selection Criteria
[1] Resulting from IRS Audit
[2] Random Selection and Other Selection Criteria
[3] Information Sharing Among States and by the Federal Government
§ 8.04 Conduct of Audit
[1] Agreeing to the Scope of Audit
[2] Timetable
[3] Considerations Related to Extending the Statute of Limitations
[4] Knowing the Law and Rulings
[5] Responding to Auditor Requests on a Timely Basis
[6] Special Situations
[7] Interrelated Audits
[8] Affirmative Claims and Offsets
[9] Reaching a Negotiated Settlement
[10] Interest and Penalties
[11] Notice of Deficiency
§ 8.05 Burden of Proof
[1] Sales and Use Taxes
[2] Income Taxes
[3] Property Taxes
§ 8.06 Documentation
[1] Adequacy
[2] Statistical Sampling
§ 8.07 Exemption Certificates in Sales/Use Taxes
[1] Acceptance in Good Faith
[2] Proper Completion
[3] Time Period for Providing
[4] Property Temporarily in State

CHAPTER 9
Appeals

§ 9.01 Introduction
§ 9.02 Assessments
[1] Notice of Deficiency or Refund Denial
[2] Protesting a Notice of Deficiency or Refund Denial
[3] Statute of Limitations
[4] Accrual of Interest During Appeals Process
§ 9.03 Informal Appeals
[1] Forum
[2] Scope of Review and Burden of Proof
[3] Process
[4] Decisions
[5] Forum Selection
§ 9.04 Formal Appeals
[1] Forums: Administrative vs. Judicial
[2] Requirements for Review
[3] Special Forums and Procedures for Small Cases
[4] Process
[5] Decisions
§ 9.05 Appeals Following Tax Court
[1] State Appellate Courts
[2] State Highest Appellate Courts
§ 9.06 United States Supreme Court
[1] Petitions for Certiorari
[2] Certiorari Review
[3] Supreme Court’s Decision

CHAPTER 10
Constitutional Limitations on State Taxation

§ 10.01 The Importance of U.S. Constitutional Limitations
[1] Principal U.S. Constitutional Provisions Affecting State Taxation
[2] Choice of Forum: State or Federal Court
[3] The Role of the U.S. Supreme
[4] The Rarity of U.S. Supreme Court Review
§ 10.02 The Commerce Clause
[1] The Literal Commerce Clause
[2] The Broad Reach of the Commerce Clause
[3] Complete Auto and the Court’s Analytical Framework of the Commerce Clause
[4] The Nexus Requirement
[5] The No Discrimination Requirement
[6] The Fair Apportionment Requirement
[7] Fair Relationship of Tax to Services Provided by a State
§ 10.03 The Equal Protection Clause
[1] The Literal Equal Protection Clause
[2] The Level of Scrutiny Accorded State Tax Laws
[3] Property Valuation
[4] Competing Products or Services
[5] Classifications Based on Residency
[6] Purposeful Discrimination
§ 10.04 The Due Process Clause
[1] The Literal Due Process Clause
[2] In General
[3] Substantive Due Process
[4] Procedural Due Process
§ 10.05 The First Amendment
[1] The Literal First Amendment Clause
[2] In General
[3] Circulation Based Taxes
[4] Content Based Taxes
[5] Technology Based Distinctions
[6] Allegations of Discrimination Against Religion
§ 10.06 The Privileges and Immunity Clauses
[1] The Literal Interstate Privileges Clause
[2] The Literal Fourteenth Amendment Privileges Clause
[3] Comparing the Two Clauses
[4] The Modern Standard
§ 10.07 The Import/Export Clause
[1] The Literal Import/Export Clause
[2] In General
[3] Goods in Transit
[4] Cargo Handling Activities
§ 10.08 The Supremacy Clause
[1] The Literal Supremacy Clause
[2] In General
[3] Government Contractors
[4] Prohibition Against Discriminatory Taxes

CHAPTER 11
Taxes on Communications Services

§ 11.01 Introduction
[1] Terminology
[2] Industry History
[3] Industry Scope
§ 11.02 Communications/Telecommunications
[1] Definition
[2] Industry Participants
[3] Definition
[4] Industry Participants
[5] Types of Services
§ 11.03 Federal Restrictions
[1] Constitutional Restrictions in General
[2] Supreme Court Restrictions
[3] Mobile Telecommunications Sourcing Act
§ 11.04 Application of Various Taxes
§ 11.05 Bundling
§ 11.06 Problem Situations
[1] Class Action Lawsuits
[2] Actions on Behalf of the Government: Qui Tam

CHAPTER 12
Amnesty and Voluntary Disclosure Programs

§ 12.01 Introduction
[1] Overview of Programs
[2] Introduction to Amnesty Programs
[3] Introduction to Voluntary Disclosure Programs
[4] Scope of Programs
[5] Principal Taxpayer Benefits
§ 12.02 Amnesty Programs
[1] Overview of Amnesty Programs
[2] Amnesty Programs Common During Recession or in Advance of New Penalties, Tax Regimes
[3] Long Term Value of Successive Amnesty Programs Is Questionable
[4] Program Mechanics, Limitations and Benefits
[5] Taxpayer Concessions of Liability; Waiving Appeal Rights
§ 12.03 Voluntary Disclosure Programs
[1] Distinguishing Voluntary Disclosure Programs from Amnesty Programs
[2] Applying for and Negotiating a Voluntary Disclosure Agreement
[3] Variations in Program Eligibility and Benefits
[4] Taxpayer Concessions and Risks
§ 12.04 Other Voluntary Compliance Initiatives

Appendix
Index