ax Ohio T Workshop EE

Ohio Tax
Workshop EE
Basic: Preventing &
Handling Procedural
Problems in Tax Matters
Wednesday, January 29, 2014
11:00 a.m. to 12:30 p.m.
Biographical Information
Thomas M. Zaino, JD, CPA, Managing Member, Zaino Hall & Farrin LLC
41 South High Street, Suite 3600, Columbus, OH 43215
614-349-4810
Mobile: 614-598-1596
tzaino@zhftaxlaw.com
Tom is Managing Member and founder of the Firm. He assists clients with multistate business tax issues
and represents clients before various government agencies. Tom represents many multistate and
multinational companies and their owners and executives, before various state departments of revenue
across the country, as well as before the Ohio Department of Taxation, other federal and state agencies,
municipal tax authorities, the Ohio Board of Tax Appeals and the Ohio General Assembly. Prior to
founding this Firm, Tom was an attorney with a multistate law firm where he served as Chair of the
Multistate Tax Practice Group, as Managing Member of the Columbus Office, and as member of the
Board of Directors.
From 1999 to 2003, Tom served as Ohio Tax Commissioner and a member of the governor’s cabinet. As
Tax Commissioner, Tom led the Ohio Department of Taxation, which is responsible for administering
most state-collected taxes, several locally collected taxes, and for supervising the real property tax. His
role included guiding the development of Ohio’s tax policy through state and federal legislative efforts.
Tom also worked closely with tax administrators in other states as a participant in the Federation of Tax
Administrators, the Multistate Tax Commission and as chair of Ohio's delegation to the Implementing
States Committee of the Streamlined Sales Tax Project.
Prior to his role as Tax Commissioner, Tom was a tax partner at PricewaterhouseCoopers, LLP. At PwC,
Tom represented clients in a wide variety of federal and multistate tax matters. Tom was also a founding
member of the firm’s National VISION Team, a special project management service provided to large
clients to assist in the implementation of significant business process and legal entity changes.
Mitchell A. Newmark, Partner, Morrison & Foerster LLP
1290 Avenue of the Americas New York, NY 10104
mnewmark@mofo.com
212.468.8103
Fax: 212- 903-3675
Mitchell A. Newmark’s practice is concentrated on state and local tax litigation and appeals before
administrative and judicial bodies around the country. Mr. Newmark also advises companies and
individuals with respect to sophisticated transactional matters involving the potential consequences of
complex restructurings, planning transactions, and energy-industry financing transactions regarding all
state and local taxes. He has written extensively in the area of state and local taxation and is also a
frequent lecturer concerning state and local taxes.
Prior to joining Morrison & Foerster, Mr. Newmark was a Deputy Attorney General of the New Jersey
Attorney General’s Office. In this capacity, he defended and counseled the Division of Taxation in
Corporation Business Tax and Gross Income Tax matters. As part of his duties, he also counseled and
defended the Commissioner of Banking and Insurance in complex financial services company
conversions.
Mr. Newmark is a member of the New Jersey Supreme Court Committee on the Tax Court. He is Chair of,
and a member of the Executive Committee of, the Tax Section of the New Jersey Bar Association, and is
a Co-Chair of the State Practice, Procedure and Liaison Committee of the Tax Section of the New Jersey
Bar Association.
Mr. Newmark graduated from Widener University School of Law, cum laude, where he was a board
member of the law review, the Delaware Journal of Corporate Law. He also has an LL.M. in Taxation from
Georgetown University Law Center and an M.B.A. from Rutgers University Graduate School of
Management.
Biographical Information
Mark Sommer, Member, Frost Brown Todd LLC
400 W. Market St. Ste. 3200 Louisville, KY 40202
msommer@fbtlaw.com
502-779-8150
Mark F. Sommer, Esq., is a Partner of the Firm and tax attorney resident in the Louisville office of the law firm of Frost
Brown Todd LLC, where he leads the Firm’s Tax Teams. Now in his 26th year of private practice, Mark's practice focuses on
controversy, litigation and planning relating to tax matters, primarily state and local tax matters and incentives. He has been
involved as counsel in well over a thousand controversies and disputes regarding countless tax issues before the
administrative and judicial systems of numerous jurisdictions, and assisted in hundreds of transactions and planning
situations. Mark is a Fellow in the American College of Tax Counsel, one of only four from the Commonwealth of Kentucky
and also is a recognized “Super Lawyer” in Kentucky. Mark has also been recognized as one of the Best Lawyers in
America for twenty years in Tax Law and Litigation & Controversy - Tax. He serves on several American Bar Association,
Section of Taxation committees and projects, currently serving as Vice-Chair of the Committee on State and Local Tax. He
also serves on the Advisory Boards of the Paul J. Hartman Memorial State and Local Tax Forum at Vanderbilt University,
The Journal of State Taxation, the Deloitte & Touche/University of Wisconsin – Milwaukee Multi-State Tax Forum, the
Bloomberg BNA Multistate Tax Advisory Council, and the Multistate Tax Guide. Mr. Sommer has written extensively in the
area of state and local taxation. His articles have appeared in numerous publications, including several Institute for
Professionals in Taxation (IPT) publications, authoring the Kentucky Chapter of the ABA’s Property Tax Deskbook, various
Council on State Taxation (COST) publications, State Tax Notes, The Journal of State Taxation, Tax Notes, The Journal of
Property Taxation, Bloomberg BNA’s Multistate Tax Advisor, The Tax Lawyer, and still many others. He also was the
Contributing Editor for CCH’s Guidebook to Kentucky Taxes (all editions), and serves as General Editor of Lexis Nexis Tax
Practice Insights for Kentucky. Mr. Sommer is a frequent speaker and lecturer on state and local tax matters at
conferences, forums and groups such as IPT, Hartman SALT Forum, Deloitte & Touche Multi-State Tax Institute, Kentucky
Society of CPAs, COST, Tax Executives Institute, Georgetown’s State and Local Tax Conference, Ohio Tax Conference,
Kentucky Bar Association, Louisville Bar Association, and the American Bar Association. Mr. Sommer previously served as
Chair of the SEATA Industry Council and also as a Director and Vice-Chairman of the Kentucky Lottery Corporation. Mr.
Sommer obtained his JD from the University of Cincinnati College of Law and his BSBA from Xavier University.
Michael A. Grim, Partner, Team Leader-State & Local Tax,
Bingham Greenebaum Doll, 101 S. 5th St. Louisville, KY 40202
mgrim@bgdlegal.com
502-587-3696
Michael A. Grim is a partner in the Louisville office of Bingham Greenebaum Doll LLP, where he practices in the Tax and
Finance Practice Group. His practice focuses on controversy, litigation and planning relating to federal, state and local tax
matters. In addition, Mike is the Team Leader for the firm’s State & Local Tax Team and Aviation Services Team, as well a
member of the firm’s Federal Tax Team. He is licensed to practice in Kentucky and Indiana.
Mike’s tax practice includes resolving disputes with state and local tax authorities (e.g., Kentucky Department of Revenue,
Indiana Department of Revenue, Louisville Metro Revenue Commission, etc.) involving state
& local income, gross receipts, sales and use, real and tangible personal property and various excise taxes. He also works
with clients to resolve disputes with various federal administrative agencies including the Internal Revenue Service (IRS),
U.S. Customs & Border Patrol (CBP), and the Federal Aviation Administration (FAA). Prior to joining Bingham Greenebaum
Doll LLP, Mike worked for United Parcel Service for nearly 20 years. During which time, Mike was the Tax Director for the
UPS Airline, as well as UPS’s Airline Contracts Division Manager. As the Airline Tax Director, Mike had responsibility for all
worldwide tax matters related to UPS's airline operations, including international, federal, state and local tax issues. This
background and experience provided Mike some unique insight in working with large, multi-national companies with very
complex tax issues, which he brings to bear in dealing with clients’ matters.
As the Airline Contracts Division Manager, Mike had responsibility for all contracts related to aircraft acquisitions, operations
and dispositions. Significant deals included acquisition of Airbus A300s, Boeing 767s, Boeing 747-400s, MD-11s. In
addition, Mike had responsibility for various engine agreements with a variety of manufacturers such as General Electric,
Pratt & Whitney and Rolls-Royce. Since joining Bingham Greenebaum Doll, Mike has worked with clients on a variety of
aircraft acquisitions involving various regional and small jet and turbo prop aircraft including Embraers, Lears, Gulfstreams,
Bombardier and Fractional interests. Mike also has extensive experience in aviation insurance-related matters, having
worked with UPS's aviation insurance brokers and underwriters on various claim-related incidents. In sum, Mike is able to
assist in navigating the myriad tax, legal and regulatory issues unique to aircraft ownership and/or operations, including
aircraft acquisition/disposition, aircraft operation and ownership, aircraft-specific tax matters, and insurance matters.
Education
 Indiana University Southeast, B.A., 1991
 Indiana University Southeast, M.B.A., 1997
Preventing and Handling Procedural Problems in Tax Matters
23nd Annual Ohio Tax Conference
January 28‐29, 2014
Columbus, Ohio
Michael A. Grim
Partner & Chair, State & Local Tax Team
Mitchell A. Newmark
Partner
Mark F. Sommer
Member & Tax Teams Leader
Thomas Zaino
Managing Member
Presenters
MICHAEL A. GRIM, ESQ.
MITCHELL A. NEWMARK, ESQ.
Partner and Chair, State & Local Tax Partner
Bingham Greenebaum Doll LLP
101 South Fifth Street 3500 National City Tower Louisville, KY 40202
Morrison & Foerster LLP 1290 Avenue of the Americas
New York, NY 10104
(502) 587‐3696 – Phone
mgrim@bgdlegal.com ‐ E‐mail (212) 468‐8103 – Phone
mnewmark@mofo.com – E‐mail
Presenters
MARK F. SOMMER, ESQ.
THOMAS ZAINO, ESQ., CPA
Member & Tax Teams Leader
Managing Member
Frost Brown Todd LLC
400 West Market Street, Suite 3200
Louisville, KY 40202
Zaino Hall & Farrin LLC
41 South High Street, Suite 3600
Columbus, Ohio 43215
(502) 779‐8150 – Phone
msommer@fbtlaw.com ‐ E‐mail (614) 349‐4810 – Phone
tzaino@zhftaxlaw.com – E‐mail
Overview
Discussion of Key Steps in the SALT Controversy Process
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•
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•
•
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Audit
Assessment
Refund Claims
Administrative Appeal
Protest Conference
Appeal to an Independent Board of Tax
Appeals or Tax Court
4
Audit
Documentation & Recordkeeping Issues
•
•
As part of the audit preparation and compliance processes,
taxpayers should accurately assess potential documentation
& recordkeeping issues, and continue to do so through
completion.
Potential options to missing or poor records:
• Sampling (Our Time Inc. v. Testa, No. 2011‐4719 (OBTA
Dec. 5, 2013))
• Consistent treatment in past audit(s) or business conduct
• Third parties (vendors, customers, etc.)
• Must also be aware of disclosure issues (e.g., HIPPA
violations)
5
Audit
Documentation & Recordkeeping Issues
•
Address Confidentiality or Privilege Issues:
•
•
•
•
Proprietary information and trade secrets
Attorney‐client privileged communications
Accountant‐client privileged communications
Attorney work product protections
6
Audit
Statute of Limitations Extensions & Jeopardy Assessments
•
•
Taxpayers should carefully considered whether to extend the
statute of limitations in tax matters.
Some considerations include:
• Age of audit period (and with it availability of proof);
• Nature of audit (income, sales/use, property);
• Number of years subject to SOL in the audit period;
• Prior experience with state or locality conducting audit;
• Novel or unique positions versus recurring issues;
• Jeopardy assessments;
• Potential impact on tax reserves
7
Audit
Dealing with the so‐called “Rogue” Auditor
•
Gilbert Hyatt v. Franchise Tax Bd. Of California, 210 P.3d
735 (Nevada 2007):
• Background and context: FTB agents rummaged
through taxpayer’s trash without warrants, visited
business associates, and shared his personal
information (including SSN) with the media.
•
How to best deal with “rogue” auditors
8
Audit
Inconsistent Enforcement or Policy Positions by DOR
•
•
•
In theory, every audit stands on its own.
Notwithstanding, there should be some consistency in audits
conducted assuming no change in the taxpayer’s business and
no subsequent change in the underlying law.
Some suggestions:
• Review prior audits/protests (or pursue same with DOR
from their files) for positions raised therein
• Where appropriate, discuss prior audits/findings with the
newly assigned auditor
• If there is an impasse on a matter, discuss with auditor’s
supervisor and/or department divisional manager
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Assessments
Revenue Auditors Report
• Request the opportunity to resolve dispute before auditor
finalizes Department’s position on matter
• May request a meeting between field auditor’s supervisor
• Might result in resolution of issues prior to “administrative
appeal”
• Taxpayers should carefully scrutinize RAR to ensure that
agreed adjustments have been made AND whether there is
any mathematical or other errors.
10
Assessments
Burdens of Proof
• Generally speaking, regardless of jurisdiction, an
assessment is deemed accurate and the taxpayer has
the burden of proof
• Ind. Dep’t of Revenue v. Rent‐A‐Center East, 963
N.E.2d 463 (Ind. Mar. 9, 2012), rev’g 952 N.E.2d 387
(Ind. Tax Ct. 2011) (notice of proposed assessment
issued by the Department, based on reasonable
belief was prima facie evidence that the assessment
was valid, with the burden of proving the proposed
assessment incorrect resting with the taxpayer
against whom the assessment was made)
11
Assessments
Burdens of Proof – Alternative Apportionment
• Disturbing trend in alternative apportionment at audit:
• Indiana LOF No. 02‐20120134 (Aug. 29, 2012) (IDOR
concluded that the standard method of apportionment
“did not fairly represent Taxpayer’s Indiana source
income,” and alternatively calculated the company’s
income using a “stacked” or “separate accounting”
method in accordance with Indiana’s UDITPA section 18
equivalent statute, IC § 6‐3‐2‐2(l))
• Bellsouth Adver. & Publ. Corp. v. Chumley, 308 S.W.3d 350
(Tenn. Ct. App. 2009) (Court allowed Commissioner to
impose an alternative apportionment method to
advertising revenue earned by taxpayer)
12
Administrative Appeals
Perfecting the Administrative Protest
•
•
Protest period – important to review notice of
assessments when received to ensure the proper protest
period is identified
Pros/cons of various delivery methods:
• Hand delivery;
• Certified mail (RRR);
• First class mail;
• Express carrier (P.O. Boxes);
• E‐mail/fax
13
General Administrative Appeals Process 14
Administrative Appeals
Ohio Guidelines
•
•
•
•
Protest must be filed with the Tax Commissioner within 60
days after service of an assessment (Ohio Rev. Code Sec.
5739.13)
Taxpayer is not required to pay the taxes at time of protest
Protest should be in writing, along with the taxpayer’s
information and the basis for the objections to the
assessment
Any objections not stated in the petition or raised prior to
the issuance of a final determination are deemed waived.
15
Administrative Appeals
Indiana Guidelines
•
•
•
Protest must be filed with the Department of Revenue
within 60 days of the date of the mailing of notice of
proposed assessment (Ind. Code Sec. 6‐8.1‐5‐1)
Taxpayer is not required to pay the taxes at time of protest
(Ind. Code Sec. 6‐8.1‐5‐1(c))
Protest should be in writing, along with the taxpayer’s
information and the basis for the objections to the
assessment (45 Ind. Admin. Code Sec. 15‐5‐2)
16
Administrative Appeals
Kentucky Guidelines
•
•
•
•
Protest must be filed with the Department of Revenue
within 45 days of the date of the mailing of notice of
proposed assessment (KRS 131.110(1))
Taxpayer is not required to pay the taxes at time of protest
Protest should be in writing, along with the taxpayer’s
information and the basis for the objections to the
assessment (taxpayer need not raise all issues at the
Department level)
As a general rule, the Department of Revenue will grant a
short extension of time to provide supporting statement.
17
Administrative Protest
Perfecting the Administrative Protest
•
•
•
•
•
Short form protest versus detailed protest
Advantages/disadvantages of filing supporting statement
or supplemental supporting statement after protest
Use of “sunshine,” “FOIA,” or open records requests
Failure to protest all issues
Protective refunds (general versus specific), etc.
18
Administrative Protest
“Blown” Protest
•
Various options when there is a “blown” protest:
• Pay the tax and file a refund claim (time period for filing
refund claim varies by state and by type of tax)
• Dep’t of Revenue v. Cox Interior, Inc., No. 2010‐SC‐794‐D
(Ky. 2013) (taxpayer entitled to a refund of property tax
assessment despite its failure to protest the assessment
prior to paying the taxes at issue)
• Protest the “demand” notice when received from collections
• Request collection “hold” if similar issues are pending in
other periods or protests
• Advance refund claims to offset asserted liability
19
Administrative Protest
Protest Conference
•
•
•
Failure of the DOR to act on a protest (undue delay) and
increased interest as a result
Pros/cons of face‐to‐face protest conferences versus
telephonic or video protest conferences
• Cost
• Development of issues
• Relationship issues
Who should participate in the protest conference?
• Taxpayer (tax person versus non‐tax person)?
• CPA?
• Attorney?
20
Administrative Protest
Post‐Protest Conference
•
•
•
Filing of supplemental supporting statement
• Another “bite at the apple” (expound, clarify and/or
add new issues)
Settlement offer considerations
• Hazards of litigation
• Certainty for future audit periods
• Non‐recurring nature of issue
Request final ruling or final determination
• What happens if DOR refuses to issue final ruling or
final determination?
21
Refund Claims
Process may differ from assessments
• Identify time period for refund claim:
• Gibson v. Ind. Dep’t of Revenue, No. 49T10‐1204‐TA‐20
(Ind. Tax Ct., 2012) (taxpayer’s refund request was properly
denied when it was filed 11 days past the 3 year statutory
deadline for refunds claims)
• Focus on potential statute of limitations whipsaw
22
Refund Claims
Process may differ from assessments
• Varies by state & type of tax, but generally based on period
from payment of tax, for example in Sales & Use Tax, periods
are:
• Ohio (4 years); Indiana (3 years); Kentucky (4 years)
• Other options – for example in Indiana may appeal non‐
determination to Tax Court after 180 days.
• Issue of cash refund claim versus claim for equitable
recoupment or offset.
23
Appeal to an Independent Board of Tax Appeals or Tax Court
Blown Appeal Options
•
There may be few options when there is a “blown”
petition/complaint:
• Pay the tax and file a refund claim (availability and time
period for filing refund claim varies by state and by type
of tax)
• Harry’s Lobster House v. Director, NJ Division of Taxation,
NJ Tax Court (2006), aff’d App. Div. (2007), certification
denied (2007) (Tax Court has no jurisdiction to hear late‐
filed complaint from final determination notwithstanding
purported agreement between taxpayer and Division of
Taxation to re‐audit)
24
Appeal to an Independent Board of Tax Appeals or Tax Court
Some important considerations…..
•
Identify the period of time for appeal of the final ruling or
final determination:
• Ohio ‐ 60 days from the receipt of the final
determination to appeal to Ohio Board of Tax Appeals
• Indiana – 180 days from date of protest denial to
appeal to Indiana Tax Court
• Kentucky – 30 days from the date of the final ruling to
appeal to Kentucky Board of Tax Appeals
25
Appeal to an Independent Board of Tax Appeals or Tax Court
Some important considerations…..
•
•
•
•
•
•
Identify whether an attorney is necessary for appeal
Where is record developed (at prior administrative level or
BTA/Tax Court level)?
Is review of administrative determination de novo or some
lesser standard?
Can new theories/basis of objection be added at this level?
Filing of appeal may aid in resolution/settlement of certain
matters due to hazards of litigation
• In some states, AG’s office may be able to be more
flexible in terms of settlement positions
Public versus private nature of proceeding.
26
Actions Outside Administrative Process
When should you by‐pass the administrative process?
•
•
When is it appropriate to file a declaratory judgment action or
writ of mandamus?
• Meadows Health Systems East, Inc. v. Louisville‐Jefferson
Co. Metro Revenue Comm’n, 375 S.W.3d 71 (Ky. App. Aug.
3, 2012)
Constitutional questions might need to be filed directly with
state court and by‐pass tax executive branch board or tax
court
• AT&T Corp. v. Commonwealth of Kentucky, No. 2012‐CA‐
001813‐MR (Ky. App. Nov. 15, 2013)
27
In Sum…..
•
•
Watch your step at each level and get help if you are unsure.
Questions, comments, war stories?
28
Michael A. Grim, Esq.
Mitchell A. Newmark, Esq.
Partner and Chair, State and Local Tax
mgrim@bgdlega.com
Partner mnewmark@mofo.com
Mark F. Sommer, Esq.
Thomas Zaino, Esq., CPA
Member & Tax Teams Leader
msommer@fbtlaw.com
Managing Member
tzaino@zhftaxlaw.com
29