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Noonan’s Notes Blog

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Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York and multistate tax law. Noonan's Notes Blog is a winner of CreditDonkey's Best Tax Blogs Award 2017.

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Timothy Noonan 
Ariele Doolittle
Joseph Endres
Daniel Kelly
Elizabeth Pascal 
Craig Reilly
Andrew Wright 

Showing 3 posts in Multistate Matters.

Drips and Drops on Taxing Hedge Fund Managers’ Deferred Comp

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For years, there have been whispers about a big 2017 tax issue for hedge-fund managers. What’s the deal?

Topics: Multistate Matters, Practice and Procedure

Economic Nexus Extended Too Far – Hodgson Russ LLP v. Minnesota Department of Revenue

During the spring of 2014, Hodgson Russ LLP (“Hodgson”) received a letter from the Minnesota Department of Revenue (“Minnesota Revenue”) that attempted to establish a new low in the states’ “race to the bottom” to establish the most minimal constitutional standard required to satisfy substantial nexus with an out-of-state taxpayer.  Minnesota Revenue asserted that under suspect provisions of the Minnesota tax code, Hodgson had nexus with the state of Minnesota based upon a single, un-audited fact: between the 2004 and 2012 tax years, Hodgson received federal Forms 1099 from payors using a Minnesota mailing address.  On account of this single fact – with no revenue floor or other safeguards – Minnesota Revenue asserted that Hodgson had nexus with Minnesota, and was therefore required to file Minnesota franchise tax returns and apportion its business income to the state.

Topics: Corporate Tax, Multistate Matters

The Supreme Court Declares Maryland Resident Tax Credit Structure Unconstitutional Because It Leads to Double Tax

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Supreme Court buildingOn May 18, 2015, the U.S. Supreme Court declared Maryland's resident tax credit structure unconstitutional because it subjected income earned outside the state to potential double taxation. The Supreme Court concluded in a 5 to 4 decision in Comptroller of the Treasury of Maryland v. Wynne that this structure impermissibly favored income earned within Maryland over income earned outside the state. According to the court, this effectively created a tariff that violated the dormant Commerce Clause of the U.S. Constitution. 

Here's a quick review of the facts of the case. Brian and Karen Wynne are Maryland residents. Like most states, Maryland taxes residents on their worldwide income regardless of its source. In other words, Maryland residents can pay tax on income earned outside Maryland. In 2006, Brian Wynne owned stock in a Subchapter S corporation that operated and earned income in other states. In fact, the S corporation filed income tax returns in 39 states. The Wynnes reported the income that flowed through to them from the S corporation on their Maryland income tax returns but also claimed an income tax credit for taxes paid to other states. Almost every state tax code contains a similar credit. These credits are designed to avoid double taxation and to allow for the proper allocation of the tax burden to the jurisdiction where the income was earned.

The problem in the case arose because Maryland imposed two taxes, a state tax and a county tax. Despite imposing two taxes, the Maryland credit for taxes paid to other states only applied to the state tax, not the county tax. Thus, the Wynnes ended up being double taxed on the S corporation income. They paid tax to the states where the income was earned, and they paid the Maryland county tax on the same income. According to the Supreme Court, this scheme violated the dormant Commerce Clause of U.S. Constitution. 

This case is notable for several reasons:

Topics: Multistate Matters, New York Residency Stuff

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