Legal Updates

States’ online tax laws continue to prompt lawsuits

There is no end in sight for legal challenges to state government efforts to tax remote sales. The latest involves a lawsuit that Bloomberg made available online, filed by NetChoice and the American Catalog Mailers Association. They say that a new Tennessee administrative rule violates the precedent established in the now familiar 1992 U.S. Supreme Court case, Quill Corp. v North Dakota, which made it unconstitutional for states to impose a use tax collection duty on out of state sellers with no physical presence in that jurisdiction.

The new administrative rule that the suit is premised on contains a nexus provision calling for “[o]ut-of-state dealers who engage in the regular or systematic solicitation of consumers in this state through any means,” with sales to in-state consumers of more than $500,000, to register with the Department, and collect the applicable sales and use taxes on those sales.

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Texas: Comptroller reminds shoppers of upcoming sales tax holidays

In 2016, 17 states, primarily located in the southeastern U.S., offered sales tax holidays, down from a peak of 19 states in 2010, according the Tax Foundation. In the think tank’s 2016 special report characterizing such events at “politically expedient but poor tax policy,” the authors contend that tax holidays distract policymakers and taxpayers from real, permanent, and economically beneficial tax reform. Sales tax holidays introduce unjustifiable government distortions into the economy without providing any significant boost to the economy. They represent a real cost for businesses without providing substantial benefits. They are also an inefficient means of helping low-income consumers and an ineffective means of providing savings to consumers.

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California: Department of Finance takes Board of Equalization to task

In a March 2017 evaluation, the California Department of Finance, Office of State Audits and Evaluations revealed that the California State Board of Equalization’s (BOE) work is problematic because of its operational culture. This has “impact[ed] its ability to report accurate and reliable information to decision makers.” Moreover, “certain board member practices have intervened in administrative activities and created inconsistencies in operations, breakdowns in centralized processes, and in certain instances result in activities contrary to state law and budgetary and legislative directives.”

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‘No looking back’ – one ATED tax trap to avoid

 

April is ATED filing month – 2017/2018 ATED tax returns must be filed and any ATED tax paid by 30 April at the latest.  Even if no ATED is due, because a relief from ATED applies, that relief still needs to be claimed on an ATED tax return, which must be submitted by the end April deadline just the same.ATED applies to companies owning UK let residential property too.  However, a 100% relief from ATED is available if the company is running a property rental business and the relief is claimed each year.

One crucial trap to guard against is occupation of the company’s property by a ‘non-qualifying individual’.  These include people who are ‘connected to’ the company, in the very wide sense conferred on that phrase by s.1122 Corporation Taxes Act 2010.  For example, the settlor of a trust which owns an interest in the corporate entity which owns the property will count as a ‘non-qualifying individual, as will the settlor’s relatives – meaning siblings, and either ancestral or lineal descendants – and even their respective spouses and their families! 
The non-qualifying individual has to be ‘permitted to occupy’, according to the ATED legislation, which may give an escape route if the directors of the company were not aware of the occupation and therefore could not have given permission, implied or express.  Unfortunately there is no definition of what ‘permitted to occupy’ means, either in the legislation or in HMRC’s ATED Technical Guidance.  However, in the content of other taxes, HMRC regards use of a property as occupation if the person who does stay at the property or uses it has a right of access to it and does keep belongings there.  No guidance is also given on how long a period of occupation is needed in order to trigger these provisions.  In an example given in the Technical Guidance, a month of occupation was long enough but there is no discussion of whether a week or even a few days would have been problematic.  Therefore, it’s best to try to avoid these murky waters if possible.  
It is relatively easy for companies to find themselves in trouble over non-qualifying occupation.  The family member who stayed a few nights in the company’s London flat, in the void period between lettings, is a classic situation but unfortunately this can lead to an unhappy outcome.  The consequences of non-qualifying occupation can be severe:
  • ATED relief is denied for the whole of the ATED tax year in which the non-qualifying occupation takes place, unless there was a qualifying tenant renting the property as part of a property rental business prior to the non-qualifying occupation (in which case relief will be allowed for the period of ‘qualifying’ occupation).
  • Relief is also denied for up to the next three ATED tax years, until such time as there is ‘qualifying occupation’.
  • ATED relief is withdrawn for the previous ATED tax year if, in fact, there was no qualifying occupation during that tax year.  (This could be the case if the company was taking steps to rent out the property, such as alterations or redecoration, for which ATED relief is available if the steps are taken without undue delay).

The look forward and look back provisions can result in companies owing ATED for tax years in which it was thought that an ATED relief was due.  The position needs to be corrected by submission of an amended ATED tax return for all years affected, as quickly as possible as time deadlines apply to the tax return filing. 

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Changes to the Work Visa Program

The Federal Government yesterday announced significant changes to the work visa program in Australia. The announced changes affect only pending and prospective work visa applicants. They do not impact visas already approved. We have prepared a summary of those changes below:

Temporary Work Visas

Updated Sponsorship List and visa grant period – from 19 April 2017

The Skilled Occupation List (SOL) will now be referred to as the Medium and Long term Strategic Skills List (MLTSSL) and the Consolidated Sponsored Occupation List (CSOL) will now be referred to as the Short term Skilled Occupation List (STSOL).

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Template declaration on characteristics of real estate unit and procedure of its reviewing were adopted

On 04 April 2017 the Russian Ministry for Economic Development published the Order No. 846 “On adoption of procedure of reviewing of declaration on characteristics of real estate unit and its template” (hereinafter – the “Order”).

The Order was adopted in accordance with clause 4 Article 12 of the Federal law No. 237-FZ of 03 July 2016 “On state cadaster evaluation” (hereinafter – the “Law No. 237-FZ”). This law governs the valuation procedure for the real property items starting from 01 January 2017. The valuation is performed by the Federal Cadastral Chamber. Article 12 of the Law No. 237-FZ covers matters of preparation for state cadaster evaluation and contemplates, that the real property owner can provide data on their real estate units to the Federal Cadastral Chamber or one of its branches (hereinafter – the “FCC”, “agency”). This information should be included into the template form adopted by the Order.

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Talking Tax – Issue 73

Case law

Tay v Chief Commissioner of State Revenue [2017] NSWSC 338

In Tay v Chief Commissioner of State Revenue [2017] NSWSC 338, the plaintiff was assessed by the Chief Commissioner of the State Revenue for transfer duty and landholder duty on the transfer of ordinary shares in his late father’s company (Memocorp) which was registered in Australia as a real estate investment vehicle. Under the Will, the children were entitled to the residue of the estate from the net proceeds of sale of the assets.

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No Signed Writing vs. Expired Physician Contracts: New Court Ruling on What Constitutes “Collection of Documents” to Satisfy Stark’s Writing Requirement

On March 15, 2017, the United States District Court for the Western District of Pennsylvania issued an opinion that sheds insight on how courts view the “writing” requirement of various exceptions under the federal physician self-referral law (or “Stark Law”). The ruling involved the FCA qui tam case, United States ex rel. Emanuele v. Medicor Assocs., No. 1:10-cv-245, 2017 U.S. Dist. LEXIS 36593 (W.D. Pa. Mar. 15, 2017), involving a cardiology practice (Medicor Associates, Inc.) and the Hamot Medical Center. The Court’s detailed discussion of the Stark Law in its summary judgment opinion provides guidance as to what may or may not constitute a “collection of documents” for purposes of satisfying a Stark Law exception.

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OCR issues guidance on cyber threat reporting and monitoring

The U.S. Department of Health and Human Services’ Office for Civil Rights (OCR) recently issued guidance on reporting and monitoring cyber threats. The guidance comes just five months after the U.S. Government Accountability Office (GAO) reported that data breaches involving medical records of 500 or more individuals are increasing, a trend that is expected to continue as technology continues to evolve. In connection with its report, the GAO pushed OCR to update its guidance on protecting electronic health information.

The guidance encourages covered entities and business associates to report any suspicious activity (cyber security incidents, cyber threat indicators and defensive measures, phishing incidents, malware and software vulnerabilities) to the U.S. Computer Emergency Readiness Team (US-CERT).

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Trump Affirms Congress’s Repeal of the FCC’s Broadband Privacy Rules

Congress has voted to overturn the customer privacy rules adopted last year by the Federal Communications Commission (FCC) for wireless and home broadband internet service providers (ISPs) and other telecommunications carriers, thereby opening the door to more expansive and aggressive uses of customer data.

Background
Last October 27, the FCC adopted rules establishing a framework of customer consent for ISPs such as AT&T and Comcast to be able to use and share their customers’ personal information. The Federal Trade Commission (FTC) had previously regulated the privacy practices of broadband providers until a change in its jurisdiction in 2015.

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