In addition to federal legislative and regulatory proposals, OFII also monitors state initiatives. There has been an effort by some revenue-hungry states to target U.S. subsidiaries of foreign companies for additional taxes. OFII actively opposes these efforts.
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NEW JERSEY – CORPORATION BUSINESS TAX
MICHIGAN– BUSINESS TAX ACT
WISCONSIN– ROYALTY ADDBACK
WEST VIRGINIA– MANDATORY UNITARY COMBINED REPORTING
CALIFORNIA– FRANCHISE TAX BOARD
AT ISSUE:
In 2007, New Jersey made several attempts to tax the receipt of royalty payments made between a U.S. subsidiary and its foreign parent company. OFII believes that this extraterritorial application of New Jersey law creates a standard of double taxation and violates the spirit of past protections against double taxation passed by the New Jersey Legislature and signed by the Governor. New Jersey is the first state to attempt to apply such a sweeping and discriminatory tax concept. In April of 2007, OFII submitted a comment letter to the Office of Economic Growth protesting further application of this discriminatory tax policy. We continue to communicate with New Jersey officials on an ongoing basis.
OFII DOCUMENTS:
Todd Malan Letter to Gary Rose; April 25, 2007
Michigan Business Tax Act
AT ISSUE :
Section 2102(2)(f) of the Michigan Business Tax Act would prevent the deduction of cross-border interest payments paid by a Michigan company to a related foreign affiliate. OFII believes the failure to permit Michigan taxpayers to deduct interest paid to foreign parents or affiliates may have an adverse impact on the ability of U.S. subsidiaries to finance expansion in the U.S. and thus negatively affect employment levels within the state. This measure will place companies operating within Michigan at a competitive disadvantage and discourage future foreign investment in the state. OFII is actively seeking ways to modify this provision.
OFII DOCUMENTS:
Michigan Business Tax Bill Text
OFII Letter to State Senator Mark Jansen; April 3, 2008
OFII Letter to Michigan; June 26, 2007
AT ISSUE:
Legislation introduced by the Wisconsin Legislature May 12, 2008 calls for the elimination of the corporate income tax deduction for all interest paid to related parties as part of a “budget repair” measure aimed at reducing the state deficit. Though there a multiple safe harbors in the bill, none of them applies unless the taxpayer discloses expenses on a form to be prescribed by the Department of Revenue. OFII is actively opposing this unfair practice and is urging the Governor to veto this measure.
OFII DOCUMENTS:
Addback Bill Text
AT ISSUE:
In July 2007, a last minute passage of mandatory unitary combined reporting requirements in Senate Bill 749 will significantly change the way incomes of companies operating inside and outside of West Virginia are taxed. The provision is does not take effect until January 1, 2009. OFII firmly opposes State efforts to apply extraterritorial taxation authority like West Virginia’s unitary combined reporting.
OFII DOCUMENTS:
SB 749 Bill Text
West Virginia Chamber of Commerce Comments on SB 749
California Franchise Tax Board:
AT ISSUE : In December 2004, the Franchise Tax Board announced that it had prepared a discussion draft of proposed amendments to existing regulations specifying how deductions would be attributable to U.S. source income for non-effectively connected income (NECI) in California water’s edge combined report. When debating these amendments OFII sought an opportunity to discuss the broader implications of the entire regulations and its negative impacts on business. The inclusion of NECI makes California a less attractive place to do business and create jobs by effectively denying the deductions of interest and royalty payments made to a foreign parent. OFII believes that this regulation goes beyond the authority set by the statute and is currently working with the FTB staff to achieve an amenable solution.
OFII DOCUMENTS:
OFII Comments on FTB Proposed Draft Amendments to Reg 25110(d)(2)(F)(3)
OTHER:
PricewaterhouseCoopers Letter to California Franchise Tax Board regarding pending amendments to the regulation; February 8, 2005
California Revenue and Taxation Code Section 25110-25116
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