State and Local Taxes
In an era where unfunded Federal mandates have placed increasing pressure on state and local governments to raise additional revenues, state and local governments are responding with increasing numbers of audits, stricter scrutiny on tax exemptions and exclusions, and sophisticated methods of increasing revenue. When this scrutiny leads to disputes between taxing authorities and taxpayers, Nelson Mullins’ State and Local Tax Practice Group stands ready to assist taxpayers.
Our attorneys have experience representing businesses and individuals in real and personal property tax controversies, sales and use tax audits and assessments, and corporate income and franchise tax disputes. We have appealed real and personal property tax assessments throughout North Carolina, South Carolina, and Georgia, on behalf of Fortune 100 and 500 companies, small businesses, non-profit organizations, and individuals. In the sales tax arena, we have represented major companies in sales tax audits before state revenue departments, and have negotiated and litigated sales tax exemption, liability, and nexus cases. Our work in corporate income and franchise taxes includes representation of utilities, large corporations, and small businesses matters including corporate combination and unitary, allocation and apportionment issues, factor determination, and nexus. Our approach to tax disputes combines sensitivity to clients’ business concerns with a strategic focus on obtaining the best possible result.
In 2002, state and local governments collected over $284 billion in property taxes, according to the U.S. Census Bureau, Governments Division, Quarterly Summary of State and Local Government Tax Revenue (2002). With a substantial portion of these taxes being collected from companies and businesses, companies must ensure that they are treated fairly and uniformly by taxing authorities to remain competitive in today’s economy.
When litigation becomes necessary, Nelson Mullins stands ready to provide experience representing businesses and individuals in real and personal property tax controversies. We are well-versed in the procedural rules governing property tax appeals, having handled hundreds of real and personal property tax appeals in numerous counties, on behalf of Fortune 100 and 500 companies, small businesses, non-profits, and individuals. Such cases include, among other types of property, machinery and equipment personal property appeals; industrial and commercial real property appeals, including industrial and manufacturing plants, shopping centers, apartment complexes and hotels; and public service companies. Our lawyers have handled cases involving issues such as taxability, obsolescence, depreciation factors, nexus, situs, intangible property, and real versus personal property issues. Our representation includes all phases of tax controversies, from initial discussions with state and county tax officials and county-level appeals to trials before tax courts and commissions and appeals up to the highest appellate courts. In such litigation, Nelson Mullins lawyers work with appraisers from across the country to obtain top-quality appraisal reports and trial testimony in support of fair valuations.
Our State and Local Tax Practice Group also has years of experience negotiating and litigating exemptions, exclusions, and use valuations in the property tax area. On behalf of our clients we have obtained exemptions and exclusions from taxation for pollution control equipment, inventories, intangible property, and property used for religious, educational, and charitable uses, as well as use valuations on forest and farm land.
Careful and knowledgeable tax planning can assist your company in complying with the intricacies of property taxation. From providing advice related to listing personal property to applying for exemptions to reviewing your tax listings, Nelson Mullins can help minimize tax liabilities. Since a substantial part of the property tax system involves negotiations between companies and local governments on audits, discoveries, and assessments, our attorneys have experience reviewing county audits and discoveries and negotiating reductions without resort to litigation. In addition, our strong lobbying team gives us the ability to work on promoting legislation that encourages fair and equitable tax treatment.
SALES, USE, AND GROSS RECEIPT TAXES
In 2002, state and local governments collected over $290 billion in sales and gross receipts taxes. Approximately one-third of all state tax collections come from sales and use taxes. In recent years, states have become increasingly active in pursuing issues in the sales, use and gross receipts tax arena.
Our attorneys have handled sales and use tax audits and appeals of sales and use tax assessments in a number of states, including South Carolina, North Carolina, New Jersey, Georgia, Virginia, Maryland, Kentucky, and Texas. These audits covered diverse issues such as whether transfers to partnerships constitute “sales” for sales and use tax purposes; whether purchases of condiments by a restaurant company are includable as “sales for resale”; whether shipping materials are included in the definition of “sales for resale”; whether furniture sales to out-of-state residents subject an in-state retailer to sales and use tax nexus in the state of the residents; and whether provisions of certain sales and use tax statutes unconstitutionally discriminate against certain businesses. Nelson Mullins represents clients on sales, use and gross receipts tax cases in negotiations with state tax officials and auditors, administrative hearings, court trials, and appeals.
Most commercial transactions implicate the sales and use tax or gross receipts tax (collectively, “transfer tax”) laws of one or more states. The attorneys in Nelson Mullins’ State and Local Tax Practice Group assist clients by reviewing transaction documents and proposed transactions with a view to determining the impact of transfer tax laws and, where business constraints permit, proposing structuring alternatives to reduce overall transfer tax liability. Clients we have assisted include, among others, banks, leasing companies, retailers, restaurant companies, non-profit organizations, manufacturers, and technology companies.
In transfer tax planning and analysis, Nelson Mullins attorneys also review and negotiate tax indemnification provisions of term sheets and transaction documents to assist clients in ensuring that the client does not inappropriately bear the burden of such transfer taxes.
CORPORATE INCOME AND FRANCHISE TAXES
In 2002, state and local governments collected over $33 billion in corporate income and franchise taxes. Many state income tax laws “piggy-back” federal income tax laws and thus, historically, states have not separately initiated large numbers of income tax audits to determine the appropriateness of specific income or deduction items. States may, however, audit taxpayers not only to determine the appropriateness of such items, but also to determine whether and on what basis a taxpayer should be paying tax to the state.
Nelson Mullins’ State and Local Tax Practice Group attorneys assist corporations, limited liability companies, and partnerships with income and franchise tax audits, appeals of income and franchise tax determinations, and litigation of income and franchise tax issues. Issues of income and franchise tax liability are diverse and include contesting unconstitutional tax provisions, state income tax provisions that may be preempted by federal exemption statutes, the lack of charitable status for state tax purposes of a non-profit corporation, and the proper state apportionment of an entity’s income and franchise tax bases. In the corporate income tax area, our firm represents clients in negotiations with state tax officials and auditors, administrative hearings, court trials, and appeals.
In many commercial transactions, state income and franchise tax planning conforms to federal income tax planning. However, situations occur in which state income and franchise tax planning issues take on more importance. Our attorneys advise entities on many of the issues that may become a tax controversy upon examination, including, for example, whether the entity’s activities are sufficient to create nexus and subject the entity to a state’s jurisdiction for the imposition of state income and franchise taxes. Such nexus issues have a significant impact on clients such as out-of-state lenders and retailers that solicit in states other the state in which the retailer was formed.
STATE EMPLOYMENT TAXES
Generally, state employment tax requirements track federal employment tax requirements, such as whether a person is an employee or independent contractor. However, Nelson Mullins’ State and Local Tax Practice Group attorneys have assisted clients with state employment tax issues, including appeals of employment tax assessments and the abatement of penalties on such assessments.
One important factor companies consider when analyzing site locations for new development is the anticipated tax burden. As part of an overall economic development strategy, negotiations with state, county, and municipal officials regarding fair and proper tax treatment can reduce future litigation costs and create substantial up-front savings. We meet with state tax officials and county and local governments to explain the unique factors involved in clients’ economic development activities and thereby work to obtain up-front consensus on proper tax treatment. We also assist companies in determining the varying state tax impact on the company’s proposed entry or expansion in one or more states.
Nelson Mullins’ Economic Development Group provides full services in connection with corporate relocations and expansions. This includes tax strategy, negotiation of incentives, real estate and construction law advice, legislative counsel, and other services associated with economic development. Please contact us for further information on the full range of services offered by our Economic Development Group.