Multistate Tax Update -- April 16, 2015

Maryland: Fourth amnesty program expected to start Sept. 1, 2015

Maryland Gov. Hogan is set to sign a tax amnesty law for 2015, the details of which are in Senate Bill 763 and House Bill 1233. The 60-day amnesty period will run from Sept. 1, 2015 to Oct. 31, 2015. The program will waive 50 percent of the interest imposed, and all civil penalties (except previously assessed penalties for fraudulent reporting) associated with the nonpayment, non-reporting, or underreporting of individual income taxes, corporate income taxes, withholding taxes, sales and use taxes, or admissions and amusement taxes which were due on or before Dec. 31, 2014.

The amnesty program allows a taxpayer to pursue any of the following:

1. File a delinquent return and pay the delinquent tax, including one-half interest;
2. Pay the tax and one-half interest on a previously filed return; or
3. Enter into an agreement with the comptroller to pay the tax and one-half interest.

Certain taxpayers are ineligible, including taxpayers that were previously granted amnesty between calendar years 1999 and 2014.

Maryland, like other states, periodically offers amnesty programs in an effort to recoup lost revenues. In 2009, from Sept. 1 to Oct. 31, Maryland implemented a program similar to the 2015 version and focused on the same categories of tax. Under that program the state also waived 50 percent of the interest and all civil penalties and exempted the same groups. By the middle of March 2010, the state collected $29.7 million from the program, which was more than triple the $5 million to $10 million the program was expected to generate.

Prior to 2009, the 2001 amnesty program raised $39.4 million within six months, while once again focusing on the same types of taxes and exempted the same types of groups. Based on data from the previous amnesty in 1987, the state expected to raise almost twice that amount, or $70.1 million.

Maryland’s first amnesty offer was in 1987, which raised $34.6 million.

New York: Tax division upholds suspension of a driver’s license for failure to pay taxes

New York state law contains a provision that allows the state to suspend the driver’s license of a New York citizen in order to enforce the payment of delinquent tax liabilities which total $10,000 or more, and for which the taxpayer no longer has any right to administrative or judicial review. The statute also provides that the taxpayer receive notice by mail of his or her inclusion in the license suspension program (Program) at least 60 days prior to the suspension taking effect. The notice informs taxpayers that they can avoid license suspension by fully satisfying the tax debt or making arrangements to do so.

Once an individual is notified that he or she is in the Program, that taxpayer has no right to legal recourse against the Department of Taxation and Finance or the Department of Motor Vehicles. Even so, there are certain grounds on which a taxpayer can protest his or her impending license suspension.

In a recent case, a taxpayer did just that, on the argument that the individual to whom the notice was provided was not the taxpayer at issue. The Division of Taxation sent the taxpayer, Gretchen A. Stranahan (Stranahan), a Notice of Proposed Driver License Suspension Referral. The notice contained all the necessary information, including that she had 60 days to respond, and that she owed $122,406.50 from various tax periods in 2008, 2009, and 2010.

In Stranahan’s protest, she informed the Division of Tax Appeals that it was her husband, the principal officer, manager, and operator of American Tree Co., Inc., who owed the back taxes for various liabilities incurred by American Tree Co., Inc. She argued that she, as the individual who received the notice, was not the taxpayer at issue, so the suspension of her driver’s license as a penalty for another driver’s failure to pay his tax obligations was unreasonable, unconscionable, and unconstitutional.

The court disagreed because Stranahan had not previously established that she was not the taxpayer to which the notice applied, which is how the court construed the plain meaning of the statutory language, “the individual to whom the notice was provided is not the taxpayer at issue.” The court also reasoned that Stranahan had previous opportunities to challenge the merits of the underlying notices, and failed to do so, resulting in the liabilities becoming fixed and final.

Put simply, the court concluded that Stranahan was “the person named in the notice and to whom the notice was provided, regardless of her actual liability for the underlying tax assessments.” The court dismissed her constitutional claim, stating that it lacked the authority to address it.

Massachusetts: Amazon to receive millions in tax credits for a new fulfillment center

Massachusetts Gov. Charlie Baker recently announced approval of an incentive package for a proposed expansion of an Amazon.com fulfillment center that will sit in both the City of Fall River and the Town of Freetown, in Bristol County. Officials expect it to be operational in late 2016. The state’s Economic Assistance Coordinating Council (EACC) approved the project, granting Amazon $3.25 million in tax incentives. The incentives include $2.25 million in investment tax credits, and $1 million in job creation tax credits.

In addition, the EACC approved $11.6 million in local tax incentives that Amazon had previously negotiated. In particular, Fall River has agreed to a $7,808,850, 15-year Tax Increment Financing and Personal Property Tax Exemption, and Freetown has agreed to a $3,830,425, 15-year Tax Increment Financing and Personal Property Tax Exemption.

In return, Amazon will invest $54 million in a one million square foot sortable fulfillment center. Approximately 60 percent of the new construction will be in Fall River and 40 percent will be in Freetown.

The Commonwealth’s Economic Development Incentive Program (EDIP) will facilitate the project. The EDIP is a tax incentive program designed to foster job creation and stimulate business growth throughout the Commonwealth. It expects 500 new full-time jobs and 2,000 seasonal jobs in Massachusetts, and $54 million of additional funding via private investment.

The Boston Globe revealed opposing perspectives on the news. Opponents suggest that the state was giving away the tax breaks unnecessarily because Amazon is already large and successful.

On the other hand, Jay Ash, the state’s Secretary of Housing and Economic Development, characterized the plan as a “big deal” because the area badly needs the blue-collar jobs; the state needed to offer such generous incentives to compensate for a relatively unfriendly business environment. He continued, “we face an uneven playing field because of the high cost of energy and the general cost of doing business in Massachusetts, so we’re using tax credits, we think wisely, to level the playing field on projects that have great returns on investment.”

For additional information regarding these subjects, or any other multistate tax issues, please contact:

David M. Kall
216.348.5812
dkall@mcdonaldhopkins.com

David H. Godenswager, II
216.348.5444
dgodenswager@mcdonaldhopkins.com

Susan Millradt McGlone
216.430.2022
smcglone@mcdonaldhopkins.com

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