Ernst & Young's State and Local Tax Weekly newsletter for January 6 is now available. Prepared by Ernst & Young's State and Local Taxation group, this weekly update summarizes important news, cases, and other developments in U.S. state and local taxation.

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Top Stories

Oregon tax court holds in-state economic activities of out-of-state banks creates corporate excise and income tax nexus

In Capital One Auto Finance, the Oregon Tax Court (Court) held that an auto finance company was required to include the sales apportionment factors of out-of-state related banks that had no physical presence in the state in its Oregon corporate excise and corporate income tax returns because the banks' in-state activities created an economic presence sufficient to established nexus. In so holding, the Court held that a physical presence in the state is not required to create a substantial nexus for purposes of the Commerce Clause. Capital One Auto Finance Inc. v. Oregon Department of Revenue, No. TC 5197 (Ore. Tax Ct. Dec. 23, 2016).

In ruling in favor of the state, the Court rejected the taxpayer's argument that banks must have a physical presence in Oregon to be subject to the state's corporate excise tax, stating that it doubted such requirement existed for purposes of the corporate excise tax. The Court also rejected the taxpayer's argument that the Oregon corporate income tax did not apply because it did not earn income from Oregon sources as it had no property, employees or agents in the state nor did it conduct any physical activity in the state. Here, the banks not only engaged in "numerous activities' with Oregon customers (e.g., marketing, acquisition, solicitation, billing and collecting), but also directed their activities to attract and retain Oregon customers "to earn revenue … from Oregon customers."

After finding that physical presence is not required to establish nexus for corporate excise and corporate income tax purposes, the Court determined that the taxpayer is subject to assessment on income earned by the banks from their lending activities to Oregon customers. According to the opinion, the banks were doing business in Oregon for corporate excise tax purposes even though they did not have a physical presence, and even if the banks were not doing business in Oregon, they earned income from sources within the state for purposes of the corporate income tax. Regardless of whether the banks were "doing business" in Oregon or deriving income from sources within the state, "the [b]anks directed their activities to access and extract economic benefits from Oregon persons."

Turning to the questions of whether economic presence is sufficient to create a substantial nexus for Commerce Clause purposes and, if so, whether the banks' economic presence was sufficient to create nexus, the Court answered both affirmatively. In ruling the banks' economic activity alone was sufficient to create substantial nexus, the Court held that Quill's physical presence requirement does not extend "outside the realm of collection obligations for sales or use taxes," and imposing the corporate excise or corporate income tax regimes on the banks does not create an undue burden on interstate commerce. Additionally, the Court found the banks' economic presence in the state rises to the level of substantial nexus. The Court found the Banks' repeated extending of credit, loaning money, pursuing customers and earning revenue in Oregon to be "extensive contact" in the state. Further, the Court found that by providing an enforcement mechanism to collect bad debts, Oregon "created a marketplace and business atmosphere … , which makes consumer lending possible and profitable."

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Income/Franchise

California: A California Court of Appeal (Court) affirmed a lower court ruling that a global media and entertainment company that operates cable television systems did not operate a unitary business with its subsidiary, a home shopping television network, during tax years 1998-99. Further, the Court held that the media company's $1.5 billion gain from a termination fee in a separate merger transaction involving a telecommunications provider was business income, an apportioned amount of which was subject to the California corporate income tax. Comcon Production Services I, Inc. v. Cal. Franchise Tax Bd., No. B259619 (Cal. Ct. App., 2nd App. Dist., Dec. 14, 2016) (Unpublished).

California: On Jan. 20, 2017, at 10:00 a.m. the California Franchise Tax Board (FTB) will hold an interested parties meeting to discuss possible revisions to its market-based sourcing rules for sourcing sales of non-tangible personal property under Cal. Code Regs. tit. 18, §25136-2. Topics to be discussed during this meeting include: (1) asset management fee examples, (2) reasonably approximated/reasonable approximation, (3) "benefit of service is received," (4) dividend assignment, (5) freight forwarding example, (6) interest received from business entity borrowers, (7) marketing intangibles, and (8) various clean-up issues. Additional information about the meeting is available on the FTB's website.

Massachusetts: The Massachusetts Department of Revenue (Department) adopted amendments to regulation 830 CMR 63.38.10 regarding the apportionment of income of the electric industry. The regulation provides alternative apportionment rules for the electric industry and provides rules for allocating and apportioning income derived from sales of electricity, unforced capacity, electricity brokerage services, ancillary services related to electricity, electricity transmission and distribution services, and from buying and selling financial instruments related to electricity. The Department also adopted amendments to regulation 830 CMR 63.38.8 regarding the apportionment of pipeline companies derived from the transportation of mineral products. Changes to both regulations are effective for taxable years beginning on or after Dec. 16, 2016.

Montana: Amended regulations (Mont. Admin. R. 42.23.108, .109, .112, .113, .116, .212, .313, .403, .421, .424, .601, .702, .802, .803, .804, .805, 42.26.101, .202, .301, .302, .311, .313, and .505, and repealed Mont. Admin. R. 42.23.117) adopt various corporate income tax changes proposed by the Montana Department of Revenue (Department). Key changes: (1) clarify that corporate entities that convert to a disregarded entity and their owner cannot claim a net operating loss (NOL) deduction for NOLs incurred by the corporate entity before the conversion date (Mont. Admin. R. 42.23.804); (2) clarify the calculation and application of NOLs when taxpayers have a change in filing method (Mont. Admin. R. 42.23.805); (3) add definitions of "costs of performance" and "income-producing activity" to provide additional guidance to corporate taxpayers who are reporting sales other than sales of tangible personal property in the sales apportionment factor (Mont. Admin. R. 42.26.202) (note, the definitions are based on those adopted by the Multistate Tax Commission); (4) provide additional guidance regarding the Department's long-standing practice concerning the disallowance of retroactive water's-edge elections (Mont. Admin. R. 42.26.302); (5) provide guidance regarding procedures for making a valid water's-edge election when the water's-edge taxpayer has gone through a reorganization (Mont. Admin. R. 42.26.313); and (6) remove from the list of unprotected activities the shipment or delivery of goods into Montana by various methods, because these are no longer considered activities that, in and of themselves, would create a taxable nexus with Montana (Mont. Admin. R. 42.26.505). Mont. Sec. of State, Mont. Admin. Reg. Notice 42-2-960 (Nov. 25, 2016).

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Sales & Use

Arizona: The Arizona Department of Revenue (Department) released guidance on the transaction privilege tax (TPT) as it relates to contracting activities. It provides information such as: (1) who must pay the TPT, (2) taxable activities and activities excluded from taxation, (3) tax base of prime contractors, (4) the tax rate, (5) tax calculation methods, (6) factors to determine taxable prime contractors and nontaxable subcontractors, (7) TPT reporting requirements, (8) application of county taxes, and (9) allowable deductions. Ariz. Dept. of Rev., Pub. 603: Contracting Activities (revised Dec. 2016).

California: San Diego's transient occupancy tax is not payable on the amount retained by online travel companies (OTCs) above the amount remitted to hotels as the agreed wholesale cost of the room rental, because that retained amount is not "charged by the operator" under California law and OTCs are not operators within the meaning of the ordinance. In reaching this conclusion, the California Supreme Court (Court) affirmed that San Diego's ordinance does not permit the city treasurer to assess an intermediary such as an OTC for unpaid transient occupancy tax since the ordinance imposes the duty to remit the tax on the operator alone and subjects the operator alone to the assessment process when taxes are determined to be unpaid and owing. In this "merchant model" transaction, the operator of a hotel is liable for tax on the wholesale cost plus any additional amount for room rental the operator requires the OTC to charge the visitor under the "rate parity" provisions of hotel-OTC contracts. In re Transient Occupancy Tax Cases, No. S218400 (Cal. S. Ct. Dec. 12, 2016).

Indiana: A full service dining company's rental or lease payments for mobile point of sale devices from a vendor are subject to sales and use tax as the company pays a monthly fee for a transfer of possession or control of tangible personal property for a fixed or indeterminate time. If the vendor is not registered as an Indiana retail merchant and does not collect the sales tax, the company may self-assess use tax. The company's fee for access to premium content from the devices (e.g., access to news, sports, social media, songs, interactive games), however, is not subject to Indiana sales or use tax, even if different types of premium content are accessed under a single charge, because the company is providing a non-taxable service when its customers access premium content on the devices. The customers do not acquire uninhibited possession of the software — they "merely have the right to use the software for a period of time." Further, the service does not qualify as a telecommunication service as the software is preloaded onto the device and is not "electronically transmitted or conveyed." Further, the games, news, sports information, and social media content would not be considered digital products because these only include digital audio works, digital audiovisual works, and digital books. In addition, the songs would only be considered tangible personal property if they are provided for permanent use, but here the user is granted temporary use of the songs. The songs also would not be considered a telecommunication service, because music delivered electronically is specifically excluded from the definition of telecommunication service. Finally, since the premium content fees have not been determined to be taxable by statute, the Indiana Department of Revenue would not consider the company's use of each device to include both a license to use the device and a taxable business use. Ind. Dept. of Rev., Revenue Ruling #2015-15ST (Nov. 4, 2016).

Indiana: A company that operates online marketplaces for third-party software, games, apps, movies, books, and other digitized products for purchase electronically should collect sales tax for retail transactions made in its marketplaces on behalf of its independent software vendors (ISVs) because the company is the seller of the products on its various marketplaces. ISVs cannot then collect sales tax on those same transactions. If the company receives properly completed sales tax exemption certificates from its customers, neither the company nor ISVs are required to collect sales tax. If the company over-collects sales tax from its customers and remits the tax to the state, it may seek refund of the overpaid tax but only after it has refunded the sales tax to its customers; the company may not claim a deduction or credit on those taxes. Ind. Dept. of Rev., Revenue Ruling No. 2016-07ST (Nov. 4, 2016).

Louisiana: A statutory exclusion, which as amended in 2013 provides a state and local sales and use tax exclusion on charges for repairs on certain property delivered to out-of-state customers and makes the exclusion mandatory for tax authorities in East Feliciana Parish and optional for all other parishes, is unconstitutional in violation of Louisiana's uniformity provision because it does not require the authorities in all parishes to apply the exclusion in the same form, manner, or degree. However, the Louisiana Supreme Court held that the part of the statute mandating tax authorities in East Feliciana Parish to apply the exclusion is severable because the legislature's 2007 and 2011 versions of the exclusion did not mandate that tax authorities in East Feliciana Parish apply the exclusion. Thus, the purpose of the statute is not dependent on the unconstitutional portion. Arrow Aviation Co., LLC v. St. Martin Parish School Board Tax Sales Dept., No. 2016-CA-1132 (La. S. Ct. Dec. 6, 2016).

New Mexico: An out-of-state healthcare services corporation (franchisor) that entered into a franchise agreement with an in-state temporary medical healthcare personnel provider (franchisee) is subject to gross receipts tax on money it received from the franchisee's clients for payment of temporary healthcare workers because the franchisor did not establish that it was a disclosed agent of its franchisee. The franchisor had no authority to bind the franchisee to a third party and the third party (here, the employees and clients), were not informed of their right to proceed against the principal franchisor to enforce the obligation. In addition, citing Sonic Indus., the Administrative Law Judge (ALJ) found that money the franchisor received from the franchisee for grant of a franchise and license to a trademark before June 27, 2007 (the effective date of a legislative statutory change of the gross receipts definition) did not include the receipts related to the payment of employees and were derived from the sale of franchise property outside New Mexico and, therefore, are not subject to gross receipts tax. However, after the June 27, 2007 law change, the money the franchisor received for the grant of a trademark license to the franchisee is subject to gross receipts tax because the sale of a license to use a franchise employed in New Mexico necessarily included the sale of a trademark, and the receipts from the license of the trademark under the franchise agreement are statutorily subject to gross receipts tax. Additionally, the money that the franchisor received as consideration for the billing, collections, credit approval and payroll processing are subject to gross receipts tax because the services were performed to pay the franchisor's New Mexico employees (since the franchisor was their legal employer in the state), and the franchisor granted the franchisee the right to use a franchise employed in New Mexico, which was previously established as taxable after the 2007 amendments. Furthermore, money that the franchisor received from the Indian Health Services are deductible by statute and are excluded as nontaxable. Finally, the ALJ abated the civil negligence penalty for failure to pay tax due to varying and evolving cases and statutes, and the franchisor's mistake was a mistake of law made in good faith and on reasonable grounds. In the Matter of the Protest of ATC Healthcare Services Inc., No. 16-55 (N.M. Admin. Hearings Office Nov. 30, 2016).

Pennsylvania: On Dec. 19, 2016, the Philadelphia Court of Common Pleas upheld Philadelphia's sugar-sweetened beverage tax (Soda Tax), which took effect Jan. 1, 2017. While the plaintiffs have appealed the ruling to the Pennsylvania Supreme Court, Philadelphia city officials have said they intend to enforce the collection of the Soda Tax while litigation is ongoing. Judicial resolution of the validity of the Soda Tax is not likely to occur in 2017.

Tennessee: A company's charges for proprietary software that allows a customer to communicate through a single, web-based interface that supports text messaging and other kinds of messaging (interface) are subject to Tennessee sales and use tax as the sale of ancillary services. The Tennessee Department of Revenue determined that the overarching purpose behind the services provided by the company's interface is the facilitation of communication through various mediums and is "associated with, or incidental to, the provision of telecommunication services." Ancillary services are specifically enumerated as taxable by statute, and are "services that are associated with, or incidental to, the provision of telecommunication services, including, but not limited to, detailed communications billing service, directory assistance service, vertical service, and voice mail service." The interface allows users to access and respond to communications from and through various mediums via one centralized web-based access point, including viewing and responding to text messages, which constitutes a telecommunications service as it is an "electronic transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals to a point, or between or among points." Tenn. Dept. of Rev., Letter Ruling No. 16-09 (Nov. 10, 2016).

Washington: The Washington Department of Revenue (Department) issued a quick reference guide regarding the taxability of information technology (IT) products and services. Generally, when IT products and services are sold as a non-itemized package, the entire transaction is subject to retail sales or use tax. When products and services are separately stated on a sales invoice or contract, charges for computer hardware and prewritten computer software are subject to retail sales or use tax, but separately stated charges for custom software and customization of prewritten software are not subject to retail sales or use tax. The guide provides a list of products and services that, when separately stated, are generally subject to the tax (e.g., remote access software, digital automated services, digital goods that are downloaded, streamed or accessed), and those that are generally not subject to the tax (e.g., implementation of related services and other services such as business process re-engineering, technical writing, assisting with network operations and support). Wash. Dept. of Rev., Tax Topics: Taxability of information technology (IT) products and services (Dec. 1, 2016).

Wyoming: A sugar producer's purchase of a pile ventilation system (system) does not qualify for Wyoming's sales and use tax manufacturing exemption because the system performs a storage function and is not machinery that is used directly and predominantly in manufacturing tangible personal property. In reaching this conclusion, the Wyoming State Board of Equalization (Board) determined that the system is not "machinery" for exemption purposes as it does not itself produce a new product, article, substance or commodity different from the raw/prepared materials. Further, the system is not necessary for the manufacturing facility to accomplish its intended function; it merely enhances the sugar recovery. Ultimately, the Board concluded that while the system benefits the sugar extraction process by maintaining the beets, the sugar producer's transformative manufacturing process (e.g., converting the beets into sugar) does not begin until after the beets are moved from the system into the wet hoppers. In re Wyoming Sugar Co., LLC, No. 2015-49 (Wyo. SBE Dec. 14, 2016).

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Business Incentives

Illinois: New law (SB 1488) extends the River Edge Redevelopment Zone tax credit to Jan. 1, 2018 (from Jan. 1, 2017). Ill. Laws 2016, Pub. A. 99-914 (SB 1488), signed by the governor on Dec. 20, 2016.

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Property tax

Texas: Landowners' real property interest in saltwater disposal wells may be assessed and taxed separately from and in addition to the tracts of land on which the wells are located, because taxing the wells as separate property does not result in illegal "double taxation." In reaching this conclusion, the Texas Court of Appeals (Court) reversed and remanded the case, finding that the landowners' land was not the only taxable estate. Citing Coastal Liquid and state statute, the Court stated that a single tract may include several aspects of realty, and at least some of the aspects of real property can be taxed separately even though all are part of the same surface tract because of the potential overlap of categories of real property. The tracts do not have to be separately owned, the taxable estate or interest does not depend upon a conveyance or other legal act, and does not depend on real property's categorization under the state tax code. Parker Cnty. Appraisal Dist. v. Bosque Disposal Systems, LLC et al., No. 02-15-00343-CV (Texas App. Ct. 2nd Dist. Dec. 1, 2016).

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Compliance & Reporting

Tennessee: The Tennessee Department of Revenue (Department) issued a letter ruling on the application of franchise and excise taxes to the conversion of multiple Tennessee corporations to single member limited liability companies (converting entities) that are disregarded for federal income tax purposes. The Department also pointed out that for the tax year ending Dec. 31, 2004, the members of the corporate parent's Tennessee affiliated group elected to compute net worth for Tennessee franchise tax purposes on a consolidated basis. The Department concluded that the corporations going through a corporate reorganization effective Dec. 31, 2016, including a controlling corporation and converting entities, must file franchise and excise tax returns on a separate entity basis for the tax year ending Dec. 31, 2016, because before the reorganization they were treated as separate entities for Tennessee franchise and excise tax purposes. The controlling corporation must exclude the property and net worth of the converting entities and include only its property and calculated apportioned net worth on its franchise and excise tax return for that year. However, the converting entities will be included in the controlling corporation's affiliated group for purposes of the corporate parent's affiliated group's Tennessee franchise tax consolidated net worth election. For the tax year ending Dec. 31, 2017, the converting entities will be disregarded for Tennessee franchise and excise tax purposes and as such, they all must be included in the controlling corporation's franchise and excise tax return. Finally, if the controlling corporation merges with a second corporation, and the second corporation is merged out of existence and into the controlling corporation, the merging entity will not be included in the controlling corporation's affiliated group for the tax year ending Dec. 31, 2016, because Tennessee law requires the merging entity to file its franchise and excise tax return in final return status. The merging entity's status will not terminate the consolidated net worth election, but the controlling corporation must file an amended group registration form following the reorganization, informing the Department of the change before the due date of the franchise and excise tax return. Tenn. Dept. of Rev., Letter Ruling No. 16-10 (Nov. 18, 2016).

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Controversy

All States: On Dec. 14, 2016, a working group of representatives from various state tax organizations submitted a draft Model Uniform Statute for Reporting Adjustments to Federal Taxable Income to the Multistate Tax Commission's (MTC) Uniformity Committee for consideration. Among the proposed changes to the MTC's current model statute are: (1) a separate definitions section that allows flexibility for state-specific definitions (such as the reference to IRC conformity); (2) a revised definition of "final determination;" (3) clarification that the filing of the report of federal audit changes also will constitute a refund claim, regardless of whether an amended state return is filed; (4) clarification that any subsequent state assessment or refund must arise directly from the federal changes, unless the state's normal statute of limitations remains open; (5) the addition of an optional de minimis exception through which taxpayers can notify the state of adjustments to taxable income resulting in an assessment or refund of less than $250 in tax without requiring a report of those changes, but providing states the option to request such a report; (6) the addition of a statute of limitations period when a taxpayer failed to file a federal changes report; (7) the addition of a provision allowing a taxpayer to pay estimated tax and toll interest before filing a report of federal adjustments in anticipation of a potential state tax liability and to obtain a refund of any differential if the payments proved to be greater than the final state tax liability; and (8) establish a prospective effective date based on the date of final determination. The proposed changes also contemplate the MTC's adoption of a model streamlined report of federal audit adjustments, in lieu of requiring taxpayers to file a complete amended state return for each year under audit.

Montana: Amended regulations (Mont. Admin. R. 42.23.303, .312, .313) adopt various corporate income tax administrative changes proposed by the Montana Department of Revenue (Department). Key changes: (1) provide more detail regarding taxpayers' reporting requirements when they have a change in federal taxable income, what actions the Department may take when such changes are not reported, and clarify that there is no de minimis standard for reporting federal taxable income changes or corrections (Mont. Admin. R. 42.23.303); and (2) provide more detail regarding filing requirements for inactive corporations and how to obtain a Dissolution/Withdrawal Certificate or a Tax Clearance Certificate from the Department (Mont. Admin. R. 42.23.312 and .313). Mont. Sec. of State, Mont. Admin. Reg. Notice 42-2-960 (Nov. 25, 2016).

South Carolina: The South Carolina Department of Revenue (Department) issued guidance to provide C corporations reporting federal income tax adjustments made by the IRS with an alternative process for reporting these changes to the Department. In lieu of filing an amended corporate return (Form SC 1120), the Department will allow C corporations to report federal changes in taxable income using a streamlined reporting method, a sample of which is included in South Carolina Revenue Procedure #16-1. A taxpayer-created spreadsheet is acceptable as long as it reflects all information in the approved sample reporting format. C corporations must attach a copy of the federal final determination to their submissions, and the streamlined format must include the name and contact information of an authorized representative from the C corporation. The Department will treat the streamlined reporting method as the filing of an amended return. Further, the streamlined method only can be used to report a federal income tax adjustment by the IRS; any other adjustment must be reported by filing an amended return. A South Carolina "consolidated" group using the optional method to report its federal income tax adjustments by the IRS must show the adjustments for each member of the South Carolina consolidated group. The revenue procedure applies to C corporation federal income tax adjustments reported to the Department on or after Nov. 1, 2016. S.C. Dept. of Rev., SC Revenue Procedure #16-1 (Dec. 8, 2016).

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Miscellaneous Tax

All States: On Wednesday, Jan. 18, 2017, from 1:00 - 2:30 p.m. EST (10:00 - 11:30 a.m. PST), EY will host a webcast on current developments in state and local tax controversy. As states audit taxpayers for issues related to nexus, taxability, sourcing, and other matters, it is essential to know the latest trends and developments in how states are executing policy initiatives, which may not be published. The following topics will be discussed on the upcoming webcast, which will include participation from current and former government representatives: (1) nexus developments, including a discussion of current cases; (2) the proper role for the exercise of discretionary authority; and (3) a discussion of effective tax advocacy with the first chief judge of the Alabama Tax Tribunal, Hon. William L. (Bill) Thompson. Register for this event.

Florida: No documentary stamp tax is due on documents that transferred Florida real property or that transferred interests in conduit entities pursuant to mergers conducted under Maryland and Delaware law because these states' merger laws are virtually identical to Florida law in that any merger under Maryland and Delaware law would transfer real property by operation of law. In another transaction involving a liquidation and subsequent distribution of shares, since the acquiring entity's shares are publicly traded, any interests in conduit entities obtained by the acquiring entity through the exchange of the shares would not be subject to documentary stamp tax. Fla. Dept. of Rev., Technical Assistance Advisement No. 16B4-002 (Aug. 24, 2016, released Dec. 15, 2016).

Pennsylvania: New law (Bill No. 16081001) (Bill) amends Chapter 19-1400 of The Philadelphia Code regarding the City's Realty Transfer Tax, by closing certain loopholes. Notable changes amend the definition of "value" as it relates to acquired real estate companies as well as the definitions of "real estate company" and "acquired real estate company." The most significant change effected by the Bill is the way value will be calculated. Under Pennsylvania law, the value of a controlling interest transfer is based on the value of the underlying real estate owned by a real estate company. Value is calculated by multiplying the assessed value of the real estate for Pennsylvania property tax purposes by a common level ratio. The tax rate is applied to this amount to calculate the tax due. Instead of using this computation, for Philadelphia purposes, the value may not be less than the readily ascertainable market value of the underlying property. The Bill further creates a rebuttable presumption that when ownership of a real estate company is transferred the consideration paid for the company is the value. The Bill also changes the definition of a change of ownership of a real estate company. Under existing law, a change of ownership only occurred if 90% or more of the interests in the real estate company was transferred within a three year period, which includes any binding commitment to make a future transfer if the commitment was entered into within that period. The Bill lowers the threshold and, if enacted, provides that a change of ownership will occur if only 75% or more of a real estate company is transferred within a six year period. Philadelphia Laws 2016, Bill No. 16081001, signed by the mayor on Dec. 20, 2016. For more information on this development, see Tax Alert 2016-2159.

Wyoming: The Wyoming Department of Revenue (Department) correctly disallowed third-party transportation and/or processing fee deductions from severance tax that an energy company (company) attributed to untaxed and unsold fuel gas volumes retained by the third-party transporters/processors. In so holding, the Wyoming State Board of Equalization (Board) found that these fuel volumes are not considered in the netback valuation equation because these volumes are not transported or processed as a service to the company, nor do they ever reach the point of sale or generate revenue that is taxed. The netback valuation statute is unambiguous, allowing only those expenses necessary to transport and process produced minerals to the point of sale. If an expense is not incurred "by the producer for transporting produced minerals to the point of sale and third party processing fees," it is not included in the netback equation because doing so would allow a deduction for third-party transporting and processing that never occurred. In addition, the company owes interest because it knew or should have known its method of calculating the taxes due was not in compliance with the plain language of the statute. In re ConocoPhillips Co., No. 2015-30 (Wyo. SBE Dec. 13, 2016).

Because the matters covered herein are complicated, State and Local Tax Weekly should not be regarded as offering a complete explanation and should not be used for making decisions. Any decision concerning matters covered herein should be reviewed with a qualified tax advisor.