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December 15, 2014
Person of the Year

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State Tax Notes is pleased to announce its annual year in review edition, featuring person of the year, given to the individual or organization that had the most influence on state tax policy and practice. The editorial staff has compiled a list of the best in our profession.
Robert Plattner

Rob PlattnerThis year's person and administrator of the year is Robert Plattner for his work on corporate tax reform in New York state. That reform has received accolades for improving the competitiveness of the state's tax code by merging the bank tax into the corporate franchise tax, adopting single-sales-factor apportionment with market-based sourcing, broadening the corporate tax base, and lowering the rate.

But reform didn't happen overnight -- it was years in the making. In 2007, after acknowledging that the state needed to modernize the way it taxed businesses, the New York State Department of Taxation and Finance created a small group to identify goals for reform. Plattner had recently joined the department as deputy commissioner of the Office of Tax Policy and Analysis, and given his experience on the State Assembly's Legislative Tax Study Commission and his interest in tax policy, he was the perfect choice to lead the group.

The group spent close to two years brainstorming before presenting the core elements of its reform proposal to the business community and other interested parties. That tack proved beneficial -- because there was a document to work with, the discussions were more focused.

After more than two years of extensive discussions with the corporate community and other constituencies, Plattner and his team produced a comprehensive reform proposal, including draft legislation. In December 2012, Gov. Andrew Cuomo (D) created the Tax Reform and Fairness Commission, which was mandated to find ways to make the state's tax code simpler and fairer and enhance the state's business climate. That gave Plattner the chance to share his team's work with the commission. The team's legwork paid off. Because the commission was starting with a nearly complete reform proposal, it was able to present less than a year later a report that largely mirrored the team's draft. Had the commission been starting from scratch, it probably couldn't have issued such a sweeping report so quickly. Cuomo included the proposal as part of the tax reform package in his budget bill for fiscal 2015. The rest is history.

Leah Robinson of Sutherland Asbill & Brennan LLP said Plattner built a great, thoughtful team to work on the reform effort. "He championed tax reform in New York -- not just this time but over the past decade," Robinson said.

Jack Trachtenberg of Reed Smith LLP also noted how instrumental Plattner was to the reform effort, saying, "If not for Plattner spearheading the process, reform may not have happened."

Plattner isn't new to making significant changes through legislation. He also took a leading role in developing New York's "Amazon" law, the nation's first "click-through" nexus law. The concept of asserting sales tax nexus against Amazon and other online retailers based on in-state affiliates (for example, in-state organizations that actively solicit sales in the New York market on behalf of an Internet retailer and receive commissions based on completed sales) was novel at the time. Plattner said the legislation was based on a modern interpretation of Scripto's attributional nexus theory. The law caused much debate, culminating in the U.S. Supreme Court's denial of certiorari in two cases challenging its constitutionality.

What's novel about Plattner's tax policy concepts for corporate tax reform and the Amazon law is that they tested constitutional bounds while remaining pragmatic enough to actually be implemented. That he bridged the gap between the theoretical and the practical isn't all that surprising. Those who know him say he's a practical person who thinks about the concepts of good tax policy, he understands that tax reform is only as good as the work put into it, and he knows that major legislation will pass only if the timing and political atmosphere are right.

Arthur Rosen of McDermott Will & Emery LLP called Plattner "a consistent champion of tax reform." Rosen said that although he doesn't always share Plattner's views on tax issues, Plattner deserves much credit for leading the effort that resulted in corporate tax reform in New York state. Plattner "set forth the overall contours of what he believed was good tax policy, gathered support within the relevant government circles, and engaged the business community in meaningful discussions," Rosen said. That coordinated approach allowed Plattner to be "eminently successful where others have failed," Rosen added.


U.S. Supreme Court

U.S. Supreme CourtWith three cases before the U.S. Supreme Court this term, including one that has the potential to significantly alter commerce clause jurisprudence, state and local tax practitioners hope the Court is willing to resolve thorny questions that have lingered for years.

Jeff Friedman of Sutherland said it's difficult to read into the Court's willingness to hear three state tax cases but that he hopes it bodes well for the future. "The number of unanswered constitutional questions is increasing as new business models become more prevalent," he said.

Although the cases are the first on state and local taxes the Court has heard since 2012, this isn't the first time the Court has had multiple SALT cases in one term. During its 1991-1992 session, the Court heard eight state and local tax cases, issuing landmark decisions like Quill and Allied-Signal.

University of Georgia law professor Walter Hellerstein said the Court didn't decide to focus on state tax cases this term; rather, circuit splits and the individual importance of at least two of the cases drove it to act. While observers can understand why the Court took CSX and Direct Marketing , it's much harder to understand why it took Wynne, he said, adding, "There was no circuit split, there was no disarray -- every state in the country, including Maryland, does it this way."

In Wynne, the case with the biggest potential impact on state and local tax matters, Maryland residents challenged the state's denial of a credit for income taxes paid in other states. The Maryland Court of Appeals sided with the taxpayers, holding that the state's policy amounted to double taxation in violation of the federal commerce clause. Maryland appealed to the U.S. Supreme Court with the support of the U.S. solicitor general, who argued that states have the authority to tax 100 percent of their residents' income.

Friedman said the Court raised the stakes in Wynne when it asked the solicitor general to intervene, calling that request a game changer. The solicitor general argued that Maryland's denial of a full credit doesn't violate the fair apportionment prong of the Complete Auto test and that the state's credit scheme doesn't hinder interstate commerce, as the Wynnes argue.

Oral arguments appeared to show a divided Court. Some justices questioned how the Maryland tax scheme doesn't operate as an illegal tariff on interstate commerce. Others appeared persuaded that residents of a state can somehow avoid paying for their fair share of services.

The Court will also issue opinions in Direct Marketing Association v. Brohl and Alabama Dep't of Revenue v. CSX Transportation Inc. Although neither case has garnered the attention Wynne has, both could have interesting effects on state and local tax jurisprudence. A finding for the state in Direct Marketing could bar the doors of federal courts for plaintiffs bringing a state-revenue-related challenge. And although the issue in CSX is a narrow one based on federal law, what the Court says about different types of potentially discriminatory taxes could have far-reaching applications. (Related coverage: p. 587.)


Lynn Gandhi

Lynn GandhiLynn Gandhi of Honigman Miller Schwartz and Cohn LLP has had a busy year. She served as chair of both the State Bar of Michigan Taxation Section and the Michigan Chamber of Commerce Tax Policy Committee, and did so when developments stemming from the Multistate Tax Compact election litigation, which from a national perspective seemed relentless, accounted for only a fraction of the state's tax-related upheaval. (Related coverage: p. 590.)

"It has been an unprecedented period for Michigan taxpayers," Gandhi said. Businesses and practitioners have had to deal with the "tsunami of litigation leading up to, and in response to, the IBM decision and Public Act 282," she said -- referring, of course, to the Michigan Supreme Court's July ruling (853 N.W.2d 707 (Mich. 2014)) and the state's attempt to legislatively override it by retroactively repealing the compact to avoid paying an estimated $1 billion in tax refunds to out-of-state businesses.

Honigman Miller is involved in the "big three" compact cases in the state, with Gandhi's legal handiwork playing a major role. She has filed an amicus brief on behalf of the Council On State Taxation in support of IBM Corp. at the Michigan Supreme Court, served as local counsel for Lorillard Tobacco Co. at the appellate level, and filed an amicus brief in Anheuser-Busch, also at the appellate level. She also represents several taxpayers in compact cases pending before the court of claims.

During her two-year term chairing the chamber's Tax Policy Committee, Gandhi was key in helping the business community secure passage of several bills to increase transparency and improve audit processes at the Michigan Treasury Department. One bill includes measures requiring the department to publish its internal policy directives and provide taxpayers with complete audit workpapers, and another addresses an unclaimed property holder's right to access its audit report.

Tricia Kinley of the chamber said Gandhi has been "a strong and fearless tax leader" for the chamber's members. "She is clearly devoted not only to her profession, but creating a better business tax policy environment for taxpayers of every type and size," Kinley said. "With Lynn's guidance, we've had a hugely successful legislative session in the area of tax reform, providing real solutions to real problems that taxpayers face."


Scott Waller

Scott Waller Equifax Inc. v. Department of Revenue, 125 So.3d 36 (Miss. 2013), sounded the clarion call for Mississippi business and tax practitioners that the state needed to address not just its alternative apportionment methods but also its tax controversy appeals processes.

Scott Waller, executive vice president and chief operating officer of the Mississippi Economic Council (MEC), was indispensable in the passage of a legislative solution (HB 799) to the problems highlighted by Equifax.

John Fletcher of Jones Walker LLP said that while Waller isn't a tax guy, he quickly grasped what Equifax was really about: fundamental taxpayer fairness.

Waller witnessed the intense negative reaction the decision generated throughout the national business and tax community, Fletcher said. "I think it really bothered him how big an impact that and several other recent cases were having on the state's reputation as a business-friendly environment," Fletcher said. "He really poured himself into fixing the problem."

Fletcher said Waller "talked to a huge number of people not only here in Mississippi but throughout the country to identify and understand the issues and ways other states have responded to similar problems."

Douglas Lindholm, COST executive director, said Waller's greatest asset is the reputation he has built in Mississippi's capitol. "He is well-liked and well-respected at the Statehouse, but more importantly, it was quite apparent that he is trusted implicitly by the state's political players on both sides of the aisle," Lindholm said.

Waller's reputation and experience were invaluable in getting HB 779 passed. He worked with groups such as lawmakers, government officials, the Department of Revenue, Mississippi business leaders, local tax attorneys, and the press, Fletcher said.

Waller's work on HB 779 wasn't his first foray into changing Mississippi's tax law -- in 2013 he shepherded a bill (HB 892) establishing statutes of limitations for tax audits -- but his leadership in the effort to pass the Equifax legislation earned him widespread praise.

"I think it's more than fair to say this bill would not have happened had Scott not taken on this monumental task, and I think we all owe him thanks for all that hard work and what he, the MEC, and Mississippi were able to accomplish," Fletcher said. "What Mississippi produced was a very thorough, balanced, and fair solution that is getting favorable reviews throughout the country."

"Scott really was the tip of the spear in all of this," said Maureen Riehl, COST vice president for government affairs. "When it comes to our partners in the states, I put him at the very top of the list of the people we consider trusted and truly a joy to work with."

Louis Fuller of Brunini, Grantham, Grower & Hewes PLLC said part of what makes Waller so effective is his ability to keep practitioners informed about the process, invite their comments and participation, and welcome their insights.

"I'm not sure that if it had been anybody other than Scott, we would have had the same result," Riehl said. "He was just the right thing at just the right time, and that is because he is who he is."


Anthony Williams

Anthony WilliamsOn July 14 the District of Columbia Council approved a budget that included major tax relief, the District's first such package in 15 years. That development was largely a result of the influence of a D.C. mayor -- just not the current one.

Instead, it was Anthony Williams, the District's mayor from 1999 to 2007 and its CFO before that, who swayed the council. Williams chaired the D.C. Tax Revision Commission, a blue-ribbon panel appointed by the council and Mayor Vincent Gray (D). The panel's mission? Apportion taxes fairly, broaden the tax base, make the District's tax policy more competitive, encourage business growth and job creation, and modernize and simplify the tax code.

The commission's recommendations, finalized in May, included lowering the business tax rate, switching to single-sales-factor apportionment, conforming individual income tax brackets and the estate tax threshold to federal standards, and expanding the sales tax to various services. The council voted to adopt all the recommendations over Gray's veto.

In an interview, Williams said the fact that Gray wasn't onboard with many of the commission's recommendations made him realize the commission "had some uphill work to do." So Williams went directly to the council.

Council Chair Phil Mendelson (D) agreed with Williams and refashioned the District's budget to include most of the commission's recommendations. "I was delighted," Williams said. "We worked very, very hard toward our conclusions."

Williams said he thought the council took the commission seriously from the start, in part because he was chair. "I think they were influenced by my service as mayor, weighing back in on a subject I thought was important," he said. "I had a track record in the financial world."

But Williams said he mostly reminded council members why the commission was there in the first place. "You created this commission," he told council members. "We worked with you, we consulted with you," to come up with what the council specified: a tax code that was more efficient, fair, and competitive, he said.


Sam Brownback

Sam BrownbackThe tax policies of Kansas Gov. Sam Brownback (R) have not yet amounted to the economic shot of adrenaline Brownback promised, but to the dismay of many pollsters, they didn't prevent the embattled governor's reelection November 4.

Four years ago, Brownback enjoyed a landslide victory over his Democratic opponent. This year, with many in his own party having left him for dead, he merely squeaked by to secure a second term in the governor's mansion. The cause of his near downfall? Massive individual income tax cuts that caused major revenue shortfalls and credit rating downgrades. (Related coverage: p. 597.)

Kansas enacted nearly $800 million in income tax cuts in 2012 and reduced its sales and income taxes in 2013. The three-bracket individual income system, with rates of 3.5 percent, 6.25 percent, and 6.45 percent, became a two-bracket system with rates of 3 percent and 4.9 percent. The state also exempted nearly 200,000 businesses from income taxes altogether.

As a result, the state saw a $701.1 million revenue shortfall in fiscal 2014. According to a November 17 revised forecast, Kansas will see a projected revenue shortfall of $436 million in fiscal 2015 and $100 million in fiscal 2016. The revenue shortfalls are expected to be smaller over time because the forecast assumes that spending will be cut to account for the lower revenues.

Organizations such as the Center on Budget and Policy Priorities have attacked Brownback's policies as a "radical tax-cutting experiment," while others have reserved judgment, saying it's still too early to know the full impact of the tax cuts.

The day after his reelection, Brownback continued to defend his tax policies. He said his administration will work on a new fiscal forecast and has already identified $101 million in budget savings to make up for the shortfall. Despite that, lawmakers in the 2015 session will be forced to address the revenue shortfalls, likely by enacting severe budget cuts.


COST

COST logoState Tax Notes recognizes Council On State Taxation as its organization of the year for tirelessly filing amicus curiae briefs both on taxpayers' behalf and in pursuit of its tax policy goals.

Despite its small staff, COST is consistently among the top 20 filers of amicus briefs in the U.S. Supreme Court. Between September 2013 and November 2014, it filed briefs in seven cases, three of which the Court agreed to hear (Treasury v. Wynne; Direct Marketing Association v. Brohl ; and CSX Transportation Inc. v. Department of Revenue).

COST also regularly files briefs in state supreme courts, including in IBM v. Treasury and Gillette v. Franchise Tax Board, both of which address questions regarding the compact election.

Lindholm said COST was formed to support the legislation stemming from U.S. Steel and will advocate for taxpayers on compact matters for years to come.

As state tax law has become more complex, so has COST's involvement on taxpayers' behalf. Lindholm said his group used to file about five briefs a year but now files at least 15.

Karl Frieden, COST vice president and general counsel, listed non-compact topics COST has filed briefs on, including corporate apportionment, due process, commerce clause, and discrimination and double taxation. "Our level of filing reflects the level of controversy that exists now in the state tax arena," he said.

Frieden said COST wants to advocate for its members and further its tax policy objectives using its best legal arguments. But he said the group also tries to go a step further by illustrating for the court exactly what it believes to be at stake. For example, in its Wynne brief, COST gave the Supreme Court statistics on the amount of business income taxed under the individual income tax to show that a decision for Maryland would equate to saying that income is exempt from the commerce clause protection on double taxation, Frieden said.

Multistate Tax Commission Executive Director Joe Huddleston said he respects COST and reads all its briefs, adding that the groups does "an outstanding job" in giving a legitimate perspective on state tax. Huddleston said that while many people see the MTC and COST as adversaries, he doesn't. "In a fashion, we do the same thing -- we are both trying to achieve what we see as the right result on state tax issues," he said. "It's true that COST often has a different perspective than ours, but I don't think that makes us adversaries."

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