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February 11, 2013
What's In and What's Out for SALT
by Stephen P. Kranz, Diann L. Smith, and Lisbeth A. Freeman

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by Stephen P. Kranz, Diann L. Smith, and Lisbeth A. Freeman

Stephen P. Kranz, Diann L. Smith, and Lisbeth A. FreemanAs the second month of 2013 begins, with state lawmakers and governors beginning to consider this year's new tax initiatives, and as the state tax world observes California's dance with the Multistate Tax Compact and all that entails, we thought it would be useful to take a snapshot of where we've been and where we're headed. This article is not a deep dive into any particular issue of state tax; rather, it is meant to stimulate discussion, debate, and e-mails expressing agreement or disagreement regarding the current state of state and local tax. In the spirit of many other "what's hot, what's not" lists promulgated at the beginning of each year regarding restaurants, pop culture, sports, and so on, we have consulted with a number of respected state tax practitioners to put together this list of "What's In and What's Out for SALT." Of course, no list would be worth its salt unless it included a few tongue-in-cheek references to less-than-serious trends, but you be the judge of that.

The past year gave state tax professionals some interesting court decisions, new laws, and tax policy initiatives that may drastically change the landscape of state tax in the years to come. Which of these events signal a beginning, and which signal an end? The alpha and omega of state tax?! Will the California Supreme Court's grant of certiorari in Gillette lead to the end of the Multistate Tax Commission or will the organization evolve its governance structure to fit the times? Will Microsoft's favorable District of Columbia court decision challenging "Magic 8-Ball" state transfer pricing audits bring a close to that chapter of history? The bills on BATSA, mobile workforce, marketplace fairness, digital goods and services tax fairness, and so many other federal bills that would solve or create problems for state tax professionals -- are they still in play? Will the never-ending appetite for sin tax revenue be sated by the possibility of taxing legalized marijuana.

With so many questions looming as 2013 gets off to its start, who can resist making a few predictions? Knowing that some of our respected friends and peers felt the same way, we decided to survey them to see what they would add to the list. Our thoughts and those of some of our friends are gathered on the next page. The list is not intended to be exhaustive, or necessarily accurate for that matter. It is simply an accumulation of trends foreseen by lawyers in our firm and some of the leading thinkers in the state tax world -- not all of whom wanted to be named (we've named the firms that did want to be mentioned). We also received some suggestions that made us laugh out-loud but were not printable here. Feel free to criticize the list -- we know you'll want to. Send it around to your peers with snarky comments. Post it on LinkedIn and Facebook. Or just wait until December when we publish our Best of SALT 2013, comparing hindsight with our predictions -- and make fun of us then. We look forward to making this an annual exercise, so enjoy!

               What's Out?                            What's In?

  Magic 8-Ball section             MTC Uniformity Project
       482 Audits                            on State section 482 Audits

  Streamlined Sales                Streamlined Sales Tax
       Tax Agreement                         Best Practices

  Onerous Delaware                 The New, Improved Delaware
       Unclaimed Property Audits             Unclaimed Property Voluntary
       After Voluntary Disclousre            Disclosure Agreements

  Unclaimed Property               Unclaimed Property Digital
       Life Insurance Audits                 Vendor Audits

  New York Click Through           California Click Through
       Nexus Approach                        Nexus Approach

  Colorado Reporting               Streamlined Sales Tax
       Regime Colorado                       Legislation

  Commissioner Dan Bucks           Dan Bucks -- Unleashed

  Paying Tax in Dollars            Paying Tax With Virtual

  Performing COP Calculations      Identifying Market
                                             Sourcing Data

  Digital Goods Taxation           Digital Services (Cloud)

  Statutory Apportionment          Free for All DOR Audit
       Formula                               Determinations

  Economic Nexus                   The Due Process Clause --
                                             (from Alston & Bird)

  Geoffrey Challenges              Combined Reporting

  Combined Reporting               Company-Specific Tax

  SALT Blogs                       SALT LinkedIn Groups

  MTC Closed Meetings              MTC Meetings

  MTC Compact Membership           Gillette Litigation

  DOR Internal Hearings            Independent Tax Tribunals

  Quill                            Federal Nexus Legislation

  Exemptions                       Rate Reduction and Base

  Income Tax                       Sales Tax on HGH

  Taxing Tobacco                   Taxing Marijuana

  Budget Deficits                  Tax Reform

  Federal Income Tax Cuts          State Income Tax Cuts for
       for Small Business "Job               Small Business "Job Creators"
  Recycling                        Bag Taxes

  Twilight Saga                    The Underground by Roxanne
                                             Bland (Counsel to the MTC)

  Sales Tax at Single-             Apportioned Sales Tax Base
        Source Location                      (from Kranz & Associates)

  Scott Peterson                   Craig Johnson

  New York Combination             New York Decombination --
                                             (from Alston & Bird)

  Brunori the Liberal              Brunori the Irritable

  Following Center on              Following Joe Henchman
        Budget and Policy
        Priorities'Off the Charts

  Audit Roulette                   Taxpayer Bill of Rights

  Administrative Fiat              Cloud Computing Court
        (Anything Goes in the                Decisions (1st Generation)
        Cloud)                               (from Alston & Bird)

  Last-Minute "Jeopardy            Statute of Limitations

  Art Rosen in Front of            Art Rosen on The Colbert
        Congress                             Report

* * * * *

The State Tax Policy Exchange is a new column by Stephen P. Kranz and Diann L. Smith. Kranz is a partner and Smith is counsel with McDermott Will & Emery LLP. Kranz and Smith were both previous general counsels for the Council On State Taxation. Kranz is former president of the Business Advisory Council of the Streamlined Sales Tax Governing Board. Lisbeth A. Freeman is an associate with McDermott. Other attorneys with the McDermott firm will sometimes coauthor columns.

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