KPMG reports: Connecticut, Michigan, North Carolina, Virginia

KPMG reports focus on recent state and local tax developments

KPMG reports focus on recent state and local tax developments

KPMG’s This Week in State Tax—produced weekly by KPMG’s State and Local Tax practice—focuses on recent state and local tax developments.

  • Connecticut: The Department of Revenue Services ruled that net operating losses (NOLs) generated in years when corporations filed a unitary combined return remained available to the group after two of the unitary group members merged into a third. In the Department’s view, by allowing the surviving entity to use the NOLs allocated the merged corporations or to share such NOLs with the other corporate member, the income against which the NOLs will be applied will be generated by substantially the same businesses that incurred the losses.
  • Michigan: A state appeals court held that a taxpayer was making retail sales and was required to pay sales and use tax on its delivery charges. In reaching this conclusion, the court rejected various arguments made by the taxpayer that it was not making retail sales of tangible personal property, including that it was providing a delivery service or was acting as a purchasing agent for its customers.
  • North Carolina: The Office of Administrative Hearings (OAH) addressed the constitutionality of a franchise tax statute that allows a deduction from the corporate franchise tax base only for receivables owed to the taxpayer by related corporations doing business in the state. The OAH first determined that it had the authority to decide the taxpayer’s as-applied constitutional challenge and that the taxpayer could proceed with a claim that the statute was unconstitutional as applied to it without having first to establish that the statute was capable of constitutional applications. Next, the OAH noted that the statute denied the taxpayer a deduction for certain of its affiliate receivables, while a corporation that loaned only to affiliates that do business in North Carolina was permitted to deduct all its affiliate receivables. The OAH concluded that this “differential treatment” based on the location of the debtor’s business was clearly discriminatory.
  • Virginia: The Department of Taxation ruled that an artist that painted a mural for a subway station was selling tangible personal property because the mural was painted on canvasses before being installed. In the Department’s view, the "true object" of the transaction between the artist and the train station (customer) was to obtain the canvasses because the work would be of no value to the customer without the transfer of the canvasses. Therefore, the entire charge for the mural, including the services rendered in creating the art, was subject to Virginia retail sales and use tax.

Read a January 2022 report prepared by KPMG LLP


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