An article published by State Tax Notes discusses the Virginia Supreme Court's ruling that royalty payments by a company to an affiliate must actually be taxed by another state for Virginia's safe harbor exception to apply.
In a decision almost identical to its prior ruling in Kohl's Dep't Stores Inc. v. Virginia Dep't of Taxation, the state's high court again sided 4 to 3 with the tax department, which argued that the subject-to-tax exception found in the state's addback statute applies on a post-apportionment basis.
State and Local Tax Attorney, Breen Schiller discussed potential confusion for taxpayers.
"Theoretically, it can leave taxpayers scratching their heads, but I think more likely it will leave taxpayers frustrated and disappointed because the court reached the outcome that the department wanted and the rationale as to how it got there seems contrived," Breen Schiller of Horwood Marcus & Berk Chtd. said. "In the 'new' opinion, the court once again acknowledges the statute is ambiguous on its face and that ambiguities should be resolved in favor of the taxpayer, yet it resolves the ambiguity in favor of the department."
The full article, "Virginia High Court Again Rules for State in Addback Statute Case," was written by Jad Chamseddine and published by State Tax Notes on March 26, 2018 for its subscribers. (Subscription required)