Tuesday, March 19, 2013

Tennessee Trial Court Dismisses Phone Company's Refund Claim

    
     A Tennessee trial court has dismissed a phone company's franchise and excise tax refund lawsuit, concluding that the revenue commissioner properly exercised his discretion under UDITPA and the MTC regulations by imposing a variance to source sales of wireless service to the billing address of Tennessee customers. In so holding, the trial court did not address the taxpayer’s apportionment calculation, which was based on a cost-of-performance methodology. Vodafone Americas Holdings, Inc. v. Roberts, Civil No. 07-1860-IV (Mar. 19, 2013).


     For the tax years at issue , Vodafone filed Tennessee franchise and excise tax returns, using the billing addresses of the customers of Verizon Wireless to source its receipts from sales of certain telecommunications services. A refund claim was later filed asserting that Tennessee franchise and excise tax was not due because Vodafone lacked statutory and constitutionally-required business activity in Tennessee.
The refund claim was denied, and Vodafone initiated the subject lawsuit. Vodafone also asserted that the proper apportionment of the majority of wireless services at issue should be calculated using a cost-of-performance methodology.

     The revenue commissioner subsequently exercised his variance power and required Vodafone to calculate its Tennessee apportionment sales factor for the refund period and for all subsequent years using a "primary-place-of-use" methodology (i.e., according to the locations of the cell phone customers).

     In an earlier ruling on cross-motions for summary judgment, the trial court concluded that the Vodafone general partnership interest was sufficient to establish taxing nexus with Tennessee because of the activities of the general partnership in Tennessee. The trial court had also denied both parties’ motions for summary judgment and held that a trial was necessary to resolve factual issues bearing on the "propriety of the Commissioner's imposition of the variance at issue in this case under Tennessee law."

     A trial on stipulated facts and stipulated exhibits was held on March 5, 2013. On March 19, 2013, the court issued its memorandum and order, holding that the variance was properly issued by the revenue commissioner. In reaching this conclusion, the court primarily relied on Bellsouth Adver. & Publ’g Corp. v. Chumley, 308 S. W.3d 350 (Tenn. Ct. App. 2009), finding that "it was reasonable for the Commissioner to conclude that the cost of performance methodology did not fairly reflect the extent of Vodafone’s business activity in Tennessee. " The change in taxable earnings "amounted to roughly an 89% reduction" in apportioned receipts.

     The Court also concluded that the revenue commissioner’s properly found that Vodafone’s case presented an "unusual factual situation" that warranted the imposition of a variance based on the applicable regulations.

     The Court’s ruling is a final order for appeal purposes. Accordingly, Vodafone will have 30 days to file a notice of appeal if it intends to pursue this matter further.

Brett R. Carter, Bradley Arant Boult Cummings, LLP, Nashville

Tuesday, March 5, 2013

Amended Tennessee Business Tax Bill Released For Further Comment

The Tennessee Department of Revenue has released a new version of its Tennessee Business Tax Bill, which is titled the Uniformity and Small Business Relief Act. The original version, which was released in mid-February was addressed in an earlier article, Tennessee Requests Comments on Legislation to Amend the Locally-Imposed Gross Receipts Tax. This new version of the bill makes changes to the provisions applicable to cable and satelite providers as well as changes to the exemption for small businesses. The exemption is clarified in that the exemption level is raised to sales of $10,000 per jurisdiction. Taxpayers exempt under this provision must obtain an annual "Minimal Activity License" at a charge of $15 per year. The revision also clarifies the fact that services are imposed based on where a customer is located and receives the taxable services. It is likely that additional changes will be released, and we will update those revisions as they are made. A copy of the Amended Uniformity and Small  Business Relief Act is linked for your review.