Tax Headlines


Illinois ~ Tobacco Tax: Rates Increased; New Cigarette Machine Tax Enacted

Enacted Illinois legislation increases the cigarette and tobacco products tax rates, creates a new cigarette tax, and redefines the terms “cigarettes” and “contraband cigarettes.” Sales and use tax (TAXDAY, 2012/06/18, S.8), income tax (TAXDAY, 2012/06/18, S.6), and property tax and hospital assessment TAXDAY, 2012/06/18, S.7) provisions are discussed in separate stories.

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New Hampshire ~ Property Tax: Arbitrator Did Not Exceed Authority in Tax Dispute

The New Hampshire Supreme Court reversed a Superior Court decision vacating an arbitrator’s decision that a taxpayer was not required to pay property taxes under a lease agreement with the city of Lebanon. The Supreme Court held that the arbitrator did not exceed the scope of his authority when he ultimately decided that the facts supported reformation of the lease in light of a mutual mistake.

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All States ~ Sales and Use Tax: CRIC Finds Utah in Compliance With SST Agreement, Discusses Ohio’s Compliance

During a conference call held on June 14, 2012, the Streamlined Sales Tax (SST) Compliance Review and Interpretations Committee (CRIC) voted 7-0 in favor of finding Utah “not out of compliance” with the SST Agreement. The CRIC also discussed Ohio’s compliance issues but did not vote on Ohio because the state has not yet petitioned for full membership.

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S Corporation Had Reasonable Cause for Failure to Timely File Annual Tax Return (Ensyc Technologies, TCS)

An S corporation was not liable for the penalty for failure to timely file its annual tax return. The failure of the S corporation to timely file its return was due to reasonable cause because the entity exercised ordinary business care and prudence in its efforts to timely file its Form 1120S for the tax year at issue. The entity’s accountant had sent the return to the president of the company in time for him to file the return by its deadline. The president retained a copy of the 1120S bearing his signature, and he believed he had sent the original to the IRS. However, it was determined that the president never mailed the Form 1120S that his accountant had prepared for him.

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VEBA’s Investment Income Properly Included in Calculation of Excess in Qualified Asset Account (Northrop Corp. Employee Insurance Benefit Plans Master Trust, CA-FC)

The Court of Federal Claims properly held that a tax-exempt voluntary employees’ beneficiary association (VEBA) could not avoid the Code Sec. 512(a)(3)(E)(i) limitation on exempt function income by paying welfare benefits with investment income. Under Reg. §1.512(a)-5T the VEBA’s unrelated business taxable income (UBTI) was the lesser of the VEBA’s investment income or the investment income that exceeded the qualified asset account limit, regardless of whether the income was spent on member benefits during the year. Thus, the VEBA’s income was exempt from tax only to the extent that it did not exceed the amount necessary to satisfy incurred but unpaid member claims.

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