July 30, 2020
Surprise, Altera Case has State Tax Implications!
Posted by Alex Thacher
On June 22, 2020, the Supreme Court of the United States denied Altera’s petition for writ of certiorari to review a 9th Circuit Court of Appeals decision upholding the validity of Treasury Regulation § 1.482-7A(d)(2), Altera Corporation & Subsidiaries v. Commissioner, 926 F.3d. 1061 (2019). The regulation at issue requires the inclusion of stock-based compensation costs in qualified cost-sharing agreements. In 2015 the U.S. Tax Court unanimously held that the regulation was invalidly promulgated under the federal Administrative Procedures Act, and the 9th Circuit overturned that decision.
From a federal income tax perspective, the Supreme Court’s denial of cert. in Altera has resulted in a geographical divide separating taxpayers headquartered inside/outside of the 9th Circuit, which presides over Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Oregon and Washington. From a state income tax perspective, neither the 9th Circuit decision nor the Tax Court decision is binding on the states.
Irrespective of how states ultimately decide the Altera issue, they are unlikely to mirror the federal geographical divide and discriminate amongst taxpayers based solely on their geographical footprint. As a result, taxpayers headquartered both inside and outside of the 9th Circuit should evaluate the state tax impacts of Altera on a state-by-state basis.
State Tax Refund Opportunities
The conflicting opinions of the 9th Circuit and the Tax Court might also give rise to refund opportunities for taxpayers with headquarters within the 9th Circuit, due to those taxpayers filing all of their state returns pursuant to the 9th Circuit Altera decision rather than evaluating the issue on a state-by-state basis.
Alex is the National Practice Leader of Armanino’s State & Local Tax (“SALT”) Practice and has over 18 years of deep technical experience in multi-state income/franchise tax, sales/use tax, local taxes, and credits and incentives. Alex has served clients across sectors including technology, retail, media and entertainment, utilities, pharmaceuticals, manufacturing, telecommunications, government contractors, e-commerce, software, construction, engineering and financial services.
Alex’s technical expertise includes unitary and consolidated filings; mergers and acquisitions consulting and due diligence; the development, evaluation and implementation of restructuring plans; apportionment reviews and planning; ASC 740 and ASC 740-10 reviews; audit representation; transaction analysis; residency audits; nonresident withholding; Wayfair nexus studies; and voluntary disclosure negotiations.
Alex earned his BA from Boston College and his JD from the University of Connecticut School of Law, where he served as the Administrative Editor of the Connecticut Journal of International Law. Alex is admitted to the New York State Bar, the District of Columbia Bar, the Connecticut Bar, and the United States Tax Court. Alex is a California Tax Education Council (CTEC) Registered Tax Preparer and a Registered Lobbyist with the City of Los Angeles.