http://www.dixon-hughes.com Welcome to Dixon Hughes News Release en-us http://www.dixon-hughes.com/index.asp?intReleaseID=481&month=10&year=2011 Tysons, Va., October 24, 2011 – The local public accounting and consulting firm Swart, Lalande & Associates, P.C. and nationally ranked accounting firm, Dixon Hughes Goodman LLP have announced that they will join forces effective November 1. Swart, Lalande & Associates, which has been in business since 1960, and has a staff of more than 35 professionals, will become a part of Dixon Hughes Goodman; the largest public accounting firm based in the South. Swart, Lalande & Associates will take on Dixon Hughes Goodman’s name as a result of the partnership. “This union is an exciting decision for our firm,” said Rick White, Managing Shareholder with Swart Lalande & Associates. “After months of research, conversations and meetings with Dixon Hughes Goodman management and professionals, we are convinced that this venture will truly benefit our valued clients and staff. Dixon Hughes Goodman embraces our same cultural, operational and ethical values – and prides itself on the ability to combine deep industry experience and comprehensive accounting and advisory services with a strong commitment to personal service.” With more than 1,700 people in 30 offices in 11 states and Washington, D.C., Dixon Hughes Goodman is the 13th largest CPA firm in the country and offers business solutions in the specialized services of business valuation, debt and equity financing, human resources and tax credit and incentive programs. Within the D.C. Metro area, the firm has locations in Rockville, Md., Tysons, Va. and Washington, D.C.“Swart, Lalande & Associates has been a respected industry leader in this region for more than 50 years,” said Brian S. Carlton, Regional Managing Partner for Dixon Hughes Goodman. “The expanded services and specialized talents of our two firms will create great synergies for all of our clients and we look forward to having Swart Lalande & Associates join the Dixon Hughes Goodman team.”While the partnership between the two firms becomes effective on November 1, the staff of Swart, Lalande & Associates will move its offices into Dixon Hughes Goodman’s new Tysons location (1410 Spring Hill Road, Suite 500; Tysons, VA 22102) on November 21. About Swart, Lalande & AssociatesSince 1960, Swart, Lalande & Associates, P.C. has provided reliable accounting and advisory services to clients throughout the Mid-Atlantic region, including audit and attestation, business consulting, business valuation and litigation support, employee benefit plans, estate and trust planning, and tax compliance and planning. The firm also maintains a strong presence in the construction, diversified business, government contracting, not-for-profit and real estate industries. Swart, Lalande & Associates has a staff of more than 35 professionals. For more information about Swart, Lalande & Associates, visit www.slacpa.comAbout Dixon Hughes Goodman With more than 1,700 people in 30 offices in 11 states and Washington, D.C., Dixon Hughes Goodman is the largest certified public accounting firm based in the South and the 13th largest in the nation. In addition to comprehensive accounting and advisory services, the firm focuses on eight major industries and serves clients in all 50 states. Visit www.dhgllp.comfor more information. http://www.dixon-hughes.com/index.asp?intReleaseID=476&month=9&year=2011 John Bowles Selected to Serve on the Information Technology Alliance Board Charlotte, N.C., September 27, 2011 – John Bowles, chief information officer for Dixon Hughes Goodman, has been selected to serve a term on the Information Technology Alliance (ITA) Board. The ITA is an independent technology association of leading mid-market technology professionals, consultants and product/service providers in North America. The ITA promotes independent thinking and creates platforms in which information can be shared among group members. Their motto is “Knowledge Increases in Value When it is Shared”. “I am highly honored to serve as an ITA board member. Participation provides networking opportunities, benchmarking and the means to identify and perpetuate best practices. Over the years, I have gained a great deal of knowledge through participation in this association and I am thrilled to give back by serving on the board,” commented John. For more information on the ITA, visit www.italliance.com. About Dixon Hughes Goodman - With more than 1,700 people in 30 offices in 11 states and Washington, D.C., Dixon Hughes Goodman is the largest certified public accounting firm based in the Southern U.S. and the 13th largest in the nation. In addition to comprehensive accounting and advisory services, the firm focuses on eight major industries and serves clients in all 50 states. Visit www.dhgllp.com for more information. http://www.dixon-hughes.com/index.asp?intReleaseID=474&month=9&year=2011 Mark Crocker Appointed to South Carolina Board of Accountancy Greenville SC – August 28, 2011 – Mark Crocker, Partner in Dixon Hughes Goodman LLP’s Greenville, South Carolina office was recently appointed by Governor Nikki Haley to the South Carolina Board of Accountancy. This is a nine member board responsible for licensing of all CPAs and public accountants who practice in the State of South Carolina. Mark is a graduate of the University of South Carolina, and has practiced as a CPA since 1979. He currently has responsibilities for the firm’s Greenville, Spartanburg and Charleston offices. About Dixon Hughes Goodman - With more than 1,700 people in 30 offices in 11 states and Washington, D.C., Dixon Hughes Goodman is the largest certified public accounting firm based in the Southern U.S. and the 13th largest in the nation. Visit www.dhgllp.com for more information. http://www.dixon-hughes.com/index.asp?intReleaseID=473&month=7&year=2011 Tony Buffkin Earns Designation as a Certified Member of the Institute for Sales Tax Fromthe Institute for Professionals in Taxation Charlotte, N.C., July 12, 2011 – Tony Buffkin, senior manager in Dixon Hughes Goodman’s Charlotte state and local tax practice, has earned his CMI designation in sales taxation from the Institute of Professionals in Taxation. The Certified Member of the Institute (CMI) is the highest level of professional achievement in business sales and use taxation and is a mark of professional distinction in the field. Certification is offered in three separate and distinct categories: Property Tax, Sales and Use Tax, and State and Local Income Tax. Buffkin is the first individual in Dixon Hughes Goodman’s firm of more than 1,700 employees to earn the sales tax designation. The objectives of the Sales Tax Professional Designation program are to: Raise the professional standards and qualifications of those engaged in sales and use tax administration. Identify persons who have a thorough knowledge of the principles and practices of sales and use taxation, related disciplines and laws, and who meet prescribed requirements and manifest exemplary ethical standards of performance and conduct consistent with IPT’s Code of Ethics. Improve the practice of sales and use tax administration through continuing education and professional development. “This designation is a reflection of Tony’s ongoing commitment to achieving excellence in his field,” said Matt Snow, managing partner for Dixon Hughes Goodman’s Charlotte region. “By providing this level of sophisticated knowledge to his clients, he further demonstrates his dedication to ongoing education and professional service.” About CMIThe Institute, through its CMI designation program, is the first to recognize professional achievement in sales and use taxation. This designation is widely known as a mark of achievement and distinction in the sales and use tax field. About Dixon Hughes Goodman With more than 1,700 people in 30 offices in 11 states and Washington, D.C., Dixon Hughes Goodman is the largest certified public accounting firm based in the Southern U.S. and the 13th largest in the nation. In addition to comprehensive accounting and advisory services, the firm focuses on eight major industries and serves clients in all 50 states. Visit www.dhgllp.com for more information. http://www.dixon-hughes.com/index.asp?intReleaseID=471&month=7&year=2011 UNCERTAIN TAX POSITIONS FOR FLOWTHROUGH ENTITIES: WHAT IS AN INCOME TAX? Article by: Kathleen K.Wright, CPA, MBA, JD, LLM and Jack Small, CPA, CMIFeatured in: The Tax Adviser | June 1,2011 Privately held business entities were swept up into the complexity of accounting for uncertainty in income taxes in 2009. Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, relating to accounting for uncertainty in income taxes, requires evaluation and disclosure of the risk associated with uncertain tax positions taken or expected to be taken in a tax return.1 The portion of ASC 740 formerly known as FIN 48 was effective for fiscal years beginning after December 15, 2006, for publicly traded companies and was made applicable to all business enterprises including not-for-profit organizations, passthrough entities, real estate investment trusts, and registered investment companies for years beginning after December 15, 2008. This column examines the unique state tax issues that arise under ASC 740 for privately held business entities that are organized as flowthrough entities. For federal purposes, only a small percentage of flowthrough entities pay income taxes, with the most notable exception being certain S corporations. If the scope of ASC 740 did not extend beyond federal law, the number of flowthrough entities subject to the analysis would be minimal. For state purposes, a significantly larger population of flowthrough entities will be subject to this analysis as states move toward assessing various types of gross receipts taxes on flowthrough entities. States have adopted gross receipts tax structures in lieu of the more traditional income tax as a means of expanding their tax base under the guise of relative ease of administration and the lack of complexity in their calculation. This column discusses assessments made by various states to determine whether they are income taxes and subject to the ASC 740 analysis. Assessment of an Income Tax ASC 740 applies only to business entities subject to income taxes. The question of whether a wide variety of state taxes fall under the rubric "income taxes" has raised vexing questions, including whether the assessment is subject to apportionment, state constitutional standards, income tax nexus standards (such as P.L. 86-272), treatment on the state return (i.e., deductible as a fee or creditable as a tax paid to other states), and applicability of ASC 740. Several states (most notably Texas, Michigan, Ohio, and recently Oklahoma) have enacted tax systems that have characteristics of both sales and income taxes. These states (and others) have issued their own opinions on whether these assessments are income taxes or are more in the nature of fees. These determinations generally deal with whether the levy is a sales and use tax or an income tax and, if an income tax, whether it is deductible on the state return. The results are far from consistent. ASC 740-10-20 defines "income tax" as domestic and foreign federal (national), state, and local (including franchise) taxes based on income. While ASC 740 does not include a definition of "income subject to tax," it does include a definition of certain types of assessments to which ASC 740 does not apply. It does not apply to a franchise tax to the extent it is based on capital and there is no additional tax based on income. If there is an additional tax based on income, that excess is considered an income tax and is subject to ASC 740.2 Example: In August 1991, State A amended its franchise tax statute, effective January 1, 1992, to include a tax on income apportioned to the state based on the federal tax return. The amount of franchise tax on each corporation was set at the greater of 0.25% of the corporation's net taxable capital or 4.5% of the corporation's net taxable earned surplus. Net taxable earned surplus was defined in the state statute by reference to the corporation's federal taxable income.3 ASC 740-10-55-141 concludes that the total computed tax in this case "is an income tax only to the extent that the tax exceeds the capital-based tax in a given year." Only that portion of the tax is subject to the analysis required under ASC 740. Under this very broad definition, most state assessments, including some franchise taxes based on earned surplus or income taxes, qualify as income tax payments under the umbrella of ASC 740. Assessing a tax on the earned surplus implies that an income tax is assessed if the base of the tax is reduced by at least some deductions. This is the approach taken by most practitioners with respect to the applicability of ASC 740, although this is not the approach taken by the states when they analyze taxes for purposes of determining deductibility. An increasing number of state assessments are based on gross receipts or gross income and exhibit characteristics of both fees and income taxes. Various state and local taxes may have income tax–like elements that can potentially belie their nomenclature as something other than an income tax. When compared with net income taxes, the most significant difference is that deductions are not permitted. Several of these taxes are discussed here to the extent that they have spawned controversy. Texas: The Texas Margin Tax Effective January 1, 2008, Texas changed its former franchise tax to a margin tax. The margin tax is described as a tax based on gross receipts with certain allowable deductions.4The taxable margin is computed based on the lesser of: 70% of the taxable entity's total revenue from its entire business; or The taxable entity's total revenue from its entire business less—at the election of the taxable entity— either cost of goods sold (COGS) or compensation. The Texas margin tax is assessed on S corporations, partnerships, limited liability partnerships (LLPs), limited liability companies (LLCs), and single-member LLCs (SMLLCs) at the entity level.5Several states (including Texas in its own legislative history) have opined on whether the Texas margin tax is an income tax, with inconsistent results. The Texas Legislature's Enrolled Bill Summary6makes clear that the restructured franchise tax is not an income tax and that the federal law concerning state taxation of income from interstate commerce (i.e., P.L. 86-272) does not apply. In addition, the bill analysis states that the attorney general indicated that the plan would not constitute an income tax and likely would be upheld in court.7These assurances were necessary to address concerns that the Texas margin tax would run afoul of Article VIII, Section 24(a), of the Texas constitution, which prohibits enactment of a law that imposes a tax on a person's net income, including a person's share of partnership and unincorporated association income, unless a majority of Texas voters approve such a tax in a statewide referendum.8 Texas Margin Tax Is Not an Income Tax: Minnesota,Virginia, Massachusetts Several states have rendered an opinion on whether the Texas margin tax is a tax measured by net income for purposes of deductibility on the state income tax return or eligibility for the credit allowed for income taxes paid to other states. The Minnesota Department of Revenue (DOR) has taken the position that the Texas margin tax is not an income tax because certain deductions such as interest, depreciation, and most other business expenses generally associated with a computation of net income are not allowed.9Using a similar analysis, Virginia and Massachusetts have taken similar positions.10 Texas Margin Tax Is an Income Tax: Kansas, South Carolina, Missouri In 2008 the Kansas DOR issued Opinion Letter No. O-2008­004,11stating that the revised Texas margin tax is an income tax that must be added back in the computation of the corporate income tax and that it can also be claimed as a credit for taxes paid to another state. However, it later refined its response in Opinion Letter No. O-2009-00512by stating that the Texas margin tax is only an income tax (and not deductible) if it is determined by deducting COGS or compensation. The South Carolina DOR ruled that the Texas margin tax is an income tax that must be added back to the tax base.13 The Missouri DOR held in Letter Ruling LR 530914that the Texas margin tax is an income tax. This finding was based on Herschend v. Director of Revenue,15where the Missouri Supreme Court found that a Tennessee excise tax was an income tax paid to another state and was creditable against Missouri income tax under two tests—the based-on test and the object test. Under the based-on test, the court looked to determine if the tax was based on net earnings earned within Tennessee, defined by reference to federal taxable income. The court determined that the tax was calculated just like the Missouri income tax, as a fixed percentage of total income. The Missouri DOR found that the Texas margin tax is also based on various types of income reported on the federal income tax return and that it meets the based-on test in Herschend and therefore meets the standard of based-on income. The object test addresses the critical distinction between an income tax and a franchise tax. An income tax is imposed to compensate the state for benefits already received, while a franchise tax is imposed and payable in advance for the privilege of exercising the right to do business in the state in the future. An income tax is imposed even if a corporation ceases to do business during a particular year in which it has generated income. A franchise tax is not imposed, as there is no business activity contemplated in the future. The Texas margin tax is compensatory in nature and will apply to compensate the state for public benefits such as roads, schools, police and fire protection, and so forth, so it is classified as an income tax.16 Facts-and-Circumstances Analysis: California In FTB Notice 2010-02,17the California Franchise Tax Board (FTB) stated that the determination of whether the Texas margin tax is an income tax is highly fact specific and must be analyzed on a case-by-case basis, determined largely by the different types of taxpayers (and various types of revenue) that may be subject to the margin tax. The ruling concludes that if the tax is determined to be a gross receipts tax, it would be deductible on the state income tax return (as a fee). The ruling defines a gross receipts tax as a tax imposed on gross income (without allowing a deduction for costs of goods sold, referred to in the notice as a return of capital). The tax would not be deductible on the California return if it were considered a gross income tax or a net income tax. Although FTB Notice 2010-02 appears to give California the ability to make such determinations on the Texas tax as needed, it would also appear, based on numerous opinions and rulings spanning several decades regarding the determination of a gross receipts tax, that it would be difficult for California to ever rule that the Texas tax is an income tax. Cases such as Beamer v. Franchise Tax Board,18 Appeal of Dayton Hudson,19and Appeal of Kelly Services20 all determined that various state taxes such as the Texas occupation tax (a tax on oil and gas production) and the Michigan single business tax are gross receipts taxes because they do not allow for a complete deduction of COGS. The Texas margin tax includes its own computation of COGS.21 Although the computation tends to follow federal law, there are exceptions, particularly with the definition of capitalizable overhead.22All the Texas margin tax computations deny the deduction of expenses commonly deducted in computing net income. The definition of COGS limits the deductibility of overhead, and, even if overhead is fully deductible, based on Appeal of Kelly Services, the mere possibility of this deduction's being limited would compel California to deem the tax a gross receipts tax. The definition of compensation limits the compensation deduction to $300,000 per employee per 12-month period.23Thus, there does not appear to be any scenario in which the Texas margin tax would qualify as a net income tax for California purposes. FASB Opinion Despite these varied opinions by the states, the FASB determined that the Texas margin tax was an income tax to be accounted for in accordance with FAS 109, Accounting for Income Taxes.24ASC 740 does not specify what type of deductions must be allowed to qualify the assessment as an income tax; it only implies that some deductions must be allowed to qualify the assessment as an income tax. Ohio CAT Beginning with the tax period that commences July 1, 2005, Ohio levies a commercial activity tax (CAT) on each person with taxable gross receipts for the privilege of doing business in the state. Taxpayers subject to the CAT include all businesses conducted for the purpose of generating gain, profit, or income.25This includes partnerships, LLPs, LLCs, S corporations, and any other entity engaged in business in Ohio.26 Gross receipts subject to the CAT are broadly defined to include most business types of receipts from the sale of property or realized by the performance of a service. Specifically, "gross receipts" means the total amount realized by a person, without deduction for the COGS or other expenses incurred, that contributes to the production of the person's gross income, including the fair market value of any property and any services received, and any debt transferred or forgiven as consideration.27 Although the Ohio Supreme Court held in Ohio Grocers Association v. Levin28that the tax operates like an income tax on the privilege of doing business in the state, many other states have ruled differently for purposes of determining whether an addback is required or whether a credit is allowed for taxes paid to other states. Based on the rationale that the computation of the tax does not allow for any deductions from income or receipts, states such as Minnesota,29 Massachusetts,30South Carolina,31and Wisconsin32all treat the CAT as a tax on gross receipts rather than a tax on income. Observation: Although the FASB has not directly opined on the nature of the Ohio CAT, ASC 740 should not apply to the Ohio CAT because the tax base is not reduced by deductions. Michigan Business Tax There are three components to the Michigan business tax (MBT): the business income tax (BIT), the modified gross receipts tax (MGRT), and the annual surcharge. The BIT and the MGRT are based on an income base similar to federal taxable income. The total of the two is then multiplied by the surcharge rate. The BIT starts with business income and, being based on federal taxable income, is clearly an income tax.33 The law states that the MGRT is imposed on the privilege of doing business and not upon income or property.34It is computed based on the taxpayer's gross receipts less purchases from other firms before apportionment. The annual surcharge is based on a percentage of the taxpayer's MBT liability after allocation or apportionment to Michigan.35The MBT is imposed on S corporations, partnerships, LLPs, LLCs, and SMLLCs.36 The MBT Is an Income Tax: Missouri In Letter Ruling LR 5309,37the Missouri DOR held that all three components of the MBT are income taxes. Pursuant to Herschend, the MBT was held to be an income tax because it is essentially based on federal income tax. Gross Receipts Portion of the MBT Is Not an Income Tax: South Carolina and Kansas Alternatively, the South Carolina DOR and the Kansas DOR have both ruled that the modified gross receipts portion of the MBT is deductible because it does not qualify as a net income tax, while the business income tax portion is not deductible because it is an income tax.38 The FASB has not ruled on the MBT, but since the base of all three components is taxable income after certain deductions, it should be subject to the ASC 740 analysis. Oklahoma BAT Oklahoma has enacted a business activity tax (BAT) for the 2010–2012 tax years.39In addition, the state has placed a moratorium on the franchise tax for periods beginning July 1, 2010, and ending before July 1, 2013.40For the 2010–2012 tax years, the BAT is imposed on all persons doing business in the state in an annual amount of $25.41In addition to that annual tax, persons doing business in Oklahoma are subject to a tax in the amount of 1% of the net revenue derived from business activity that is allocated or apportioned to the state.42However, for the 2010–2012 tax years, those subject to the Oklahoma franchise tax are liable for the amount of their franchise tax liability from the period ending prior to December 31, 2010, rather than the tax based on net revenue.43Corporations, partnerships, and LLCs are all subject to the BAT.44 The imposition of the BAT is in response to the case of Southwestern Bell v. Oklahoma State Board of Equalization,45 in which the Oklahoma Supreme Court ruled that intangible personal property was subject to the state's ad valorem tax unless specifically exempt by the state constitution. Since the ruling resulted in a significant tax increase for many Oklahoma taxpayers, the BAT was enacted as a temporary solution because it is imposed in lieu of all other taxes on intangible personal property (with a few exceptions).46The BAT is curious in that it is set to expire after 2012 unless it is reenacted by the legislature, yet it contains a provision for a tax on net revenues that cannot statutorily be imposed during the current expected life of the BAT. Given the recent enactment of the BAT, other states have not yet offered an opinion as to whether it would constitute an income tax for purposes of state tax addback or credit for taxes paid to other states. Furthermore, Oklahoma has not yet offered an opinion on whether the BAT is considered an income tax when applying P.L. 86-272. However, Oklahoma has expanded its definition of "doing business" for purposes of the BAT to incorporate a factor presence standard,47which leads one to believe that the state might consider P.L. 86-272 to be inapplicable to the BAT. For tax years 2010–2012, since the BAT is limited to a flat fee of $25 and the amount of the taxpayer's franchise tax liability from the period ending prior to December 31, 2010, it does not seem likely that the BAT would be considered an income tax. However, assuming the BAT continues to exist after 2012 and is truly based on net revenue, its classification could certainly change. In order to calculate net revenue for purposes of the BAT, taxpayers start with total revenue, which is defined as revenue reported on the federal income tax return or total revenue received or accrued if a federal income tax return is not required to be filed less specific exclusions, including certain items of interest, dividends, real estate rentals, royalty interests, net capital gains, and compensation.48Total revenue is then reduced by all ordinary trade or business expenses other than interest, income taxes, depreciation, and amortization in order to arrive at net revenue.49 Given that the law allows numerous deductions in order to arrive at the tax base, the BAT has many characteristics of a typical income tax. However, as noted above, states have gone in both directions with similar taxes, with some ruling that they constitute income taxes and others deciding the opposite. When reviewing the FASB's rationale that the Texas margin tax is an income tax because some deductions are allowed in arriving at the tax base, it seems reasonable that the FASB would draw the same conclusion for the BAT. Conclusion It is clear that the categorization of state payments assessed on flowthrough entities as an income or gross receipts tax depends on the purpose for which the question is asked. For purposes of ASC 740 and the analysis of uncertain tax positions, the definition found in ASC 740-10-20, which defines taxable income as the excess of taxable revenues over tax-deductible expenses and exemptions for the year as defined by the governmental tax authority, means that state assessments with some allowance for deductions would fall under the scope of this analysis. This means that the ASC 740 analysis must be completed for flowthrough entities publishing financial statements under GAAP and doing business in states such as California, the District of Columbia, Illinois, Kentucky, Massachusetts, Michigan, New Hampshire, Tennessee, Texas, and Wisconsin.50This makes the extension of ASC 740 to flowthrough entities a much more extensive reporting requirement than most practitioners initially thought; many had considered only the very limited situations in which a flowthrough entity might be subject to a federal income tax as the scope of this new reporting requirement. About Dixon Hughes Goodman: Dixon Hughes Goodman is the largest accounting firm based in the Southern U.S. and among the nation's top 15. With a staff of over 1700 located in eleven states and Washington DC, the firm provides a wide array of assurance, tax and consulting services to clients of all sizes. For more information, visit www.dhgllp.com. 1 In June 2009, FASB issued FAS No. 168, FASB Accounting Standards Codifcation and Hierarchy of Generally Accepted Accounting Principles, effective for fnancial statements issued for interim and annual periods ending after September 15, 2009. Following the issuance of FAS 168, the FASB will now issue Accounting Standards Updates that will update the codifcation, provide background information about the guidance, and give explanations for the changes made to the codifcation. FAS 109, Account­ing for Income Taxes, is now published in the codifcation at ASC 740. FIN 48 (FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes) is located at ASC 740-10-05 to 740-10-55. 2 ASC 740-10-15-4. 3 See ASC 740-10-55-139–144, Example 17. 4 TX Tax Code Ann. §§171.001 and 171.101. 5 TX Tax Code Ann. §§171.001(a) and 171.0002. 6 TX State Legislature, Enrolled Bill Summary, House Bill 3 (3rd C. S.), Legislative Session 79(3). 7 House Research Organization, Bill Analysis: Restructuring the Texas Franchise Tax, p. 12 (4/24/06). 8 See Laing, "An Income Tax by Any Other Name Is Still an Income Tax: The Constitutionality of the Texas Margin Tax as Applied to Partnerships and Other Unincorporated Associations," 62 Baylor L. Rev. 573 (Spring 2010). 9 MN Revenue Notice 08-08 (7/21/08). 10 VA Dep't of Tax'n, Ruling of the Comm'r PD 08-169 (9/11/08); MA DOR Directive 08-7 (12/18/08). 11 KS DOR Opinion Letter No. O-2008-004 (9/2/08). 12 KS DOR Opinion Letter No. O-2009-005 (3/24/09). 13 SC Rev. Rul. 09-10 (7/17/09). 14 MO DOR Letter Ruling LR 5309 (12/12/08). 15 Herschend v. Director of Rev., 896 S.W.2d 458 (Mo. 1995). 16 MO DOR Letter Ruling LR 5309 (12/12/08). 17 CA FTB Notice 2010-02 (12/3/10). 18 Beamer v. Franchise Tax Bd., 563 P.2d 238 (Cal. 1977). 19 Appeal of Dayton Hudson Corp., 94-SBE-003 (Cal. State Bd. of Eq. 2/3/94). 20 Appeal of Kelly Services, Inc., 97-SBE-010 (Cal. State Bd. of Eq. 5/8/97). 21 34 TX Admin. Code §3.588. 22 The instructions to the Texas Franchise Tax Report state that "[g]enerally COGS for franchise tax reporting purposes will not equal the amount used for federal income tax reporting purposes or for fnancial accounting purposes. . . . It is a calculated amount specifc to the franchise tax" [Form 05-395, 2011 Texas Franchise Tax Report Information and Instructions, p. 15 (December 2010)). 23 TX Tax Code Ann. §171.1013(c). This amount is adjusted annually for infation beginning in 2010 [§171.006[b)). 24 FASB, "Minutes of the August 2, 2006 Board Meeting on Potential FSP: Texas Franchise Tax" (8/2/06). 25 OH Rev. Code §5751.02. 26 OH Rev. Code §5751.01(A). 27 OH Rev. Code §5751.01(F). 28 Ohio Grocers Ass'n v. Levin, 916 N.E.2d 446 (Ohio 2009). 29 MN Notice 08-08 (7/21/08). 30 MA DOR Directive 08-7 (12/18/08). 31 SC Rev. Rul. 09-10 (7/17/09). 32 WI Dep't of Rev., Wis. Tax Bull., No. 147, p. 21 (April 1, 2006). 33 MI Comp. Laws §201.1201. 34 MI Comp. Laws §208.1203(2). 35 MI Comp. Laws §208.1281. 36 MI Comp. Laws §§208.1201(1) and 208.1203(1). 37 MO DOR Letter Ruling LR 5309 (12/12/08). 38 SC Rev. Rul. 09-10 (7/17/09); KS DOR Opinion Letter No. O-2009-05 (3/24/09). 39 OK Stat. tit. 68, §1218. 40 OK Stat. tit. 68, §1212.1. 41 OK Stat. tit. 68, §1218(A). 42 OK Stat. tit. 68, §1218(B). 43 OK Stat. tit. 68, §1218(C). 44 OK Stat. tit. 68, §1217(7). 45 Southwestern Bell Tel. Co. v. Oklahoma State Bd. of Equalization, 231 P.3d 638 (Okla. 2009). 46 OK Stat. tit. 68, §1218(F). 47 OK Stat. tit. 68, §1218(H). 48 OK Stat. tit. 68, §1217(10). 49 OK Stat. tit. 68, §1217(6). 50 See the online appendix for a summary of the entity-level tax payments assessed by these states. 2011 Dixon Hughes Goodman LLP | dhgllp.com Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties imposed under the Internal Revenue Code or applicable state or local tax law or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.