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Jurisdiction and Taxes

Jurisdiction is very important in tax law. Determining whether a person or an entity has the right kind of contact with a jurisdiction determines whether it pays taxes in that jurisdiction. The recent news involving Medtronic, its purchase of an Irish company and whether that would enable it to avoid some U.S. taxes involves issues of jurisdiction and where income is attributed.

Questions of state sales tax and whether your online purchase will trigger a tax payment being added to your bill have become highly controversial. Many local merchants and businesses feel they are penalized if they have to add sales tax to transactions while out-of-state online businesses do not.

Taxes typically must be paid when the person or entity has sufficient contacts with the taxing state. Residents of Maryland and business that are incorporated or have offices, manufacturing or warehouses in Maryland are generally subject to taxes by Maryland. If you have no contact with Maryland and own no property or businesses here, you usually have no tax obligation to the state.

However, as the complexity of your finances increase, the questions become more complex and the answers less clear.

For instance, Robert Redford owns 100 percent of a Utah LLC, Sundance T.V., Inc. (Inc). Inc owned an 85 percent stake in Sundance Television Limited (Limited) which is an S corporation, with pass-through taxation.

Sundance Television Limited owned 20 percent of Sundance Channel LLC, a New York limited liability company.

Redford received income in 2005 when Limited sold part of the Sundance Channel. He paid tax on that transaction in Utah. And in 2008, Limited sold the rest of its interest in the Sundance Channel.

As the income from the sale flowed from Limited and then Inc, and because Inc was a Utah LLC, Redford paid tax on that income in Utah. The income came from Inc, an entity with no contact with New York.

However, the State of New York claims Redford owes 1.5 million in back taxes and interest, with $727,404 being the interest portion. Redford's tax attorneys claim New York signed off on his returns in 2008, agreeing with the characterization that no tax was owed.

Redford is now suing New York with that claim that, as a nonresident, he owes no New York taxes. It will be interesting to follow the outcome of this litigation.

Source: Courthouse News Service, "Robert Redford Sues N.Y. Over $1.6M Tax Bill," August 5, 2014

Tags: back taxes

Taxes typically must be paid when the person or entity has sufficient contacts with the taxing state. Residents of Maryland and business that are incorporated, headquartered, have offices, manufacturing or warehouses here are generally subject to tax.

And if you have no contact with Maryland, own no property or businesses here, you usually have no tax obligation to the state.

However, as the complexity of your finances increase, the questions become more complex and the answers less clear.

For instance, Robert Redford owns 100 percent of a Utah LLC, Sundance T.V. (Inc). Sundance T.V. owned an 85 percent stake in Sundance Television Limited (Limited) which is an S corporation, with pass-through taxation.

Sundance Television Limited owned 20 percent of Sundance Channel LLC, a New York limited liability company.

Redford received income in 2005 when Limited sold part of the Sundance Channel. He paid tax on that transaction in Utah. And in 2008, Limited sold the rest of it interest in the Sundance Channel.

As the income from the sale flowed from Limited and then Inc, and because Inc was a Utah LLC, Redford paid tax on that income in Utah. But the income came from Inc, an entity with no contact with New York.

However, the State of New York claims Redford owes 1.5 million in back taxes and interest, with $727,404 being the interest portion. Redford's tax attorneys claim New York signed off on his returns in 2008, agreeing with the characterization that no tax was owed.

He is now suing New York that as a nonresident he owes no New York tax. It will be interesting to follow the outcome of this litigation.

Source: Courthouse News Service, "Robert Redford Sues N.Y. Over $1.6M Tax Bill," August 5, 2014

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