Tax News

CCH (cch.taxgroup.com) reports:

  The Kentucky Court of Appeals has upheld a circuit court decision that a corporation and its affiliates with no physical presence in Kentucky, but with a 99% ownership interest in a Delaware limited partnership doing business in Kentucky, had taxable nexus with Kentucky and, therefore, was required to pay corporation income tax on its distributive share of partnership income. However, the circuit court was reversed in so far as it concluded that the Kentucky statutory three-factor apportionment formula provided the correct method for calculating the taxes because it reasoned that prohibiting taxpayers from using the three-factor formula would subject the formula to possible constitutional problems. The Kentucky Court of Appeals disagreed, finding that the legislature clearly intended for the amount of tax to be calculated using the three factor formula and that this would not result in extraterritorial values being taxed. The circuit court also erred by granting the corporations immediate payment of their refunds because the applicable Kentucky statute clearly directs payment of refunds only upon final appeal. Finally, the Kentucky Court of Appeals ruled that Kentucky legislation that retroactively changed the date for accrual of interest and the rate of interest on refund claims did not violate the U.S. or Kentucky Constitutions because it rationally furthered a legitimate governmental purpose of raising revenue, it did not constitute an unconstitutional taking of property, and it did not amount to impermissible special legislation.