Maine Adopts Finnigan for Determining Sales Sourced to Maine for Corporate Income Tax

Maine is a unitary state for purposes of the corporate income tax. As is true for other states (e.g., California, Illinois and South Carolina), Maine adopted the Joyce approach for sourcing of sales by entities within a unitary group that did not have nexus with Maine under PL 86-272. See Appeal of Joyce, Inc., No. 66-SBE-070 (Cal. SBE, Nov. 23, 1966). This means that Maine-destination sales by an entity without nexus would not be included in the numerator of the sales apportionment factor.

However, in recently adopted legislation, P.L. 2010, c. 571, § GG, which is effective for tax years beginning on or after January 1, 2010, Maine adopted the Finnigan approach, which was first announced by the California Board of Equalization in 1988. See Appeal of Finnigan Corporation, No. 88-SBE-022 (Cal. SBE, Aug. 25, 1988) (Finnigan I); Opin. on Pet. for Rhrg., No. 88-SBE-022-A (Cal. SBE, Jan. 24, 1990) (Finnigan II). Finnigan rejected Joyce and provided that sales by a member of a unitary group to California are included in the numerator of the combined group’s sales apportionment factor even though the entity does not have nexus with California. It is noteworthy that California later renounced the Finnigan approach and has resorted back to the Joyce approach. See Appeal of Huffy Corporation , No. 99-SBE-005 (Cal. SBE, Apr. 22, 1999). See also FTB Reg. 25106.5. What makes this result particularly severe for unitary businesses is that Maine uses only the single apportionment factor of sales.

There is an argument that Finnigan is inconsistent with Public Law 86-272 because the State is taxing a non-taxable entity. That argument, however, was rejected in Disney Enterprises, Inc. v. Tax Appeals Tribunal of the State of New York, 888 N.E.2d 1029 (N.Y. 2008), which stated that inclusion of sales in the numerator did not tax the subsidiaries but simply was a method of calculating the tax. Given the differences between the New York law and the Maine law, however, the argument that Maine’s new approach is inconsistent with Public Law 86-272 may have some force, depending on the facts and circumstances of the taxpayer.

Federal Reserve Consumer Information on Overdrafts

With its new focus on being consumer-friendly, the Federal Reserve has published a circular on what consumers need to know about the new debit card overdraft rules. Remember, as of August 15th, banks cannot include customers in their overdraft services for ATM/Debit card transactions without their opting-in. The rules apply to new accounts opened beginning July 1. The Fed has even provided a copy of the standard form disclosure that it approved for banks to use, so that consumers can (hopefully) recognize the form when they get it in the mail (see Form). With an emphasis on consumer "choice" and education, it is good to see the Fed getting the word out.

Will consumers understand what this is all about? I suspect so. Just this last week, our 20 year old baby-sitter commented that she wished her bank, Chase, would follow Bank of America and give up on overdraft fees (See Hooray for Bank America). Apparently the word has gotten out positively for BOA. She'd been hit $35 on a debit card overdraft of less than $5. Expensive lesson, yes, but just one example where the new rules will help. Better to be denied at the counter, rather than get the hefty fee. I told her not to worry, the new rules are coming soon.

- JSM