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State & Local Tax

Our Washington, Phoenix, Los Angeles and Century City attorneys represent business clients of many types and sizes in state and local tax matters, including high-technology businesses, electric utilities, telecommunications companies, mining and railroad companies, a steel mill, semi-conductor, aerospace and other manufacturers, retailers, banks, printers, mail order businesses, tax-exempt organizations, and resorts.

On behalf of these clients, our attorneys litigate complex and varied income, sales and use, and property tax issues in administrative proceedings and state and federal courts, and they also seek legislative solutions to industry-wide concerns that affect firm clients.

In addition, our attorneys counsel the firm’s clients on the multi-state tax implications of their business transactions.  For example, the firm advises its E-commerce industry clients on their complex multi-state income tax responsibilities and their sales and use tax collection obligations.

STATE AND LOCAL TAX LITIGATION

Steptoe’s State and Local Tax Group includes experienced tax litigators who have broad commercial litigation and tax litigation experience.  Their practice is national in scope, including practice in many states. Pat Derdenger served as a Justice Department trial attorney in the honors program representing the IRS in numerous trials during his time there.  He has over thirty years of tax litigation experience. Dawn Gabel began her career as a commercial litigator, litigating a broad range of commercial disputes including banking litigation, CERCLA litigation, toxic torts, bad faith insurance disputes and general contract disputes. She is approaching her twentieth year of litigation practice. For the last fifteen years she has focused on tax litigation, primarily property tax litigation. We combine trial-tested litigation skills with up-to-date substantive tax experience. This combination enables us to take on the most challenging cases and achieve outstanding results for our clients. 

Our attorneys have proven skills and extensive experience in all aspects of tax controversy and litigation:

  • Managing audits
  • Prosecuting property tax valuation and classification appeals through the administrative hearing and review process
  • Filing appeals of administrative actions in tax or superior court and bringing original actions in court
  • Negotiating litigation settlements
  • Trying cases in court
  • Arguing appeals in state appellate courts

Our active controversy and litigation docket keeps us at the cutting edge of evolving administrative and judicial practice and procedures, strategy and tactics.   

In addition to our litigation skills, we are widely recognized for our substantive tax knowledge and experience.  Many members have LL.M. degrees in taxation from, and teach classes at, top law schools, and are constantly researching, writing, and speaking to professional audiences on a broad range of substantive tax issues. 

Pre-controversy Advice and Counsel.  Our tax lawyers combine litigation and substantive tax experience to assist clients in effectively anticipating and planning for future controversies.  Often, when the tax treatment of an item or transaction is challenged, the ultimate resolution is influenced significantly by actions taken or not taken when the transaction was planned, implemented, or first reported.  With this in mind, we provide experience-based advice on reporting, document retention, and other pre-controversy matters. 

Settlement Efforts.  We fashion creative and effective approaches to settlement.  Our experience encompasses not only direct negotiations for single clients, but also group representations of taxpayers with the same or similar issues.  We work hard to achieve favorable results for our clients and to identify the most effective approach to resolve the matter, which in many cases may be a favorable settlement for the client rather than prolonged litigation.

DEEP AND CURRENT TRIAL AND APPELLATE EXPERIENCE 

Settlement of Cases in Litigation.  Many cases, when not settled administratively, can be favorably settled in litigation.  We have a history of achieving such settlements, drawing on our litigation skills and our experience as litigators. 

Actual Trial Experience.  Relying on our courtroom experience, we develop and implement efficient, effective, and thorough trial strategies.  Whether the case is presented by dispositive motion, or by trial, we have the required skill and experience, including intricate discovery and evidentiary disputes, the preparation and examination of fact and expert witnesses, and utilization of the most sophisticated electronic trial presentation and briefing techniques. Our experience enables us to be prepared for all the twists, turns, and surprises of trial advocacy. 

Effective Appellate Advocacy.  Steptoe tax lawyers have argued cases in state courts and every major federal Court of Appeals, as well as before the US Supreme Court.  Our brief writing and appellate advocacy skills are recognized as leading in the bar.

Step-in Litigation Ability.  We have successfully litigated cases in which we were not involved in the administrative process.  These clients sought the highest level of litigation experience, and chose us for our premier tax litigation talent.  

UNRIVALED TALENT

Substantive Tax Experience.  Attorneys in our Tax Department have experience in ad valorem property tax matters, constitutional property tax matters, corporate tax, partnership tax, consolidated returns, international tax, transfer pricing, financial instruments and products, ERISA, employee benefits, tax-exempt organizations, sales and use tax, and other areas of tax law.  

Litigation Experience.  Our state and local tax attorneys litigate tax matters on a daily basis from the administrative level, through state tax or superior court, the court of appeals and the Supreme Court. Attorneys in our Litigation Department litigate across the United States and in other countries, and are available to assist our tax litigation attorneys with complex and innovative litigation strategies. 

Our specific experience and particular skills, as well as backup provided by our colleagues in other practice disciplines, provide Steptoe’s tax litigation lawyers with a valuable resource readily available as necessary to effectively represent our clients.

REPRESENTATIVE STATE AND LOCAL TAX LITIGATION MATTERS

  • Represented a financial institution in tax court and the court of appeals appealing the disallowance of bad debt refunds arising from retail sales tax paid on assigned receivables, where those receivables were assigned without recourse by the retailer to the financial institution
  • Represented a newspaper publisher in tax court and the court of appeals on the issue of whether, for corporate income tax purposes, an affiliated corporation that was a partner in a partnership that manufactured newsprint satisfied the operational integration test for inclusion in the publisher’s unitary group
  • Represented an electric utility in tax court and the court of appeals in the valuation for property tax purposes of its transmission and distribution network, and specifically whether contributions in aid of construction are to be included in the valuation base
  • Represented a national apartment developer in tax court and the court of appeals in the proper application of the state transaction privilege tax to construction managers
  • Represented a developer of low-income housing tax credit projects in tax court and the court of appeals over the method to be used in valuing the apartment projects for property tax purposes, specifically whether the value of the federal tax credits are to be included in the valuation base, and whether for the income method of valuation, the income stream is to include the actual rents paid by the tenants (which is restricted) or market rent
  • Represented a construction contractor in tax court and the court of appeals in establishing that the state could be stopped from imposing taxes based on its communications and positions in past correspondence and audit assessments
  • Defended a judgment for an operator of self-storage facilities in tax court and the court of appeals in an action challenging property tax classification of housing provided for on-site managers
  • Represented a pharmaceutical company in tax court and the court of appeals in appealing state income taxes imposed on an out-of-state business based on protections for "solicitation of sales" under Public Law 86-272
  • Represented a semiconductor manufacturer in court to challenge the ad valorem valuation of its state-of-the-art fabrication facility
  • Represented several semiconductor manufacturers in hearings before state administrative review boards to reduce the value of their personal property caused by market-driven economic obsolescence

PROPERTY TAX

Our real and personal property tax representation spans the full administrative process, including state tax boards of review, state superior courts, and appellate courts of appeals.

  • Obtained private tax rulings and drafted state tax legislation for clients and industry groups
  • Represented heavy and light industrial manufacturers, high-technology businesses, multi-family residential rental owners, golf course and common area land owners, and other property owners in real property tax valuation and classification appeals, including illegal tax claims in tax court and the court of appeals
  • Represented a major electric utility in property tax litigation over the value of a nuclear generating plant, the treatment of contributions in aid of construction, and other valuation issues
  • Represented operators of federally owned national park facilities seeking refunds for erroneous assessments of property tax
  • Represented clients in tax litigation challenging the inclusion of federal tax credits in the valuation of low-income rental housing
  • Represented clients faced with Notice of Change or Notice of Correction proceedings and in obtaining refunds and/or valuation changes through Notice of Claim proceedings and in tax court and the court of appeals
  • Represented non-profit corporations in tax court to obtain and retain property tax exemptions
  • Represented owners of improvements on land leased from governmental entities
  • Represented industrial manufacturers in personal property audits and valuation appeals in tax court and the court of appeals involving issues of value and obsolescence

TELECOMMUNICATION INDUSTRY TAX LAW

Our attorneys have considerable experience in dealing with federal and state and local telecommunications excise tax matters, including issues relating to the Mobile Telecommunications Sourcing Act (sources cell phone calls for purposes of local taxation).  We have represented telecommunications clients on real and personal property tax matters, including valuation issues. Of note, our attorneys have represented a start-up international telecommunications carrier in structuring their state and local telecommunications excise tax reporting requirements, including nexus issues. Our Telecommunications clients in the tax area have included local, long distance, cell phone and satellite carriers.

ELECTRIC UTILITIES AND PIPELINES 

The firm’s state and local tax practice has considerable experience in representing electric utilities and pipelines in a wide range of state tax issues. We have represented electric utilities on property tax valuation matters, both generation and transmission and distribution facilities, including a nuclear generation station. [See ADOR v. SRP and APS, 212 Ariz. 35, 126 P.3d 1063 (App. 2006).]  We have also advised electric utilities on corporate income tax issues, including the sourcing of sales of electricity when generated in one state and sold in another (particularly the costs of performance and market tests dealing with the sales factor), nexus and Public Law 86-272 questions, as well as research and development tax credit issues.  Our attorneys have also advised electric utilities on sales tax issues dealing with the construction of generation plants and the applicability of various sales tax exemptions to the construction of those facilities and operation of generation plants, including sales tax issues on the sale of the electricity both in-state and out-of-state.  In addition to electric utilities, we have represented natural gas pipelines on sales tax, income tax and property tax matters.

CONSTITUTIONAL TAX ISSUES

Steptoe’s state and local tax attorneys have considerable experience with federal commerce clause, due process clause and equal protection clause issues, as well as state-specific constitutional provisions such as the uniformity clause, which deals with property taxes and requires that property taxes as imposed on a class of property be uniformly applied. 

Commerce clause issues handled include not only income, sales and use tax nexus issues but also issues dealing with discriminatory treatment of interstate commerce.  Equal protection clause matters have included challenges to a state’s unequal treatment of a taxpayer vis-à-vis the more favorable treatment provided to competitors.  Additionally, Steptoe’s attorneys in the DC office have represented insurance companies in actions before the US Supreme Court involving constitutional issues relating to state premium taxes.

CORPORATE INCOME TAX

  • Advised and represented corporations in controversies over "unitary" combination issues—i.e., whether a particular affiliate is a member of the unitary group or not under the various tests the states use for determining unitary combination (such as operational integration or functional integration)
  • Advised and represented corporations on income tax nexus issues, particularly with respect to the application of the protection from state income tax afforded by Public Law 86-272 (which prohibits a state from imposing a net income tax where the company’s only contact with the state is the solicitation of orders where those orders are sent back to the home office for approval and filling)
  • Advised and represented companies on business income vs. non-business income issues (business income is apportioned to the various states the company does business in using factor apportionment while non-business income is allocated entirely to the source state).  Some examples include gain on the sale of stock of a foreign subsidiary, the sale of a plant that had been closed for a number of years, the sale of land that had been acquired to build a new facility but where plans changed, royalty income from patents, income from court-awarded judgments
  • Assisted E-commerce clients with state income tax planning, particularly with nexus and Public Law 86-272 issues 
  • Advised and represented clients on intangible holding company issues and whether for separate return reporting states such a holding company has nexus with a taxing state based on the presence of the holding company’s intangibles in the state (e.g., trademarks, trade names).  Also advised and represented clients on whether such an intangible holding company is properly included in a unitary group based upon the particular state’s unitary test
  • Represented companies in tax court and the court of appeals protesting and appealing disallowed income tax credits for pollution control equipment, and specifically whether pollution control equipment installed on leased and rented automobiles qualifies for the credit and whether retroactive legislation providing that the credit does not apply to automotive pollution control equipment is constitutional
  • Represented a newspaper publisher in tax court and the court of appeals on the issue of whether the flow through income from an out-of-state partnership to the publisher (the publisher was a general partner) where the partnership had no nexus with the taxing state was protected from taxation by Public Law 86-272
  • Obtained private corporate income tax rulings and drafted state income tax legislation for clients and industry groups

TAX CONSEQUENCES OF MERGERS & ACQUISITIONS

Our attorneys counsel clients on the state and local tax consequences of mergers and acquisitions, both income tax and sales tax, including whether an asset sale is a casual sale for state sales tax purposes.  They also work with corporate counsel to draft tax provisions for merger and acquisition agreements.

MULTI-STATE TAXATION & NEXUS ISSUES

  • Advised multi-state businesses on state income tax issues, including allocation and apportionment issues, business/non-business income questions, Public Law 86-272 nexus issues, throwback rule issues, Appeal of Joyce-types of issues, and intangible holding company issues and intangible nexus issues
  • Counseled clients on the multi-state taxation of flow-through entities such as partnerships, S-corporations, and limited liability companies
  • Advised Internet and other remote sellers on nexus issues relating to the obligation of the remote seller to collect the destination state’s sales or use tax on sales made into the state, as well as advising clients in general on the sale and use tax implications of interstate sale transactions
  • Advised telecommunications clients, including satellite telecommunications providers, on their multi-state sales and excise tax reporting obligations, including sourcing issues under the Mobile Telecommunications Sourcing Act
  • Advised clients on the Streamlined Sales Tax Project, including registration and amnesty issues.

SALES & USE TAXES, PRIVILEGE TAXES, & EXCISE TAXES

  • Advised high-technology businesses, telecommunication companies, and manufacturers on gross receipts and other privilege taxes imposed by various jurisdictions
  • Advised an international telecommunications company on nexus issues and state and local tax collection obligations on international calls
  • Advised airlines and other air transportation companies on whether their sale or purchase of aircraft is subject to sales or use tax
  • Advised out-of-state alarm monitoring services on nexus issues
  • Advised contractors and homebuilders on the state and local tax treatment of their construction and homebuilding activities
  • Represented clients during a state or local audit to avoid or limit an assessment before it is issued
  • Represented developers and construction contractors appealing assessments of state and municipal privilege taxes
  • Worked with homebuilders to prepare and appeal denials of refund claims where land deduction claimed on tax returns was substantially less than the deduction allowed by statute
  • Advised E-commerce clients on sales and use tax collection obligations in the various states where their customers are located and where the orders are shipped
  • Represented clients in protests and appeals of tax assessments disallowing exemptions from sales and use tax claimed by clients engaged in mining, construction contracting, natural gas pipelines, advertising, and printing and publishing
  • Represented clients engaged in taxable and nontaxable business activities that have been taxed as if all receipts were from taxable business transactions
  • Represented a bank's protest of sales tax assessed on the sale of a debtor’s business assets
  • Represented petroleum companies on state fuel excise tax issues
  • Advised providers of systems design, software development, and other computer services on exemptions from retail sales-and-use tax

CONSTRUCTION & HOMEBUILDING TAX ISSUES

Our attorneys represent construction contractors, both general and subcontractors, and homebuilders on a wide array of federal, state and local tax issues, including construction manager tax issues, hospital construction projects and issues dealing with the installation of exempt machinery and equipment. 

They also advise and work with homebuilders on the marketing arm-contracting arm structure used in Arizona for state transaction privilege tax purposes, as well as assisting real estate developers deal with the Arizona “speculative builder” tax.

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