Armanino Blog

Surprise, Altera Case has State Tax Implications!

by Alex Thacher
July 30, 2020

On June 22, 2020, the Supreme Court of the United States denied Altera's petition for writ of certiorari to review a 9th Circuit Court of Appeals decision upholding the validity of Treasury Regulation § 1.482-7A(d)(2), Altera Corporation & Subsidiaries v. Commissioner, 926 F.3d. 1061 (2019). The regulation at issue requires the inclusion of stock-based compensation costs in qualified cost-sharing agreements. In 2015 the U.S. Tax Court unanimously held that the regulation was invalidly promulgated under the federal Administrative Procedures Act, and the 9th Circuit overturned that decision.

From a federal income tax perspective, the Supreme Court's denial of cert. in Altera has resulted in a geographical divide separating taxpayers headquartered inside/outside of the 9th Circuit, which presides over Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Oregon and Washington. From a state income tax perspective, neither the 9th Circuit decision nor the Tax Court decision is binding on the states.

Irrespective of how states ultimately decide the Altera issue, they are unlikely to mirror the federal geographical divide and discriminate amongst taxpayers based solely on their geographical footprint. As a result, taxpayers headquartered both inside and outside of the 9th Circuit should evaluate the state tax impacts of Altera on a state-by-state basis.

State Tax Refund Opportunities

The conflicting opinions of the 9th Circuit and the Tax Court might also give rise to refund opportunities for taxpayers with headquarters within the 9th Circuit, due to those taxpayers filing all of their state returns pursuant to the 9th Circuit Altera decision rather than evaluating the issue on a state-by-state basis.

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Alex Thacher - Partner, Tax - San Jose, CA | Armanino
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