CASE IN POINT

Battling extra-territorial taxation
Morrison & Forester attorneys have been leading the charge in the battle against extra-territorial taxation among the credit card industry and the states. One particular credit card company was the subject of aggressive assertions by Minnesota and sought out the assistance of our state and local tax attorneys. Like most credit card companies, our client markets its credit cards through the mail and the internet in all 50 states but has offices, warehouses and employees in only a handful of states, which we refer to as “home states.” In return for their ability to tax a portion of the credit card companies’ business, home states provide government services to support the credit card companies’ offices, warehouses and employees. Minnesota is not a home state for our client and does not provide it with any governmental services but sought to impose a tax on our client’s business done in Minnesota. After an initial review of the facts, partner and tax department chair Paul Frankel exuded optimism that Minnesota was “horribly overstepping its bounds” and had exceeded constitutional limitations on taxation.

After filing a complaint in the Minnesota district court, partners Paul Frankel and Holly Hyans and of counsel Mitchell Newmark were quickly involved in extensive discovery involving the company’s business practices. Minnesota sought voluminous records covering a four-year period that commenced nearly a decade earlier. Many records either no longer existed or were not maintained in a useful form. The Assistant Attorney General of Minnesota sought detailed information regarding the marketing, sales, advertising, lending, decision-making and collections activity of the company.

The case presented Mitchell with the opportunity to take a leading role. Mitchell noted, “I was tasked with daily client contact to brief in-house counsel on the strategy and progress of the case and to manage discovery.” Following written discovery, Mitchell prepared for and participated along with Paul and Holly in taking the depositions of Minnesota’s expert witnesses. At the conclusion of the depositions, Minnesota sought to settle the matter, and Mitchell negotiated the settlement obtaining terms that pleased the credit card company’s General Counsel with a substantial refund. Mitchell recalls, “I learned the operations of the company, developed a relationship with in-house counsel, the State Assistant Attorney General, and Department of Revenue policymakers, highlighted the weaknesses in the State’s case, and negotiated a favorable settlement.”

The credit card company also has sought Paul, Holly and Mitchell’s help in its fight against extra-territorial taxation by another state. Mitchell has already lead extensive negotiations and successfully obtained a favorable stipulation of facts.