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Taxation and Constitutional Issues in Corporate Acquisitions and State Sales Taxes

Case Scenario 1: Apportionment of Gain in Corporate Acquisitions

1. DataDriven, Inc. is a very successful publicly traded corporation located in Seattle, Washington, that collects and analyzes data obtained from internet sites.  It then sells the information and its analysis to companies who can use it in their marketing.  Wanting to diversify to protect its long-term growth and stability, Data Driven acquires Boise Homes, Inc., a corporation in Boise, Idaho, that specializes in the real estate brokerage of high-end homes in the dynamic Boise and Sun Valley, Idaho, real estate markets. DataDriven also acquires an Arizona Corporation, Cryptoworld, Inc.,a virtual currency exchange and trading platform in North Carolina. The “Commercial Domicile” of each corporation is located in their respective state of incorporation. DataDriven consulted with Booz Allen Hamilton (“BAH”) before it purchased both Boise Homes and Cryptoworld. BAH advised DataDriven to not “micromanage” the two acquired corporations. Both Boise Homes and Cryptoworld have been highly successful before their respective acquisitions by DataDriven. BAH told DataDriven that DataDriven’s expertise is not in real estate brokerage or cryptocurrency. BAH told DataDriven to treat each acquisition as an investment and let each corporation manage itself.  

(a). (You have one page to answer this question I (a)). Five years after acquiring Cryptoworld, DataDriven is approached by Virtual Solutions One, Inc., a publicly traded Texas Corporation to purchase all of the stock of Cryptoworld. DataDriven will have a gain of $300 million on the sale of the Cryptoworld stock. The partner that you work for at the Big Four CPA firm wants to know if any of the gain needs to apportioned to North Carolina.  He asks you to prepare a memo determining how the gain should be apportioned or allocated.

(b). (You have one page to answer this question I (b)). Virtual Solutions asks DataDriven if it would consent to an election under IRC §338(h)(10). The partner that you work for asks you to prepare a memo outlining how the state taxation of the transaction could be affected if DataDriven consents to an IRC §338(h)(10) election.

2. The Daily Beaconis a newspaper in Sun Grove, Florida.  It is the only newspaper in Beach County, Florida (Sun Grove is a town in Beach County). The Daily Beacon is a politically conservative newspaper in an otherwise liberal county. The Beach County Board of Supervisors, under Florida law, can impose sales taxes on the sale of tangible property on transactions within the county. Beach County enacts a 10% sales tax on the sale of newspapers. The sales tax only applies to sales of newspapers. It does not apply to sales magazines or books.

(a). (You have two pages to answer this question II (a)). You work for the same Big Four CPA firm as in Question I. Your firm represents The Daily Beacon. The partner that you work for is very pleased with your work in Question I, and wants you to write an objective memo discussing any U.S. Constitutional issues regarding the new sales tax.  

(b). (You have one page to answer this question II (b)). The Daily Beacon wants to use your memo to seek a Temporary Restraining Orderpreventing enforcement and collection of the new sales tax in the United States District Court for the Central District of Florida. The Daily Beacon does not want to seek a Temporary Restraining Order in the Florida Superior Court in Beach County because it believes the Florida Superior Court is biased.  Will the Daily Beacon be able to get the case heard in United States District Court?

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