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Duly Noted

Rejected Again: Nonresident’s Stock Options Not Taxable In New York. Thomas Hopkins stopped working in New York when he retired in 2002. He paid New York income tax when he exercised stock options in 2003 and 2004, but asked for a refund after the New York Tax Appeals Tribunal held in another case that the state lacked authority, under pre-2006 regulations, to tax options exercised in years when the nonresident did not work in New York. New York denied Hopkins’ refund request, but an administrative law judge has ruled in favor of the Connecticut resident. Under new rules enacted in 2006, New York would be able to tax a portion of the option exercise profits, based on the percentage of days worked in New York after the options were granted. Matter of Hopkins, 2009 STT 16-15.

Court Upholds Maryland Nonresident Tax. The Maryland Court of Special Appeals has upheld the state’s “special nonresident tax” against a challenge that the tax is unconstitutional. Residents and nonresidents who work or conduct business in Maryland pay the state’s income tax, but only Maryland residents pay county and Baltimore city taxes. The state enacted the special additional tax, which goes to the state Treasury, in 2004 to require nonresidents to bear approximately the same total tax burden as residents. The tax was challenged by three out-of-state partners in a law firm that does business in Maryland. The partners alleged that the special tax is a state tax, not a local levy, and that the difference in state taxation of residents and nonresidents is illegal. But the appeals court disagreed, holding that the distinction between state and local taxation is immaterial and that the tax does not discriminate against nonresidents. Frey et. al. v. Comptroller of the Treasury, 2009 STT 39-18.

Judge To Taxman: Hands Off Strip Club’s Cover Charges. A strip club’s exotic dancers provide “musical arts performances,” making the club’s admission and private dance charges exempt from New York sales tax, an administrative law judge ruled. The state assessed nearly $125,000 in back taxes against Nite Moves, an Albany-area establishment, claiming that the admission charges are for other “entertainment” not covered by the exemption for admissions to musical and dramatic performances. But the club produced videos of its dancers’ routines and the testimony of a cultural anthropologist from the University of Maryland. That was enough to satisfy Administrative Law Judge Catherine Bennett. “The videos depicted dance routines that incorporated acrobatic pole maneuvers, splits, and other patterned repetitions,” the judge wrote, adding, “The fact that the dancers remove all or part of their costume during the performances, that the dance routines are seductive in nature and titillation of a patron is the outcome, simply does not render such dance routines as something less than choreographed performances.” Matter of 677 New Loudon Corp., 2009 STT 59-24.

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