STATE AND LOCAL INCOME TAX PROVISIONS IPT …

1 STATE AND LOCAL INCOME . TAX PROVISIONS . IPT annual conference . Teresa Dieguez Smitha Hahn V P o f C o r p o r a t e Ta x I n d i r e c t Ta x S e n i o r M a n a g e r Wynn Resorts Limited EY. Las Vegas, NV Detroit, MI. @wynnresor TERESA DIEGUEZ. Teresa Dieguez is Vice President of Corporate Tax for Wynn Resorts Limited Teresa has over twenty years of tax, finance, and accounting experience in both public accounting and private industry Teresa's positions as Director and Vice President of Tax have focused on strategy, opportunity, planning, implementation and risk management in multi-billion dollar companies with worldwide operations including Tetra Tech, Inc., and International Game Technology Teresa has also served as Tax Partner and Tax Markets Leader for the Las Vegas Office of Ernst & Young Teresa is an active member of the American Gaming Association's Tax/Finance Task Force and a board member of the Women's Networking Circle in Las Vegas Teresa is a graduate of Arizona STATE University with a Master of Taxation and is a Certified Public Accountant in Arizona and Nevada.

2 2. IPT 2014 annual conference . SMITHA HAHN. S m it ha Hahn is a s enior m anag er wit h Erns t & Young L L P 's I nd irect / St ate and L ocal Tax P ract ice and is b as ed in D et roit . S he has over 1 3 year s of p ub lic accou nt ing exp erience and is current ly res p ons ib le for t he m anag em ent and im p lem ent at ion of s t ate and LOCAL t ax p roject s and s er vices for her client s . S m it ha recent ly m oved into t he Nat ional Tax p ract ice where s he s er ves as t he I nd irect / St ate and L ocal Tax t ax account ing lead er for t he firm . S m it ha als o p revious ly s er ved as t he Mic hig an Tax D es k for t he firm for five year s . S m it ha s er ves a d iver s e client b as e and has s ig nificant exp erience in t he s t ate incom e/ franc his e t ax area, focus ing on b us ines s-aligned res t ruct uring s , m erg er and acquis it ion s t ruct uring , review and analys is of t he s t ate t ax im p licat ions of p rop os ed b us ines s reorg aniz at ions , analys is of s t ate t ax filing s for refund s and p ros p ect ive favorab le filing p os it ions, and rep res ent at ion of client s b efore ad m inis t rat ive b oard s in s t ate t ax cont rover s ies.

3 S m it ha has m anag ed s t ate - focus ed b ankrup t cy p roject s at five For t une 5 0 0 com p anies , focus ing on s t ate at t rib ute p res er vat ion. I n ad d it ion, s he has FA S 10 9 t ax p rovis ion and FI N 4 8. calculat ion, review and rem ed iat ion exp erience. S m it ha is a m em b er of t he A m erican I ns t it ute of C er t ified P ub lic Account ant s as well as t he Mic hig an A s sociat ion of C er t ified P ub lic Account ant s and is a cer t ified p ub lic account ant licens ed in t he s t ate of Mic hig an. S he has s er ved as a lect urer on s t ate t ax is s ues for s em inar s s p ons ored by t he Tax Execut ives I ns t it u te, C ouncil on St ate Taxat ion, Mic hig an A s sociat ion of C er t ified P ub lic Accou nt ant s , I ns urance Account ing and S ys tem s A s sociat ion and St raf ford P u b licat ions . S m it ha has a B ac helor of A r t s in Econom ics from t he U niver s it y of Mic hig an and a Mas ter of Account ing from t he U niver s it y of Mic hig an B us ines s S c hool.

4 3. IPT 2014 annual conference . BASIC COMPONENTS OF THE TAX PROVISION. Current Deferred Valuation Allowance Uncertain Tax Positions 4. IPT 2014 annual conference . CURRENT TAX EXPENSE/(BENEFIT). GENERAL COMPUTATION. Pre-tax book INCOME +/ Book-tax differences (permanent and temporary). = Taxable INCOME x Applicable statutory tax rates (federal, STATE , or foreign). = Tax before credit Credits = Current tax levy +/ Return-to-provision adjustments +/ Changes to liabilities for uncertain tax positions = Current tax provision 5. IPT 2014 annual conference . CURRENT TAX PROVISION. STATE TAX CONSIDERATIONS. Evaluation of STATE filing methodology Separate, combined, consolidated STATE conformity to federal tax law Sec. 199. Bonus depreciation Intercompany add-backs Foreign dividends/Subpart F. Methodology for computing current STATE tax expense 6. IPT 2014 annual conference . CURRENT TAX PROVISION.

5 STATE TAX CONSIDERATIONS. Method for computing current STATE tax expense STATE -by- STATE computation Company A & B Company B. Total California New Jersey Pre-Tax Book INCOME : 10,000,000 3,000,000. Permanent Differences 2,000,000 1,000,000. Temporary Differences 50,000 50,000. STATE Modifications 300,000 100,000. Allocable INCOME : 12,350,000 4,150,000. STATE Apportionment % Apportionable INCOME Pre-NOL 4,940,000 830,000. STATE NOLs 500,000 0. Apportioned INCOME : 4,440,000 830,000. STATE Tax Rate Current STATE Tax Provision: A+B $467,000 392,000 A 75,000 B. 7. IPT 2014 annual conference . CURRENT TAX PROVISION. STATE TAX CONSIDERATIONS. Method for computing current STATE tax expense Blended effective rate computation Company A & B Company A & B Company B. California New Jersey Total (Unitary) (Separate). Pre-Tax Book INCOME : A 10,000,000 10,000,000 3,000,000. STATE Apportionment % STATE Tax Rate Current Blended Effective Rate B Current STATE Tax Provision A*B $534,000.

6 8. IPT 2014 annual conference . DEFERRED TAX EXPENSE/(BENEFIT). GENERAL COMPUTATION. Net deferred tax asset / liability EOY balance*. Less Net deferred tax asset / liability BOY balance =. Deferred tax provision * May include effects of Prior-year provision-to-return reconciliation items Adjustments to valuation allowance Adjustments to uncertain tax positions 9. IPT 2014 annual conference . MEASUREMENT OF DTAS AND DTLS. 1. Identify types and amounts of cumulative temporary differences and carryforwards 2. Measure total deferred tax liability for 3. Measure total deferred tax asset for taxable temporary differences using deductible temporary differences and applicable enacted tax rate loss carry forwards using applicable enacted tax rate, plus tax credit carryforwards 4. Reduce the deferred tax asset by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized 10.

7 IPT 2014 annual conference . DEFERRED TAX PROVISION. STATE TAX CONSIDERATIONS. Understand differences from current tax provision rate Deferreds should be booked at the rate the deferred item is expected to turn Legislative changes are taken into account in the period that they are enacted Future tax rate increases/decreases Future Business Changes 11. IPT 2014 annual conference . DEFERRED TAX PROVISION. STATE TAX CONSIDERATIONS (CONT.). Future changes in apportionment Weighting Sourcing Future tax reform STATE filing methodology Separate, combined, consolidated STATE conformity to federal tax law STATE NOLs and credits 12. IPT 2014 annual conference . VALUATION ALLOWANCE. Tax benefits of DTA are realized only if taxpayer has sufficient taxable INCOME in future to absorb future deductions or credits , NOL carryover provides no tax benefit if no taxable INCOME during carryover period 13. IPT 2014 annual conference .

8 VALUATION ALLOWANCE (CONT.). DTA is reduced by a valuation allowance if it is more likely than not ( >50%) that some portion, or all, of the DTA will not be realized Impact on tax provision Valuation allowance increases tax provision If allowance is released in subsequent year, reduces provision 14. IPT 2014 annual conference . VALUATION ALLOWANCE (CONT.). Sources of INCOME Carrybacks Reversal of DTLs Tax planning strategies Future book INCOME Cumulative book loss Review of prior three years of book INCOME /loss 15. IPT 2014 annual conference . VALUATION ALLOWANCE. STATE TAX CONSIDERATIONS. Future INCOME projections Differences from federal Closing operations/activities in a jurisdiction Differences in projected apportionment STATE filing methodology Separate, combined, consolidated STATE conformity to federal tax law Carryforward periods Carrybacks Limitations/suspensions 16. IPT 2014 annual conference .

9 UNCERTAIN TAX POSITIONS. BENEFIT RECOGNITION MODEL (POST-2006). Governed by ASC 740-10, Accounting for Uncertainty in INCOME Taxes (previously, FIN. 48). Two-step analysis Step 1: Recognition A tax benefit is recognized when it is more likely than not ( >50%) to be sustained upon audit ASC 740-10 applies only to INCOME taxes 17. IPT 2014 annual conference . UNCERTAIN TAX POSITIONS. BENEFIT RECOGNITION MODEL (POST-2006) (CONT.). Step 2: Measurement If recognition threshold is met, measure the benefit Amount of tax benefit that is not recognized is recorded as liability for unpaid taxes, which increases tax provision ASC 740-10 applies only to INCOME taxes 18. IPT 2014 annual conference . UNCERTAIN TAX POSITIONS. STATE TAX CONSIDERATIONS. STATE impact of federal exposure items ( , flow-through of federal return positions STATE conformity to federal tax law Non-filing positions Nexus (agency, affiliate, economic).)

10 Intercompany transactions Transfer pricing Expense disallowance 19. IPT 2014 annual conference . UNCERTAIN TAX POSITIONS. STATE TAX CONSIDERATIONS (CONT.). Apportionment positions MTC elections Gross v net positions Filing methodologies Composition of unitary group Forced combination Business purpose 20. IPT 2014 annual conference . UNCERTAIN TAX POSITIONS. STATE TAX CONSIDERATIONS (CONT.). Economic substance Impact of voluntary compliance initiatives Jurisdictional interest and penalty PROVISIONS Documentation requirements Current year review of technical assessments of prior UTPs 21. IPT 2014 annual conference . Teresa Dieguez V P o f C o r p o r a t e Ta x Wynn Resorts Limited IPT annual conference . Las Vegas, NV. @wynnresor THANK YOU FOR YOUR TIME. Smitha Hahn I n d i r e c t Ta x S e n i o r M a n a g e r EY. Detroit, MI.