On June 4, Illinois Governor Bruce Rauner signed into law the state’s fiscal year (FY) 2019 budget implementation bill, Public Act 100-0587 (the Act). The Act makes a significant change to the Illinois sales/use tax nexus standard by adopting an “economic nexus” standard for a sales/use tax collection obligation. The economic nexus language was added

With multiple state lawsuits, competing federal legislation, many state bills, and several rulings and regulations, the physical presence rule remains an important and contentious issue.  In this article for the TEI magazine, Mark Yopp takes a practical approach for practitioners to deal with the ever-evolving landscape.

Read the full article.

Reprinted with permission. Originally published

On Saturday, January 14, the National Conference of State Legislatures (NCSL) Task Force on State and Local Taxation (Task Force) met in Scottsdale, Arizona to discuss many of the key legislative issues that are likely to be considered by states in 2017. The Task Force consists of state legislators and staff from 33 states and serves as an open forum to discuss tax policy issues and trends with legislators and staff from other states, tax practitioners and industry representatives.

Below is a short summary of the key sessions and takeaways from the first Task Force meeting of 2017. PowerPoints from all sessions are available on the Task Force website.

Nexus Expansion Legislation Expected to Continue

With lawsuits pending in South Dakota and Alabama over actions taken by states in 2016, MultiState Associate’s Joe Crosby provided an overview of 2016 nexus expansion legislation (as well as legislation introduced thus far in 2017), with NCSL’s Max Behlke pointing out that he expects a lot of states to act on this trend this year.

In particular, it was pointed out that the US Supreme Court’s denial of cert in DMA v. Brohl (upholding the decision of the 10th Circuit) should give states confidence about their ability to constitutionally adopt similar notice and reporting laws. Last month, Alabama Revenue Commissioner Julie Magee publicly stated that Alabama plans to introduce notice and reporting legislation similar to Colorado, along with at least two other states.

Economic nexus laws directly challenging Quill, similar to South Dakota SB 106 passed last year, are also expected to be prevalent in 2017—with five states (Mississippi, Nebraska, New Mexico, Utah and Wyoming) already introducing bills or formal bill requests that include an economic nexus threshold for sales and use tax purposes. Notably, the Wyoming bill (HB 19) has already advanced through the House Revenue Committee and its first reading by the Committee of the Whole and is expected to receive a final vote in the House this week. The Nebraska bill (LB 44) takes a unique approach in that it would impose Colorado-style notice and reporting requirements on remote sellers that refuse to comply with the economic nexus standard.

Behlke pointed out that he doesn’t see Congress acting on the remote sales tax issue in early 2017 due to other priorities—including federal tax reform. With a final resolution of the kill-Quill efforts by the US Supreme Court most likely not possible until late 2017 (or later), state legislatures are likely to feel the need to take matters into their own hands. From an industry perspective, this presents a host of compliance concerns and requires companies currently not collecting based on Quill to closely monitor state legislation. This is especially true given the fact that many of the bills take effect immediately upon adoption.


Continue Reading

This morning, the US Supreme Court announced that it denied certiorari in Direct Marketing Association v. Brohl, which was on appeal from the US Court of Appeals for the Tenth Circuit. The denied petitions were filed this fall by both the Direct Marketing Association (DMA) and Colorado, with the Colorado cross-petition explicitly asking the

Today, the Ohio Supreme Court issued its much-anticipated slip opinions in the three companion cases challenging Ohio’s Commercial Activity Tax (CAT) economic nexus standard. See Crutchfield Corp. v. Testa, Slip Op. No. 2016-Ohio-7760; Newegg, Inc. v. Testa, Slip Op. No. 2016-Ohio-7762; and Mason Cos., Inc. v. Testa, Slip Op. No. 2016-Ohio-7768.

In

Earlier today, the Tennessee Department of Revenue (DOR) submitted a new sales and use tax regulation for publication titled “Out-of-State Dealers” (Rule 1320-06-01-.129) that would administratively create an economic nexus threshold. With the submission, Tennessee becomes the most recent addition to the growing list of states seeking to directly attack the Quill physical presence standard.  As detailed in our prior blog, both Alabama and South Dakota are already litigating whether their economic nexus standards are sufficient to satisfy the dormant commerce clause substantial nexus requirement.  Additionally, at least 11 different bills in eight different states have been introduced in state legislatures so far in 2016.  With states continuing to attack Quill from all angles, remote sellers are scrambling to keep up with the increasingly volatile nexus landscape.
Continue Reading

On May 31, 2016, the Washington Department of Revenue (DOR) Appeals Division released a Determination (No. 15-0251, 35 WTD 230) denying a German pharmaceutical company’s business and occupation tax (B&O) protest. The administrative law judge (ALJ) ruled that while the nondiscrimination provisions contained in Article 24 of the US-Germany Income tax Treaty (Treaty) “may apply,” the B&O does not discriminate against non-US businesses because it is imposed on any business deriving royalty income from Washington sources and applies equally to foreign and US companies. The ALJ also found that the company could avoid double taxation of the royalty income by excluding income taxed by Washington from its German tax base. While the company also challenged the constitutionality of the 2010 B&O economic nexus law, the ALJ declined to entertain it—citing a lack of authority to rule on the constitutionality of Washington statutes.
Continue Reading

Ever since Alabama’s new economic nexus regulation went into effect, litigation over its constitutionality has been expected given that Alabama Commissioner Julie Magee and Governor Bentley said as much when announcing it (Rule 810-6-2-.90.03, effective January 1, 2016).  It appears that they finally got their wish. On June 8, 2016, Newegg Inc. (Newegg)

Oral argument before the Ohio Supreme Court took place on May 3 in the three cases challenging Ohio’s Commercial Activity Tax (CAT) nexus standard.  Crutchfield, Inc. v. Testa, Case No. 2015-0386; Mason Cos. Inc. v. Testa, Case No. 2015-0794; Newegg, Inc. v. Testa, Case No. 2015-0483.  Ohio imposes its CAT on a business that has more than $500,000 in annual gross receipts in the state, even if the business has no physical presence in the state.  These three taxpayers have challenged this standard as violating the Commerce Clause substantial nexus test.

The oral argument in the cases proceeded as expected.  The majority of the time for both parties was taken up by questions from the bench.  Several judges quizzed the taxpayers’ counsel about the assertion that no business was conducted in Ohio.  The judges focused on activities such as products being received by customers in Ohio and software being placed on customers’ computers in Ohio to facilitate ordering or to track customer activity in Ohio.  The taxpayers’ counsel vigorously disagreed with this construction of the facts – noting that whatever happened in Ohio, all of the taxpayers’ actions occurred elsewhere.  He stated that the activities called out by the judges were no different than receiving and reviewing a catalog in the state.

The taxpayers’ counsel repeatedly cited to Tyler Pipe as the controlling law in this case – noting that before a state could impose a tax on a business, that business had to do something in the taxing state (or have something done on its behalf) that helped it establish and maintain a market in the state.  According to the taxpayers’ counsel, it was not enough that a market exists in the taxing state; the taxpayer had to be doing something in the taxing state.  He asserted that the taxpayer conducted no business activities in the state and thus Tyler Pipe prevented the state from imposing the CAT on them.  This became the taxpayers’ mantra throughout the argument.
Continue Reading

After a quarter of a century, the school book nexus cases continue to proliferate, delight and mystify.  The latest installment in the saga is from Alabama.  Scholastic Book Clubs, Inc. 2931 v. State Of Alabama Department Of Revenue, Ala. Tax Tribunal, Dkt. No. S. 14-374 (March 25, 2016).  Like the other cases, the question