It has long been the law of the land that a taxpayer must have a discernable physical presence in a state before it can be required to collect and remit sales and use taxes. The U.S. Supreme Court reaffirmed this bright-line test in the 1992 case of Quill Corp. v. North Dakota. In Quill, the Court held that interstate commerce would be unduly burdened if an out-of-state business were required to comply with the sales and use tax laws of thousands of state and local tax jurisdictions. Requiring a physical presence, the Court reasoned, is a constitutionally sufficient contact – or nexus – with a state or locality to impose sales and use tax collection duties. Continue Reading
The cornerstone of any taxing regime is the situsing of receipts. The taxpaying public must have certainty regarding when its income is subject to tax in a jurisdiction. Recent rulings from the Ohio Department of Taxation (the “Department”) regarding the situsing of receipts for the Ohio Commercial Activity Tax (“CAT”), however, inject ambiguity into what should be a straightforward analysis. The simple quest to source sales is akin to a 2000 teen movie, “Dude, Where’s My Car,” where two young men are unable to locate their car after a long night of partying. The teens spend the next several days following clues to locate the vehicle only to find it innocently parked behind a mail truck.
A taxpayer changing domicile to outside New York faces a daunting task, especially when the New York residence is not abandoned. The taxpayer must have the intent to make the new location his or her new permanent home and act on this intent. To determine what is in a taxpayer’s mind is not always an easy task for an auditor, but the auditor generally considers five factors indicating domicile: homes maintained and used; active business involvement; time in the state; location of near and dear items; and family connections.
California allows cities and counties to impose a tax on certain real estate transfers at a rate of 0.11 percent of the sales price. Los Angeles County enacted an ordinance to impose the tax on transfers within the county. Recently, the county took the position that a change of control of an entity holding real property in the county constituted a taxable transfer of the underlying real property. On June 29, 2017, the California Supreme Court agreed, setting the stage for cities and counties throughout the United States to adopt a similar approach.
Since the landmark decision of Quill Corp. v. North Dakota in 1992, the law of the land has been that an out-of-state business has sales and use tax nexus with a state only when it is a physical presence. This physical presence can manifest itself in several ways – real or personal property sitused or an employee or independent contractor located in the state. It has been roundly understood that once the business no longer had a physical presence in a state, sales and use tax nexus was terminated simultaneously. However, depending on the particular state, sales and use tax nexus may live on despite the efforts of the business to cut the cord. Continue Reading
The California legislature has voted to strip the Board of Equalization of all powers and duties except for those originally given to it by constitutional amendment in 1879. Over time, the board received the statutory authority to administer the California sales and use tax and many other state taxes and fees. The Board also was responsible for hearing appeals of property, business and income tax assessments. However, effective July 1, 2017, the Board’s functions will be primarily limited to reviewing assessments, collections and appeals for property, insurance, and alcoholic beverage taxes.
Multistate businesses routinely strive to make their corporate structures more efficient. This goal often entails forming corporate affiliates with a single functional purpose. For example, an entity could be formed to handle “back office” operations, to operate as the distributor of products sold by the business, to operate as the “bank” for the multistate operation, or to hold the intangible property used by the group. Although seeking such corporate efficiencies appears innocuous, their use in conjunction with state tax planning has raised the ire of many state taxing authorities.
Like the premise of Back to the Future, state governments are tinkering with time. To improve future budget revenues, states are enacting retroactive tax levies. Much to the disappointment of taxpayers, the U.S. Supreme Court recently denied review in several state tax cases challenging the reach of retroactive tax laws. These laws can have a pernicious effect on business climates by imposing a tax liability on past activity. Seven petitions for review involved Michigan’s well-publicized retroactive repeal of an alternative apportionment method and one petition related to Washington’s retroactive repeal of an exemption.
We are all familiar with the concept of tax nexus. In order to lawfully impose tax, the taxpayer must have sufficient contacts – or nexus – with the taxing state. The Avnet case dealt with the concept of dissociation – or transactional nexus. At issue in Avnet was whether the taxpayer could bifurcate – or dissociate – certain transactions from taxable in-state activities for purposes of the Washington B&O tax. The taxpayer sought to make the distinction between “general” tax nexus and “transactional” nexus. Continue Reading