It was only a couple of weeks ago that we reported the U.S. Supreme Court had refused to hear two cases that would have addressed the issue of substantial economic presence in a state being enough to constitute nexus.
In Lanco, Inc. v. Director U.S. and FIA Card Services N.A. f/k/a MBNA America Bank, N.A. v. Commissioner, U.S., NJ and West Virginia chose to apply income taxes on corporations that had no physical presence in the state. In Lanco, A Delaware-based company licenses trademarks to women's apparel stores in New Jersey. In MBNA, West Virginia took the position that the bank had an economic presence in the state through its credit card customers.
Other states are joining New Jersey and West Virginia with legislation supporting taxation without physical presence. In New Hampshire, a new law defines in-state business to include business with a "substantial economic presence" and permits the state to collect its business profits tax on such out-of-state companies doing business in the state. This provision of the New Hampshire law is effective July 1.
The new Michigan Business Tax, scheduled to become effective January 1, 2008, assesses companies doing business in Michigan with no physical presence in the state, earning more than $350,000 in revenue that can be attributed to sales in Michigan. The new tax replaces the Michigan Single Business Tax and provides incentives for in-state companies.
Senate Bill 1726 has been introduced in an effort to stop what might become a trend of states looking for new ways to assess taxes. The bill, known as the Business Activity Tax Simplification Act of 2007 (BATSA) would solidify an earlier Supreme Court ruling (Quill v. North Dakota), a benchmark ruling that has been the cornerstone of nexus decisions for more than a decade, by requiring physical presence for the application of all business activity taxes.
Supreme Court inaction could change nexus rules