States quick to take advantage of new nexus non-rules

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.

Related stories:

  • Senate fights back on recent Supreme Court nexus issue

  • Supreme Court inaction could change nexus rules

    You may like these other stories...

    IRS audits less than 1 percent of big partnershipsAccording to an April 17 report from the Government Accountability Office (GAO), the IRS audits fewer than 1 percent of large business partnerships, Stephen Ohlemacher of the...
    Legislation coming out of Washington just might reduce homeowners' burden for disaster insurance. It's a topic very much on everyone's minds since the mudslide in Oso, Washington. The loss of human life was...
    Divorce is hard, and the IRS isn't going to make it any easier. The IRS generally says "no" to tax deductions that might ease the pain of divorce. In certain circumstances, however, you might be able to salvage...

    Upcoming CPE Webinars

    Apr 22
    Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
    Apr 24
    In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
    Apr 25
    This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
    Apr 30
    During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.