Supreme Court inaction could change nexus rules

The U.S. Supreme Court announced on Monday it would not hear two cases that could have long-ranging effects on the nexus rules followed by state taxing authorities. The cases both involved situations where states assessed income and franchise taxes to companies with no physical presence in the state.

In West Virginia, Bank of America's FIA Card Services, formerly MBNA, was attempting to seek a refund of $460,000 in income and franchise taxes assessed by the state. While Bank of America has no physical presence in West Virginia, the state took the position that the bank had an economic presence in the state through its credit card customers.

In New Jersey, Lanco Inc., a subsidiary of Charming Shoppes Inc., licenses trademarks to women's apparel stores in the state. New Jersey found that to be sufficient grounds to assess income and franchise taxes. Lanco is a Delaware company.

These cases chip away at the nexus requirements established by a previous Supreme Court decision, Quill v. North Dakota, a ruling that stated a company must have a physical presence in a state in order for that state to collect sales and use taxes. Both West Virginia and New Jersey have taken the position that physical presence isn't a requirement for the collection of income and franchise taxes.

"We will probably see a surge in the adoption of taxes by [other] states based on nothing more than the quantum of business that institution does in the state," said David Swayze, a Wilmington, DE-based attorney, in a comment to the Wilmington News Journal.

Some states have already taken a firm position in their nexus laws regarding physical presence being a requirement for collection of income and franchise taxes. States that have not established a position in this area might now rely on the New Jersey and West Virginia cases and the Supreme Court's refusal to hear the cases as precedent.

You may like these other stories...

The Republican-led House of Representatives is expected to pass a bill this week that would permanently extend the bonus depreciation tax break. But don’t expect President Obama to sign it.The Obama administration said...
Washington D.C., our nation's capital, is the healthiest city in the country, according to a new report from USA Today. But now it's going to cost politicos on the Hill and Gen-Xers in Foggy Bottom a little extra to...
Credit Suisse says pension assets at risk unless court delays sentencingJohn Letzing of the Wall Street Journal reported on Wednesday that Credit Suisse Group AG says its management of billions of dollars in assets for...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.