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...

Boehner addresses GOP priorities ahead of midterm electionsHouse Speaker John Boehner (R-OH) on Thursday delivered what amounted to closing arguments ahead of the November elections, laying out a list of Republican...
As anyone who's ever been through a divorce can attest, the pain of parting with your spouse isn't just emotional—the fallout from divorce can wreak financial havoc as well long after the dust in the courtroom...
Former DOJ Tax Division head Kathryn Keneally joining DLA Piper in New YorkGlobal law firm DLA Piper announced on Thursday that Kathryn Keneally, the former head of the US Justice Department Tax Division, is joining the firm...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 21
Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience's communication style.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.