The New Jersey Tax Court denied a holding company’s motion for partial summary judgment seeking a determination that the taxpayer lacked nexus with New Jersey and would not be required to file corporation business tax returns. The taxpayer’s only connection to the state of New Jersey was the receipt of royalties from an affiliate doing business in New Jersey. The taxpayer argued that its facts were distinguishable from those in Lanco, Inc. v. Dir., Div. of Taxation, 188 N.J. 380 (2006), in which the New Jersey Supreme Court held that an out-of-state company lacking a physical presence in New Jersey was deemed to be doing business in the state by receiving state-sourced royalty income. The court acknowledged that the taxpayer’s facts appeared to be distinguishable from the facts in Lanco, but noted that the facts regarding the taxpayer’s activities in the state were not sufficiently developed in the motion and that discovery was still incomplete and pending. As a result, the court denied the taxpayer’s motion but left open the question of whether the taxpayer had sufficient contact with the state to satisfy the Due Process and Commerce Clauses of the U.S. Constitution. Crown Packaging Technology, Inc. v. Dir., Div. of Taxation, Dkt. No. 003249-2012 (N.J. Tax Ct. Feb. 26, 2019).

The New York City Tax Tribunal held that an out-of-state corporate taxpayer, with an indirect interest in a limited liability company investment fund engaged in business in New York City, had nexus with the City and was subject to tax on capital gain from its sale of the fund. The taxpayer had no property, employees, or otherwise conducted business in the City and the parties stipulated that the fund was not unitary with the taxpayer. The taxpayer sold its interest in the fund through an intermediate partnership and realized capital gain. The taxpayer claimed that its capital gain was not subject to the City General Corporation Tax because it had no nexus with the City and its passive investment in the nonunitary fund did not create nexus for the taxpayer. The Tax Appeals Tribunal disagreed and reasoned that the ownership of a flow-through interest in an entity conducting business in the City, created nexus for the corporate owner and the gain was mainly attributable to the protection, opportunities and other benefits upon the fund by the City. The Tribunal apportioned the gain to the City based on the City’s business allocation percentage of the investment fund. The Tribunal held that the assessment satisfied the four-prong test in Complete Auto and was supported by the ruling in Wayfair and that physical presence is not required to subject an out-of-state corporation to tax in certain circumstances. The Tribunal further found that the imposition of tax did not violate the Due Process Clause or Commerce Clause. (Petition of Goldman Sachs Petershill Fund Offshore Holdings, TAT (H)16-9(GC), (N.Y.C. Tax Trib. Dec 6, 2018))

The New Jersey Tax Court rejected a taxpayer’s due process claim finding that the Division of Taxation properly issued the notice of assessment. The taxpayer made three arguments: (1) that the Division issued the assessment in the name of the predecessor corporation instead of the successor corporation, (2) that the assessment was addressed to the wrong zip code, and (3) that the taxpayer’s third-party mailroom routed the assessment to the wrong location. In addressing each of these claims, the court reasoned that the taxpayer’s officer executed prior statute waivers in the name of the predecessor corporation and that the assessment was delivered to the proper address where agents of the taxpayer accepted and signed the mail return receipt card. Although there was evidence that the taxpayer’s mailroom routed the assessment to a different location, the court found that the taxpayer’s neglect was not excusable and that it was responsible for its organization’s failure to take prompt action to respond to the assessment. (Merrill Lynch Credit Corporation v. Division of Taxation, Dkt. No: 004230-2017 (NJ Tax Ct. Sep. 28, 2018) WL 4718875).

The Louisiana Supreme Court ruled that residents who owned an S corporation and limited liability company were entitled to a credit against their Louisiana income tax liability for Texas franchise tax paid by the pass-through entities. In so holding, the Louisiana Supreme Court found that La. R.S. 47:33, which limits the credit for taxes paid to other states to those states that offer a reciprocal credit to that state’s residents for business transacted in Louisiana, was unconstitutional because it was applied to the Texas franchise tax. Further, in noting that the reciprocity requirement discriminates against interstate commerce, the Louisiana Supreme Court also suggested that the limitation on the amount of the credit by the amount of tax that would have been imposed by Louisiana also discriminates against interstate commerce. (Smith v. Robinson, Dkt. No. 2018-0728 (La. 12/05/2018)).

The State of New Mexico Administrative Hearings Office held that the New Mexico Taxation and Revenue Department could not remove the payroll factor from the apportionment factor calculation of a taxpayer in the credit card and personal lending business. The Hearings Office determined that “the party seeking to depart from the proscribed apportionment method,” which, in this case, was the Department, “bears the burden of proving by clear and convincing evidence that such departure is appropriate.” In this circumstance, the Department failed to prove that the taxpayer’s employees were not contributing significantly enough to the generation of the taxpayer’s income to warrant a full weighting of the payroll factor with the property and sales factors.


In the Matter of the Protest of Discover Bank, N.M. Admin. Hearings Office, Decision and Order No. 18-44 (Dec. 21, 2018).

In a Technical Advice Memorandum issued on December 4, 2018, the California Franchise Tax Board (FTB) concluded that delivery of tangible personal property via private truck is a protected activity under P.L. 86-272. However, any activity that goes beyond the scope of delivery, such as backhauling, is not protected. The FTB explained that Congress, when it enacted P.L. 86-272 in 1959, chose not to limit P.L. 86-272 protection to shipments by common or contract carrier. The FTB further noted that Congress intended to broadly protect activities “by or on behalf of” an out-of-state company, including “shipment or delivery” from out-of-state. Cal. FTB Tech. Adv. Mem. No. 2018-3 (Dec. 4, 2018).

In two cases, the Minnesota Tax Court clarified the extent to which the Minnesota research and development (R&D) credit is calculated based on the Internal Revenue Code’s defined terms. Minnesota law incorporates the Internal Revenue Code’s definition of “base amount” for purposes of calculating the Minnesota R&D credit. The proportion of qualified research expenditures to the base amount is critical for calculating the federal and Minnesota R&D credits. The base amount is the fixed-base percentage multiplied by the average annual gross receipts for the four preceding tax years. The fixed-base percentage is the aggregate qualified research expenditures divided by aggregate gross receipts. At issue in these cases is the extent to which these numbers are limited to Minnesota amounts only for purposes of calculating the Minnesota R&D credit.

In two cases that were consolidated for oral argument and decided with identical analysis language, the Minnesota Tax Court granted summary judgment:

(1) In favor of the Commissioner, in deciding that the Minnesota law incorporates the federal minimum base amount provision as part of the state law definition of “base amount”;

(2) In favor of the taxpayer, in deciding that the Minnesota base amount must be computed using federal gross receipts (rather than Minnesota gross receipts) in the denominator of the fixed-base percentage; and

(3) In favor of the Commissioner, in deciding that the federal provisions allowing for an alternative simplified credit calculation are not incorporated into Minnesota law.


General Mills, Inc. v. Comm’r of Revenue, No. 9016-R (Minn. Tax Ct., Aug. 17, 2018).

International Business Machines Corporation v. Comm’r of Revenue, No. 9053-R (Minn. Tax Ct., Aug. 17, 2018).