By Jessica Kerner and Timothy Gustafson
The Indiana Department of Revenue determined that the storage of advertising catalogs in Indiana, for a taxpayer’s out-of-state clients, did not create sales tax nexus for such clients. The taxpayer stored the catalogs at its facilities in Indiana prior to distributing the catalogs to recipients throughout the United States. The Department determined the Commerce Clause of the U.S. Constitution, as interpreted by Quill Corp v. North Dakota, 504 U.S. 298 (1992) and subsequent cases, prevented the state from compelling the clients to collect and remit the sales tax. Specifically, the Department found that the substantial nexus prong of the four-part test for sustaining a tax against a Commerce Clause challenge established in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), was not met. The Department explained that in order for there to be substantial nexus with a state, there must be “some kind of physical presence” in that state. The Department then concluded, without any further analysis, that having the advertising catalogs in the state alone was not the required physical presence contemplated by Quill and its progeny. Indiana Revenue Ruling No. ST 13-08 (Dec. 3, 2013). The Department drafted Revenue Ruling No. IT 13-03 on the same facts for corporate income tax nexus purposes, similarly concluding that the taxpayer’s out-of-state clients did not have corporate income tax nexus.