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In IDC Research, Inc. v. Comm’r of Revenue, No. 09-P-1533 (Nov. 30, 2010), the Appeals Court of Massachusetts held that the transfer of International Data Group’s (IDG) logo licensing business to a Delaware subsidiary was a sham. The court affirmed the Appellate Tax Board’s decision and reallocated the Delaware subsidiary’s royalty income from…

On November 18, 2010, the New York Division of Tax Appeals held that Dann Ocean Towing (Dann), a Florida corporation with no employees or property in New York State, was liable for New York’s petroleum business tax. In re Dann Ocean Towing, Inc., Determination DTA No. 822683 (Nov. 18, 2010).

Dann owned 12…

The Michigan Court of Appeals ruled that two in-state visits per year by representatives of an out-of-state taxpayer could create nexus sufficient to impose the Single Business Tax (SBT). Barr Labs., Inc. v. Dep’t of Treasury, 2010 Mich. App. LEXIS 2033 (Oct. 21, 2010).  At trial, the taxpayer offered an affidavit by its vice president of taxation stating that its employees did not solicit sales during their infrequent trips to Michigan, but rather visited to “gather information.” The Department of Treasury, however, introduced the nexus questionnaires completed by Barr Labs indicating that its employees entered Michigan between two and nine times a year to solicit sales. The trial court found the affidavit to be the most credible evidence and held that Barr Labs’ contacts with Michigan were insufficient to establish the requisite substantial nexus under the Commerce Clause and granted summary judgment in favor of the taxpayer.Continue Reading Taxpayer’s Solicitation Activities Could Establish Michigan SBT Nexus

A taxpayer has filed a petition for certiorari, asking the U.S. Supreme Court to rule on whether an out-of-state corporation has nexus with Kentucky by virtue of its ownership interest in a limited partnership that does business in the state. Asworth LLC (f/k/a Asworth Corp) v. Kentucky Dep’t of Revenue, Docket No. 10-662 (Nov.

In an interesting development in the ongoing debate surrounding intended tax benefits, the Massachusetts Supreme Judicial Court affirmed the Appellate Tax Board’s ruling that a taxpayer qualified for a use tax exemption and that the Commissioner was not entitled to impose additional requirements on a taxpayer’s eligibility for the exemption. Onex Commc’ns. Corp.  v. Comm’r…

In an unfortunate misapplication of the constitutional nexus rules, the New York Tax Appeals Tribunal has found that two corporations had franchise tax nexus with New York solely because the corporations received income from ownership interests in a seven-plus tier entity structure culminating in a pass-through entity that was doing business and earning income in the State. Matter of Shell Gas Gathering Corp. No. 2 et al., DTA Nos. 821569 and 821570 (Sept. 23, 2010). The taxpayers, Shell Gas Gathering Corp. No. 2 and Shell Gas Pipeline Corp. No. 2, were both holding companies that were not themselves doing business in New York. To make a really long story short, the taxpayers, through approximately seven tiers of various ownership interests in various types of pass-through entities, had an indirect interest in an entity, Coral Energy Resources LP, that did business in New York. Coral Energy was a seller and marketer of natural resources and conducted business, owned property, and made sales in New York. A distributive share of the income from Coral Energy’s business was ultimately passed-through to the taxpayers.Continue Reading New York Tax Appeals Tribunal Confuses Nexus Rules With Income Sourcing Rules–Constitutional Mashup Ensues

The U.S. Court of Appeals for the District of Columbia, sitting en banc on September 29, raised serious questions in a suit seeking refund of telephone excise taxes paid to the Internal Revenue Service (IRS). A decision on the arguments raised could have far-reaching consequences for the IRS, potentially requiring it to conform to…

On September 28, 2010, the United States Supreme Court granted certiorari in two important Due Process Clause cases dealing with the assertion of personal jurisdiction against foreign corporations:

  • In Goodyear Luxembourg Tires v. Brown, the Court will consider “whether a foreign corporation is subject to general personal jurisdiction, on causes of action not arising out of or related to any contacts between it and the forum state, merely because other entities distribute in the forum state products placed in the stream of commerce by the defendant.”
  • In J. McIntyre Machinery Ltd. v. Nicastro, the Court will consider a related  question: whether a state may be permitted to exercise specific jurisdiction over a foreign manufacturer under the stream-of-commerce theory “solely because the manufacturer targets the United States market for the sale of its product and the product is purchased by a forum state consumer.”

Although there are no direct state tax implications in these two cases, they will raise issues among corporations engaging in electronic commerce and are concerned about being subject to tax in every state. If the Court rules that jurisdiction was properly asserted in either of these cases, businesses, and particularly those engaged in electronic commerce, will be faced with the daunting prospect of being haled into court anywhere in the United States with no connection to the forum state beyond selling items on a third-party website. So much for purposeful availment!Continue Reading Supreme Court Grants Cert in Two Jurisdiction Cases – Will the Long Arm Get Longer?