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After nearly 60 years of experimentation with value added and gross receipts taxes, Michigan has now joined the rank-and-file corporate income tax states through its repeal of the Michigan Business Tax (MBT). Governor Snyder signed the tax package (H.B. 4361, H.B. 4362) into law on May 25, 2011. According to the Council on State Taxation, the legislation takes the state from 30th to 16th in the nation in terms of lowest state and local business tax burden.

The new 6% corporate income tax, effective January 1, 2012, retains many of the same features as the Business Income Tax component of the former MBT, including unitary combined reporting, single sales factor apportionment with market sourcing, a Finnigan apportionment rule, and the same tax rate. The MBT factor presence nexus standard is also retained, under which nexus is established if an out-of-state company has physical presence in Michigan for more than one day or actively solicits sales in the state and has Michigan gross receipts of $350,000 or more. The new tax also incorporates the same tax regimes for insurance companies and financial institutions that existed under the MBT. Insurance companies continue to be subject to the greater of a 1.25% tax on gross direct Michigan premiums or the retaliatory tax, and financial institutions will still be subject to tax based on 0.29% of net capital.Continue Reading Michigan’s Tax Roulette Lands on a Corporate Income Tax

The District of Columbia passed—subject to congressional oversight—tax legislation that ultimately may affect sales and use tax nexus standards throughout the United States. The District of Columbia’s Main Street Tax Fairness Act, which is part of its fiscal 2012 budget, authorizes the District to enforce sales tax on non-physically present sellers under certain circumstances.

With all the drama and suspense of a Hollywood movie, California Governor Jerry Brown signed AB X1 28 on June 29—more than two weeks after the bill originally passed the California legislature. AB X1 28 has been controversial because it significantly expands California’s sales and use tax collection requirements by substantially incorporating all of the provisions of former AB 153 (click-through nexus), AB 155 (affiliate nexus), and SB 234 (constitutional nexus). Together, these changes combine California’s recent efforts to force remote sellers to collect California sales tax. To further complicate matters, AB X1 28 provides that these changes become effective immediately.

AB X1 28 amends California’s definition of “retailer engaged in business” for sales and use tax collection purposes, as set forth in Cal. Rev. & Tax Code § 6203, to include three new groups of “retailers” as follows.Continue Reading Nexus Explosion: California Governor Signs Bill Expanding California Sales Tax Collection Requirements

As we reach the midway point in the multistate legislative calendar, we thought it appropriate to highlight the present and remaining schedules of state lawmakers. The following states are currently in session: Alabama, California, Connecticut, Delaware, District of Columbia, Illinois, Iowa, Louisiana, Maine, Massachusetts, Michigan, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Tennessee, and Wisconsin. Significant state tax measures are alive and well in nearly all of these states. For example, California is considering several use tax nexus bills, several corporate income tax bills, and property tax “change-of-ownership” legislation. Nevada will consider recently introduced gross receipts tax legislation, loosely modeled after the Texas margins tax. The District of Columbia continues to advance a combined reporting proposal. The Texas legislature sent Governor Perry a sales tax affiliate nexus bill on May 13. Last but not least, year-long sessions in some of the more populous states like Illinois, Michigan, New York, and New Jersey will keep things interesting for months to come.Continue Reading Down to the Wire! State Legislative Schedules and Update

In a recent decision by the Washington Supreme Court, the court found that a taxpayer had nexus in Washington for B&O tax purposes even though the taxpayer’s sole presence in the state consisted only of infrequent visits by sales employees to customers. Lamtec Corp. v. Dep’t of Revenue, Docket No. 83579-9 (Wash. Jan. 20, 2011) (en banc). In holding that Lamtec had B&O nexus in Washington, the court stated that, “to the extent there is a physical presence requirement, it can be satisfied by the presence of activities within the state” (emphasis added).

Lamtec, a manufacturer of insulation and vapor barrier in New Jersey, sold its products wholesale to customers via telephone. Lamtec had no facilities, offices, or employees located in Washington. However, several times a year, Lamtec sales employees visited customers in Washington to provide information regarding Lamtec products. The sales employees did not solicit sales. The Washington Department of Revenue (Department) asserted that Lamtec had nexus in Washington and issued an assessment to Lamtec for the period in which it was not registered.  Lamtec challenged the assessment.Continue Reading Washington Supreme Court Finds Nexus, Confuses the Rest of Us

On January 10, 2011, the New Jersey Division of Taxation (the Division) started the new year off with a bang by issuing a Technical Advisory Memorandum (TAM), TAM-6 (Jan. 10, 2011) regarding the Division’s Corporate Business Tax (CBT) nexus policy. The issuance of this TAM sent both overt and subliminal messages to foreign corporations, particularly financial institutions.  

The Division advised that for privilege periods and taxable years beginning on or after January 1, 2002, amendments to the CBT made it clear that foreign corporations are subject to the CBT “for the privilege of deriving receipts from sources within this state, or for the privilege of engaging in contacts within this state.” N.J. Stat. Ann. § 54:10A-2. In addition, the Division adopted the holding of Tax Comm’r of W.Va. v. MBNA America Bank, N.A., 640 S.E.2d 226 (W.Va. 2006), cert. denied sub nom FIA Card Services, N.A. v. Tax Commissioner of W.Va., 127 S. Ct. 2997 (2007), as the constitutional standard by which New Jersey’s nexus statute would be measured. Based on this foundation, the Division set stated: “taxpayers performing services and domiciled outside the State that solicit business within the state or derive receipts from sources within the State must file a [CBT] return” (emphasis added). The Division expressly targeted this nexus policy at financial institutions by stating that “a [financial institution] that has its commercial domicile in another state [is] subject to tax in this State if during any year it obtains or solicits business or receives gross receipts from sources within this state.”Continue Reading New Jersey’s “Situation”: Economic Nexus and Endless Possibilities

The Iowa Supreme Court and Iowa Department of Revenue issued interesting opinions that continue to expand corporate income tax nexus arguably beyond the limitations of the Commerce Clause of the U.S. Constitution.

The Iowa Supreme Court held that physical presence is not a required ingredient of the secret recipe for substantial nexus in the corporate income tax context. KFC Corp. v. Iowa Dep’t of Revenue, No. 09-1032 (Iowa Dec. 30, 2010). The Department issued a corporate income tax assessment to KFC Corp., which had no employees or property in Iowa. KFC’s only connection with Iowa was that it licensed the KFC intangible property to independent franchisees operating or conducting business in Iowa. The Iowa Supreme Court held that, despite this tenuous connection and no physical presence, KFC had substantial nexus in Iowa.Continue Reading Iowa Supreme Court Deep-Fries Commerce Clause

At both the federal and state levels, the GOP won a number of game-changing races that will impact state and local tax policy in 2011 and beyond.  Of the 37 gubernatorial races held in 2010, Republicans won 23.  All six Republican incumbents won; Republicans defeated Democratic incumbents in two of the seven other incumbent races. …

Recently, the Connecticut Department of Revenue Services issued an informational publication explaining its position on the application of the Connecticut Corporate Business Tax on real estate investment trusts (REITs) and revised a previously issued publication on the implications of the state’s economic nexus provisions to foreign (non-U.S.) companies.

The Department’s newly issued guidelines treat REITs in a manner that is similar to the Internal Revenue Code, but the Department strays in certain areas. IP 2010(21) (Dec. 1, 2010).Continue Reading Connecticut “WREITS” Guidance for REITs and Economic Nexus