In analyzing the results of the 2013 Survey of State Tax Departments, Bloomberg BNA looked to prominent state tax experts across the country for their perspectives. This Expert Insight showcases some of the commentary. Free access to the key issues and analysis from the survey (but not all of the states’ responses) is here.
Fred Nicely, senior tax counsel for the Council On State Taxation (COST), on why Quill’s physical presence standard should apply to income taxes:
‘‘Quill’s physical-presence standard for substantial nexus provides clearer guidance on when a person is subject to a state’s tax, transactional or income, than a subjective economic-presence standard. There is no logical reason to justify limiting Quill’s physical-presence requirement for substantial nexus to transactional taxes. Income taxes imposed at the state and local levels, especially with state and local tax laws increasingly requiring taxpayers to make adjustments to its federal income and the state and local governments using differing apportionment methodologies, are just as complicated for taxpayers to comply with. [However], even states indicating they use Quill’s physical presence standard will often stretch what constitutes an ‘agency relationship’ to assert an out-of-state taxpayer has a physical presence in the state.’’
Matthew Hedstrom, senior associate at Alston & Bird, on whether nexus could be triggered by purchasing cloud computing services:
‘‘Since most cloud computing services involve software, and hosting of such software on servers, the question becomes whether purchasing cloud-based services results in taxable presence. Under Quill, the issue would be whether the purchaser would be deemed to own or lease tangible personal property. The states’ positions may not withstand challenge by taxpayers when you consider that any nexus inquiry is highly fact-intensive, and despite the various state responses in this regard, taxpayers would have a number of arguments that merely purchasing cloud services does not create substantial nexus. For one, even assuming that the ownership or lease of a server would constitute a taxable presence, whether a purchaser owns/controls/possesses an interest in the software or the server simply by purchasing cloud services is a gray area, subject to considerable debate, and likely, again, a fact-intensive inquiry. Some states have formally acknowledged this.”
David Fruchtman, of counsel at Horwood Marcus & Berk, on the state tax treatment of non-U.S. entities:
‘‘Even more than their domestic counterparts, foreign companies have a steep learning curve when it comes to state taxes. When a foreign company enters the U.S. market, its U.S. sales volume is small, its state tax liability insignificant and its knowledge of U.S. sub-national taxes essentially nonexistent. At this point, a foreign company’s failure to comply with state tax obligations often will go undetected by state tax agencies. Unfortunately, even after generating meaningful amounts of U.S. sales and state tax liabilities, foreign businesses often remain unaware of their state tax obligations. As a result, these companies may have significant multistate tax exposures before they are genuinely aware of their liability for these taxes. The survey demonstrates the state income tax hazards confronting foreign-based businesses, too many of which are neither complying with nor planning for state income taxes. The states have long sought to shift the burden of their income taxes to out-of-state businesses. Now, as borders of all kinds become less significant to both commerce and taxation, the states’ interest in taxing foreign businesses is continually increasing.’’
Upcoming Webinar Analysis of the 2013 Survey of State Tax Departments
Experts Fred Nicely, tax counsel for the Council On State Taxation (COST), and Thomas Shimkin, director of the Multistate Tax Commission's National Nexus Program will discuss the survey in more depth in a webinar on Thursday, May 9, from 12:30 to 2:00 p.m., ET. Register online to secure your space now. Or, please call 1-800-372-1033, option 6, then sub-menu option 1, and refer to the date and title of the conference. Lines are open Monday through Friday from 8:30 to 7:00 p.m., excluding most federal holidays.
By Melissa Fernley
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)