Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
Nov. 8 — U.S. Supreme Court watchers are waiting on justices to take up a challenge to the long-standing principle that an entity must be physically present in a state in order to assess tax, lawyers told Silicon Valley tax professionals.
States are aggressively enacting laws pushing the nexus standard to find threads between a company, including internet-based companies, and an in-state presence, practitioners said during a panel at the High Technology Tax Institute, co-sponsored by Tax Executives Institute and San Jose State University. Alabama, Colorado and South Dakota are among the states expanding their reach to tap revenue from major out-of-state retailers that are suing over the laws.
States are trying to “prosecute as fast as possible to get to the U.S. Supreme Court,” said Carl Erdmann, counsel with Skadden, Arps, Slate, Meagher & Flom LLP in Washington, D.C.
The trade group Direct Marketing Association is challenging a Colorado law requiring out-of-state retailers that don’t collect and remit state sales and use tax on in-state buyers’ purchases to report certain sales and notify purchasers of their tax obligation ( Brohl v. Direct Mktg. Ass’n, U.S., No. 16-458, opposition brief field 11/7/16 ).
Colorado already successfully argued the nexus standard doesn’t apply to its reporting and notice requirement for online vendors. The state is cross petitioning the Supreme Court to clarify the continuing validity of its physical presence rule under Quill Corp. v. North Dakota, 504 U.S. 298 (1992).
The expectation is the court will take the newest case, Jerry McTeague, a Deloitte Tax LLP multistate practice partner in San Jose, Calif., said during the panel.
In another potential challenge on Quill, Alabama is defending a Newegg Inc. challenge to the state’s new economic presence regime that requires out-of-state sellers with more than $250,000 of in-state annual sales to collect and remit sales tax (Newegg, Inc. v. Ala., Dep’t of Revenue, Ala. Tax Tribunal, No. S. 16-613, reply filed 9/29/16).
The law took effect the beginning of this year. “My clients got notices by the end of April,” said Brian Pedersen, a partner with Alvarez & Marsal Taxand LLC in Seattle.
Alabama looked up the clients, which are internet retailers, estimated their sales based on population, and issued an assessment plus interest and penalty. “So you get two choices: pay up and go forward or come get us. Sue us, get in line,” Pedersen said.
Companies with sales representatives living in the states have nexus, Pedersen said. And that’s becoming a due diligence issue, said John Clausen, a director with Moss Adams LLP certified public accountants.
“We’re definitely seeing more startup companies wanting to see where they have nexus and document that,” Clausen said. Nexus can occur earlier on in a company’s existence, and that comes up when companies are acquired.
To contact the reporter on this story: Joyce E. Cutler in San Francisco at JCutler@bna.com
To contact the editor responsible for this story: Ryan C. Tuck at firstname.lastname@example.org
Copyright © 2016 Tax Management Inc. All Rights Reserved.
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 email@example.com.
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 firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)