State Tax Snapshot: Nexus? It Can Depend on Who You Ask

Owning or leasing cars for sales representatives in California is an activity that is sufficient to trigger income tax nexus, the state's Franchise Tax Board said in the 2013 Bloomberg BNA Survey of State Tax Departments. California's and other states' positions on this nexus issue and many others can be accessed via the Bloomberg BNA Nexus Tools. A recent enhancement to the same tool features a taxpayer oriented counter-position to each state's response.

The Nexus Tools consist of the Income Tax Nexus Evaluator and the Sales Tax Nexus Evaluator. Each helps users to determine if they have nexus in one or more states by prompting them to identify the types of activities that they are performing. The user's answers are used to generate a detailed client-ready report explaining each state's nexus law (per the BBNA annual survey) and showing the nexus consequences of each of the user's activities.

But now the report goes one step further. It alerts the user that state's position on each activity may not be the final word on the matter.

For example, a user indicating that it provides cars for its sales representatives in California, on the Corporate Income Tax Evaluator, will generate a report indicating that this activity is sufficient to trigger income tax nexus with the state. But the user will also be apprised of the following taxpayer oriented caveat from Fred Nicely, senior counsel at the Council On State Taxation:

Excluding temporary ownership in the state (e.g., temporarily stored or transported in the stream of interstate commerce) or de minimis amounts, such ownership by a person is likely to create a physical presence in the state. A federal law, P.L. 86-272, does provide some protection for property located in the state used by salespersons to solicit sales of property. For example, a business owning or leasing an automobile for use by a sales person in compliance with P.L. 86-272 may potentially have substantial nexus with a state; however, the federal law prevents that state from subjecting the business to its income tax based on that factor alone.

From there, the user can continue to research the issue by referring to the citations to relevant statutes, regulations, and cases contained in the Corporate Income Tax Nexus Evaluator and the Sales Tax Nexus Evaluator.

 By Steven Roll

 Follow us on Twitter at @BBNATax 
Join BNA's State Tax Group on LinkedIn here.