Weekly Round-Up: Cash-Strapped States Push the Envelope With Economic Nexus

In an effort to expand their tax bases, many states desperately looking for cash are turning to “economic nexus” as a means of bringing more money into their coffers, Charolette Noel and Karen H. Currie, both with Jones Day, argue. But, in some instances, taxpayers are emerging as winners as courts are recognizing the limits on the reach of nexus and concluding that certain remote contacts do not justify state taxation, Noel and Currie explain.

Noel and Currie review some taxpayer victories in a new article in this week’s issue of the Weekly State Tax Report. The full article can be read here.

One such victory comes out of Colorado.

At the beginning of this year, Direct Marketing Association (DMA) was granted a motion for preliminary injunction, enjoining Colorado from enforcing its newly enacted use-tax notice and reporting requirements, Noel and Currie write.

The DMA, in order to obtain the injunction, had to show that “there was a substantial likelihood it would prevail on the merits of the underlying claims.” The U.S. District Court for the District of Colorado apparently thought that the DMA could. The court, according to Noel and Currie, found that the DMA would be able to “likely show that the notice and reporting requirements ‘impose a burden on interstate commerce that is not imposed on in-state commerce’ and that the Colorado Department of Revenue was unlikely to establish a lack of nondiscriminatory alternatives.”

In other developments,

For a look at California’s proposal to create a new corporate entity for environmentally and socially conscious companies, check out Maureen Gorsen’s post at Alston+Bird.

Also at Alston+Bird, a new State and Local Tax Advisory looks at New Jersey’s gift card law.

Nick Kasprak, at the Tax Foundation, reviews corporate income tax apportionment formulas across the nation.

The Congressional Budget Office releases its cost estimate of H.R. 1439, the Business Activity Tax Simplification Act of 2011.

PWC reviews upcoming tax changes impacting taxpayers in the District of Columbia.

Morrison & Foerster’s September 2011 issue of New York Tax Insights takes a look at, among other things, new guidance out of New York on the state’s Marriage Equality Act.

By Priya D. Nair