Category Archives: State Tax Litigation

Colorado Asks the Supreme Court to Overturn Quill

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On August 29, the Direct Marketing Association (DMA) submitted a certiorari petition to the U.S. Supreme Court asking the Court to review the Tenth Circuit Court of Appeals’ decision in Direct Marketing Association v. Brohl (Brohl II). The case already made one trip to the Supreme Court (Brohl I), in which the Court held that the Tax Injunction Act did not bar federal-court review of the case. On remand, the Tenth Circuit held that Colorado’s use tax reporting regime did not violate the Commerce Clause. (To refresh: Colorado’s regime requires out-of-state sellers to report sales to Colorado [...]Read more

North Carolina Appellate Court Affirms that Taxation of Trust’s Income is Unconstitutional

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On July 5, 2016, the Court of Appeals of North Carolina affirmed the 2015 decision by the superior court in The Kimberley Rice Kaestner 1992 Family Trust v. N.C. Dep't of Revenue, which held that North Carolina was constitutionally prohibited from taxing the income of the plaintiff trust.  Essentially, the state asserted jurisdiction to tax the trust's income based solely on the fact that the beneficiaries of the trust were North Carolina residents (the trust had no other connection with the state).  The superior court rejected this assertion, concluding that the state could not impose the tax [...]Read more

Sales Tax Nexus Roundup – Introducing Louisiana and Tennessee

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We have been closely following the rapid rise of state laws and regulations imposing sales tax nexus or reporting requirements on out-of-state sellers with no physical presence in the state. In the wake of decisions by the U.S. Supreme Court and the U.S. Court of Appeals for the Tenth Circuit in cases brought by the Direct Marketing Association (see prior coverage), states have felt emboldened to enact provisions that challenge the Supreme Court's holding in Quill v. North Dakota, which demands that a seller have physical presence in a state before the state can require the seller to collect [...]Read more

South Dakota Takes NCSL Challenge, Enacts Sales Tax Nexus Law

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In February, we discussed how the National Conference of State Legislatures (NCSL) circulated a letter to all the states encouraging them to enact laws to challenge the physical-presence standard for sales tax nexus articulated in Quill v. North Dakota. On March 22, South Dakota heeded the NCLS's call when Gov. Dennis Daugaard signed SB 106. SB 106 imposes a sales tax collection obligation on out-of-state sellers "as if the seller had physical presence in the state," provided that the seller meets one of two conditions: (1) the seller's gross revenue from taxable products or services delivered [...]Read more

States Continue to Challenge Quill’s Physical Presence Standard

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When a client calls us to inquire about sales tax exposure, we instinctively start asking questions about people and possessions: “Do you have property in other states? Where do you have employees? Have you sent any sales representatives to any states where you have made sales?” For decades, tax practitioners have known that a proper sales tax nexus analysis begins with physical presence. It’s black-letter law, after all. States can’t levy sales tax on someone who isn’t there. We know this because of Quill Corp. v. North Dakota and National Bellas Hess v. Illinois before it. [...]Read more

State & Local Tax Advisory – Gillette Overturned: One Test, Two Decisions in California

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On Thursday, December 31, 2015, the Supreme Court of California issued its decision in Gillette Co. v. Franchise Tax Board, reversing the California Court of Appeal and holding that the Multistate Tax Compact is not a binding compact between its member states.  Accordingly, the California legislature had the authority to, and did in fact, replace the state’s equally weighted apportionment formula with a double-weighted-sales formula in 1993.  This highly anticipated decision by the California high court will undoubtedly have a significant impact on the landscape of ongoing disputes among taxpayers [...]Read more

Connecticut Revenue Commissioner Suggests That States “Ramp Up” Economic Nexus for Sales Tax Purposes

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In a provocative op-ed published in the March/April issue of the Journal of Multistate Taxation and Incentives, the Connecticut Commissioner of Revenue Services (Kevin Sullivan) argues that given Congress’s apparent unwillingness to pass the Marketplace Fairness Act, the states should consider taking matters into their own hands and simply act as if Quill is no longer good law. The Commissioner appears to have been emboldened by Justice Kennedy’s concurrence in the U.S. Supreme Court’s recent decision in Direct Marketing Association v. Brohl, No. 13-1032, __ S. Ct. __ (Mar. 3, 2015), in [...]Read more

Maryland is Still Confused About How to Apply Nexus to Affiliated Groups

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Last week, in ConAgra Brands, Inc. v. Maryland Comptroller of the Treasury, No. 09-IN-00-0150 (Md. Tax Ct., Feb. 24, 2015), the Maryland Tax Court issued an opinion perpetuating the state’s erroneous Gore decision from 2014, essentially holding that a corporate subsidiary had nexus in Maryland because its corporate parent had nexus there.  The Tax Court was constrained by the Maryland Supreme Court’s decision in Gore Enterprise Holdings, Inc. v. Comptroller, 437 Md. 492 (2014), so perhaps it is not surprising that the Tax Court issued an opinion that is a continuation of that very confused [...]Read more

State & Local Tax Advisory: Gillette: Not Exactly a Close Shave – California Court of Appeal Approves Taxpayers’ Compact Elections, Leaving FTB in a Lather

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It was perhaps viewed as a close shave prior to the California Court of Appeal’s issuance of its opinion in Gillette Co. & Subsidiaries v. Franchise Tax Board, No. A130803 (Ct. App., July 24, 2012), but in fact, the court soundly rejected the California Franchise Tax Board’s (FTB) arguments that taxpayers were not entitled to make a so-called “Compact election” and file California tax returns using the Uniform Division of Income for Tax Purposes Act’s (UDITPA) equally-weighted, three-factor apportionment formula. This advisory explains how the court’s decision [...]Read more

The MTC Section 482 Proposal

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A memorandum dated July 19, 2012, from the MTC Counsel to the chair of the MTC Income and Franchise Tax Uniformity Subcommittee proposes adoption of a uniform regulation akin to, or actually adopted under the states’ version of, I.R.C. Section 482. The proposal is posted on the MTC website. The regulation would authorize a forced combination of two affiliates that have engaged in a nonrecognition asset transfer that the state deems to separate income from related expenses. The proposal will be considered at the MTC meeting on July 29, 2012. The proposal has these unusual and questionable [...]Read more