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Multistate Overview

Multistate Overview. Professor Annette Nellen Bus 223A – Tax Research. Authority to tax. State must be within constitutional provisions to tax multistate taxpayer. Nexus . Sufficient nexus must exist.

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Multistate Overview

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  1. Multistate Overview Professor Annette Nellen Bus 223A – Tax Research

  2. Authority to tax • State must be within constitutional provisions to tax multistate taxpayer

  3. Nexus • Sufficient nexus must exist. • Connection between the vendor and state such that subjecting the vendor to the state's tax rules is neither unfair to the vendor nor harmful to interstate commerce. • Fairness to the vendor and no impediment to interstate commerce stem from the U.S. Constitution—respectively, from the Due Process Clause and the Commerce Clause.

  4. Due Process Clause • "No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws." [14th Amendment, clause 1] • "[D]ue process requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax." Miller Brothers Co. v. Maryland, 347 U.S. 340, 345 (1954). • "The simple but controlling question is whether the state has given anything for which it can ask return." [National Bellas Hess, Inc. v. Dept. of Rev., 386 U.S. 756 (1967)] • Unlike the Commerce Clause, the Due Process Clause does not give Congress any power to enact a law that would modify or violate the due process standard.

  5. Commerce Clause • "The Congress shall have power ... to regulate commerce with foreign nations, and among the several States, and with the Indian tribes." [Article I, Section 8, clause 3] • Courts often refer to the "dormant Commerce Clause" because Commerce Clause does not specifically limit state activities—it just grants power to Congress to regulate commerce. In applying the dormant Commerce Clause, courts consider purpose served by the Commerce Clause and "whether action taken by state or local authorities unduly threatens the values the Commerce Clause was intended to serve." [Wardair Canada v. Florida Dept. of Revenue, 477 U.S. 1 (1986)]

  6. Due Process vs Commerce • As explained in Quill: "Due process centrally concerns the fundamental fairness of governmental activity. ... In contrast, the Commerce Clause, and its nexus requirement, is informed not so much by concerns about fairness for the individual defendant as by structural concerns about the effects of state regulation on the national economy. ...

  7. Income tax and P.L. 86-272 • Passed in 1959. • Prohibits a state from taxing a foreign corporation's net income derived from activities within the state if those activities consist merely of solicitation of orders for the sale of tangible personal property that are approved, filled, and shipped from outside the state.

  8. Sales tax and nexus • Quill • Must have physical presence in state to have nexus • Issues – how much physical presence is needed? • Frequently litigated issue. • Recent cases – Quill only applies to sales tax, not to income tax

  9. Today • Various legislative and MTC proposals to update P.L. 86-272 • Have it apply to more than just income taxes • And to more than just TPP

  10. Other issues • How much income is to be apportioned to the state? • Where should sales for sales and use tax purposes be sourced?

  11. Single State Matters • What is subject to sales and use tax (what is the tax base)? • Combined reporting • Availability of state incentives • Various e-commerce issues

  12. Researching State Tax Issues • CCH and RIA online tools have databases similar to type of materials available in federal base • Also have city info as well (but may not have all) • BNA Multistate portfolio series • State tax agency websites: • http://www.aicpa.org/yellow/yptsgus.htm

  13. State/Local/Multistate Research Reminders • Don’t overlook potential issues by only focusing on federal tax matters. • Important in tax planning. • Location of employees, agents, property, activities and customers is important • Tax and operations employees need to communicate with each other • Frequent law changes and proposals • Many tools exist for keeping up to date

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