Tuesday, August 31, 2010

Update: California Senate Moves Tax Bill to Inactive File

As we’ve written previously (here, here, and here), the California legislature has been considering legislation that may impose potentially unconstitutional requirements on out-of-state retailers selling to California customers.

On May 6, the State Assembly passed AB 2078, Colorado-style legislation that would require out-of-state retailers to provide notice to California customers via the retailers' websites and in their catalogues of the customers’ potential use tax obligations. Previous versions of the Assembly Bill had required such retailers to file quarterly reports with the names, addresses and amounts purchased by California customers, and also created a rebuttable presumption that for any controlled group of corporations, if one member was engaged in business in California, all members would be deemed to be engaged in business in California. As passed by the Assembly, however, only the Bill’s provisions requiring that notice of use tax obligations be provided to California customers survived.

The State Senate has since taken up consideration of the Bill and made its own amendments. In the Bill currently before the Senate, the presumptions regarding controlled groups were reinserted, and the notice provisions were kept in. The Senate did not reinsert the reporting requirements of the original Assembly Bill.

However, the State Senate has yet to vote on the Bill. Instead, yesterday, the Senate moved the Bill to the Senate’s inactive file on a motion by one of the State Senators, likely because today marks the last day on the Senate calendar for any bill to be passed before the Senate’s final recess begins. Although the Bill may be moved off the inactive file, it appears that the California Senate will not be voting on it any time soon. In the meantime, we’ll continue tracking any action on the Bill and keep you posted of developments as they arise.

UPDATE, Jul. 5, 2011: California has enacted a new nexus law

Monday, August 30, 2010

Magazine Publishers Beware of the New Washington B&O Tax Law

As previously discussed in our blog post dated May 24, 2010, several states have taken the position that the Quill nexus standard applies only to sales and use tax.  State courts in New Jersey (Lanco, Inc. v. Director, Division of Taxation, 188 N.J. 380, 908 A.2d 176 (2006)), West Virginia (Tax Commissioner v. MBNA America Bank, 220 W.Va. 163, 640 S.E.2d 226 (2006)), and South Carolina (Geoffrey, Inc. v. South Carolina Tax Commission, 313 S.C. 15, 437 S.E.2d 13 (1993) (cert denied, 114 S.Ct. 550 (1993)) have held that economic presence (i.e., sales to the state without a physical presence in the state) is sufficient to establish nexus for state income tax.   As written in the May 24 blog post, there are other decisions (e.g. Commonwealth Edison v. Montana, 453 U.S. 609, 101 S.Ct. 2946 (1981)) that apply the Quill/Bellas Hess physical presence test to taxes other than sales tax.

By legislation, other states have adopted a gross receipts tax based on economic presence.  The Ohio Commercial Activity Tax, the Michigan Business Tax and the Texas Margin Tax are examples.  Recently, the State of Washington amended its B&O Tax, which is a gross receipts tax, with regard to the “service classification,” to require an economic nexus standard, based upon the level of service revenues to Washington.  Washington has taken an expansive view of businesses subject to the service revenue classification, which now includes businesses that publish periodicals or magazines with respect to the advertising income that such publications derive.  Since the nexus standard is quite low, this is likely to be a “sleeping dog” for most publishers.