May News Roundup: Michigan Repeals MBT; Louisiana Proposes Click-Through Nexus Legislation

On Wednesday, Governor Snyder signed into law Michigan’s new corporate income tax, which will replace the Michigan Business Tax. The new corporate income tax, effective January 1, 2012, uses a single factor (sales) for apportionment purposes and has a flat rate of 6%. However, despite the repeal of the MBT, the new corporate income tax will retain the economic nexus standard of $350,000 in gross receipts, which we have written about previously here. Any business with a physical presence of at least one day in the state would also be required to report the corporate income tax. Unlike the MBT, however, P.L.86-272 applies to the tax and provides some protections, as we have most recently written about here. Internet sellers and direct marketers should consult their tax counsel regarding the significance of the new tax and its impact on their businesses.

In other news, this week, the Louisiana legislature threw its hat into the ring of states proposing click-through nexus laws with H.B. 641. We have written previously about nexus-expanding legislation throughout the country here and here. Although Vermont and Texas legislatures recently passed their own versions of the law, as of this writing, the governor in each state has yet to sign the bill. We will keep you posted as developments arise.

Have a safe and festive Memorial Day, all!

Another State Adopts Nexus Click Through Legislation

Following the model of New York, Rhode Island, North Carolina and Arkansas laws, Connecticut recently adopted click-through nexus legislation that is effective on July 1, 2011. The new law states that any retailer that has an agreement with a Connecticut resident, under which the resident, for a commission or otherwise, refers potential customers (by a web site link or other contact) to the retailer, is presumed to have nexus with Connecticut if its sales as a result of such agreements in Connecticut exceed $2,000 for the preceding year. As is the case in the four states described above, the presumption can be rebutted by proof that the residents do not undertake in-state solicitation activities that would create nexus under the constitutional standard.

The Connecticut statute differs from the statutes enacted in New York and other states, in that the threshold for sales is a lower amount–$2,000 as opposed to $10,000 (or $5,000 in the case of Rhode Island). It also differs from the recently-enacted Illinois statute inasmuch as the Illinois statute does not permit a retailer to rebut a finding of nexus that is based upon a relationship with an affiliate located in Illinois that provides a link to a retailer’s Internet site that facilitates the sale of tangible personal property.

Colorado Federal Court to Consider Possible Final Judgment on DMA’s Constitutional Challenge to the Colorado Notice and Reporting Law in DMA v. Huber

This post is to update our readers regarding the status of the Direct Marketing Association’s challenge to the constitutionality of Colorado HB 10-1193, the law enacted in 2010 that imposes discriminatory notice and reporting obligations on out-of-state retailers that do not collect Colorado sales tax. Brann & Isaacson attorneys George Isaacson and Matt Schaefer are counsel to the DMA in the case

In January 2011, the federal District Court for the District of Colorado granted the DMA’ s motion for a preliminary injunction and suspended enforcement of the law on the grounds that it likely violates the Commerce Clause of the United States Constitution on two separate, and independent grounds. In February, the Defendant appealed to the Tenth Circuit, but subsequently withdrew the appeal after the District Court approved a proposal by the parties to file cross-motions for summary judgment seeking a final ruling by the Court on the Commerce Clause issues, while staying further proceedings on all other claims in the case. The District Court agreed that, if it awards summary judgment to either party, it will certify the matter for immediate appeal to the Tenth Circuit Court of Appeals, so that the Commerce Clause issues may be finally resolved.

Each party filed a motion for summary judgment with the District Court on May 6. Responses are due May 27, and replies are due June 10. A ruling by the Court on the motions, and likely an appeal to the Tenth Circuit, will follow. We will continue to update readers with further developments.