It is not even Thanksgiving, but already as the news reported yesterday, US braces for more icy temperatures and snow as ferocious storm lingers. Many years ago I adopted an approach for dealing with Northeast winters. My approach centered around assessment, preparation and planning. I called it “winterizing.”
My son Andrew says I am the only person he knows who actually enjoys winter and gets excited by snow forecasts. He’s right – later on I’ll tell you why. Anyway, I thought my approach for getting ready for Northeast winters might be useful in getting ready for the 2015 state tax year – a tax year that has the potential to be full of surprises and challenges.
So with that in mind – time to “winterize” our State Tax Machine. As part of the “winterization” of our Multistate Tax Machine, over the next several posts, SALTStrategies will discuss topics, some tried and true, some relatively new, that should be reviewed as part of your preparation and planning for your 2015 State Tax Season.
Nexus Check– The First Assessment Step of the Multistate Tax Winterization
Have Your Facts Changed During 2014?
As the 2014 tax year closes, this time of year provides an excellent opportunity to assess your state tax nexus status quo. I thought I would provide a brief list of questions to help in your evaluation of your 2014 state tax nexus. These questions were developed to help you evaluate and decide if you should rely on “Same As Last Year” facts and assumptions. The following list of events may require further state and local tax assessment if they occurred during 2014:
- Did you start a new business line or form a new entity?
- Did you generate revenue from the rendering of services for the first time during the current year?
- Did you add locations in new states?
- Did your logistical operations or terms of sale change?
- Did your customers or clients expand into new states that your company did not have nexus in in 2013?
- Did your company start placing inventory on consignment at customer locations or at new customer locations?
- For entities that operate as flow through entities (Limited Liability Companies, Partnerships, Limited Partnership, Limited Liability Partnerships and S Corporations), did the composition of any of your members, partners or shareholders change or have a change in their resident state?
- Did you start or settle a state tax examination?
If you answered, “yes” to any of these questions, you may not be able to rely on “SALY” and should get to work performing additional comprehensive state tax nexus analysis.
2014 Significant State Tax Nexus Developments
During 2014, state tax nexus continues at the forefront of numerous state tax issues facing both State taxing authorities and multistate taxpayers. The following is a list of some of the significant state tax nexus matters that arose during 2014:
Adopts Amended Affiliate (“Click-Through”) Nexus Legislation
In late August, Illinois Governor Quinn signed S.B. 352. This legislation amended the state’s use tax provisions that pertained to out of state sellers that engaged Illinois commission affiliates. The law was drafted to address the 2013 Illinois Supreme Court decision in Performance Marketing Ass’n v. Hamer, 2013 IL 114496. That decision deemed that Illinois’ Click-Through nexus provisions, as effective July 1, 2011, “were preempted by federal law” as the Illinois provisions were in conflict with federal Internet Tax Freedom Act that prohibits “discriminatory taxes on electronic commerce.” This new legislation modifies and broadens the definition of a “retailer maintaining a place of business in the State” in response to the Illinois Supreme Court’s decision in Performance Marketing. It is my understanding that S.B. 352 is effective January 1, 2015.
Adopts Legislation That Enacts “Click-Through” Nexus for Sales Tax.
In June, New Jersey enacted A.B. 3486 , legislation that contains, in addition to other tax provisions, New Jersey’s adoption of “Click-Through” nexus provisions for sales tax. This legislation is effective for sales transactions that occur on or after July 1, 2014.
US Supreme Court Grants Petition for Writ of Certiorari In Direct Marketing Ass’n v. Brohl
In July, the US Supreme Court granted petitions for writ of certiorari in two sales and use tax decisions, one of which, Direct Marketing Ass’n v. Brohl, 10th Circuit Court of Appeals, No. 12-175 (08/20/13), deals with Colorado’s use tax reporting provision that may have broad ramifications, especially for non-Colorado remote sellers.
Colorado Enacts House Bill 1269 That Expands the Definition of “Doing Business” In State
In June, Colorado enacted the “Marketplace Fairness and Small Business Protection Act” that expanded the definition of doing business in Colorado for sales and use tax purposes. The Act amended the definition of “doing business” that effectively includes remote sellers through a adoption of a definition that a person has “presumptive physical presence” and doing business in the state if the person is (a) part of a group of corporations, and that controlled group has a component member that has physical presence in the state performing certain activities; or (b) the person enters into an arrangement with an in-state party that engages in certain activities for the out of state person. As the details of The Act are beyond the scope of this post, you may wish to review The Act’s provisions especially those that address how to rebut The Act’s presumption. The Act is effective July 1, 2014.
New York Enacts Its FY 2014-15 executive budget Adopting Economic Nexus
When Governor Cuomo signed New York State’s FY 2014-15 executive budget into law in March, he ushered in sweeping changes to New York’s tax provisions – including the adoption of an economic nexus standard. Although the budget does not specifically identify its provision as an economic nexus standard, a review of the provision immediately reveals New York has adopted an economic nexus standard. Please see our earlier post New York State Tax “Climate Change” – Higher Taxes Forecast for Multistate Taxpayers for a more detailed discussion of New York’s economic nexus provision.
“The time to repair the roof is when the sun is shining.” – John F. Kennedy
As President Kennedy implied in his 1962 Annual Message to Congress on the State of the Union, the time to take care of something is before it has become a problem. Hopefully, this initial post will shed some light on “Winterizing Your Multistate Tax Machine” from a nexus perspective for 2015.
Now why do I enjoy winter? I guess I see winter as a constant challenge that ever since my childhood I enjoyed trying to meet. The more challenging and cold the weather, the more adventurous my friends and I became– whether it was having never ending snow ball fights, playing midnight “touch” football in the school yard or learning how to drive powerful rear-wheel drive cars in the snow – we loved the challenge! As General George S. Patton once said “Accept the challenges so that you can feel the exhilaration of victory.” Here’s hoping to victory over our Winter Challenges.