Presenting a live 110-minute teleconference with interactive Q&A Nexus Fundamentals for Sales and Use Tax Compliance Understanding and Navigating Tax Challenges with Attributional, Affiliate and Other Forms of Business Presence WEDNESDAY, MAY 8, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today‟s faculty features: Gerald J. Donnini, II, Attorney, Moffa Gainor & Sutton , Fort Lauderdale, Fla. James H. Sutton, Jr., Partner, Moffa Gainor & Sutton , Fort Lauderdale, Fla. Sylvia Dion, Partner, PrietoDion Consulting Partners , Westford, Mass. Annette Nellen, Professor, San Jose State University , San Jose, Calif. For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Nexus Fundamentals For Sales and Use Tax Compliance May 8, 2013 Gerald J. Donnini, II, Moffa Gainor & Sutton Sylvia Dion, PrietoDion Consulting Partners jerrydonnini@FloridaSalesTax.com sylviadion@verizon.net James H. Sutton, Jr., , Moffa Gainor & Sutton Annette Nellen, San Jose State University JamesSutton@FloridaSalesTax.com annette.nellen@sjsu.edu
Today’s Program Legal Theories On Which Nexus Is Based Slide 8 – Slide 25 [Annette Nellen] Common Nexus Issues And Mitigating Audit Risk Slide 26 – Slide 30 [Annette Nellen and James Sutton] Current Developments Slide 31 – Slide 70 [Sylvia Dion] Compliance Issues Slide 71 – Slide 82 [Sylvia Dion] Current Legal Controversies Slide 83 – Slide 96 [James Sutton and Gerald J. Donnini]
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS‟ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
Annette Nellen, San Jose State University LEGAL THEORIES ON WHICH NEXUS IS BASED
Legal Theories
“Nexus” Sufficient nexus must exist for jurisdiction to impose tax obligations. Connection between vendor and state such that subjecting vendor to state's tax rules is neither unfair to vendor nor harmful to interstate commerce. Fairness to vendor and no impediment to interstate commerce stem from U.S. Constitution — respectively, from Due Process Clause (14 th Amendment) and Commerce Clause. 10
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). 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. 11
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 the 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)] 12
Quill, 504 US 298 (1992) Fundamental differences between Due Process and Commerce Clauses Due Process Commerce Clause Congress cannot change Congress controls ―Requires some definite link, some 4 factors of Complete Auto Transit, minimum connection, between a state Inc. v. Brady, 430 U.S. 274 (1977). and the person, property or Bellas Hess , 386 U.S.753 (1967), ties transaction it seeks to tax‖ to 1 st factor - ―a vendor whose only contacts with the taxing State are by mail or common carrier lacks the Involves ―fundamental fairness of ―substantial nexus‖ required by the governmental activity.‖ Commerce Clause.‖ Limits ―state burdens on interstate commerce.‖ Purposeful availment is enough; Physical presence required physical presence not necessary 13
Key Sales Tax Nexus Case: Quill Must have physical presence in state to have substantial nexus. No Due Process issue – Quill was clearly making a market in North Dakota via mail order catalogs. If Congress wants different result – it can legislate one under its Commerce Clause power. ―No matter how we evaluate the burdens that use taxes impose on interstate commerce, Congress remains free to disagree with our conclusions.‖ 14
Does Sales Tax Nexus Exist? Approach for answering: Get the facts Where are taxpayer‘s employees, agents, and physical property? Any ―virtual‖ employees? Any delivery trucks? Any property owned by taxpayer leased to others? Examine: Activities with related parties and entities. Any sales reps (non-employees) – independent contractors, people earning any type of commission based on sales, others helping vendor in some way? Review state law Use above to determine: Physical presence nexus Attributional nexus 15
How Much Of Own Physical Presence Is Needed For Sales Tax Nexus? A few diskettes? Not enough in Quill Employee in state for a few days? Orvis v. Tax Appeals Tribunal of the State of New York and Vermont Information Processing, Inc. v. Tax Appeals Tribunal , 654 N.E.2d 954 (N.Y. Ct. App. 1995), cert. denied , 516 U.S. 989 (1995) States not consistent A different operation in the state? National Geographic Society v. Cal. Bd. of Equalization , 430 US 555 (1977) Related entity in state? 16
What About Attributional Nexus? Attribution - Activities of others who have nexus in the state Independent contractors selling product Scripto and Tyler Pipe Representative State statute may use this term Scholastic Books (cases in several states) Agent – someone acts on your behalf Affiliate Related entity, and common product or trademark or specified activity (check state law) Operator of website with link (so- called ―Amazon‖ laws) 17
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