26th Annual Tuesday & Wednesday, January 24‐25, 2017 Hya� Regency Columbus, Columbus, Ohio Workshop DD Ohio Tax Advanced: Nexus Wars!!! Emerging Issues in State Tax Nexus … The Most Rapidly Changing Area of Taxation Wednesday, January 25, 2017 11:00 a.m. to 12:30 p.m.
Biographical Information Stephen P. Kranz, Partner, McDermott Will & Emery LLP 500 North Capital Street, N.W., Washington, DC 20001 skranz@mwe.com 202-756-8180 Fax: 202-756-8087 Stephen (Steve) P. Kranz is a tax lawyer who solves tax problems differently. Over the course of his extensive career, Steve has acquired specific skills and developed a unique approach that help clients develop and implement holistic solutions to all varieties of tax problems. He combines strategic thinking with effective skills for the courtroom, the statehouse and the conference room. Steve helps clients prevent and resolve tax problems throughout their life cycle, starting with tax planning, compliance, financial statement implication analysis, audit defense and litigation, legislative monitoring and advocacy, and the formation and leadership of taxpayer coalitions. Steve developed many of these techniques as a litigator for the US Department of Justice, Tax Division, as chief counsel for the District of Columbia’s Office of Tax and Revenue, and further refined them during his tenure as general counsel of the Council on State Taxation (COST). Today, Steve practices at the forefront of state and local tax issues, including developments in the world of cloud computing and digital goods and services. He helps clients understand tax threats and opportunities, and develop holistic solutions, no matter the tax issue or jurisdiction. He also brings this same skill set to the highly challenging world of unclaimed property. Steve represents Fortune 100 companies in litigation while working to address the larger tax policy questions through state legislatures, the US Congress, the National Conference of State Legislatures, the National Governors Association, the Multistate Tax Commission and the Streamlined Sales Tax Governing Board. His background has taught him that standalone litigation is not always the most efficient manner of solving a tax problem or preventing its spread—thus, he often works to address problems by taking advantage of tax policy points of entry offered by state and local governments. Steve has authored articles for professional publications, speaks at national conferences and is interviewed frequently by journalists covering state and local tax developments. On March 12, 2014, he appeared before the US House Judiciary Committee as an expert on alternative approaches to the Internet Sales Tax issue, and has appeared in a similar capacity before other government agencies. Steve serves as outside counsel on state tax and unclaimed property matters for the Entertainment Software Association, the National Retail Federation, the Retail Industry Leaders Association and CompTIA. RECOGNITION • State Tax Notes 2011, Top 10 Tax Lawyers and Top 10 individuals who influenced tax policy and practice • The Legal 500 COMMUNITY • Business Advisory Council, Streamlined Sales Tax Governing Board, former president • District of Columbia Bar, State and Tax Committee, member and former chair • Tax Foundation, board of directors
Biographical Information Craig B. Fields, Partner Morrison & Foerster LLP 250 West 55th St., New York, NY 10019 CFields@mofo.com (212) 468-8193 Fax: (212) 903-7833 Craig B. Fields is co-chair of Morrison & Foerster LLP’s Tax Department and is also chair of the firm’s State + Local Tax Group. His practice focuses on litigation and planning relating to state and local tax matters. He has been involved in controversies regarding state and local tax issues before the administrative and judicial systems of jurisdictions throughout the United States as well as having resolved hundreds of non-public record cases around the country. Mr. Fields has also provided advice regarding the potential tax consequences of complex restructurings involving the corporation income (franchise) taxes, the sales and use taxes, and miscellaneous taxes of many jurisdictions. Chambers USA has ranked Mr. Fields as a leading state tax lawyer since 2012. In addition, Legal 500 US has recommended him since 2011 and he has been ranked consistently in Super Lawyers since 2006. Mr. Fields has written extensively in the area of state and local taxation. His articles have appeared in numerous publications, including Tax Management’s Multistate Tax Report, the Journal of State Taxation, State Tax Notes, Research Institute of America’s State and Local Taxes Weekly, the COST State Tax Report, the Journal of Multistate Taxation and Incentives, the Journal of New York Taxation, Interstate Tax Report, and the American Bar Association’s The State & Local Tax Lawyer. Mr. Fields is also a frequent lecturer concerning state and local taxes and has spoken before such organizations as New York University’s Institute on State and Local Taxation, Georgetown University Law Center’s Advanced State and Local Tax Institute, Vanderbilt University Law School’s Paul J. Hartman State and Local Tax Forum, the Council On State Taxation, the National Multistate Tax Symposium, the Ohio Tax Conference, the Energy Tax Association, STARTUP, the Tax Executives Institute, the Tulane Tax Institute, the Practicing Law Institute, and the Tax Section of the American Bar Association. Mr. Fields is a member of the Georgetown Law Center Advisory Board, the Advisory Board for The Journal of State Taxation, and the Bloomberg BNA State Tax Advisory Board. Mr. Fields graduated from Duke University School of Law and has an LL.M. in Taxation from New York University School of Law.
Advanced Workshop DD !!! Emerging Issues in State Tax Nexus … The Most Rapidly Changing Area of Taxation 26th Annual Ohio Tax Conference Wednesday, January 25, 2017
Presenters Craig B. Fields Stephen P. Kranz Partner & SALT Chair Partner New York, NY Washington, DC 2
Agenda Brief History & Issue Overview State Nexus Expansion Legislation Overview of Tactics 2016 Recap 2017 Update 2017 Nexus Litigation Overview and status update on the most imminent judicial threats seeking to overturn Quill Federal Nexus Legislation 2017 Outlook State and Federal 3
Brief History and Issue Overview Nexus Wars!!! 4
Brief History - Quill 1967 : National Bellas Hess U.S. Supreme Court determines physical presence is required. 1973 : Congress introduces legislation to overturn National Bellas Hess Interstate Sales and Use Tax Act (HR 1453; S. 282). 1980’s : MTC coordinates with states to take the position that physical presence is not required Theory: advances in technology had alleviated the administrative burdens justifying National Bellas Hess. 1992 : Quill v. North Dakota 5
Quill Corp. v. N. Dakota , 504 U.S. 298 (1992) Distinguished the two constitutional nexus standards. A person may have Due Process “minimum contacts” with a state, yet still lack the “substantial nexus” with the state that the Commerce Clause requires. Physical presence in state required for business to have “substantial nexus” with taxing state under the Commerce Clause. Many courts have held that the this standard is limited to the sales and use tax context. 6
Nexus – Analytical Framework Nexus with the Nexus with the Transaction Person Commerce Commerce Commerce Due Process Clause Clause Due Process Clause (Dormant) (Affirmative) (Dormant) Substantial Substantial Minimum Nexus Nexus Nexus Sales and Use Taxes Other Taxes Sales and Use Taxes Other Taxes Minimum Physical Presence Part of a Unitary Contacts/Purposeful ??? P.L. 86 - 272 (direct or through Actual Transaction Business Availment (more than attribution) “stream of commerce”) 7
Due Process & Nexus Non-tax cases impact state tax nexus. U.S. Supreme Court rejected NJ’s attempt to exercise jurisdiction over an out-of-state entity defendant in J. McIntyre Mach., Ltd. v. Nicastro , 131 S.Ct. 2780 (2011). Defendant’s contacts with NJ: four of the defendant’s machines had ended up in NJ through the stream of commerce. Supreme Court: “Due process protects petitioner’s right to be subject only to lawful authority. At no time did [defendant] engage in any activities in New Jersey that reveal an intent to invoke or benefit from the protection of its laws. New Jersey is without power to adjudge the rights and liabilities of J. McIntyre, and its exercise of jurisdiction would violate due process.” 8
Due Process & Nexus (cont.) Goodyear Dunlop Tires v. Brown , 131 S.Ct. 2846 (2011): Court may assert jurisdiction over a foreign defendant only when the corporation’s affiliation with the State are so constant and pervasive “as to render [it] essentially at home in the forum State.” Daimler AG v. Bauman , 134 S.Ct. 746 (2014): Rejecting use of agency theory to attribute jurisdiction Standard should “permit out of state defendants ‘to structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable to suit.’” Walden v. Fiore , 134 S.Ct. 1115 (2014): “Due process requires that a defendant be haled into court in a forum State based on his own affiliation with the State, not based on the ‘random, fortuitous, or attenuated’ contacts he makes by interacting with other persons affiliated with the State. 9
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