Bright-line, factor presence nexus has become an increasingly popular issue in state taxation in recent years. While the rules and thresholds vary from state-to-state, the Multistate Tax Commission’s (“MTC”) model rule exemplifies how factor presence nexus works. Specifically, the MTC’s model rule provides, in part, that “substantial nexus” (i.e., a taxable presence) exists for corporate income tax purposes if an out-of-state taxpayer has total sales in the state exceeding $500,000 during any given taxable period. Several states–including Alabama, California, Colorado, New York, Ohio, and Tennessee–have adopted factor presence nexus rules; however, to date, there have been very few cases that have considered the constitutionality of bright-line, factor presence nexus standards.
The dispute in California over taxpayers’ ability to elect to use the evenly weighted, three-factor (i.e., property factor, payroll factor, and sales factor) business income apportionment formula provided by the Multistate Tax Compact (the “Compact”) has come to an end. On October 11, 2016, the US Supreme Court denied the taxpayers’ petition for certiorari in The Gillette Company, et al. v. California Franchise Tax Board, et al., No. 15-1442 — one of the most highly publicized MTC apportionment election cases.
Bringing a semblance of order to the prior proceedings, the Michigan Court of Appeals reversed the Michigan Court of Claims ruling that defied the remand instructions from the Michigan Supreme Court. International Business Machines Corp. v. Dep’t of Treasury, Dkt. 327359 (Mich. Ct. App. July 21, 2016). The appellate court’s ruling would result in granting to International Business Machines Corp. (“IBM”) a total of nearly $6 million in Michigan Business Tax (“MBT”) refunds for the company’s 2008 tax year.
The Delaware Department of Finance’s (the “Department”) unclaimed property enforcement practices continue to undergo challenges in state and federal courts through claims involving both companies and other states. The following is brief overview of the latest developments in a few noteworthy cases.