In an era of ever-expanding state tax bases, there are two new legislative proposals in Maryland (SB 2) and Nebraska (LB 989) that seek to either extend a current tax base (in the case of Nebraska, the sales tax base) or create a new tax (in the case of Maryland) to capture digital advertising revenues. The Maryland tax also signals a continued trend toward nuanced gross-receipts-type taxes. If a tax targeting digital advertising services sounds familiar, that is because the Ohio Department of Taxation attempted to extend the Ohio sales tax to digital advertising services in 2016 (though this extension was rejected by the Ohio Legislature’s enactment of an exemption from the sales tax for digital advertising services later that same year).
Massachusetts recently joined a handful of other states (read: States over the Edge and Testing Boundaries with Business Activity Tax Nexus) by issuing a final revised regulation adopting a bright-line, $500,000, nexus threshold for its corporate excise tax. See generally 830 CMR 63.39.1. Echoing the language of the Wayfair decision, the state’s revised nexus regulation provides that “the Commissioner will presume that a general business corporation’s virtual and economic contacts subject the corporation to the tax jurisdiction of Massachusetts under M.G.L. c. 63, § 39, where the volume of the corporation’s Massachusetts sales for the taxable year exceeds five hundred thousand dollars.” 830 CMR 63.39.1(3)(d).
Wayfair has, for now, answered the question (at least, in part) of whether economic activity creates substantial nexus under the Commerce Clause for purposes of sales and use taxes. However, questions remain regarding whether and to what extent business activity tax nexus standards could be impacted. While states had boldly asserted economic nexus in the business activity tax context pre-Wayfair, the response since has been somewhat muted, until recently. Three states, Pennsylvania, Texas, and Wisconsin, have recently sought to fill in the blanks with regard to business activity tax nexus, with varied and inconsistent results that may raise more questions and concerns than answers.
The Utah Supreme Court handed taxpayers a victory on October 5, 2018 when it issued a unanimous (5-0) decision in the closely-watched Utah State Tax Commission v. See’s Candies, Inc., 2018 UT 57 (Oct. 5, 2018). The Court affirmed the district court’s holding that the Utah State Tax Commission’s (“Commission”) discretionary authority to reallocate a taxpayer’s income under Utah Code Section 59-7-113 (“Section 113”) is limited by the “arm’s-length” standard set forth in the federal…