On June 12, 2017, Congressman Jim Sensenbrenner (R-WI) reintroduced into Congress H.R. 2887, also known as the “No Regulation Without Representation Act of 2017” (the “Legislation”), which codifies the physical presence nexus requirement established by the U.S. Supreme Court in Quill v. North Dakota, 504 U.S. 298 (1992) (“Quill”). The Legislation is interesting for several reasons: (1) it proposes to employ a result that is the exact opposite of the recent trend to overturn Quill; (2) it defines “tax” broadly to include net income and business activity taxes; and (3) it expands the law to require a physical presence for states to regulate a person’s activity in interstate commerce outside of the tax context.
Transfer pricing has occupied the state tax spotlight in recent years, as taxing authorities continue to challenge intercompany transactions (see “Keeping the State at Arm’s Length: State Transfer Pricing Recent Developments” for prior coverage of state transfer pricing developments). Because state revenue departments often lack the resources and expertise necessary to perform a thorough transfer pricing audit, some states have engaged third-party service providers—often on a contingent-fee basis—to conduct transfer pricing examinations or to prepare transfer pricing reports and analyses on their behalf. The District of Columbia Office of Tax and Revenue (“OTR”) is one example of a local taxing agency that has for years relied on a third-party “expert,” Chainbridge Software LLC (“Chainbridge”), to perform transfer pricing analyses.