In a 4-3 decision, the Virginia Supreme Court found that royalty payments from a related party must be “actually taxed by another state” to qualify for the “subject-to-tax” exception to Virginia’s addback statute. In Kohl’s Dep’t Stores Inc. v. Virginia Dep’t of Taxation, Record No. 160681 (Va. 2017), the court read Virginia’s “subject-to-tax” exception to apply on a post-apportionment, rather than a pre-apportionment, basis.
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.
The U.S. House of Representatives passed H.R. 2315, the Mobile Workforce State Income Tax Simplification Act of 2015 (“Mobile Workforce Act” or “Act”), on September 21, 2016. The Senate received the House-approved bill on September 22, 2016, and its ultimate fate remains unclear.