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Economic Nexus

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A new lawsuit filed by Wayfair, LLC in Jefferson County Court (Colorado) seeks to address a question left open by the U.S. Supreme Court’s landmark 2018 Wayfair decision that permits states to impose a sales or use tax collection obligation based on an economic nexus threshold:  Does this decision apply to locally-administered sales or use taxes?  While many localities have asserted that the same economic nexus standards should apply at the state and local levels,…

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.

Following several failed attempts by Oregon voters and the Oregon legislature to pass a gross receipts tax (see Not Dead Yet: Oregon Voters Propose Another Gross Receipts Tax in the Wake of Market-Based Sourcing and Oregon Proposes “Gross” New Tax),  Governor Kate Brown signed Enrolled House Bill 3427, Oregon’s corporate activity tax (CAT), into law on May 16, 2019.