On April 3, 2017, the Massachusetts Department of Revenue (the “Department”) issued Directive 17-1 (the “Directive”), setting forth the Department’s bright-line nexus threshold for internet vendors, effective July 1, 2017. Specifically, the Directive provides that an internet vendor with a principal place of business located outside of Massachusetts is required to register, collect and remit Massachusetts sales or use tax with respect to its Massachusetts sales if it: (1) had Massachusetts sales in excess of $500,000 during the preceding calendar year; and (2) made 100 or more sales for delivery into Massachusetts during the preceding calendar year. For the short period between July 1, 2017 and December 31, 2017, the Department will review whether these sales thresholds were met between July 1, 2016 and June 30, 2017.
Recently, the South Dakota Sixth Judicial Circuit Court granted Wayfair’s motion for summary judgment, finding South Dakota’s remote sales tax statute, S.B. 106, unconstitutional under Quill v. North Dakota, 504 U.S. 298 (1992). South Dakota v. Wayfair, Inc., S.D. Cir. Ct., No. 32 Civ. 16-000092 (Mar. 6, 2017) (“Wayfair”). The case appears to be headed directly to the South Dakota Supreme Court, assuming the state appeals. As a brief recap, S.B. 106 requires retailers to collect and remit sales tax if they have annual sales exceeding $100,000 or 200 separate transactions in the state, regardless of physical presence. See our prior coverage The Possible Upshot of South Dakota’s Master Plan to “Kill Quill”. The statute was purposefully designed to directly challenge the Quill physical presence standard. As of our last report on Wayfair, the defendants had the case removed to the U.S. District Court for the District of South Dakota. However, in January, the federal district court granted the state’s motion for remand to the South Dakota Sixth Judicial Circuit Court after determining that it lacked jurisdiction to hear the case. This was a victory for the state as S.B. 106 specifically provides for fast-track litigation through the state court system.
An out-of-state corporation, whose sole connection to California was a 0.2% interest in a manager-managed California limited liability company, was not “doing business” in California for purposes of the California corporate franchise tax according to the California Court of Appeal for the Fifth Appellate District in its recently-issued decision, Swart Enterprises, Inc. v. Franchise Tax Board, Case No. F070922. The appellate court’s decision affirmed the judgment of the California Superior Court and overturned the rationale articulated by the Franchise Tax Board (“FTB”) in FTB Ruling 2014-01 (July 22, 2014), which was issued by the FTB while the Swart case was pending.
On February 6, 2017, the Tax Court of New Jersey granted partial summary judgment to the taxpayer in Elan Pharmaceuticals, Inc. v. Director, Division of Taxation. The court held that the New Jersey Division of Taxation (“Division”) improperly applied the state’s Throw-Out Rule by excluding receipts that were “subject to tax” in the originating state. The decision clarifies the scope of the Throw-Out Rule’s “subject to tax” language by finding that receipts may be “subject to tax” even when the destination state is precluded from taxing the sale under Public Law 86-272.