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.
In Capital One Auto Finance, Inc. v. Department of Revenue, Dkt. No. TC 5197 (Oregon Tax Ct. Dec. 23, 2016), the Oregon Tax Court held that physical presence was unnecessary to establish nexus for corporate excise and corporate income tax purposes. As we reported last month, the Ohio Supreme Court similarly upheld the constitutionality of Ohio’s factor presence (or, economic nexus) standard for purposes of the Ohio Commercial Activity Tax. Crutchfield Corp. v. Testa, Slip Opinion No. 2016-Ohio-7760 (Ohio 2016). (See our previous post, Ohio Supreme Court Physical Presence Not Required for Commercial Activity Tax.)
In a decision that may foretell the future of business privilege tax nexus, the Washington Supreme Court in November upheld the imposition of the state’s business & occupation (B&O) tax on an out-of-state distributor with respect to sales that were not generated by the distributor’s in-state office. In Avnet Inc. v. Dep’t of Rev., Dkt. No. 92080-0 (Wash. 2016), the Court effectively killed any notion that transactional nexus is required to impose the B&O tax—a tax on the privilege of doing business in Washington. This case, coupled with the Ohio Supreme Court’s decision in Crutchfield v. Testa, which was decided one week before Avnet and involved Ohio’s similar Commercial Activity Tax (CAT), continue the trend of aggressively pursuing nexus in the business privilege tax context.
The Mississippi Supreme Court upheld the Mississippi Chancery Court’s decision in Mississippi Dep’t of Rev. v. AT&T Corp., Dkt. No. 2015-CA-00600-SCT (Miss. S. Ct. 10/27/2016), holding that the Mississippi dividend exclusion statute was unconstitutional under the dormant aspect of the Commerce Clause of the U.S. Constitution.