Nexus Program Director's May 1, 2024 Update on Nexus Law

Nexus Program Director’s May 1, 2024 Update on Nexus Law Developments

Since November 15, 2023

Rulings or Administrative Actions

Colorado

The Department published GIL 24-002 dated March 4, 2024 advising that a remote

seller not “doing business” in Colorado (i.e. no physical presence and making sales

into Colorado that do not exceed its economic nexus threshold) may voluntarily

sales/use tax on retail sales made into Colorado. The letter requestor asked whether

such a remote seller had a duty to comply with the notice and reporting requirements

of section 39-21-112(3.5), C.R.S.

Florida

The Department issued TIP No. 23A01-24 dated December 15, 2023 entitled “Know

Who is Responsible for Remitting Sales and Use Tax When Using Third-Party

Delivery Networks” in order to provide guidance to restaurants and other businesses

using delivery network companies that those companies will collect and remit

sales/use tax on deliveries only if they have elected to do so and have notified the

merchant. Otherwise, the merchant remains responsible for collecting and remitting

the tax.

The Department published guidance on its voluntary disclosure program, GT-800053

dated March 2024.

Illinois

The Department published ST-23-0035-GIL dated November 16, 2023 to provide

state and local sales/use tax general sourcing guidance for in-state and out-of-state

sellers with some physical presence in Illinois.

The Department has published PIO-101 entitled the “Illinois Sales and Use Tax

Matrix,” effective January 1, 2024, to provide guidance on Illinois sales/use tax

impositions and exemptions.

444 North Capitol St., NW

Suite 425

Washington, DC 20001-1538

Telephone: 202.650.0300

www.mtc.gov

Nexus Director’s Update

May 1, 2024

The Department has published PIO-102 entitled “Illinois Filing, Payment, and

Refund Resources for Marketplace Facilitators, Marketplace Sellers, and Remote

Retailers,” effective January 1, 2024, to provide sales/use tax guidance to remote

sellers and marketplace facilitators and sellers.

Indiana

The Department has published Income Tax Information Bulletin # 32 dated January

2024 to provide guidance on local income taxes. The Department has published Sales

Tax Information Bulletins #52 and #57 dated March 2024 to indicate that the 200

transactions alternative sales/use tax economic nexus threshold was legislatively

eliminated effective January 1, 2024. The Department has published Sales Tax

Information Bulletin #89 dated April 2024 to provide sales tax compliance guidance

to remote sellers and marketplace facilitators.

Iowa

The Department published on February 7, 2024 Regulation 701—Chapter 207

entitled “Remote Sales and Marketplace Sales” to provide sale/use tax guidance to

remote sellers and marketplace facilitators and sellers, effective March 13, 2024.

Louisiana

The Department published on November 14, 2023 Revenue Ruling No. 23-001 to

explain the tax collection and remittance requirements for vehicle lease or rental

transactions facilitated through peer-to-peer vehicle sharing platforms.

Massachusetts

The Department has published updated final reg 830 CMR 64H.1.9 on April 12,

which provides several exceptions to the marketplace facilitator definition: persons

facilitating sales of marijuana or marijuana products on behalf of marijuana retailers

are not considered marketplace facilitators to the extent that the retailers themselves

are registered to collect tax; businesses solely provide payment processor services for

marketplace sales; marketplaces that solely provide advertising services; facilitators of

meal sales when the restaurants are registered to collect tax; or facilitators of vehicle

rentals when the retailers are registered to collect tax. Emily Hollingsworth,

“Massachusetts Adopts Regs on Remote Sellers, Advance Tax Payments,” Tax

Analysts Tax Notes State (April 15, 2024).

Michigan

Nexus Director’s Update

May 1, 2024

Michigan Treasury has published Michigan Revenue Administrative Bulletin 2023-26,

approved December 26, 2023, to provide guidance on Michigan’s SALES AND USE

TAX SOURCING rules.

Minnesota

The Department has published an updated Sales Tax Factsheet 173 entitled “Direct

Mail and Fulfillment Services” to provide sales tax guidance on direct mail.

The Department has published guidance concerning the retail delivery fee (similar to

Colorado’s) effective July 1, 2024 of 50 cents that applies to certain transactions

involving retail delivery in Minnesota. An exclusion is provided for a retailer, who for

the previous calendar year, had Minnesota retail sales that totaled less than $1,000,000,

and a marketplace provider facilitating a sale for a retailer, who during the previous

calendar year, made Minnesota retail sales through the marketplace that totaled less

than $100,000.

Missouri

The Department published LR 8279 dated January 4, 2024 providing sale/use tax

guidance concerning an out-of-state wholesaler making wholesale sales to Missouri

businesses and obtaining exemption certificates from them. The Department advised

that if the out-of-state wholesaler’s taxable sales into Missouri did not annually exceed

$100,000, the wholesaler did not have nexus and did not need to register with

Missouri for sales/use tax and collect its sales/use tax.

New York

The New York State Department of Taxation and Finance has formally adopted in

December 2023 extensive corporate tax reform regulations implementing the 2015

legislation. These regulations include guidance consistent with the MTC’s Statement

of Information Concerning P.L. 86-272, as revised in 2021 concerning internet

transactions. Nicholas Montorio and Denisse Moderski, “New York’s Retroactive

Corporate Tax Regulations Can Create Exposures,” Tax Analysts Tax Notes State

(February 26, 2024).

The Department has adjusted for inflation the corporate franchise tax economic

nexus annual “deriving receipts” threshold, increasing it from $1.138 million to $1.238

million effective January 1, 2024. Emily Hollingsworth, “New York Ups Corporate

Receipts Threshold for Franchise Tax, MTA Surcharge,” Tax Analysts Tax Notes State

(January 3, 2024).

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May 1, 2024

Pennsylvania

The Department has published CORPORATION TAX BULLETIN 2024-01 entitled

“Sourcing Sales Other Than Tangible Personal Property and Services” issued January

5, 2024 to provide guidance on its market-based sourcing rules adopted by the

legislative changes as part of Act 53 of 2022.

Tennessee

The Department has updated and published its extensive guides, the “Sales and Use

Tax Manual,” “Tennessee Business Tax Manual,” and “Franchise and Excise Tax

Manual,” dated December 2023.

Virginia

In Document Number 23-112 dated October 19, 2023, the Virginia Tax

Commissioner determined that a Virginia city’s Business, Professional and

Occupational License (BPOL) tax and returns were due from an out-of-state

internet retailer affiliate of a company that operated retail stores in the city.

Employees of the retail stores facilitated the internet sales of the affiliate using the

computers at the retail stores. Since orders for the affiliate’s products were taken at

those retail stores, those sales were deemed to occur at the retail store locations for

BPOL tax purposes because solicitation activity occurred there. Also, those retail

stores were deemed to be places of business of the affiliate for BPOL purposes.

Washington

In Det. No. 21-0083, 42 WTD 066 (2023), the ADMINISTRATIVE REVIEW AND

HEARINGS DIVISION, DEPARTMENT OF REVENUE determined that an out-

of-state internet seller that was a subsidiary of an in-state business that operated retail

stores in the state had substantial nexus with Washington for sales tax and B&O tax

purposes as a result of the activities of the parent on behalf of the subsidiary in

allowing customers to place “special orders” for the subsidiary’s products using the

parent’s computers in those stores. Employees of the in-state business were carrying

on activities that helped to build and maintain the market for the out-of-state internet

seller.

Wisconsin

The Department published a document entitled “Marketplace Providers and Sellers”

dated January 4, 2024, effective January 1, 2020, stating that 2019 Wis. Act 10 clarifies

that a marketplace provider is required to collect and remit sales or use tax for all sales

of taxable products and services in Wisconsin that the marketplace provider facilitates

on behalf of a marketplace seller. The Act also reverses the effect of the decision in

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May 1, 2024

Orbitz, LLC vs. Wisconsin Department of Revenue, (Wisconsin Court of Appeals, District

IV, February 11, 2016) by requiring marketplace providers that facilitate sales of all

services under sec. 77.52(2), Wis. Stats., including lodging services, to collect and

remit sales or use tax on the entire amount charged to a purchaser.

Legislation

National Conference of State Legislatures (NCSL)

The NCSL TASK FORCE ON STATE AND LOCAL TAXATION has published a

white paper/POLICY RECOMMENDATION dated August 2023 entitled “State

and Local Tax Considerations for Marketplace Facilitator Tax Collection

Requirements.” This document contains several recommendations for updating

current tax compliance laws for remote sellers and marketplace facilitators to

encourage uniformity and ease of administration for businesses, such as eliminating

the 200 transactions alternative economic nexus threshold, providing remote sellers at

least 60 days to register with a state after exceeding the state’s economic nexus

threshold, and allowing more flexibility in interpreting and applying the state’s

definition of “marketplace facilitator.” Danielle Muoio Dunn, “States’ Sales Tax Rules

for Online Sellers Need Update: Report,” Tax Analysts Tax Notes State (April 17, 2024). This

document can be downloaded from the NCSL website at https://www.ncsl.org/state-

legislatures-news/details/states-adapt-tax-laws-as-online-sales-surge.

Arizona

The Arizona Legislature enacted H.B. 2382, which provides that beginning on or

before Jan. 1, 2026, taxpayers who use certified service providers to source

transactions subject to transactions privilege tax involving tangible personal property

will not be liable under certain circumstances for failing to pay the correct amount of

tax due to an error in sourcing the transaction. Bloomberg Daily Tax Report: State (April

11, 2024).

Colorado

Colorado Legislature has enacted H.B. 24-1041 prohibiting a home rule city, town, or

county that collects its own sales and use taxes — rather than use Colorado’s online

sales and use tax system (SUTS) portal — from collecting sales/use taxes from a

retailer with no physical presence in Colorado, unless the seller elects to remit the tax

or enters into a voluntary collection agreement with the jurisdiction. Emily

Hollingsworth,

“Colorado Modifies Rules on Local Sales Tax Filings and Collections,”

Tax Analysts Tax Notes State (April 8, 2024).

Indiana

Nexus Director’s Update

May 1, 2024

The Indiana Legislature has enacted SB 228, eliminating the alternative 200

transactions sales/use tax economic nexus threshold, effective January 1, 2024.

Wyoming

The Wyoming Legislature has enacted HB 0197, effective July 1, 2024, eliminating

Wyoming’s alternative “200 or more transactions” sales/use tax economic nexus

threshold, leaving in place as its sales/use tax economic nexus threshold gross sales

exceeding $100,000 in the current or immediately preceding calendar year.

Cases

Arizona

In RockAuto, LLC v. Dep’t of Revenue, Ariz. Ct. App., Div. 1, No. 1 CA-TX 23-0002,

the Department appealed an adverse lower court ruling that an out-of-state auto parts

internet business RockAuto did not have physical presence transaction privilege tax

nexus during the audit period (prior to Wayfair) on remote sales to Arizona customers.

The company used six Arizona suppliers to fulfill orders and provided those suppliers

with branded packaging and marketing magnets to be included in the customer

shipments. The Department argued on appeal that the Arizona suppliers were

involved in establishing and building a market for the company in Arizona, creating

representational nexus. Perry Cooper, Bloomberg Law News, “Arizona Judges Hit Car-

Parts Seller Hard on Tax Nexus Arguments,” March 21, 2024. The Arizona Court of

Appeals issued its opinion on April 2, 2024, reversing the lower court and determining

that the in-state distributors established representational nexus. The in-state suppliers

performed all the activities of the online sales contracts between RockAuto and its

online customers except the acceptance of orders, and about 11% of the orders

handled by those suppliers involved products shipped intrastate to Arizona

customers. Christopher Jardine, “Wisconsin Retailer Found to Have Nexus to

Arizona Through Distributors,” Tax Analysts Tax Notes State, April 3, 2024.

In City of Tucson v. Orbitz Worldwide Inc. (No. 1 CA-TX 23-0001) (January 11, 2024), the

Arizona Court of Appeals (Division One) held that Tucson’s hotel tax did not apply

to Expedia and other OTCs because they did not fit within the city’s definition of a

hotel “operator” or “non-employee managing agent.” Paul Jones, “Expedia Not

Subject to Tucson’s Hotel Tax, Arizona Appeals Court Holds,” Tax Analysts Tax

Notes State (January 22, 2024).

California

In City of Lancaster v. Netflix Inc. (Case No. B321481) the California Court of Appeal,

Second Appellate District, on February 22, 2024 upheld the trial court’s determination

that the state’s Digital Infrastructure and Video Competition Act (DIVCA) did not

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May 1, 2024

give the city a cause of action against nonfranchise holders for declaratory judgment

and damages against Netflix and Hulu for failing to pay franchise fees on streaming.

Andrea Muse, “California Court Rules for Netflix, Hulu In Local Franchise Fee

Fight,” Tax Analysts Tax Note State (March 4, 2024).

In American Catalog Mailers Association v. Franchise Tax Board, in which the American

Catalog Mailers Association (“ACMA”) challenged the Franchise Tax Board’s

(“FTB”)

Technical Advice Memorandum (“TAM”) No. 2022-01 and Publication 1050

adopting the MTC’s recently revised Statement concerning P.L. 86-272, the Superior

Court of California granted ACMA’s motion for summary judgment by order dated

December 13, 2023, finding that the Board failed to adopt the TAM and Publication

1050 in compliance with the Administrative Procedures Act, so those documents

were void. Paul Jones, “ACMA Wins P.L. 86-272 Case Against California FTB,” Tax

Analysts Tax Notes State, December 18, 2023. The court further denied the Board’s

motion to vacate and modify the judgment, and the Board has not appealed the

ruling. Laura Mahoney, “California Misses Deadline to Appeal Internet Activity Tax

Ruling,” Bloomberg Law News ((March 19, 2024).

In Bahl Media, LLC. Et al v. California Franchise Tax Board, Superior Court of California,

San Francisco County (No. CGC-16-554150) the trial court granted plaintiffs’ motion

for class certification on February 24, 2024 in a lawsuit brought by passive owners of

California LLCs whose only connection with California was small percentage

ownership (but greater than .2%) and claiming not to be “doing business” in

California, seeking refund of the $800 minimum franchise tax.

Colorado

Wayfair v. City of Lakewood, et al.

Case No. 2022CV30710, District Court, Jefferson

County Colorado: Wayfair filed a state court challenge to the City of Lakewood notice

of deficiency for locally administered sales/use tax, alleging the City and the Colorado

Department of Revenue had a Commerce Clause duty to establish a centralized

administration system for local sales tax, provide access to software immunizing

Wayfair from audit liability, and mitigate tax compliance complexity of state, home

rule jurisdiction and other special district sales tax laws. The Department’s motion to

dismiss was granted on January 10, 2024, based on the Department’s lack of authority

to comply. The case is pending against City of Lakewood.

Illinois

In PetMed Express, Inc. v. Illinois Department of Revenue, Case No. 23 TT, Illinois

Independent Tax Tribunal (petition filed 1/26/2024), a Florida-based remote seller

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May 1, 2024

contested notices of sales/use tax liability, challenging constitutionality of Illinois

Level the Playing Field Act, local sales/use tax sourcing rules, discriminating against

and imposing an undue burden on remote sellers vs. in-state sellers in applying

destination sourcing to remote sellers but origin sourcing to in-state sellers. The

complaint alleges that under the Level the Playing Field Act, remote sellers (no

physical presence in Illinois) with economic nexus are required to collect state and

local Retailers’ Occupation Tax (Illinois sales tax) on their remote sales to Illinois

customers and apply destination sourcing (delivery address) in determining the local

sales tax that applies. In-state sellers also collect state and local sales tax on sales to

Illinois customers, but local rate is based on in-state seller’s location. Remote seller

and in-state seller making the sale of the same item to the same customer could apply

different local rates, and the remote seller has to track and report its sales by delivery

locations. Illinois imposes state use tax, but few local use taxes. Sellers with physical

presence in Illinois but conducting sales activity outside the state and shipping the

ordered item to the Illinois customer from out-of-state only need to collect state use

tax (unless a local use tax imposed). A remote seller making a sale to the same

customer would need to collect both state and local ROT and source the sale to the

delivery location.

Louisiana

In Robinson v. Priceline, et al, NO. 2023 CA 0069,

the Louisiana Court of Appeals on

April 17, 2024 in a 2-1 decision affirmed the lower court’s dismissal of the Louisiana

Department of Revenue’s and local parishes’ petition against online travel companies

for failure to collect state and local sales/use tax on the full price paid by customers

purchasing hotel rooms on the online travel companies’ platforms, determining that

the online travel companies were providing nontaxable services in facilitating the

transactions and were not hotels furnishing sleeping rooms within the meaning of the

sales/use tax imposition and were not “dealers” under the sales tax law.

Maryland

The Fourth Circuit on January 10, 2024 in Chamber of Commerce of the United States v.

Lierman, No. 22-2275,

a challenge to the constitutionality and legality of the Maryland

digital advertising tax, upheld the district court’s dismissal of Counts I-III (ITFA, due

process, commerce clause) under the Tax Injunction Act, determining that the digital

advertising tax was a tax and not a fee, but ordered the dismissal be without prejudice,

and vacated the district court’s dismissal of Count IV (First Amendment) and

remanded. Concerning Count IV, the 1

Amendment challenge to the tax “pass-

through provision,” the district court ordered the parties to file supplemental briefs

on the meaning of that provision, and the parties have done so.

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May 1, 2024

Apple has filed a petition in Apple Inc. v. Comptroller of the Treasury of Md. , Md. T.C.,

No. 23-DA-00-0456, October 20, 2023, seeking refund of digital advertising tax

payments, arguing the tax is illegal and unconstitutional. The Comptroller has moved

for dismissal for failure to exhaust administrative remedies. Michael J. Bologna,

“Apple Files in Maryland Tax Court to Protest Digital Ad Tax,” Bloomberg Daily Tax News,

October 30, 2023. Several other large companies have since filed similar petitions. Bologna,

“Amazon, Facebook, Google Seek Maryland Digital Ad Tax Refunds,” November 14,

2023; Bologna, “Apple, Peacock Battle for Top Position in Maryland Ad Tax Fight,”

February 13, 2024.

Massachusetts

In Welch v. Commissioner of Revenue, Docket No. C339531, Massachusetts Appellate Tax

Board (November 29, 2023), the Board held for the Commissioner, upholding an

income tax assessment against a nonresident former shareholder, founder and key

employee on the gain from the sale of shares in a Massachusetts-based corporation

that developed and marketed derivatives and collateral management solutions for

institutional investors. The Board viewed the gain as compensatory and effectively

connected with the trade or business of employment carried on in Massachusetts.

Michigan

In Apex Laboratories International, Inc. v. City of Detroit, No. 363984, Michigan Court of

Appeals (January 4, 2024), Detroit assessed Apex, a Delaware corporation listing a

Detroit mailing address, for income tax on gain from its sale of shares in Labstat (a

Canadian company), its only asset. Apex did not have any employees, owned no real

or personal property, provided no services, and sold no goods, either in Detroit or

elsewhere. Various members and employees of Huron, a Detroit-based private equity

firm, were appointed to Apex’s board of directors. Apex never held a board meeting.

Huron employees/members conducted negotiations for Apex’s sale of the Labstat

shares in their Detroit offices, and the sale was closed remotely in Canada. Apex

appealed the assessment to the Michigan Tax Tribunal, which held for Apex that it

was not “doing business” in Detroit and therefore had no nexus. The Michigan Court

of Appeals affirmed, but shortly thereafter, the Wayfair decision came down, and

Detroit appealed to the Michigan Supreme Court, which vacated the lower court

decision and remanded, in view of Wayfair. On remand, the Tax Tribunal again ruled

for Apex, but the Michigan Court of Appeals reversed, granting Detroit’s motion for

partial summary judgment and determining that Apex did have nexus in Detroit by

virtue of the actions of Huron members/employees conducting the Labstat sale

negotiations in their Detroit offices—the only activity of Apex. However, the Court

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May 1, 2024

of Appeals determined that issues of fact remained on the income allocation question

and remanded for that purpose.

Missouri

In Creve Couer v. Direct TV LLC et al, Case No. 18SL-CC02821-01, in the Circuit Court

of St. Louis County, Missouri, the city and others filed a class action lawsuit against

Direct TV and other video streaming service providers, seeking franchise fees under

the Video Service Providers Act and a private cause of action under that act. The

court on November 28, 2023 denied Direct TV’s motion for judgment on the

pleadings, determining that the cities do have a private right of action under the Act

and may seek declaratory relief. The court noted that Direct TV had sought

authorization under the Act as a video service provider and had paid partial fees. The

court also held that the cities’ claim for unjust enrichment could proceed.

New Jersey

In H&M Bay, Inc. v. Dir., Div. of Taxation, Docket No. 012545-2021, the New Jersey

Tax Court denied the parties’ motions for summary judgment, but determined that

H&M Bay, a Maryland corporation and federally licensed freight forwarder with

national operating authority as an “LTL” (less-than-truckload) service provider,

coordinating multiple LTL shipments throughout the United States, was not entitled

to protection under P.L. 86-272 from New Jersey’s corporate business tax. However,

material issues of fact remained as to whether the taxpayer’s activities in New Jersey

were de minimis or were nexus-creating and considered “doing business” in New

Jersey. The taxpayer had no physical presence in New Jersey but coordinated

shipments to and from New Jersey using independent truckers. The taxpayer was not

taking orders for tangible personal property but was instead involved in providing

transportation services, so P.L. 86-272 did not apply. The court also held that physical

presence was not necessary to establish income tax nexus. But the evidence did not

show how many New Jersey customers the taxpayer had and how much revenue was

derived from those customers. The court determined that the independent trucking

firms contracting with the taxpayer were not agents and their activities in New Jersey

in making pickups and deliveries did not establish representational nexus.

In Burough of Longport, et al v. Netflix et al, No. 22-2139, the 3

Circuit on February 29,

2024 affirmed the federal district court’ s determination that the New Jersey Cable

Television Act did not provide municipalities a private right of action to enforce its

provisions for franchise fees against video streaming companies.

New York

Nexus Director’s Update

May 1, 2024

In American Catalog Mailer Association v. Department of Taxation and Finance, the ACMA

has filed a complaint in New York district court alleging that the Department’s recent

adoption of regulations based on the Multistate Tax Commission’s revised Statement

of Information on P.L. 86-272 dated August 2021 are invalid. The regulations view

nonsolicitation-related internet activity with customers in New York (such as internet

chat assistance to customers, soliciting and obtaining employment or credit card

applications, selling warranties, remotely fixing products, using cookies for product

development purposes, etc.) as occurring in New York in violation of P.L. 86-272.

The regulations are also retroactive to January 2015. Christopher Jardine, “New

York's P.L. 86-272 Reg Is Invalid, ACMA Says,” Tax Analysts Tax Notes State (April

11, 2024).

In In re Zelinsky, DTA 830517 and 830681, New York Division of Tax Appeals, the

ALJ, relying on prior precedent (Zelinsky and Huckaby decisions) on November 30,

2023 denied Cardoza Law School Professor Zelinsky’s petition challenging the

constitutionality of New York’s “convenience of the employer” rule as applied during

the pandemic. Professor Zelinsky asserted that the rule was unconstitutional in

violation of due process and the commerce clause to the extent he was required to pay

New York personal income tax on his teaching income earned while working from

home out-of-state, due to the COVID-19 pandemic requirement to work from home.

On December 27, 2023, Professor Zelinsky sought reversal of this ruling from the

New York Tax Appeals Tribunal, which is pending. Cameron Browne, “Connecticut

Professor Files Exception to New York’s Denial of Tax Refund,” Tax Analysts Tax

Notes State (January 4, 2024).

Ohio

In Schaad v. Alder, Slip Opinion No. 2024-Ohio-525 (February 14, 2024), the Ohio

Supreme Court affirmed the lower court, upholding the due process constitutionality

of H.B. 197, enacted during the COVID-19 pandemic, designed to maintain

consistency in municipal tax revenues providing that for a limited time, Ohio workers

would be taxed based on their “principal place of work” rather than by the

municipality where they actually performed their work. The law was unsuccessfully

challenged by a worker employed by a Cincinnati business who worked from home

outside of Cincinnati and was subject to withholding and income tax by Cincinnati on

those earnings.

In Jones Apparel Group/Nine West Holdings v. McClain, Nos. 2020-53 and 2020-54, the

Ohio Board of Tax Appeals upheld the Department’s denial of refund claims for

previously paid commercial activity tax (CAT) filed by an apparel wholesaler that

shipped inventory to Ohio distribution centers, which was ultimately shipped to

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May 1, 2024

locations outside of Ohio. Under CAT sourcing rules, sales were sourced to the

location of the merchandise after all transportation was completed, but the apparel

wholesaler failed to provide adequate proof that the inventory at the Ohio distribution

centers actually was ultimately shipped to out-of-state locations.The taxpayer has

appealed to the Ohio Supreme Court. Perry Cooper, “Nine West Seeks Commercial

Activity Tax Refund at Ohio Top Court,” Bloomberg Law News (January 29, 2024).

In Total Renal Care, Inc. v. Harris, No. 2019-848, the Ohio Board of Tax Appeals

upheld the Department’s denial of CAT refund claims by a provider of kidney dialysis

services to patients in Ohio. The patients were required to undergo monthly blood

testing, with labs in Florida performing the testing. Also, the provider performed

related administrative services outside of Ohio. The Board determined that the

patients received the benefit of the lab work and related administrative services in

Ohio, where they underwent the dialysis treatment, so those services were properly

sourced to Ohio. In addition, the Board determined that insufficient evidence was

presented to show the amounts attributable to those services performed out-of-state.

The taxpayer has appealed to the Ohio Supreme Court. Perry Cooper, “Ohio Tax

Agency Urges Top Court to Reject DaVita’s Arguments,” Bloomberg Law News

(January 30, 2024).

In Harris v. VVF Intervest, LLC , Ohio, No. 2023-1296, the Ohio Tax Commissioner

has appealed to the Ohio Supreme Court an Ohio Board of Tax Appeals decision

granting the CAT refund claim of VVF, a Kansas soap manufacturer selling product

during 2010-14 to a distributor with an Ohio distribution center where the product

was temporarily located until the distributor sold the product to other retailers located

outside of Ohio. The Commissioner claimed in its brief that those soap sales were

sourced to the Ohio distribution center and were subject to the CAT. VVF argued

lack of nexus since VVF had no physical, virtual, or economic presence in Ohio and

the soap was ultimately delivered outside of Ohio. The appeal is pending. Perry

Cooper, “Soap Shipped Via Ohio Isn’t Taxable, Producer Tells High Court,”

Bloomberg Law News (April 4, 2024).

Philadelphia

In a November 22, 2023 decision in Zilka v. Tax Review Board of Philadelphia, the

Pennsylvania Supreme Court found that Philadelphia did not unconstitutionally

discriminate against interstate commerce when it allowed Diane Zilka, a Philadelphia

resident working for a Wilmington, Delaware employer, a credit against the city’s

wage tax for local income tax paid to Wilmington, but denied additional credits for

out-of-state income tax Zilka paid to Delaware. Christopher Jardine, “Pennsylvania

Nexus Director’s Update

May 1, 2024

Supreme Court Upholds Philadelphia Wage Tax Scheme,” Tax Analysts Tax Notes

State (December 4, 2023). The taxpayer has petitioned (February 20, 2024) for

certiorari to the U.S. Supreme Court.

South Carolina

In Amazon Services LLC v. South Carolina Department of Revenue, Appellate Case No.

2019-001706, the South Carolina Court of Appeals on January 24, 2024 affirmed the

Department’s sales tax assessment against Amazon for $12.5 million for uncollected

sales tax on sales it facilitated on its marketplace during the first quarter of 2016, a

time period prior to South Carolina’s marketplace facilitator tax collection law going

into effect, determining that Amazon was a "person in the business of selling tangible

personal property at retail” under South Carolina’s sales tax laws in effect at the time

of the audit. The court viewed South Carolina’s later enactment of its marketplace

facilitator tax collection law as “clarifying” Amazon’s obligation to collect sales tax on

such marketplace sales, distinguishing Normand v. Wal-Mart.com USA, LLC, 2019-

00263 (La. 1/29/20), 340 So. 3d 615, which held that Wal-Mart.com, a marketplace

facilitator, had no obligation to collect sales tax on facilitated sales prior to Louisiana’s

law expressly requiring marketplace facilitators to collect. Amazon sought a rehearing,

which was denied. On April 17, 2024, Amazon petitioned for certiorari to the South

Carolina Supreme Court. Andrea Muse, “Amazon Asks South Carolina High Court to

Hear Marketplace Suit,” Tax Analysts Tax Notes State (April 22, 2024).

South Dakota

In Ellingson Drainage Inc. v. South Dakota Department of Revenue, 2024 S.D. 8 (February 7,

2024), the South Dakota Supreme Court upheld the Department’s use tax assessment

against an out-of-state company that performed 30-some drain tile installation

projects in South Dakota during the audit period. The use tax assessment was

imposed on equipment that Ellingson brought into the state to perform the projects

but on which Ellingson had paid no sales or use tax. Some of the equipment had only

been in the state for one day. The equipment was assessed on depreciated value

(reduced 10% per year since purchase). In challenging the assessment, Ellingson

argued that the assessment violated the “fair apportionment” prong of the Complete

Auto 4-part test. The court, relying on Jefferson Lines v. Oklahoma Tax Commission, held

the use tax was a substitute for a sales tax in this situation and did not need to be

apportioned. In addition, it was the taxpayer’s choice as to how long the equipment

remained in the state. Had the taxpayer paid any sales or use tax on the equipment, a

credit would have been allowed.

Texas

Nexus Director’s Update

May 1, 2024

In IN RE DISNEY DTC, LLC N/K/A DISNEY PLATFORM DISTRIBUTION,

INC., HULU, LLC AND NETFLIX, INC., Relators, No. 05-23-00485-CV, the

Texas Court of Appeals, Fifth District, held on January 31, 2024 that under Chapter

66 of the Texas Public Utility Regulatory Act (PURA), municipalities lacked a private

right of action to seek franchise fees from video streaming companies. Instead, the

Public Utilities Commission had exclusive authority to issue a state-wide franchise

authorizing the construction and operation of a cable or video services network in

public rights-of-way. The appellate court issued a writ of mandamus compelling the

trial court to grant the relators’ Rule 91a motion to dismiss the municipalities’ lawsuit

against them.

Washington

In Quinn v. Washington, Docket No. 23-171, the taxpayer has petitioned for certiorari

to the U.S. Supreme Court seeking review of the Washington Supreme Court’s

decision upholding the constitutionality of the new Washington capital gains tax as an

excise tax. The taxpayer asserts that because the state court determined that the tax

was an excise tax and not an income tax, then it violates the Commerce Clause due to

lack of transactional nexus, given that the sale of stock generating capital gains likely

takes place on a stock exchange outside of Washington, even though the seller is a

resident of Washington. The petition raises McLeod v. J. E. Dilworth Co., 322 U.S. 327

(1944) in support of its transactional nexus argument. Several taxpayer and business

organizations have filed amici briefs in support of the petitioner. Washington,

Edmonds School District, and Washington Education Association filed responses in

opposition to the petition on November 3, 2023. The petition was denied on January

2024.

In Orthotic Shop Inc. v. Washington State Department of Revenue, No. 39321-6-III (January

23, 2024), Washington Court of Appeals upheld sales tax and B&O tax assessments

following Department audits of two FBA Sellers with inventory at Amazon facilities

in the state who failed to collect sales tax on their marketplace sales during time

periods before Washington’s marketplace facilitator tax collection law went into effect

(10/1/2018). FBA sellers argued that Amazon should have been required to collect

sales tax on their marketplace sales. Court considered the FBA seller-Amazon contract

and Washington sales tax law as placing the tax compliance obligation on the FBA

seller and viewed Washington Legislature’s later enactment of marketplace facilitator

tax collection requirements (SB 5581) as indicating no marketplace facilitator tax

collection obligation prior to that: “If the legislature thought that the law before SB

5581 required marketplace facilitators such as Amazon to collect taxes, it would have

faced no need to enact the new provisions.”

Nexus Director’s Update

May 1, 2024

In Citibank (S.D.) Nat'l Ass'n v. Dep't of Revenue, No. 57127-7-II, 2023 BL 411309

(Wash. App. Div. 2 Nov. 14, 2023), the Washington Court of Appeals determined

that Citibank had nexus with Washington, upholding the Department’s B&O tax

assessment. Citibank is a commercial bank with its headquarters in South Dakota.

Citibank does not have a place of business or any employees or property within

Washington. However, during the assessment period Citibank generated over $1.7

billion in interest and fee income from issuing credit cards to Washington residents.

Some of these credit cards were private label, store branded cards that could only be

used at certain retailers. Pursuant to agreements with Citibank, these retailers were

obligated to market the credit cards and distribute marketing materials to customers in

their Washington stores in order to solicit new accounts for Citibank. In addition,

Citibank used Washington attorneys to file over 3,000 lawsuits in Washington courts

to collect unpaid debts owed by Washington residents during the relevant period.

Citibank argued that Washington law required physical presence before a taxpayer

could be subject to B&O tax prior to 2010. However, the court determined that

physical presence was satisfied based on representational nexus.

Wisconsin

In ASAP Cruises, Inc. v. Wisconsin Department of Revenue, Case No. 2023AP1251,

Wisconsin Court of Appeals, District I, the Department has appealed the lower

court’s remand order. ASAP Cruises, Inc., a Florida corporation, had agreements with

travel agents in Wisconsin. The agents sold cruises, tours, and vacation packages,

from which ASAP retained a percentage of the sales as income and provided the

remainder to the agent as a commission. The agents accessed the travel packages they

sell through an online platform provided by ASAP. The Department assessed ASAP

for income tax, and ASAP contended protection under P.L. 86-272. The Tax Appeals

Commission held that P.L. 86-272 did not protect ASAP because it does not sell

tangible personal property but instead sold travel services. ASAP argued to the circuit

court that it sold “software as a service,” not travel services. The circuit court

remanded to the Commission because it thought the Commission disregarded

evidence that ASAP sells software rather than travel services, and software is arguably

tangible personal property. The parties have filed their briefs, and the case awaits

decision.

Richard Cram

Director, National Nexus Program