Alabama bad credit auto loan

The 18th National Institute on State and Local Taxation, sponsored by the Center for Tax Education and Research, was held in Chicago on October 27 and 28, 1999. The issues discussed included nexus developments; mergers and acquisitions; pass-through entities; the taxation of telecommunication companies, utilities, and financial institutions; and enterprise resource planning systems. The Institute also featured a roundtable discussion by tax administrators, and advice on audit and tax appeal procedures.

Nexus Developments

The concept of nexus is at the forefront of the political debate surrounding state taxation issues, according to Diann L. Smith, General Counsel, Committee On State Taxation, Washington. Smith presented a case study of current nexus developments, focusing on concepts such as agency nexus, affiliate nexus, and economic nexus, and examining these questions in a variety of economic environments, including electronic commerce.

Website Maintenance and Nexus

Is a taxpayer that maintains a website that is accessible by residents of the state engaged in deliberate marketing? According to Smith, simply putting up a website, and nothing more, may not be enough to create nexus. In analyzing the nexus question, Smith cited several recent cases in which courts considered whether an electronic commerce "presence" was sufficient for a state to establish personal jurisdiction over a defendant. She noted the decision in Bensusan Restaurant Corporation v. King, 937 FSupp. 295 (S.D.N.Y 1996), in which the court held that New York did not have jurisdiction over a Missouri defendant who created a website and permitted anyone around the world who could find it to access it. There were no allegations that the defendant actively sought to encourage New York residents to access his site, or that he conducted any business, let alone a continuous and systematic part of his business, in New York. While the U.S. Court of Appeals for the Sixth Circuit reached a different result in an Ohio case (CompuServe, Inc. v. Patterson, 89 F3d 1257 (6th Cir. 1996)), Smith said that the facts in that case differed from those in Bensusan. In CompuServe, an Internet user from Texas subscribed to a network service based in Ohio and entered into a separate agreement with the service to sell his software over the Internet. In so doing the Sixth Circuit held the defendant knowingly subjected himself to Ohio's personal jurisdiction

Presence Standards

Smith also discussed the issue of what connection a state must have with a taxpayer and with a transaction in order to establish nexus. She stated that "you don't need every day contact, but it must be consistent contact." Smith said that in Texas Comptroller of Public Accounts, Hearing No. 37,473 (December 3,1998), "a small presence, but actual daily physical presence, and some connection with what was being taxed" was enough to establish substantial nexus on the part of a provider of Internet and online services that sent promotional materials to Texas residents from outside the state, but who had no retail stores in Texas and did not engage in any in-person solicitation activities in Texas. The Internet provider maintained an office and equipment in Texas, and had one employee in the state whose sole responsibility was to maintain modem and telecommunications equipment, all of which assisted in the provision of the services that the promotional materials were advertising. Smith said the Internet provider's one full-time employee was enough to establish physical presence, although she added that if the employee was not facilitating sales, it could be argued that his presence should not have been sufficient to create nexus.

The difficulty of determining what is "demonstrably more than minimal physical presence" is illustrated by Hi-Tech Housing Inc., No. 241717, Michigan Tax Tribunal (June 8, 1999), Smith said. There an Indiana-based manufacturer of mobile and modular homes who sold and delivered 64 modular homes to 34 Michigan builders for setup in Michigan had more than the "slightest physical presence" in Michigan required to satisfy the substantial nexus requirement of the Commerce Clause. The manufacturer's employees conducted business activities in Michigan and independent contractors performed the manufacturer's obligations under warranty agreements provided to new homeowners. The presence of the manufacturer's property in Michigan and the performance of sales promotional activities were further evidence of its activity in the state. According to Smith, this case illustrates that the goal of taxpayers who want to be sure they will not be taxed should be "to have no contacts and no visits" because the states differ on the physical presence standards demanded by the Commerce Clause.

Economic Nexus Concept and Credit Card Businesses

Smith described the concept of economic nexus, which, instead of taking into account the taxpayer's contacts with a given state (as is the case with other nexus concepts such as agency nexus or affiliate nexus), looks to whether a taxpayer has customers in the taxing state. According to Smith, the Tennessee Chancery Court seemed poised to address the economic nexus issue in JC Penney National Bank, Tennessee Chancery Court, No. 96-276-1 (October 16, 1998). The chancery court noted that because the taxes at issue were franchise and excise taxes rather than sales and use taxes, it was not bound by the physical presence requirements of Quill, 505 U.S. 298 (1992). In its holding, however, the chancery court nevertheless applied a physical presence analysis under the Commerce Clause, using the four-factor test in Complete Auto Transit, Inc., 430 U.S. 274 (1977) to determine that the out-of-state bank's credit card business activities in Tennessee created sufficient nexus to subject the bank to tax. The court held that services performed in Tennessee by affiliates of the bank and the presence of over 17,000 of the bank's credit cards in the state created sufficient nexus. [CCH Note: The chancery court's decision was subsequently reversed by the Tennessee Court of Appeals in JCPenney National Bank, No. M1998-00497-COA-R3-CV (December 17, 1999), in which it held that the bank's relationship with the state failed to satisfy the substantial nexus requirement of the Commerce Clause.]

In Dial Bank, Alabama Department of Revenue, Administrative Law Division, Nos. 95-289,95-308 (September 29,1998), an out-of-state bank corporation operating a credit card business in Alabama and leasing medical equipment in the state was found to have corporate income and franchise tax nexus with Alabama by virtue of owning the equipment located in Alabama. The administrative law judge asserted in dicta that if the bank retained ownership of the credit cards, this would arguably constitute substantial nexus under the Commerce Clause with respect to the credit card business. It was not necessary to determine whether the bank retained ownership, however, because the bank already had nexus through the physical presence of the equipment, and the state therefore was entitled to tax a fairly apportioned share of any business activity conducted in the state, including the credit card business.

According to Smith, the credit cards in these cases were really evidence of a bank loan. However, the courts applied traditional nexus rules to find that there was more than de minimis contact with the taxing states to attribute substantial nexus.

Attributional Nexus and Holding Companies

Smith described two recent cases that revisited the question of whether nexus can be attributed to the activities of an out-ofstate holding company because of its relationship with the parent. In Crown Cork & Seal (Delaware) Inc., Maryland Tax Court, No. C-97-0028-01 (April 26,1999), a Delaware subsidiary of a manufacturing company in Maryland was not subject to Maryland corporate income tax because its only contact with Maryland was the location of the parent corporation, and that was insufficient to meet the substantial nexus requirement. The fact that the parent transferred its trademarks and patents to the subsidiary and then leased them back did not establish that the subsidiary was a phantom corporation subject to tax. In MCI International Telecommunications Corp., Maryland Tax Court, No. C-96-0028-01 (April 26, 1999), a telecommunications subsidiary providing international voice service within Maryland, but having no property, payroll, or sales in Maryland, was not subject to Maryland corporate income tax because it was not a phantom corporation to which the Maryland nexus of its parent corporation would be attributed for Maryland income tax purposes, and it did not meet the substantial nexus requirement since none of its call switching activities took place in Maryland. Smith observed that the parent and subsidiary companies were considered to be two seperate entities.

Representative Nexus: Bad Facts, Bad Law