State tax nexus is in flux. Nexus is the measurement of the activity of a business in a state. If the link to a particular business is strong enough, a state can tax a business enterprise. See a couple of cases, recently decided, which illustrate the flux.
The Maryland Court of Special Appeals affirmed the decision of a Maryland circuit court that an out-of-state subsidiary was subject to the Maryland corporate income tax because its parent did have physical presence in Maryland. The out-of-state subsidiary held intellectual property of the parent. The justification of nexus was economic reality–the parent’s business in the state produced the income of the subsidiary. The Classics Chicago, Inc. v. Comptroller of the Treasury (January 4, 2010).
The U.S. Court of Appeals for the Sixth Circuit, on the other hand, affirmed the decision of a federal district court that online travel companies (OTCs) were not subject to the local Kentucky transient room tax. The Sixth Circuit recognized that the OTCs did not have physical control of the rented rooms in question and, more important perhaps, did not benefit from the purpose of the tax to promote tourism. The OTCs were not physically present in the areas governed by the ordinances in question and thus could not “specially” benefit because of an increase in tourism. Louisville/Jefferson County Metro Government v. Hotel.com, LP (December 22, 2009). IRS Circular 230 Notice
To the extent this client alert within it concern tax matters, the information is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law or in promoting, marketing, or recommending to another party any transaction or matter addressed. |
