Market Digest

Despite anecdotal evidence of states aggressively pursuing tax compliance of out-of-state businesses to bolster revenue, a new state tax survey from BNA Tax & Accounting reports no dramatic change in state tax nexus policies as compared to previous years.

The 9th annual BNA Survey of State Tax Departments — which includes responses from every state, New York City, and the District of Columbia — also reveals that there is no indication that states have moved to clarify their nexus policies or that there is much change in the lack of uniformity of nexus policies among the states.

“Not surprisingly, state policymakers and business groups interpret the state responses differently,” said George Farrah, a senior tax analyst with BNA Tax & Accounting. “A representative of the Council On State Taxation looked at the BNA Survey and said the states’ inconsistent responses are indicative of many jurisdictions’ failure to give clear guidance on the issue. Conversely, an official at the Multistate Tax Commission asserted that the states were very consistent in their position, citing as an example that 42 of the 45 states that impose a corporate income tax rely on economic presence for their nexus standard.”

While interpretations of the BNA Survey results can vary, it shows that there remains a considerable lack of consistency in state nexus policies. While states might not be changing their nexus policies in their quest to balance their budgets in this difficult economy, it is clear that state nexus determinations have become increasingly important.

The BNA Survey, published earlier this month and based on results to a questionnaire sent to senior state tax officials in every state, the District of Columbia and New York City, aims to clarify each state’s position on the gray areas of corporate income and sales and use tax administration.

This year, queries were expanded to ascertain state’s position’s on the treatment of net operating losses. Also included is each state’s conformity to I.R.C. Section 338(h)(10), treatment of income arising from bankruptcy, position regarding intangible holding companies, and application of throwback and throwout rules.

Highlights for this year include:

• Thirty states said they require NOLs to be determined on a post-apportionment basis.
• Thirty-five states said an employee that telecommutes from a home located within their borders would create nexus for the out-of-state employer.
• Thirteen states said registering would trigger nexus based solely on a company’s registering to do business within their borders.
• Twenty-two states (two more than last year) said they require the add-back of amounts representing the payment of the Michigan Business Tax (MBT).

Individual copies of the 2009 BNA Survey of State Tax Departments may be purchased for $185 (plus applicable state sales tax, shipping and handling) by going to http://tmstore.bna.com/Pagemanager.aspx?pageId=7725

Source: BNA Tax & Accounting