Magazine article The CPA Journal

Tax Nexus for Out-of-State Corporations after Quill

Magazine article The CPA Journal

Tax Nexus for Out-of-State Corporations after Quill

Article excerpt

The U.S. Supreme Court ruling in Quill v. North Dakota held that under the Commerce Clause, a state is prohibited from imposing a use tax collection responsibility on an out-of-state business that lacks physical presence in that state. However, the Commerce Clause does not bar Congress under its plenary authority from granting states the power to impose such a tax-collection obligation. In addition, the Court held that under the Due Process Clause, states are permitted to tax an out-of-state business that has no physical in-state presence with the taxing jurisdiction as long as the business has purposely directed its business activities at the residents of the state.

As a result of this decision, many state statutes that impose sales and use tax collection responsibility on out-of-state mail-order companies are unenforceable. For example, Ohio has reacted by changing the definition of nexus in its statute to differentiate between the limitations imposed under the Commerce and Due Process Clauses as a means of enforcing collection and remittance of the use tax by out-of-state sellers. The new definition for the term "nexus with this state" is "engages in continuous and widespread solicitation...or otherwise purposefully directs its business activities at residents of Ohio." In addition, a new term, "substantial nexus with this state" has been added which describes the activities that will result in the imposition of a collection obligation on an out-of-state company. …

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