1. WHAT MISCHIEF ARE THEY UP TO NOW? – A SALT UPDATE
FINANCIAL EXECUTIVES INTERNATIONAL – COLORADO CHAPTER
FEBRUARY 16, 2017
BRUCE NELSON - - (970)

2. Mischief AGENDA
Nexus
Market-based Sourcing
Retroactivity
Colorado

3. Nexus

4. Background and context
Sales tax nexus
Physical presence is the bright-line test
National Bellas Hess, 386 U.S. 753 (1967)
Quill v. North Dakota, 504 U.S. 298 (1992)
Income tax nexus
Physical presence may not trigger a filing obligation
P.L
Economic presence may be sufficient
Geoffrey Inc. v. South Carolina, 437 S.E.2d 13 (S.C.), cert denied, U.S. 992 (1993)
“Factor-presence test
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5. Report but not pay legislation
The Direct Marketing Association v. Brohl, 735 F.3d (10th Cir. Ct. App., Aug. 20, 2013)(rehearing denied), petition for certiorari filed United States Supreme Court (Feb. 25, 2014); Direct Marketing Association v. Brohl, U.S. Supreme Court, Dkt , (March 3, 2015)
Direct Marketing Association v. Brohl, 814 F.3d (10th Cir. 2016)
Direct Marketing Ass’n v. Colorado Department of Revenue, Case No. 13CV34855, Colo. Dist. Ct., Denver (Feb. 18, 2014)
Seven other states including Kentucky, Louisiana, Oklahoma, South Dakota, and Vermont.

6. States Challenge Quill: South Dakota
Senate Bill 106 (Applies to sales made on or after May 1, 2016)
A remote seller has nexus if its annual in-state sales exceed $100,000 or if the seller has 200 or more separate sales into the state.

7. States Challenge Quill: Alabama
Alabama Sales and Use Tax Rule Number
Applies to all sales made on or after Jan. 1, 2016.
Factor-nexus standard with a $250,000/year threshold.
Out-of-state sellers who lack a physical presence but who make sales of tangible personal property into the state have substantial economic presence in Alabama and must collect and remit tax when sales exceed $250,000/year (and engage in an activity listed in ).

8. States Challenge Quill: Ohio
Crutchfield Corp. v. Testa, No Ohio-7760 (Ohio Supreme Court, November 17, 2016)
Newegg, Inc. v. Testa, No Ohio-7762, (Ohio Supreme Court, November 17, 2016)
Mason Companies, Inc. v. Testa, No Ohio-7768, (Ohio Supreme Court, November 17, 2016)

9. Factor-presence test
Out-of-state taxpayers that exceed any of the following thresholds in the state during the tax period:
(1) $50,000 of property; or
(2) $50,000 of payroll; or
(3) $500,000 of sales; or
(4) 25% of total property, total payroll, or total sales.
are deemed to be doing business in the state and have an income tax filing obligation.
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10. nexus - Factor Presence Standard
Out-of-state taxpayers
Exceeding specific thresholds
Deemed doing business in the state
Income tax filing obligation CA CT WA CO AL TN OH MI NY
As of the end of 2015 the following states have adopted some version of a “factor presence” nexus standard.
AL, CA, CO, CT, MI, NY, OH, TN, WA.

11. Market-based sourcing

12. MARKET BASED SOURCING – TREND
Sourcing revenue to the state in which the benefit of the service is received
Varying statutory language and implementation CA UT MN IA WI MI IL OH PA ME MA RI DC MD MS AL GA FL
States currently using “market based sourcing” AL, CA, DC, FL, GA, IL, IA, ME, MD, MA, MI, MN, MS, OH, PA, RI, UT, WI.

13. HOW DO YOU DEFINE “MARKET”
How do you define the “market?”
Where the services are performed?
Where the services are received?
Where the benefit of the services are received?
Where the customer is located?
Corporate headquarters
Order location
Billing office

14. retroactivity

15. A few retroactive decisions
United States v. Carlton, 512 U.S. 26 (1994)
General Motors Corp.v. Dep't of Treasury, 290 Mich. App. 355; N.W.2d 698 (2010)
Estate of Hambleton, 181 Wash. 2d 802 (2014)
Dot Foods, Inc. v. Washington, No (Wash. March 17, )

16. colorado

17. Colorado developments
BP America v. Colorado, 369 P.3d 281 (Colo. 2016)
Grand County and Larimer County v. Colorado,14CA1767 (Colo. Ct. App. 2016)
Medved v. Colorado, 2016 COA 157 (Colo. Ct. App. 2016)
Agilent Technologies, Inc. v. Colorado, No. 2014CV393 (Denver Dist. Ct. 2016)
Oracle Corp. v. Colorado, No. 2015CV31175 (Denver Dist. Ct )
City of Northglenn v. Adams County, 2016 COA 181 (Colo. Ct. App. 2016)

18. Colorado developments
Agilent Technologies, Inc. v. Colorado, No. 2014CV393 (Denver Dist. Ct. 2016)
Oracle Corp. v. Colorado, No. 2015CV31175 (Denver Dist. Ct )
City of Northglenn v. Adams County, 2016 COA 181 (Colo. Ct. App. 2016)
Target Brands, Inc. v. Colorado, No. 2015CV33831 (Denver Dist. Ct. 2017)

19. COLORADO DEVELOPMENTS – TABOR
Kerr v. Hickenlooper, No (Colo. Ct. App. 2016)
Colorado Union of Taxpayers v. City of Aspen, No. 14CA (Colo. Ct. App. 2015)
TABOR Foundation v. Regional Transportation District, COA 102 (Colo. Ct. App. 2016)