In addition to highlighting the epic milestone of this temporary/stopgap legislation, this site provides background on this law and links to information about current efforts to update and reform this rule dealing with state taxation of multistate businesses. Information on the UDITPA rewrite is also included here since the drafting committee may look into economic nexus and because the issues in resolving apportionment and sourcing problems are similar to those of reaching a workable and appropriate rule on when nexus exists for income tax purposes.
The issues surrounding updating and reforming this nexus provision are complex and have already been underway for the past several years. The discussions and debate are likely to last into the 111th Congress. Perhaps highlighting the 50th anniversary will provide a stimulus for ramping up efforts to resolve the current issues.
| Blog post | PL 86-272 History | Legislative Proposals | Other Proposals |
| Commentary - Business | Commentary - Government | Court Decisions and Income Tax Nexus Updates |
UDITPA Rewrite Activity |
| Economic Nexus (what are states doing to fill void where PL 86-272 does not apply? |
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See the blog post on this topic - please post a comment
Wisconsin Dept of Revenue v. William Wrigley, Jr., Co., 505 US 214 (1992) - "solicitation"
The 50th Anniversary of Public Law 86-272, AICPA Corporate Taxation Insider, by Annette Nellen (3/27/08)
House Judiciary Committee hearing of 2/4/2010 - State Taxation – The Role of Congress in Defining Nexus
Remarks of Congressman Boucher (2/7/08)
Hearing in House Judiciary Committee (6/24/08)
Hearing transcript from the Government Printing Office
House Small Business Committee hearing or 2/14/08 - Business Activity Taxes and their Impact on Small Businesses
COST's estimate prepared by EY (7/25/06)
Hearing transcript of Committee on the Judiciary (9/27/05) from GPO
Tax Foundation testimony (7/06)
Passed in House Judiciary Committee on 6/28/06
Senate Finance Committee hearing of 7/25/06 - How Much Should Borders Matter? Tax Jurisdiction in the New Economy
Congressional Research Service
report (RL32297)
State Corporate Income Taxes: A Description and Analysis
(6/30/06)
Congressman Goodlatte's remarks on introduction of HR 3220
House Judiciary Committee hearing (5/13/04) transcript
Economic nexus - without a federal update to PL 86-272 to have a national standard that applies to more than sales of tangible personal property, the states are taking a fairly broad approach known as "economic nexus." Some states have articulated dollar amounts for the standard ("factor presence" approach) and others are following an approach that any business generating effort creates nexus
Economic Nexus - a listing of selected state activity to use an economic nexus standard when PL 86-272 does not apply - click here.
Multistate Tax Commission (MTC) Factor Presence Nexus Standard
Information from the federal Advisory Commission on Electronic Commerce - final report (4/00) - see report pages 21-22
Council on State Taxation (COST) policy statement on constitutional jurisdiction to impose business activity taxes
CRAFT website (Coalition for Rational and Fair Taxation)
National Taxpayers Union - 2009 memo supporting HR 1083 (111th Congress)
COST-EY study on cost of physical presence standard
COST response to 9/05 NGA report on costs of HR 1956
Tax Foundation Blog Posts 12/12/06 5/9/07
Tax Foundation - Paying for "Civilized Society" in the Global Marketplace: H.R. 1956's Physical Presence Rule Accurately Matches Taxes Paid and Benefits Received by Chris Adkins (9/05)
Amicus briefs
COST - Lanco and FIA Card Services (formerly MBNA) cases (5/9/07)
COST - Capital One Bank v. Commissioner of Revenue (2/1/08)
Tax Foundation - FIA Card Services (MBNA)
TEI - Geoffrey and Capital One (Massachusetts)
National Governor's Association (NGA)
Cost estimate report for HR 1956 (9/26/05)
Letter opposing S 2721 (6/1/06)
Center on Budget and Policy Priorities (CBPP) - by Michael Mazerov
Counterarguments to those in favor of BAT nexus proposals (6/08)
"Federal "Business Activity Tax Nexus" Legislation: Half of a Two-Pronged Strategy to Gut State Corporate Income Taxes," (11/30/05)
California Budget Project (CBP)
Budget Brief (8/06)
Not Flat - State Income Tax Nexus, AICPA Corporate Taxation Insider, by Annette Nellen, 6/26/08
Stombock, Economic Nexus and Nonresident Corporate Taxpayers: How Far Will it Go? The Tax Lawyer, ABA, Summer 2008
MTC Information on Nexus: Cases Selected State Nexus Standards
Tax Commissioner of the State of West Virginia v. MBNA America Bank (S Ct. WV 2006)
Northwestern Cement v. Minn., 358 US 450 (1959)
Wisconsin v. J.C. Penney Co., 311 US 435 (1940)
See the blog on this topic
NCCUSL (National Conference of Commissioners on Uniform State Laws) drafted the Uniform Division of Income for Tax Purposes Act (UDITPA) in 1957. It was last amended in 1966. UDITPA provides rules on apportionment and allocation of multistate business income among states. A committee was appointed to review Section 17 of UDITPA which deals with sourcing of sales that are not of tangible property.
Giving Up! - on 6/30/09, the UDITPA Study Committee voted to recommend terminating the project - see news update from Grant Thornton
MTC taking on much of the project - see MTC info from 12/2/09 meeting + PWC 12/4/09 newsletter
NCCUSL information on the drafting committee to revise UDITPA, background, papers submitted to the committee
List of issues to consider (it includes the possibility of taking on the issue of economic nexus)
First meeting - May 30 & 31, 2008 in Chicago
Background on NCCUSL, UDITPA and the issue raised for which rewriting was requested (FTB paper)
Sutherland, Asbill & Brennan LLP article about a January 2008 MTC meeting, the NCCUSL rewrite process and MTC interests
COST opposition to the project (1/10/08)
NOTE: Efforts to reach uniformity in the apportionment and allocation of multistate income have been around for decades, as have efforts to find solutions. A 1982 GAO report on the issue concluded that Congress had to resolve the issues:
GAO report of 1982 (GAO/GGD-82-38) - Key Issues Affecting State Taxation of Multijurisdictional Corporate Income Need Resolving - a detailed study of state practices and issues. It concludes that the best reform would be greater uniformity among the states and suggests that Congress must take action to achieve uniformity.
General Conclusions: "If past performance can be used to predict future action, it seems unlikely that States will achieve a reasonable degree of uniformity in the near future. It is also unlikely that the issues will be resolved in the courts, especially those issues involving broad policy questions, for the courts can treat the issues only on a case-by-case basis. The issues need resolving, and only the Congress appears capable of striking the needed balance between the States' right to tax and the Federal interest in interstate and international tax policy issues arising from State taxation."
This page last revised on February 7, 2010.
Any views and opinions expressed in this page are strictly those of Professor Annette Nellen. The contents of this page have not been reviewed or approved by San José State University