In addition to highlighting the epic milestone of this temporary/stopgap legislation, this site provides background on P.L. 86-272 and links to information about current efforts to update and reform this rule dealing with state taxation of multistate businesses.
The issues surrounding updating and reforming this nexus provision are complex and hearings and discussions have occurred over the past few years. The discussions and debate are likely to last into the 113th Congress.
|Blog post||PL 86-272 History||Legislative Proposals||Other Proposals|
|Commentary - Business||Commentary - Government||Court Decisions and
Income Tax Nexus Updates
|UDITPA Rewrite Activity|
(what are states doing to fill void where PL 86-272 does not apply?
|Sales Tax Affiliate Nexus Website|
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)
The 50th Anniversary of Stopgap Legislation, State Tax Notes, 9/21/09
H.R. 1439 - Business Activity Tax Simplification Act of 2011
Something new - one significant change in H.R. 1439 versus earlier bills (such as H.R. 1083, 111th Congress) is the following provision requiring use of the "Joyce" rule for group returns:
"If, in computing the net income tax or other business activity tax liability of a person for a taxable year, the net income or other economic results of affiliated persons is taken into account, the portion of such combined or consolidated net income or other economic results that may be subject to tax by the State shall be computed using the methodology that is generally applicable to businesses conducting similar business activities and, if that generally applicable methodology employs an apportionment formula, the denominator or denominators of that formula shall include the aggregate factors of all persons whose net income or other economic results are included in such combined or consolidated net income or other economic results and the numerator or numerators shall include the factors attributable to the state of only those persons that are themselves subject to taxation by the State pursuant to the provisions of this Act and subject to all other legal constraints on State taxation of interstate or foreign commerce." [Section 4 of H.R. 1439]
Remarks of Congressman Goodlatte in Congressional Record 4//8/11
House Judiciary Committee hearing of 4/13/11 - H.R. 1439: the "Business Activity Tax Simplification Act of 2011
House Judiciary Committee hearing of 2/4/2010 - State Taxation – The Role of Congress in Defining Nexus
House Judiciary Committee nearing of 5/6/10 - State Taxation: The Role Of Congress In Developing Apportionment Standards - not a nexus issue, but if Congress would step forward to mandate uniform apportionment, it might also be more likely to provide an update to PL 86-272
House Small Business Committee hearing or 2/14/08 - Business Activity Taxes and their Impact on Small Businesses
Senate Finance Committee hearing of 7/25/06 - How Much Should Borders Matter? Tax Jurisdiction in the New Economy
Congressional Research Service
State Corporate Income Taxes: A Description and Analysis
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
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
BAT Coalition testimony 5/4/11 (signed by over 100 companies endorsing H.R. 1439)
CRAFT website (Coalition for Rational and Fair Taxation)
April 2011 testimony letter from CRAFT Counsel, Art Rosen to the House Judiciary Committee (very detailed)
National Taxpayers Union - 2009 memo supporting HR 1083 (111th Congress)
COST response to 9/05 NGA report on costs of HR 1956
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)
National Governor's Association (NGA)
Center on Budget and Policy Priorities (CBPP) - by Michael Mazerov
California Budget Project (CBP)
Budget Brief (8/06)
Navigating Nexus, Journal of Accountancy, by Dibello and Dion (11/10)
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
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
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 July 19, 2011.
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