SALT Final Review

providing gum through "agency stock checks

(1) - This activity occurred in furnishing display racks to retailers, whereby the salespersons would give customers gum when setting up display racks. The salespersons would charge for the gum. This activity was unprotected because it was not ancillary to solicitation of sales.

providing free samples to employees

(1) Again, this activity was ancillary to the solicitation of orders.

Can a state of residence tax all income of residents, including income derived from out-of-state real estate?

(1) All income of residents can be taxed, including income derived from real estate outside of the state of residence. But other requirements must be met to ensure other constitutional safeguards are met (e.g., providing a credit).

Same as question #2, but the clothing company operates the real estate businesses as a subsidiary. Can California include the real estate business's income when taxing the clothing business?

(1) No. Same result—the two businesses are not unitary, and, thus, the state cannot tax them on a combined basis.

In the above questions, can California apportion income earned outside the United States, or is it limited to income earned in the U.S.?

(1) The state can apportion income earned anywhere, as long as it only taxes income apportioned to the state. See Container

using Wisconsin hotels and Wrigley employees' homes for sales meetings

(1) these activities also served no purpose apart from their role in facilitating solicitation of sales.

Nonbusiness Income (Non-Apportionable Income)

All income other than business (apportionable) income.

Quill

in the Quill decision, an out-of-state mail-order pen company was held not to have sufficient nexus with North Dakota when its only connection with the state was selling goods into the state without having any physical presence there. The Due Process Clause was not a bar to taxation because the taxpayer "purposefully directed" its activities at North Dakota residents. But under the Commerce Clause, "substantial nexus" with the taxing jurisdiction was still required. Following these two cases, it was evident that the Supreme court was limiting the applicability of Due Process Clause to nexus.

Commerce Clause limitations on domestic taxes (2) fair apportionment

which is the requirement that the amount of income, receipts, or other sales tax base that is subject to tax is reasonable - NORTHFOLK AND WESTERN RAILWAY COMPANY V. MISSOURI STATE TAX COMMISSION

providing a car to employees

This activity was also protected, as it was ancillary to the solicitation of orders

Replacement parts at cost for any parts that need replacement after the warranty period.

The replacement parts sold at cost will be subject to tax and the true object test will not apply because the warranty period has ended. When measuring the tax base, there is no deduction for the seller's cost of the property sold, therefore sales tax will able to the purchase price.

Sally owns Blackacre as her separate property. She transfers 100% of the property to her husband, Harry. Is there a change in ownership and, if so, how much of the property is reassessed?

. No See CRTC section 63. This is an interspousal transfer.

A state imposes a sales tax and a complementary use tax, both at a rate of 5%. A taxpayer with nexus in the state sells products online to customers there via the internet. Which tax is applicable?

1. The Use Tax The use tax applies to transactions in interstate commerce because the sales tax is inapplicable to such transactions.

Three unities test.

1. Unity of Ownership (More than 50% common ownership between entities); 2. Unity of use in a centralized executive force and general system of operations; 3.Unity of operations as evidenced by central purchasing, advertising, accounting, and management divisions.

Comptroller of the Treasury of Maryland v. Wynee ( NonDiscrimination)

Background on Personal Income Tax- Generally, states tax all income of residents. To prevent double taxation of the same income in interstate commerce, states generally provide a credit for taxes paid to states of the source of income. Maryland Law - Provides a credit against any state tax imposed by other jurisdictions, but not to county taxes. Thus, some income of Maryland residents may be taxed twice. Must a state of residence provide a credit or other relief for taxes paid to other jurisdictions? No. The state of source is not given constitutional priority over the state of residence. Internal Consistency Test -Background: Recall in Goldberg v. Sweet that the internal consistency test uses a hypothetical situation, which requires a tax to be structured so that if every state were to impose an identical tax, no multiple taxation would result.Although internal consistency was originally a fair apportionment test, it applies both for purposes of fair apportionment and nondiscrimination. Here, if a person resides in one state and has income sourced to another state, would she pay tax on more than 100% of her income? Yes, although the credit would resolve some of the problem, the person would pay tax on more than 100% of her income because there is no credit for county-level taxes. Result From Wynne -Although the state of residence is not explicitly required to yield to the state of source, the practical effect is that the state of residence must provide a credit to avoid internal inconsistency of a taxing regime.

The provision of free replacement parts during the warranty period for any defective part on the computer.

In order to determine if the replacement parts are taxable, we turn to the In Washington Times v. D.C. and determine if the value of the replacement parts are less than 10% of the amount charged for the warranty. The true object test can also be applied. I would argue that the replacement parts are not taxable because the true object of the warranty is the service.

Repair services on a case-by-case basis, billed at the time of service.

Repair services are taxable in the state and should be subject to tax if they are separately stated in the invoice. The measure of the tax should be the consideration of the entire billed amount for the repair.

recruiting, training, and evaluating sales representatives

(1) These activities served no function apart from their role in facilitating solicitation. Thus, they were protected as ancillary to solicitation.

mediating credit disputes with Wisconsin costumers

(1) This activity was protected because the purpose was to "ingratiate the salesmen with their customer, thereby facilitating requests for purchases."

assisting wholesalers in obtaining product display

(1) This was also ancillary to the solicitation of orders.

storing gum in a rental space

(1) This was also not ancillary to the solicitation of sales.

replacing stale gum

(1) Wrigley would have replaced stale gum whether or not it employed a sales force. Thus, this activity served an independent business function and was not protected by Public Law 86-272.

Can a state taxing a parent corporation include in that corporation's income the dividend income from a foreign subsidiary? (For purposes of this example, the state does not combine the income of affiliates.)

(1) Yes, but only if the foreign affiliate is unitary with the parent or the asset serves an operational function.

Can a state of residence tax the individual's income derived from services performed outside the state?

(1) Yes, for the same reason

corporation in the business of manufacturing and selling clothing manufactures the clothes from its factory in California. Those clothes are sold throughout the world through the company's salespersons. Can California tax a portion of all of the corporation's operations throughout the world to determine income taxable in California?

(1) Yes, if the corporation's sales activities outside California are unitary with its activities in California, then California can tax a portion of all of the corporation's operations.

Same facts as Question #4 (clothing business with a textile subsidiary). The textile subsidiary has no operations in California. The parent corporation sells the textile subsidiary. Can California tax the parent company's gain on the sale of the subsidiary?

(1) Yes, the subsidiary was an asset that served an "operational function" Additionally, because the subsidiary was unitary with its parent, the sale of the subsidiary is taxable.

What are the additional two limitations on taxes involving foreign commerce?

(5) Risk of Multiple Taxation- Because there is no authoritative tribunal (e.g., the Supreme Court) that can ensure a state's method of taxation will not result in multiple taxation (e.g., through the fair apportionment and discrimination prongs), there is a heightened scrutiny to ensure no risks of multiple taxation in foreign commerce. Here, the tax was invalid because Japan had the power to tax the containers in full. In this case, there was actual multiple taxation because Japan did tax the containers in full. (6) Speaking with one voice -states cannot "impair federal uniformity in an area where federal uniformity is essential." Here, the federal government controlled federal policy and signed an agreement with Japan related to customs conventions whereby containers that were temporarily located in another country were not subject to duties and taxes charged by reason of importation. Here, a tax on the containers would frustrate that agreement.

Under the water's-edge method, reporting is limited to various entities or income with connections to the United States. These can include some or all of the following:

1. DISC/FSC 2. Companies that are not 80/20 companies (this can have various definitions, but it's effectively certain companies that have 20% or more of average of property, payroll, and sales in the United States) 3.U.S. incorporated entities 4. Subpart F income of CFCs (along with apportionment factors). 5. CFCs are foreign corps with 50% or more total combined VOTING POWER owned directly or indirectly by U.S. shareholders OR 50% or more of total VALUE of stock owned directly or indirectly by U.S. shareholders.

Steps for Dividing Income (after determining whether the income is includible in the base and making state adjustments)

1. Determine if the income is apportionable or allocable. In states that follow the original UDITPA model statute, this distinction is made using the business income test. 2. Include the property amount of income in the state: a. If the income is allocable, include either all of the income or none of the income in the taxable base. b. If the income is apportionable, include the income in the pre-apportioned tax base and utilize the state's apportionment formula to determine how much of the income to include in the state's taxable income.

General Analysis When Ownership in the Property Directly Changes Hands

1. Determine if there was a change in ownership. General rule: A change in ownership occurs if there is (1) a transfer of a present interest in real property, (2) including the beneficial use thereof, and (3) the value of the interest is substantially equal to the value of the fee. (Rev. & Tax. Code § 60.) 2. Determine if an exemption applies. If so, there is no change in ownership. 3. Determine revised taxable value with respect to the portion of the property that changes ownership. 4. Apply any limitations on increase in taxable value (such as parent child limitation).

There are five key concepts that states use to determine whether or not a person is a resident:

1. Domicile 2. Presence in the state for other than a temporary or transitory purpose 3. Presence in the state for a specified period of time (6, 7, or 9 months) 4. Maintenance of a permanent place of abode or place of abode for a specified period of time 5. A combination of (3) and (4) above

General Analysis Involving Changes in Ownership of Entities

1. General rule: Transfers of legal ownership in an entity does not create a change in ownership of the property owned by the legal entity. (Rev. & Tax. Code § 64(a).) 2. Determine if one of the three exceptions apply. Those exceptions are in Rev. & Tax. Code §§ 61(j) (transfers in interest in real property between a corporation, partnership, or other legal entity and a shareholder, partner, or any other person), 64(c) (change in control of entity), and 64(d) (transfers of original coowner interests). Under CRTC 64(c) and 64(d), the full value of the property gets reassessed. 3. Determine if an exemption to a change in ownership applies. If so, then there is no reassessment.

Harry and Sally each own 20% of a partnership that owns Blackacre. Harry transfers his 20% interest in the partnership to Sally. Is there a change in ownership and, if so, how much of the property is reassessed?

1. No The general rule under CRTC 64(a)—transfers of ownership interests in entities—applies. No exception to that general rule applies.

ToyCo purchases machinery to manufacture its toys. Are these toys subject to the sales tax?

1. No, if the state has a manufacturing exemption. States typically have some exemption for manufacturing equipment. These exemptions are in place because the tax is intended to apply on end consumers. However, there is no explicit exemption for sales to businesses.

State A attempts to apply the sales tax on all trips made on taxis that originate in the state. Would such application of the sales tax be constitutionally valid?

1. No, the state can only tax the trip based on the miles on the fare that were for travel in the state. See Jefferson Lines

Amanda and Brenda own Blackacre as equal tenants-in-common. They contribute Blackacre to a corporation in exchange for 50% interests in the corporation. Amanda and Brenda each subsequently transfer a 1% interest in the corporation to Charlie. Is there a change in ownership and, if so, how much of the property is reassessed?

1. No. Here, there is a change in ownership under CRTC 61(j) because it's a transfer from persons to a legal entity. The proportional interest exclusion under CRTC 62(a)(2) applies since Amanda and Brenda each own 50% of Blackacre before and after the transfer. The subsequent transfer of 1% each to Charlie is not a change in control under CRTC 64(c) or 64(d).Note, however, that the step transaction doctrine may apply here. That doctrine treats a series of formally separate steps as a single transaction if the steps are, in substance, integrated and focused toward a particular result. We do not have enough facts here to analyze the step transaction doctrine, but not that it may be applicable in such instances.

StoreCo purchases some toys to display in its windows and does not intend to sell them. Who, if anyone, must pay the sales or use tax StoreCo's purchase of those toys?

1. StoreCo, because it is the user of the toys (it uses them for display purposes). The use tax would apply here because it's an interstate sale (from State B to State C). It is not a sale for resale because StoreCo is not reselling these toys.

Frank and Gary hold equal interests in Blackacre. Frank and Gary transfer Blackacre to a corporation in exchange for 50% interests in the corporation. Frank subsequently transfers 40% of the corporation's stock to Henry. Gary then transfers 15% of the corporation's stock to Isabelle. Is there a change in ownership and, if so, how much of the property is reassessed?

1. Yes 100% The transfer to Blackacre is not a change in ownership because the exemption provided by CRTC 62(a)(2) applies. However, because the exemption under CRTC 62(a)(2) applies here to a transfer to a legal entity, the owners of the legal entity after the transfer are now considered "original coowners" for purposes of CRTC 64(d).When Frank transfer 15% of the corporation to Henry, there is no change in ownership under CRTC 64(c) because no person held more than 50% interest in the entity after the transfer. Moreover, CRTC 64(d) is also not triggered because more than 50% of the original coowner interests were not transferred. But note that we must now track that 40% original coowner interests were transferred.When Gary transfers his 15% to Isabelle, there is again no change in control under CRTC 64(c). But now more than 50% of the original coowner interests have transferred (40% from Frank to Henry plus 15% from Gary to Isabelle = 55%). Thus, there is a change in control and the full value of the property is reassessed.

Amanda and Brenda own Blackacre as equal tenants-in-common. They contribute Blackacre to a corporation in exchange for 49% interests in the corporation. Charlie receives a 2% interest in the corporation for services he will provide to the corporation. Is there a change in ownership and, if so, how much of the property is reassessed?

1. Yes 100% Here, there is a change in ownership under CRTC 61(j) because it's a transfer from persons to a legal entity. The proportional interest exclusion under CRTC 62(a)(2) does not apply because Amanda and Brenda each own 50% of Blackacre before the transfer and 49% after the transfer.

State A passes an exemption from the sales and use tax for the sales of all board games. However, online board games are still subject to the tax. StoreCo, which sells board games but not online board games, attempts to challenge this disparate treatment. Will it be successful?

1. Yes This tax discriminates against online commerce in violation of the Internet Tax Freedom Act.

Martin owns Blackacre as his separate property. Blackacre is Martin's primary residence with a fair market value of $1,500,000 and a property tax value of $100,000. He transfers 100% of the property to an LLC owned entirely by Martin. He transfers 100% of the LLC to his son, Charlie, who uses the property as his primary residence. Is there a change in ownership and, if so, what is the new tax value of the Blackacre?

1. Yes, $1,500,000.-> The limitation in Cal. Constitution Art. XIII A, § 2.3 only applies to transfers of property, not transfers of an entity.

Linda and Michelle own equal interests in an LLC. The LLC purchases Blackacre. Linda transfers 5% of the LLC to Nick and, one year later, she transfers 1% to Michelle. Is there a change in ownership and, if so, how much of the property is reassessed?

1. Yes, 100%. The transfer to Nick is not a change in ownership under CRTC section 64(c) because no person acquires a more than 50% interest as a result of the transfer. But the transfer of 1% interest from Linda to Michelle does trigger a change in ownership because before the transfer Michelle did not have a more than 50% interest in the LLC and after the transfer Michelle did have a more than 50% interest. The full value of the property is reassessed.

Jacob transfers 40% of his interest in Blackacre to his friend Norma. Is there a change in ownership and, if so, how much of the property is reassessed?

1. Yes, 40%. This is a direct transfer of real property. Thus, only the percentage of the property that is transferred is reassessed.

A taxpayer sells computers online. Each sale of a computer comes with a one year warranty, allowing free repair of the computer by a third-party shop. There is no separate pricing for the warranty. Repair services are taxable in the state. Is the sale taxable?

1. Yes, Again, the true object test should be applied. The true object of the transaction is the purchase of a computer and, therefore, the full transaction is taxable.

OnlineCo sets up a website where local toy sellers, such as ToyCo, contract with OnlineCo so that they can list products and sell them online. Consumers visit the website and purchase toys. Customers pay OnlineCo, who processes the payment, retains a fee, and pays the balance to the online stores on their website. State A has a marketplace facilitator law. The state attempts to impose the tax on OnlineCo. Will it succeed?

1. Yes; Marketplace facilitator laws generally shift the burden of remitting the tax to the marketplace facilitator—here, OnlineCo—even when seller would have otherwise been liable for the tax.

Same facts as Question #16, except instead of Gary transferring 15% to Isabelle in the second transaction, Henry transferred 15% of the corporation to Isabelle. Is there a change in ownership and, if so, how much of the property is reassessed?

1No.--> Here, the second transfer relates to 15% interest that was already transferred by one of the original coowners. Thus, its subsequent transfer does not count as a transfer for purposes of applying CRTC 64(d). In other words, the original coowners (Frank and Gary) had not transferred more than 50% of their interests (they still had only transferred 40%).

When considering internal consistency, what hypothetical should be used?

Assume every state has the same law as the taxing state.

Jessica Drew is a New York resident and a partner in a large multi-state accounting firm that has offices in 50 states. Where must she pay tax?

Because Jessica is a NY resident, NY can tax all of her earnings regardless of where it is sourced. She may also be required to pay taxes in the other 50 states because a general partnership that does business in other states creates a nexus in those states. However, she won't be subject to double taxation as a credit is required. b. A partner's distributive share of partnership income attributable to the state is generally deemed the partner's income that is sourced to that state. c. NY should provide a credit

The "True Object Test"

Because the sales tax generally applies to sales of tangible personal property and not services and intangible property, states have developed a test to determine whether sales that include both tangible personal property elements and service elements are taxable. That test can go by various names, including the "essence of the transaction test," the "dominant purpose test," and, most commonly, the "true object test." Generally, under this test, if the "true object" of the transaction is the sale of taxable tangible personal property and not nontaxable services, then the transaction is taxable

Risk of Multiple Taxation

Because there is no authoritative tribunal (e.g., the Supreme Court) that can ensure a state's method of taxation will not result in multiple taxation (e.g., through the fair apportionment and discrimination prongs), there is a heightened scrutiny to ensure no risks of multiple taxation in foreign commerce. Here, the tax was invalid because Japan had the power to tax the containers in full. In this case, there was actual multiple taxation because Japan did tax the containers in full.

What case discussed the Commerce Clause limitations on state and local taxation?

Complete Auto Transit v. Brady - The tax must be § (1) nexus, which is a state's jurisdiction to tax a person, § (2) fair apportionment, which is the requirement that the amount of income, receipts, or other sales tax base that is subject to tax is reasonable, § (3) nondiscrimination, which is the requirement that a tax should not burden interstate commerce by treating intrastate activity better than interstate activity, and § (4) fair relationships to the services provided by the state, which simply means that the company receives services (including police protection) by being in the state. § Later cases expanded these limitations when foreign commerce is involved. In those situations, states face heightened scrutiny, and a tax involving foreign commerce must not (5) "create a substantial risk of international multiple taxation" or (6) prevent the federal government from "speaking with one voice when regulating commercial relations with foreign governments."

Mobil Oil. Corp. v. Commissioner of Taxes of Vermont

Court's Analysis and Holding "[T]he linchpin of apportionability in the field of state income taxation is the unitary business principle. In accord with this principle, what appellant must show, in order to establish that its dividend income is not subject to an apportioned tax in Vermont, is that the income was earned in the course of activities unrelated to the sale of petroleum products in that State." Moreover, with respect to dividends, "So long as dividends from subsidiaries and affiliates reflect profits derived from a functionally integrated enterprise, those dividends are income to the parent earned in a unitary business. One must look principally at the underlying activity, not at the form of investment, to determine the propriety of apportionability." "Where the business activities of the dividend payor have nothing to do with the activities of the recipient in the taxing State, due process considerations might well preclude apportionability, because there would be no underlying unitary business."

Moorman Manufacturing Co. V. Bair

Court's Analysis and Holding- Even if differing formulas results in more than 100% of income being taxed, there is no constitutional issue as long as a formula on its own fairly apportions income. The Court is also not suited to pick one formula over another—which would be deemed invalid? If the Court were to pick one formula over another, it would effectively be legislating a formula. Here, Iowa's formula was constitutionally valid.

Norfolk and Western Railway Company v. Missouri State Tax Commission

Court's Analysis and Holding- Taxation of property not located in the taxing state is constitutionally invalid, both because it imposes an illegitimate restraint on interstate commerce and because it denies due process to the taxpayer. And any formula used must bear a rational relationship, both on its face and in its application, to property values connected with the taxing state. Applying this rule, the Court found that the Due Process Clause and the Commerce Clause were violated because applying the formula produced a grossly distorted result: the rolling stock that was in the state for about 3% of the time was taxed as if it was in the state roughly 8% of the time.

Exxon v. Wisconsin Department of Revenue

Court's analysis: Many essential services were provided for the entire company, not just any individual department. Also, purchasing was done through a central purchasing office. Even gasoline was available because of an exchange agreement arranged by a central supply department. The most important link between the three operating departments was the assurance of supply of raw materials and crude and a stable outlet for products. Ultimately, these connections were sufficient to treat all three operating departments of Exxon as one unitary business, such that the apportioned income of all three departments could be used to determine Exxon's taxability in Wisconsin, despite only conducting the marketing business in the state.Unitary business standard is the lynchpin of apportionability, is it an integrated enterprise. Basically these were not separate enough they were still integrated.

What two constitutional clauses provide primary limitations to state and local taxes?

Due Process Clause & Commerce Clause-

Butler Bros v. McColgan (California)

Facts- Taxpayer sells wholesale dry goods and general merchandise and has distributing houses in seven states, including California. Court's Analysis and Holding- A taxpayer challenging must show by clear and cogent evidence that it results in extraterritorial values being taxed. Separate accounting—the practice of taxing only the income of the in-state operations and not apportioning interstate operations to the state under the unitary business principle—is not required. Ultimately, the three-factor formula that involves property, payroll, and sales is not invalid on its face. Moreover, no showing was made that the formula is invalid as applied to the taxpayer.

Underwood Typewriter Co. v. Chamberlain (Connecticut)

Facts- The taxpayer sells typewriters. It is headquartered in New York and manufactures typewriters entirely in Connecticut. It stores products in Connecticut until they are shipped to branch offices, purchasers, or lessees. Court's Analysis and Holding- The only activities that took place in Connecticut were manufacturing. Manufacturing is just part of the unitary business that begins in Connecticut and ends with sales in other states. Manufacturing itself does not create any profits but is part of the process that does result in profits. The taxpayer was required to show that 47% of its net income being attributable to Connecticut was not reasonable. The taxpayer did not attempt to demonstrate this, and, in fact, a reasonable conclusion could be that a higher percentage of income is attributable to the state. Thus, the tax was valid.

Dell, Inc. v. Superior Court

Facts: Dell sold computers that could be configured with various options. There was no separate listing of the various components on the invoice, just the final price. Extended warranties were one option. When consumers selected this option, the price of the computer was changed to add the price of the warranty, but the receipt did not separately list the warranty price. Dell collected tax on the warranties. Law: Standard warranties are included in the tax, but optional warranties are not. Holding: In a transaction where there are multiple significant objects and the price for each can be determined, the taxable and nontaxable components are separated and the tax is applied only to the taxable component. This is still the case when the receipt or invoice does not provide a separate price for the nontaxable component as long as the price of the nontaxable component can't still be determined.

Mobil. Unity Test

Functional integration (sharing common systems such as marketing, purchasing, or distribution); Centralized management (looks to high-level management of the business); Economies of scale (looks at efficiencies achieved between business done in the state and business done outside the state).

Tax base - Discounts

Generally, cash discounts provided by the seller reduce the tax base. On the other hand, rebates provided by manufacturers do not reduce the tax base.

One year of free IT and warranty services on any purchase of a computer. This service is free and comes with the purchase of every computer?

Here, the 1 year of IT and warranty services are included in the purchase thus we should apply the true object test. The true object of the transaction is the purchase of a computer and, therefore, the full transaction is taxable. The measure of the tax should be the consideration for the computer.

Initech sells sales-tax-exempt IT services to its customers. As part of that sale of software, it provides its customers user manuals for certain software that is uploaded onto their computers as part of the services. Is any part of this sale taxable? What if the user manuals were separately purchased, but they were mandatory.

Here, the true object test does not apply because the transaction can be broken down into its component parts. The taxable portion (user manual) is subject to tax and the nontaxable portion (the service) is not subject to tax. User manuals are taxable. In a transaction where there are multiple significant objects and the price for each can be determined, the taxable and nontaxable components are separated and the tax is applied only to the taxable component. See Dell

Japan Line, Ltd v. County of Los Angeles ( Foreign Commerce Clause)

Holding: The United States Supreme Court held that California's tax on foreign commerce violated the Commerce Clause. The Court concluded that California's tax was impermissible because it violated both of these principles. First, California's tax resulted in multiple taxation of the instrumentalities of foreign commerce because it produced multiple taxation in fact. And, second, California's tax placed impediments before the federal government's conduct of its foreign relations and its foreign trade. In addition to the four requirements of the interstate Commerce Clause, foreign commerce must also meet two additional requirements: (1) The tax must not create a substantial risk of multiple taxation, and (2) the tax must not prevent the federal government from speaking with one voice.

Commerce Clause limitations on domestic taxes 3) nondiscrimination

INTERNAL CONSISTENCY TEST which is the requirement that a tax should not burden interstate commerce by treating intrastate activity better than interstate activity In Camps Newfoundland/Owatonna, Inc. v. Town of Harrison, the court held that the statute was facially discriminatory. Further, the court stated that " It is not necessary to look beyond the text of this statute to determine that it discriminates against interstate commerce."Effectively, a plain reading of the statute was all that the court needed to determine that there was discrimination against interstate commerce because the law always treats interstate commerce worse than intrastate commerce. Comptroller of the Treasury of Maryland v. Wynee Cuno v. Daimler Chrysler

Prohibition on Discriminatory Taxes on Electronic Commerce ITFA

ITFA prohibits discriminating against electronic commerce. For example, if a state exempts from the sales tax purchases of books but taxes ebooks downloaded online, ITFA would likely be violated.

Prohibition on Multiple Taxes on Electronic Commerce

ITFA prohibits tax imposed by one state on the same or essentially the same electronic commerce that is also subject to another tax imposed by another state without a credit for taxes paid in another jurisdiction. The credit can be by way of a resale certificate.

Whether reviewing a state's apportionment formula, what Commerce Clause test(s) should be used to determine if the formula fairly apportions income?

Internal consistency and external consistency

GOLDBERG V. SWEET (FAIR APPORTIONMENT IN THE SALES TAX)

Law at Issue - Illinois had an excise tax of 5% on charge of interstate telecommunications that met the following requirements Originated or terminated in Illinois And Charged to a service address or billing address in Illinois. Moreover, the state gave a credit for tax paid to another state on the same call. Primary Issue of Case - Whether the tax discriminated against interstate commerce and whether the calls were fairly apportioned under the Commerce Clause. What test(s) did the Court use to analyze the validity of Illinois' law under the Commerce Clause fair apportionment prong? - Internal consistency test and external consistency test Internal Consistency Test - The internal consistency test uses a hypothetical situation. To be internally consistent, a tax must be structured so that if every state were to impose an identical tax, no multiple taxation would result. Internal Consistency Test Applied -There is no situation in which the tax would be charged by more than one state in the hypothetical situation. Thus, there wouldn't be multiple taxation. To be more precise, there wouldn't be a situation in which more than 100% of the charge is taxed. In the situation where two states could subject the call to tax (where the service address and billing address were in two different states and the call originates and terminates in two different states), the credit prevents multiple taxation. Thus, there is no problem. External Consistency Test- The external consistency test asks whether the state has taxed only that portion of the revenue from the interstate activity which reasonably reflects the in-state component of the activity being taxed External Consistency Test Applied - Even though it taxes the entire amount of an interstate transaction, it reflects the way that consumers purchase interstate telephone calls. "[T]he external consistency test is essentially a practical inquiry." Even though the Court in other cases has endorsed apportionment formulas based on miles traveled, those cases involved the movement of objects over identifiable routes. This case involves intangible movement of electronic impulses, and apportioning would have insurmountable administrative and technological barriers. Would the tax be invalidated if, instead of a credit, the tax was only imposed if two out of the following three factors are met: (1) The call originates in the state, (2)the call terminates in the state, and (3) the billing address is in the state. No. This is referred to as the two-out-of-three test. Because there is no situation in which two states meet two of the three requirements, this tax would be valid under the fair apportionment prong. Note- also that the Court reviewed whether this tax was discriminatory. the Court effectively concluded without significant analysis that the tax was not discriminatory. Later cases will show that the nondiscrimination prong is far more involved

. Based on the above law, the Old Jersey Division of Taxation promulgates a regulation creating a tax obligation based on the presumption that when a website operated by an Old Jersey resident has a retailer's banner, the resident is soliciting sales on behalf of the retailer.

Marketplace facilitator laws require that the seller have substantial nexus within the taxing state. The Website must also process payments and perform other tasks as well when facilitating sales for the retailer b. ITFA prohibition on tax on internet access

Miller Bros. v. State of Maryland (1954)

Maryland imposed a use tax on the "use, storage, or consumption" of goods in the state. Maryland required vendors to collect and remit the tax to the state. The out-of-state taxpayer solicited sales via newspapers that reached Maryland customers, mailed sales circulars to former customers, including in Maryland, delivered some purchases to common carriers consigned to Maryland addresses, and delivered some purchases to Maryland on its own trucks. The state seized trucks that attempted delivery into the state for not paying the tax. The Court stated that "due process requires some definite link, some minimum connection between a state and the person, property, or transaction it seeks to tax." Thus, a more substantial connection than mere presence in transit or sojourn is required for taxation. Keeping property in the state could have been sufficient. As would be situs over the property that is sought to be taxed. But merely delivering some products into the state was not sufficient.

Due Process

Miller Bros. v. State of Maryland (1954) - The Court stated that "due process requires some definite link, some minimum connection between a state and the person, property, or transaction it seeks to tax ConAgra Brands - "purposefully availed"

Zelinsky v. Tax Appeals Tribunal of New York (New York Convenience of the Employer Test)

New York Convenience of the Employer Test -When nonresident employee performs services for a New York employer in and outside New York, the employee must apportion income to New York based on total work days worked in New York compared to total work days everywhere. But days are counted as New York days even when work is performed outside New York if the work is done outside of New York for an employee's own convenience rather than an obligation on the employee.

Same facts as question #3 (clothing business with a real estate subsidiary). The real estate subsidiary has no operations in California. The parent corporation sells the real estate subsidiary. Can California tax the parent company's gain on the sale of the subsidiary?

No, the subsidiary did not serve an operational function. A state can only tax income on the gain of the sale of an asset if the asset was held for an "operational" function or (for sales of subsidiaries) was an enterprise that was unitary with the seller

A law firm specializing in trusts and wills prepares documents for its customers based on their specific circumstances. Those documents are ultimately sent electronically along with a binder containing all original, signed documents. The law firm charges a flat fee for its services. Is any part of the transaction taxable?

No, the true object of the transaction is the service, not the physical binder. Sales of services are not taxable unless expressly enumerated. When taxable and nontaxable components are sold for the same lump-sum amount and cannot be bifurcated, the true object test is used to determine whether the transaction is taxable. Here, clients would pay for lawyers' services, not for a physical binder.

Same as Question #1, but the corporation starts a new division that invests in real estate throughout the world. The real estate business operates independent of the clothing business. They have different management, different operations, and don't enjoy the benefits of synergies. Can California include the real estate business's income when taxing the clothing business?

No, they are not unitary. Under the unitary principle, states determine the bounds of a unitary business. If part of the unitary business operates in the state, then the state can tax a portion of the entire unitary business. If a corporation has multiple unitary businesses, then the state can only tax the unitary business(es) that have nexus. If more than one have nexus, they must be taxed as separate enterprises.

ToyCo is a company based entirely in State A that manufactures and sells toys to various third-party distributors around the United States. One such distributor, DistributorCo, is based entirely in State B. It purchases products from ToyCo and other toy companies and resells those products to retailers. StoreCo is a retailer based in State C. StoreCo purchases toys from DistributorCo and sells them to customers in its store State C and online to customers throughout the United States.Are sales made from ToyCo to DistributorCo subject to the sales or use tax? Same facts as Question #1. Are sales of toys from DistributorCo to StoreCo subject to the sales or use tax? Same facts as Questions #1 and 2. If StoreCo makes online sales to customers in State D, are they subject to the sales tax or the use tax? Same facts as Questions #1 and 2. Are the sales StoreCo makes to customers in its brick-and-mortar store in State C subject to the sales tax or the use tax?

No, they are purchases for resale. DistributorCo purchases toys to resell to StoreCo. Thus, these sales would be exempt. In many states the exemption would require DistributorCo to provide a resale certificate to ToyCo to relieve ToyCo of tax 1. No, they are purchases for resale. Same result. StoreCo is purchasing the toys for resale to the end consumers. Thus, these sales are also for resale. 1. Use tax - Sales made across state lines are subject to the use tax. The tax is imposed on the purchaser, but if the seller has nexus with the destination state, then the seller is typically required to collect the use tax from the customer and remit it to the state. If the customer does not pay the tax to the seller, then the customer is liable for paying the tax directly to the state. In such situations, the state can typically seek the tax from either the seller (if it has nexus) or the customer. 1. Sales Tax Sales at brick-and-mortar stores are typically subject to the sales tax. In such instances, the tax is imposed on the sales transaction (not the use by the buyer). States are split with regard to which party is liable for the tax. In some states, the buyer is liable for the sales tax, but the seller is still required to collect and remit the tax to the state. In other states, the seller is liable for the sales tax, but is permitted to collect the tax from the buyer. Thus, when the sales tax is imposed, regardless of whether the state imposes the tax on the buyer or seller, it is collected by the seller and remitted to the state.

Alan owns 100% of the stock of a corporation. The corporation purchases Blackacre. Alan sells 50% of the stock in the corporation to Betty and 50% to Charlie. Is there a change in ownership and, if so, how much of the property is reassessed?

No. Here, there is no change in ownership under CRTC 64(c) because no person acquired more than 50% of the legal entity.

Sally owns Blackacre. Sally transfers 100% of Blackacre to an LLC owned 100% by Sally. Sally then transfers 100% ownership of the LLC to her husband, Harry. Is there a change in ownership and, if so, how much of the property is reassessed?

No. See CRTC section 63. This qualifies as an interspousal transfer as well. The transfer here is from Sally to Harry. The interspousal transfer exemption applies to both transfers of property and transfers of interests in entities.

What does P.L. 86-272 protect?

PL 86-272 protects out of state sellers from being subject to an income tax under certain circumstances. Solicitation of Sales- The law only applies to solicitation of orders of sales of tangible personal property, not actual sales. The order must be sent out of state for approval or rejection and the sale must be fulfilled by shipment from a point outside the state.

NORTHFOLK AND WESTERN RAILWAY COMPANY V. MISSOURI STATE TAX COMMISSION ( Fiar Apportionment)

Primary Issue Whether a state can use a portion of property that is not in the taxing state to compute the property tax base within the state? A state can approximate the value of property in the state using a formula that approximates the percentage of the total value of the property everywhere that should be attributed to the state. Why would a state want to tax a portion of an entire railway system instead of taxing only the actual components in the state? Because the value of the entire railway is greater than the sum of all its component parts. Taxing only the actual value of the parts in the state could undervalue their importance for the entire system. What aspect of the state's mileage methodology caused the tax to be invalidated -A state does not need to demonstrate that its apportionment method results in an "exact measure of value." However, in this case, a mileage formula "will yield a gross distorted result" because not every mile of railway line is equal in value. For example, a railway terminal has higher value than rail lines. Here, using a mileage method to assess the value of rolling stock in the state does not reflect the value of the rolling stock in the state. Holding: Application of the mileage formula resulted in an assessment which, on the record in this case, went far beyond the value of appellants' rolling stock in Missouri, and violated the Due Process and Commerce Clauses. · Fair apportionment: Railway who leased Wabash, which did business in MO. MO assessed tax based on the percentage was the total railways and assessed up to that amount. It was a property tax. This was where the limitations to apportionment came from. · A State may impose a property tax upon its fair share of an interstate transportation enterprise, including a portion of the enterprise's intangible value. · Though a State has considerable latitude in devising formulas to measure tangible property within its borders, it is not entitled to tax tangible or intangible property unconnected with the State. · Appellants' evidence satisfied the burden which rests on a railroad attacking a mileage formula of showing that the formula reached assets outside the State, and Missouri has not countered such evidence here. · Though this Court's decisions recognize the practical difficulties in applying a mileage formula, they forbid an unexplained discrepancy as gross as that here revealed. · The record is totally barren of evidence relating to the enhanced value of property in Missouri by reason of the incorporation of such property into the entire N & W system. · The Missouri Supreme Court may remand the case to the appropriate tribunal to reopen the record for additional evidence supporting the assessment

Allied-Signal, Inc. v. Director, Division of Taxation

Primary Issue Whether New Jersey could include gain on the sale of Bendix's subsidiary—ASARCO—in Bendix's apportionable income. What three factors did the court use to determine if a unitary relationship exists? Centralized management, functional integration, and economies of scale What two types of functions did the Court choose between when determining whether the gain was apportionable? Operational function and investment function. Operation vs Investment-On sales of assets, the delineation between the asset having an operational function and an investment function determines whether the gain can be apportionable. The test for whether an asset serves an "operational function" is "one which focuses on the objective characteristics of the asset's use and its relation to the taxpayer's activities within the taxing State." Court's Analysis and Holding-The Court held that the investment in ASARCO served an investment function and, thus, the gain was not apportionable. It must be allocated based on the commercial domicile of Bendix.

Allocation

Property, income, or receipts are sourced to a specific state that taxes the entirety of that property, income, or receipt. For example, a tax on real property may be allocated entirely to the state where that real property is situated.

Camps Newfoundland/Owatonna, Inc. v. Town of Harrison ( Nondiscrimination)

Relevant Law -Property tax that provides an exemption for property owned by charitable institutions. But charitable institutions that operate primary for the benefit of nonresidents do not receive the full exemption. Does the Commerce Clause only apply to for-profit companies and activities? No, it can apply to non-profit entities and activities. Here the entity was in interstate commerce not only as a purchaser or goods, but also as a provider of services and goods. The business is local to Maine and does not itself operate in multiple states. Does the Commerce Clause apply to businesses that do not operate in multiple states? Yes, they solicit patronage from multiple states Are campers "articles in commerce"? No, but the services have a substantial effect on commerce. For example, campers must utilize interstate commerce to be transported into the state. This is similar to cases that applied to hotels, where commerce was affected by private race discrimination. Imposition of a differential burden on any part of the stream of commerce—from wholesaler to retailer to consumer—is invalid, because a burden placed at any point will result in a disadvantage to the out-of-state producer. It doesn't matter that the camp was taxed and not the camp-goers. The economic incidence of the tax, in part, falls on the campers. Can the Commerce Clause be implicated on a local real-estate tax?- Yes. Interstate commerce is affected by such taxes, no matter how local the application of the tax. Application of Commerce Clause to This Case - The court held that the statute was facially discriminatory: "It is not necessary to look beyond the text of this statute to determine that it discriminates against interstate commerce." Effectively, a plain reading of the statute was all that the Court needed to determine that there was discrimination against interstate commerce because the law always treats interstate commerce worse than intrastate commerce. Rule of Law: The nonprofit nature of an enterprise does not necessarily exclude its services from the definition of interstate commerce. Facts: · A state law that discriminates against interstate commerce on its face violates the dormant Commerce Clause. · Maine's law offers a full exemption to nonprofit organizations primarily benefitting Maine residents, but offers only a limited exemption or no exemption to nonprofit organizations primarily benefitting nonresidents. · Maine's law discriminates against nonresidents by making it more difficult for them to access the camp's services. · This implicates interstate commerce, because, as a provider of camp services to people traveling across state lines, the camp is engaged interstate commerce. · The nonprofit nature of the camp does not exclude its services from the definition of interstate commerce. · There are many services that both for-profit and nonprofit institutions offer, and where those services implicate interstate commerce, both are subject to the dormant Commerce Clause.

Robert, a colleague of Barbara, is also a resident of New Jersey. Instead of commuting to New York every day, he works from home. He has not gone to the law firm in 3 years. Where is Robert taxable?

Robert will be taxed in NY, see Zilinsky

Assume a state where the resale exemption applies for "purchases for resale" and does not require a resale certificate. A customer that regularly sells smartphones purchases a smartphone for its full value, fully intending to resell it. After holding the smartphone for one month, the customer decides to just use it himself. Is the purchase subject to the sales tax? Same facts. The customer uses the phone just two weeks and decides to sell it.

States are split with regard to whether the purchaser must intend at the time of purchase for the purchased good to be resold. Thus, if a purchaser buys a product to use, but then later resells it, there is an argument that the purchase was for resale despite lacking the initial intention to resell. Often the specific statutory language will govern this issue. a. The Purpose of the purchase was not for resale. Therefore, the exemption should not apply

Speaking with One Voice

States cannot "impair federal uniformity in an area where federal uniformity is essential." Here, the federal government controlled federal policy and signed an agreement with Japan related to customs conventions whereby containers that were temporarily located in another country were not subject to duties and taxes charged by reason of importation. Here, a tax on the containers would frustrate that agreement.

Container Corporation of America v. Franchise Tax Board (California)

Summary-The Court concluded that based upon the corporation's assistance to its subsidiaries and loans to them, the application of the unitary business principle to the corporation was proper. Furthermore, the formula applied would result in no more than all of the unitary business' income being taxed if applied by every jurisdiction, and the formula actually reflected a reasonable sense of how income was generated. The formula therefore did not violate the constitutional requirement of fair apportionment. Finally, the adoption of the formula in the context of international business and trade was not impermissible because the tax issue was not preempted by federal law. As for the applicable standards of review, the Court first set forth the general rule that a taxpayer claiming immunity from a tax has the burden of establishing his exemption. Next, the as to the question of fair apportionment, the Court explained that appellant has the burden of proof; it must demonstrate that there is no rational relationship between the income attributed to the State and the intrastate values of the enterprise.

Fargo v. Hart (Indiana Property Tax Case)

Summary: The Indiana Board of Tax Commissioners assessed a tax on the company's property based on the unit principle whereby all the company's property was valued and a proportion of the whole value was imputed to property within the state based on the ratio of the number of miles operated in the state to the total mileage. The express company filed a return with the state enumerating the property used in its business, its location, and value, but the board based the assessment on all the assets of the company including its stocks, bonds, and securities located outside the state. The company complained that the board's action amounted to taxation of a nonresident's property situated outside the state in violation of the Commerce Clause and the Fourteenth Amendment. The Court held that a constitutional violation occurred where property outside the state that was not used in the express business was included in the assessment resulting in a significant overvaluation. While the collection of taxes could not generally be enjoined, the circumstances represented an exception and the express company was entitled to maintain its bill for injunctive relief. The Court reversed the decree dismissing the bill.

Apportionment

Tax on property, income, or receipts are imposed in a state based on a formula. For example, tax on income from rail property may be apportioned to a state by multiplying that income by the rail miles in the state over total rail miles everywhere. As we will discuss later, the two most common methods of apportioning income are 1. multiplying the income by a sales factor: sales in the state divided by the sales everywhere or 2. multiplying the income by the average of three factors: property, payroll, and sales.

WI DOR V. Wrigley

Taxpayer's Facts: Wrigley did not own or lease real property in Wisconsin. It was not licensed to do business in the state. It did not operate any facility in the state or have a telephone listing or bank account there. Wisconsin orders were sent to Chicago for acceptance and were filled through a common carrier outside the state. Credit and collection activities were handled from outside the state. And an independent Chicago advertising company managed its Wisconsin advertising. The company did have sales representatives in Wisconsin. These representatives would visit accounts within their territory, handing out promotional materials and free samples. They would request orders of Wrigley products and other activities designed to promote the sales of products. The Court reviewed some activities conducted by the sales representatives, including (1) replacing stale gum, (2) providing gum through "agency stock checks," (3) storing gum in a rental space, (4) recruiting, training, and evaluating sales representatives, (5) using Wisconsin hotels and Wrigley employees' homes for sales meetings, (6) mediating credit disputes with Wisconsin costumers, (7) providing a car to employees, (8) providing free samples to employees, and (9) assisting wholesalers in obtaining product displays. Moreover, the Court reviewed whether each of these activities, taken together, were de minimis. Court's Decision: The Court reviewed each of the above activities to determine whether they went beyond the mere solicitation of sales. In its review, the Court determined if each activity was protected because it was the solicitation of sales or ancillary to the solicitation of sales. Alternatively, the activity is not protected if it has an "independent business function." (1) replacing stale gum -Wrigley would have replaced stale gum whether or not it employed a sales force. Thus, this activity served an independent business function and was not protected by Public Law 86-272. (2) providing gum through "agency stock checks," - This activity occurred in furnishing display racks to retailers, whereby the salespersons would give customers gum when setting up display racks. The salespersons would charge for the gum. This activity was unprotected because it was not ancillary to solicitation of sales. (3) storing gum in a rental space -This was also not ancillary to the solicitation of sales. (4) recruiting, training, and evaluating sales representatives -These activities served no function apart from their role in facilitating solicitation. Thus, they were protected as ancillary to solicitation. (5) using Wisconsin hotels and Wrigley employees' homes for sales meetings- these activities also served no purpose apart from their role in facilitating solicitation of sales. (6) mediating credit disputes with Wisconsin costumers -This activity was protected because the purpose was to "ingratiate the salesmen with their customer, thereby facilitating requests for purchases." (7) providing a car to employees -This activity was also protected, as it was ancillary to the solicitation of orders. (8) providing free samples to employees -Again, this activity was ancillary to the solicitation of orders. (9) assisting wholesalers in obtaining product display - This was also ancillary to the solicitation of orders. Finally, the Court reviewed whether, taken together, these activities could be considered de minimis. The Court rejected the argument that Wrigley's activities, taken together, were de minimis. Viewing the activities that went beyond solicitation of orders or ancillary to the solicitation of orders—maintaining a stock of gum, selling gum through agency stock checks, and exchanging stale gum—was "a nontrivial additional connection with the state."

Non-Discrimination (Internal consistency Test)

The internal consistency test uses a hypothetical situation. To be internally consistent, a tax must be structured so that if every state were to impose an identical tax, no multiple taxation would result. - Goldberg the state of residence must provide a credit to avoid internal inconsistency of this taxing regime (see Comptroller of the Treasury of Maryland v. Wynne).

Business Income (Apportionable Income)

The language in (A) is referred to as the "transactional test." This portion of the statute looks to the specific transaction to determine if it regularly occurs as part of the taxpayer's trade or business. This test looks to the frequency and regularity of the transactions at issue. The language in (B) is referred to as the "functional test." This test looks to the use of the property involved to determine if it was used in the taxpayer's trade or business. Here, the extraordinary nature or infrequency of the transaction is irrelevant. Instead, the test looks only to the use of the property.

Prohibition on Taxes on Internet Access ITFA

This prohibition prevents states from taxing charges for services that enable users to connect to the Internet to access content, information, or other services offered over the Internet

Separate Accounting

Treats taxpayer's business activities conducted within the state separately from out-of-state business activities. Effectively, this method walls off the in-state activities of a business. This method has lost favor over time with recognition that walling off activities in a specific state may not reflect the contribution of those in-state activities to the entire multistate business

Cuno v. Daimler Chrysler ( Non Discrimination)

Two incentives at issue: franchise tax credit of 13.5% and 100% property tax exemption. Both incentives apply for using certain property in the state. Note that the franchise tax is a tax measured by income. FACTS: Under a contract with a city, defendant automobile manufacturer agreed to expand its local assembly plant in exchange for the city agreeing to waive the property tax for the plant. Because the manufacturer undertook to purchase and install new manufacturing machinery and equipment, it was also entitled to a credit against the state franchise tax. Most of the plaintiffs were residents of the city, who paid taxes to both the city and the State of Ohio. They claimed that they were injured because the tax breaks for the manufacturer diminished the funds available to the city and State, imposing a disproportionate burden on them. Plaintiff local taxpayers sued alleging that tax breaks for defendant automobile manufacturer violated the Commerce Clause. Defendant state and local officials and the automobile manufacturer sought certiorari to review the United States Court of Appeals' invalidation of a franchise tax credit, and the taxpayers sought certiorari to review the Court of Appeals' upholding of a property tax exemption. Certiorari was granted. The Court held that: · it was unclear that the tax breaks did in fact deplete the treasury; · the taxpayers' alleged injury was conjectural or hypothetical in that it depended on how legislators responded; · the taxpayer's claims were no different from similar claims by federal taxpayers already rejected under U.S. Const. art. III as insufficient to establish standing; and · the taxpayers' Commerce Clause challenge was not just like an Establishment Clause challenge. Plaintiffs failed to establish Article III injury with respect to their state taxes, and even if they did do so with respect to their municipal taxes, that injury does not entitle them to seek a remedy as to the state taxes. Holding on Franchise Tax Credit A corporation currently paying tax in Ohio can reduce Ohio franchise tax by investing in the state but receives no similar reduction in the franchise tax when investing in other states. Thus, this incentive favors in-state commerce over interstate commerce, violating the interstate Commerce Clause. Holding on Property Tax Unlike the franchise tax credit—which reduces a prior tax liability—the property tax exemption does not reduce an existing tax liability. Instead, it allows a taxpayer to avoid a new tax liability. Thus, whether or not a person invests in Ohio, they will not pay the tax (either they invest in Ohio and are exempt, or they invest elsewhere and are not subject to the tax).

Two additional years of repair services for a sales price of 10% of the purchase price of any computer. This amount is paid up front and is included in the invoice for a computer. It is not separately stated on that invoice?

WE apply dell.

Wayfair

Wayfair states stated that the physical presence rule is not a necessary interpretation of the Commerce Clause's "substantial nexus" requirement. Instead, the substantial nexus requirement is closely related to the Due Process requirement articulated in Miller Bros. Here South Dakota enacted a new law that required out-of-state sellers to collect and remit the use tax, even if it lacked physical presence in the state, if the seller delivered more than $100,000 of goods or services into the state annually or engaged in 200 or more separate transactions for the delivery of goods or services into the state

Wayfair v. South Dakota

Wayfair v. South Dakota The law at issue: In 2016, South Dakota enacted a new law that required out-of-state sellers to collect and remit the use tax, even if it lacked physical presence in the state, if the seller delivered more than $100,000 of goods or services into the state annually or engaged in 200 or more separate transactions for the delivery of goods or services into the state. What was unique to this law was that it would not apply until the constitutionality of the law was clearly established. Thus, the law was effectively passed to test the physical presence test for the sales and use tax. Taxpayer's facts: The taxpayer was an out-of-state seller of goods with no employees or property in South Dakota. They sell goods online and ship products into the state. Thus, they would not meet the Quill physical presence. Court's decision: Justice Kennedy, writing for a 5-4 majority, stated that the physical presence rule is not a necessary interpretation of the Commerce Clause's "substantial nexus" requirement. Instead, the substantial nexus requirement is closely related to the Due Process requirement articulated in Miller Bros. Again, that case merely required "some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax." Though the Due Process analysis and Commerce Clause analysis are not the same, they have some parallels, and the physical presence requirement is not necessarily required to ensure that there are no burdens on interstate commerce. Moreover, the Court stated that Quill's physical presence test creates—rather than resolves—market distortions. The Court stated that it was a "judicially created tax shelter for businesses that decide to limit their physical presence and sell their goods and services to a state's consumers." Finally, the Court stated that the physical presence test imposes "the sort of arbitrary, formalistic distinction that Court's modern Commerce Clause precedents disavow." Physical presence is not a requisite for an out of state seller's liability: The reasons the United States Supreme Court gave in Quill for rejecting the physical presence rule for due process purposes apply as well to the question whether physical presence is a requisite for an out-of-state seller's liability to remit sales taxes. Physical presence is not necessary to create a substantial nexus. The Quill majority expressed concern that without the physical presence rule a state tax might unduly burden interstate commerce by subjecting retailers to tax-collection obligations in thousands of different taxing jurisdictions. But the administrative costs of compliance, especially in the modern economy with its Internet technology, are largely unrelated to whether a company happens to have a physical presence in a State. The United States Supreme held that the State of South Dakota was not prohibited under the Commerce Clause of the U.S. Constitution from enacting legislation that required remote sellers to collect and remit sales tax on goods and services sold to buyers for delivery in the State, even though a business that made the sale did not have a physical presence in the State Ultimately, the Court upheld South Dakota's law, requiring the collection of the use tax when taxpayers sell $100,000 of goods or services or engage in 200 or more transactions for the sale of goods or services per year into the state. The Court stated that substantial nexus with a jurisdiction "is established when the taxpayer [or collector] 'avails itself of the substantial privilege of carrying on business' in that jurisdiction." Despite this holding, the state made clear that other aspects of the Commerce Clause must still be evaluated to ensure there is no undue burden on the Commerce Clause. For example, taxation should still be reviewed under the "Pike balancing test" from Pike v. Bruce Church, Inc., 397 US 137 (1970). Under that test, "State laws that 'regulat[e] even-handedly to effectuate a legitimate local public interest...will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." To that end, "Complex state tax systems could have the effect of discriminating against interstate commerce."

Griffith v. ConAgra Brands, Inc

What were the relevant facts of the case? (1) ConAgra Foods owned numerous trademarks and trade names. (2) ConAgra Foods formed ConAgra Brands to hold and centrally manage the trademark and trade name portfolio. (3) ConAgra Food paid a royalty to ConAgra Brands for use of that intellectual property. (4) ConAgra Brands licensed to ConAgra Foods as well as third parties. (5) ConAgra Brands had no physical presence in West Virginia. (6) Licensees sold products with ConAgra Brands' trademarks/trade names in West Virginia. (7) ConAgra Brands did not dictate how licensees should distribute products. What was the primary issue of the case? Whether ConAgra Brands had taxable nexus in West Virginia because of its licensing of its trademarks and trade names to licensees who sold products using that IP. How did the Court Decide? Held for the TP Because there was neither DP nor Commerce Clause Nexus The West Virginia court found for ConAgra, holding that tax assessments against a foreign licensor "on royalties earned from the nation-wide licensing of food industry trademarks and trade names [did not] satisfy . . . 'purposeful direction' under the Due Process Clause." Court's Ruling? The Court emphatically said that physical presence was no longer required to impose nexus. However, the ConAgra Brands still lacked nexus because it had neither "purposefully availed" itself under the Due Process Clause nor had "significant economic presence" under the Commerce Clause. ConAgra did not exercise a sufficient level of control over in-state actors, it licensed IP to unrelated third parties, and it did not solicit sales in the state. Ultimately, its activities were so limited that the Court held for the taxpayer under both the Commerce Clause and the typically lower standard Due Process Clause. Often activities of affiliates or others can create nexus for a business despite a lack of physical presence in the state. However, ConAgra Brands shows a clear limitation to this use of "attributional nexus."

Tyler Pipe Industries, Inc. v. WA State Department of Revenue (Attribututional Nexus)

What were the relevant facts of the case? (1) The court consolidated like cases to determine whether a state's manufacturing tax violated the Commerce Clause of the Constitution because it only taxed those items that were sold to out-of-state buyers. Appellant companies filed an action against appellee, a state department of revenue, claiming that Washington's manufacturing tax violated the Commerce Clause of the Constitution because it is assessed only on those products manufactured within Washington that were sold to out-of-state purchasers. The Supreme Court of Washington found that the tax was not facially discriminatory. The companies sought review. The court vacated the judgments, partially invalidated the taxation statute, and remanded for further proceedings. (2) The taxpayer had no employees, office, or other physical property in the state. (3) The taxpayer hired independent contractors in the state. (4) The independent contractors engaged in the solicitation of sales and engaging customers. What was the primary Nexus issue of the case? Whether the activities of independent contractors—as opposed to employees—in the state can create nexus for a taxpayer. How did the Court Decide? Held for the state because the independent contractors were soliciting sales in the state Court's Ruling? The U.S. Supreme Court held that a taxpayer without employees in the state could still be subject to tax based on activities of independent contractors in the state. It upheld the Washington Supreme Court's decision, which was that "the crucial factor governing nexus is whether the activities performed in this state on behalf of the taxpayer are significantly associated with the taxpayer's ability to establish and maintain a market in this state for the sales." Courts now look to whether the activities of another person or entity that are done on behalf of a taxpayer are associated with the taxpayer's ability to establish and maintain a market in the state. These market-making activities create nexus even when the taxpayer's direct employees are not present. When reviewing activities in a state, the critical inquiry is whether the activities performed in the state on behalf of the taxpayer are significantly associated with the taxpayer's ability to establish and maintain a market in the state for sales.

What is the test for external consistency?

Whether the income attributed to the state is out of all proportion to the business transacted in the state.

When reviewing a state's apportionment formula, what test for Due Process should be considered

Whether the state's formula taxes extraterritorial values

1Stark Industries, an out-of-state company, sets up retail stores in Old Jersey where it starts selling high-tech equipment. Stark Industries does not own its intellectual property. Instead, it licenses its IP from its affiliate, IronCo, in Delaware. IronCo does not have physical presence in Old Jersey. Stark Industries pays IronCo a royalty for every sale made in Old Jersey. Old Jersey is a "separate reporting" state. Still, Old Jersey attempts to tax IronCo. Can it do so?

Yes it can, In Geoffrey, the court held The presence of intangible property alone is sufficient to establish nexus. Geoffrey, Inc. received royalty payments based upon sales made in South Carolina from a licensee that did business in South Carolina. Ultimately, Geoffrey was deemed to have substantial nexus with South Carolina because of its economic activities in the state.

Martin owns Blackacre as his separate property. Blackacre is Martin's primary residence with a fair market value of $1,500,000 and a property tax value of $100,000. He transfers 100% of the property to his son, Charlie, who rents out the property for supplemental income. Is there a change in ownership, and if so, what is Charlie's base year value?

Yes, $1,500,000. Cal. Constitution Art. XIII A, § 2.3 limits changes in ownership of property transferred between a parent and a child. However, it only applies if the parent uses the property as his or her primary residence before the transfer and child uses the property as his or her primary residence after the transfer.

Martin owns Blackacre as his separate property. Blackacre is Martin's primary residence with a fair market value of $1,500,000 and a property tax value of $100,000. He transfers 100% of the property to an LLC owned entirely by Martin. He transfers 60% of the LLC to his son, Charlie, who uses the property as his primary residence. Is there a change in ownership and, if so, what is the new tax value of the Blackacre?

Yes, $1,500,000. The limitation in Cal. Constitution Art. XIII A, § 2.3 only applies to transfers of property, not transfers of an entity. Here, there is a change in ownership of the entity under CRTC section 64(c). Thus, the entire property must be reassessed

Martin owns Blackacre as his separate property. Blackacre is Martin's primary residence with a fair market value of $1,500,000 and a property tax value of $100,000. He transfers 100% of the property to his son, Charlie, who uses the property as his primary residence.Is there a change in ownership and, if so, what is the new tax value of the Blackacre?

Yes, $400,000. The limitation in Cal. Constitution Art. XIII A, § 2.3 applies by limiting the taxable value of property after the transfer to the following: fair market value - (taxable value + $1,000,000). Here, that is $1,500,000 - ($100,000 + $1,000,000). Effectively, the first $1,000,000 of increased value from the prior taxable value is exempt

Sally owns Blackacre as her separate property. She transfers 100% of the property to an LLC owned 100% by Harry.Is there a change in ownership and, if so, how much of the property is reassessed?

Yes, 100% CRTC section 63 does not apply here. Sally does not make a transfer to Harry. Instead, she transfers the property to an LLC owned by Harry, which is not exempt.

Alisa owns Blackacre, which is worth $2,000,000. Alisa and Betty form an LLC with Alisa contributing Blackacre and Betty contributing $2,000,000 cash, each in exchange for 50% interest in the LLC.Is there a change in ownership and, if so, how much of the property is reassessed?

Yes, 100%. The contribution to the LLC is a taxable transfer under CRTC 61(j). The exception for proportional transfers under CRTC 62(a)(2) does not apply because Alisa owns 100% of the property before the transfer and a 50% indirect interest after. Thus, this is a change in ownership. Because the transfer was of 100% of the property, there is a reassessment of the full value of the propert

Alan owns 100% of the stock of a corporation. The corporation purchases Blackacre. Alan sells all the stock to Betty. Is there a change in ownership and, if so, how much of the property is reassessed?

Yes, 100%. The transfer to the corporation is exempt under CRTC 62(a)(2). But the transfer of the corporation is a change in control of the corporation under CRTC 64(c). Thus, this is a change in ownership. The full value of the property must be reassessed.

1.California imposes an income tax on all taxpayers incorporated in the state. The income tax is imposed on "California taxable income." California taxable income is all income earned worldwide that is apportioned to California by multiplying that worldwide income by a fraction, the numerator of which is sales revenue in California and the denominator of which is sales revenue everywhere. Is this law valid under the Commerce Clause?

Yes, California can use a formula to determine taxable income even if the formula includes worldwide income.- The foreign Commerce Clause does not preclude taxing an in-state company's income attributable to the state by using a formula that includes non-U.S. income

1. Getting tired of paying tax in Oklahoma, a business moves all of its intellectual property to a new Delaware subsidiary. It pays that Delaware subsidiary significant royalties to use the intellectual property everywhere it operates, including in Oklahoma. That IP is not licensed to any other party. Can Oklahoma tax the Delaware subsidiary even though it does not have any physical presence in the state?

Yes, because it has "economic nexus" with Oklahoma, meaning it is deriving income from activities in the state, even if it does not have any physical presence in the state. SEE Geoffrey

Same as question #3, except the warranty is optional and priced separately. Is the sale taxable?

Yes, but only the amount paid for the computer is taxable. Here, the true object test does not apply because the transaction can be broken down into its component parts. The taxable portion (the computer) is subject to tax and the nontaxable portion (the warranty) is not subject to tax because it's the sale of an intangible right, not the sale of actual repair services (see Covington Pike).

Can a state's apportionment formula be considered valid if it results in more than 100% of income being taxed between the taxing state and neighboring states with different formulas?

Yes, the Supreme Court has not chosen a preferred formula

Same as #3 above, except the subsidiary is in the business of manufacturing textiles. It is centrally managed by the parent company's executives and sells 100% of its textiles to the parent company. The subsidiary was created to more efficiently obtain textiles for the clothing business. Can California combine the clothing and textile companies and tax them as a unitary business?

Yes, they are unitary under the tests for unitary and, thus, California can tax the income of the combined businesses that is apportioned to the state. This is called "combined reporting" and is the method by which states tax multiple affiliated entities. If those affiliated entities are unitary, the state effectively treats the combined group of entities as one business and apportions the income of the combined group to the state. The state then taxes that apportioned income.

1. ToyCo held a toy factory that was out of production. In fact, it had been out of production for a decade because it produced toys that were no longer safe for use. Without major improvements, the factory could not be used. Instead, it sat idle. Should the factory be included in ToyCo's property factor?

a. Alaksa v. DOR held that even though the property did not produce oil and gas, they are "used" under the statute. b. Being "available for use" or "Capable of being used" should be good enough and will most likely be included in the property factor

In a restructuring, HoldCo employed all individuals who worked for ToyCo and PlasticCo. As each of the subsidiaries needed employees, HoldCo would pay the employees their salaries and the subsidiaries would reimburse the parent. Whose payroll factor should those employees be included in?

a. Because the subsidiary indirectly compensated the employees whose activities they controlled when the employees were performing the services, the employees' compensation is that of the entity ultimately responsible for making the payments receiving the services and not the entity directly paying the employees. See Cincinnati, New Orleans and Texas Pacific Railway Co. v. Kentucky Department of Revenue) b. Hold Co must include labor in its payroll factor

Which nexus limitations are stricter on states?

a. Commerce Clause Limitations > Due Process Limitations b. Historically, the Supreme Court imposed much more strict Commerce Clause limitations. However, the Wayfair decision severely restricted the impact of the Commerce Clause on nexus issues. Before Wayfair, the Due Process Clause only required "purposeful availment" into a jurisdiction. That was read to include simply directing sales into a state via catalog or other means. However, under the Commerce Clause, the test was substantial nexus or significant economic presence. At least in the sales tax, that was held to mean physical presence was required. But after Wayfair, the distinctions become far less impactful. One notable distinction may be when a taxpayer advertises and attempts to sell into a state but is not very successful. They may have purposefully availed themselves of the state by directing sales into the state, but it is arguable that they did not actually achieve significant economic presence in the state.

Assuming East Dakota uses the Quill test for income tax purposes? If ToyCo has no retail locations in East Dakota such that its only operation in the state is the sending toys to customers in the state and if California uses the "throwback" rule, would the sales be included in Idaho's sales factor? California's sales factor? What if California used a "throw out" rule for the same sales? How would that affect the sales factor?

a. In the Quill decision, an out-of-state mail-order pen company was held not to have sufficient nexus with North Dakota when its only connection with the state was selling goods into the state without having any physical presence there.- Therefore, bc sales are online and TP does not have a physical presence in the state, sales would not be included. b. Under the destination rule, sales of tangible personal property are sourced to the state where goods are shipped to by the seller. But if the seller is not subject to tax in the ship-to state, then the throwback rule requires these sales to be "thrown back" and included in the numerator of the state where the goods were shipped from. Bc ED will not tax TP, sales are "Thrown back" and included in CA sales factor. a. Similar to the throwback rule, the throwout rule is triggered when a taxpayer is not subject to tax in the destination state. Rather than "throwing back" the sale to the origin state, the throwout rule removes the sale from the denominator of the sales factor. This has the effect of increasing the sales factor in the origin state. This rule, however, is constitutionally suspect and has lost favor.

1. New York passes a corporate income tax that computes New York taxable income by multiplying a corporation's federal taxable income by New York's percentage of the U.S. population (about 6%). Is this valid as applied to a taxpayer that has no operations in New York other than making about 1% of their sales to New York?

a. No, because the tax is not based on the company's actual operations in New York. b. When applying the tax to a specific taxpayer, the tax must reflect actual activities conducted in the state. Here population grossly overstates this taxpayer's activities in the state (by 500%). This tax would violate external consistency.

1. Washington passes a new law imposing a use tax collection obligation on all online retailers who pay in-state website operators a commission for sales directed through their websites. Is this law valid?

a. No, it is not valid because it creates a collection obligation via attributional nexus on an out-of-state taxpayer without further information on whether in-state actors are creating and establishing a market. b. Although this law is likely invalid because there is no indication that the operators are actually creating a market for the taxpayer, the state is more likely to make the tax valid if the retailer was merely presumed to have nexus.

1. In addition to retail stores in the state, ToyCo sold toys to East Dakota residents online. They would deliver the toys into the state from distribution centers in California. If the state of East Dakota used UDITPA cost-of-performance sourcing, would the toys be included in the sales factor numerator? What if the state of East Dakota used a "market" sales factor method?

a. Sales would only be included in the Numerator if (1) the income-producing activity is performed in the state or (2) the income-producing activity is performed both in and outside the state and a greater portion of the income-producing activity is performed in the state than in any other state, based on costs of performance. a. Toys would NOT be included a. In Market-Sourcing, Sales of services are sourced to the location of the customer that receives the benefit of the service, rather than where the service is performed. Typically, the test looks at "where the benefit of the service is received." b. Sales would be included in the sales factor

Old Jersey passes another law that requires all internet retailers to collect sales tax if any in state residents place their banners on their websites. Is this legal?

a. Seems like a digital advertising tax. b. ITFA prohibition on tax on internet access

New California passes a new sales tax law that taxes 100% of all train tickets if the train originates or terminates in the state. Is this tax legal?

a. Taxing 100% of all tickets would be internally inconsistent unless a credit is provided. b. 2 out of three see Goldberg v. Sweet to be valid

Mobil Oil. Corp. v. Commissioner of Taxes of Vermont on Dividends

a. The court in Mobil held "[T]he linchpin of apportionability in the field of state income taxation is the unitary business principle. In accord with this principle, what appellant must show, in order to establish that its dividend income is not subject to an apportioned tax in Vermont, is that the income was earned in the course of activities unrelated to the sale of petroleum products in that State." b. "So long as dividends from subsidiaries and affiliates reflect profits derived from a functionally integrated enterprise, those dividends are income to the parent earned in a unitary business The foreign affiliates must also satisfy any of the following conditions under a "water's

Can congress expand or contract constitutional limitations? If so, which limitations? And when has it done so?

a. The interstate Commerce Clause ("...among the several states...") gives Congress the unquestioned power to regulate commerce between states, including the power to regulate state taxation of interstate commerce. When Congress does not affirmatively exercise its Commerce Clause power, the dormant Commerce Clause restricts states' power over taxation. Congress retains the power to broaden or narrow state taxing power through legislation, thus invoking its affirmative Commerce Clause power. Internet Freedom Act

Assume a state where repairs of tangible personal property are taxable. CarCo sells cars. Car buyers have the option to purchase an extended service agreement to have the car serviced at any time within ten years of purchase (well beyond the standard warranty). But the sales agreement for the purchases does not separately state the value of the extended service agreement. Are the contracts taxable? A customer does not purchase the contract but still returns to CarCo to have her vehicle repaired after the standard warranty expires. Is that repair taxable?

a. The warranty is not a sale of the performance of repair services. Instead it is a tangible right, not the actual performance of repair. Thus, the warranty is not taxable. See Covington Pike b. a. Here the sale is of the performance of repair services and is subject to tax.

1. ToyCo is a local toy manufacturer that makes toys in New California and sells them in-state and in neighboring states. In addition to manufacturing toys, ToyCo has started operating a plastics manufacturing business. ToyCo operates its toy business separately from its plastics business. The plastics business sells 100% of its product to the toy business. And the toy business buys all of its plastic from the related plastics business. The businesses are merely divisions of the same corporation. Can they determine their New California separately?

a. What three factors did the court use to determine if a unitary relationship exists? Centralized management, functional integration, and economies of scale b. The plastic and toy business are horizontally integrated which can create a presumption of uniformity. A court would look to a unity of operations to determine if both subs are unitary

1. California imposes a sales tax on transactions that occur wholly within the state and a use tax for transactions that are not subject to the sales tax because the product is shipped from another state. The sales tax is 8%, and the use tax is 10%. Is this tax invalid under the Commerce Clause? 1. Same as problem 1, but the sales tax is 10% and the use tax is 8%. Is this tax invalid under the Commerce Clause?

a. Yes, California cannot treat interstate commerce worse than it does intrastate commerce. b. Simply put, the sales tax here is imposed on intrastate sales and the use tax only applies when interstate sales are at issue. This is discriminatory. a. No, states may discriminate against intrastate commerce.

1. Alabama imposes a personal income tax that starts at federal taxable income. Alabama allows a 100% exemption for gain on the investment of stock in corporations with more than 80% of their employees in the state. Is this law invalid under the Commerce Clause? Same as Question #3, but the case involves a property tax. The property tax does not apply to residents of Alabama and companies incorporated in Alabama, but it does apply to property held by nonresidents or non-Alabama companies. Does this violate the Commerce Clause?

a. Yes, this law treats interstate commerce less favorably than intrastate commerce. b. This fact pattern is from a somewhat similar law (in California) that was invalidated as discriminatory under the Commerce Clause. The law treats investments in companies that are in mostly in the state better than investments in companies that are in other states. Thus, it treats in-state companies better than out-of-state companies. a. Yes, the Commerce Clause applies to property tax just as it does to any other state tax. b. This is different than Cuno. In Cuno, with respect to the property tax, the taxpayer had two choices: (1) invest in Ohio property and pay zero property tax or (2) don't invest in Ohio property and pay zero property tax. Thus, whether or not someone invested in Ohio property, they would not pay the tax and, therefore, there is no discrimination. Here, if you are an Alabama resident or Alabama companies, this is still true. Whether or not you invest in Alabama property, you don't pay the tax. But, if you're a nonresident or non-Alabama company, you pay tax if you invest in Alabama and not if you don't invest in Alabama.

Barbara is a resident of New Jersey who works for a New York law firm. She commutes to New York every day to work from her office in New York, then returns to New Jersey and does not work from home. Where is Barbara taxable?

a. Zelinsky held When nonresident employee performs services for a New York employer in and outside New York, the employee must apportion income to New York based on total workdays worked in New York compared to total work days everywhere. But days are counted as New York days even when work is performed outside New York if the work is done outside of New York for an employee's own convenience rather than an obligation on the employee b. The court reasoned that it held up under the DP Clause bc There was a minimum connection between the state and the person being taxed (he purposefully availed himself to New York); There was a rational relationship to the values being taxed by the taxing state because he received some benefits from the state. c. Therefore, her income will be sourced to NY

"Contribution or dependency test"

broadest test, which finds there is unity if operation of the business done within the state is dependent upon or contributes to the operation of the business done outside the state).

Speaking with one voice -

states cannot "impair federal uniformity in an area where federal uniformity is essential." Here, the federal government controlled federal policy and signed an agreement with Japan related to customs conventions whereby containers that were temporarily located in another country were not subject to duties and taxes charged by reason of importation. Here, a tax on the containers would frustrate that agreement.

Tax Freedom Act (ITFA). ITFA has three major prohibitions:

taxes on Internet access; discriminatory taxes on electronic commerce; multiple taxes on electronic commerce.

Commerce Clause limitations on domestic taxes (1) nexus

which is a state's jurisdiction to tax a person. Required physical presence in Quill, moved to Economic nexus in Wayfair. substantial nexus with a jurisdiction "is established when the taxpayer [or collector] 'avails itself of the substantial privilege of carrying on business' in that jurisdiction." - Wayfair Three ways to have Nexus 1. Attributional Nexus 2. Economic Nexus 3. Direct Nexus

Commerce Clause limitations on domestic taxes 4) fair relationships to the services provided by the state,

which simply means that the company receives services (including police protection) by being in the state.

Most states include "domicile" in the definition of residence. This is the state where a person intends to make his or her home. And a person can only have one domicile at any given time. Of course, "intent" is very subjective. So how does a court objectively determine where a person intends to make a home? It will look at actions taken by the individual and the location of certain connections that people typically associate with their home. Some items courts look at can include,

· Location of mementos (photos, etc.) · Amount of time spent in a location compared to other locations · Location of family (spouse, children, other close family) · Location of principal residence · Location of business connections (place of business, employer, etc.) · Location of vehicles · Whether the individual is affiliated with social clubs, places of worships, or other social associations in the state · Location of doctors, lawyers, accountants, etc. · Location of other property (e.g., investment real estate)

Complete Auto Transit v. Brady

·Facts: Complete Auto Transit was a Michigan corporation doing business in Mississippi. Complete shipped cars into the state where they were distributed for sale. Mississippi imposed a tax on transportation companies for the "privilege of doing business" in the state. The tax was applied equally to businesses involved in intra-and interstate commerce. · Question: Did the Mississippi tax violate the Commerce Clause because it placed a burden on an activity associated with interstate commerce? Conclusion: o A unanimous Court found the tax valid. o Businesses involved in interstate commerce should assume a just share of the state tax burden. o The Court's decision established four criteria to be met for a state tax to be valid and not an unreasonable burden on interstate commerce. o The tax must be § (1) nexus, which is a state's jurisdiction to tax a person, § (2) fair apportionment, which is the requirement that the amount of income, receipts, or other sales tax base that is subject to tax is reasonable, § (3) nondiscrimination, which is the requirement that a tax should not burden interstate commerce by treating intrastate activity better than interstate activity, and § (4) fair relationships to the services provided by the state, which simply means that the company receives services (including police protection) by being in the state. § Later cases expanded these limitations when foreign commerce is involved. In those situations, states face heightened scrutiny, and a tax involving foreign commerce must not (5) "create a substantial risk of international multiple taxation" or (6) prevent the federal government from "speaking with one voice when regulating commercial relations with foreign governments."