Nexus perplexus: a survey of recent developments.

• Author: Liss, Jonathan A.

The issue of state income tax nexus has certainly received a great deal of attention in the past few years. In 1992, this issue rose to the highest level possible--the Supreme Court of the United States. Most readers of The Tax Executive are likely familiar with the Court's decision in Wisconsin Department of Revenue v. William Wrigley, Jr., Co., 112 Ct. 2447 (1992). In Wrigley, the issue was whether the taxpayer's activities in Wisconsin went beyond those activities protected by Public Law No. 86-272. That statute, which was enacted in 1959, prohibits a State from imposing an income tax where a taxpayer's activities are limited to --

the solicitation of orders by such person, or his

representative, in such State for sales of tangible

personal property, which orders are sent outside

the State for approval or rejection, and, if approved,

are filled by shipment or delivery from a

point outside the State.

The Supreme Court in Wrigley drew a line between activities that constitute protected solicitation and other activities that go beyond the protection of Public Law No. 86-272. It thus drew a line between "those activities that are entirely ancillary to requests for purchases--those that serve no independent business function apart from their connection to the soliciting of orders--and those activities that the company would have reason to engage in anyway but chooses to allocate to its in-state force." The Court also held that the federal statute embodies a de minimis rule, with the test being whether the activity in question "establishes a nontrivial additional connection with the taxing state." Triviality is determined by examining the activities on a cumulative basis.

Several States have already revised their regulations to conform to the Supreme Court's holding in Wrigley. This article discusses recent developments in state income tax nexus, with particular emphasis on how the States have responded to Wrigley.

Massachusetts

The Massachusetts Department of Revenue issued Regulation 830 CMR 63.39.1 (effective January 1, 1993) before the Wrigley decision. This regulation sets forth the circumstances under which a foreign corporation is subject to Massachusetts excise tax. There are several provisions in the regulation that merit particular attention.

First, according to the regulation, a corporation that is merely qualified to do business in Massachusetts must file a return with the Commonwealth and pay the excise tax. On May 5, 1993, however, the Massachusetts Appellate Tax Board held that--

a corporation's mere qualification to do business in

Massachusetts does not constitute a sufficient

business activity to deprive a corporation of the

protection of Public Law 86-272. Another activity that Massachusetts considers to be outside the scope of mere solicitation is the hiring, training, or supervision of personnel. Such activities, according to Wrigley, are entirely ancillary to requests for purchases.

Example 8 in the Massachusetts regulation provides that delivery of product in a corporation's own truck creates nexus for excise tax purposes. This position is contrary to Public Law No. 86-272, which states that goods may be 'shipped or delivered' from a source outside the state without vitiating the protections afforded by the federal statute...