Nexus: Reports of Its Death Are Clearly Premature; Nexus must still be addressed before taxes can be imposed.

• Author: McLoughlin, Alysse

In the wake of South Dakota v. Wayfair Inc. (1) and the U.S. Supreme Court's endorsement of economic nexus, a subject of wide discussion has been whether nexus issues are dead in the context of sales tax and corporate income tax. Two recent developments indicate that, while the framework for analyzing nexus may have changed, a jurisdiction still must address nexus before imposing tax on a person or entity.

Crown Packaging Technology

The first development is a decision in which the New Jersey Tax Court rejected both the taxpayer's and the New Jersey Division of Taxation's motions for summary judgment. The Tax Court determined that the taxpayer, Crown Packaging Technology, had raised issues that, if proven, could indicate that the decision should not be governed by Lanco, Inc. v. Director, Division of Taxation. (2) In Lanco, the New Jersey Court of Appeals upheld New Jersey's ability to tax a company when the company's only connection with New Jersey was its receipt of royalties from a retailer operating within the state.

In this case, Crown Packaging Technology, Inc. v. Director, Division of Taxation, a company that owned both patents and trademarks entered into license agreements with its subsidiary, under which the subsidiary could use those patents and trademarks in its packaging products manufacturing business. The subsidiary did not manufacture any packaging products in New Jersey. The only connection between the parent's intellectual property and New Jersey was the presence of the intellectual property on certain advertising materials (such as business cards and stationery) given to the subsidiary's customers; on shipping materials used to ship the subsidiary's products into New Jersey; and on the subsidiary's products, although placement on such products was in a manner that was "small and inconspicuous."

Unlike in Lanco, where the company's Lane Bryant trademark was used on retail storefronts in New Jersey, the trademarks and patents at issue in Crown Packaging were placed on products sold by the subsidiary to manufacturers and wholesalers that used the cans to store their own products, such as shaving cream, the lubricant WD-40, and food products. Based on this description of the facts, it is difficult to believe that the ultimate customers of the packaged products were influenced to buy shaving cream and other items because they were stored in an aerosol can designed by Crown Packaging Technology, whose trademark appeared in small print on the can...