Capital One Bank (USA), N.A., f/k/a Capital One Bank, and Capital One, N.A., as Successor to Capital One F.S.B, petitioners, v. Commissioner of Revenue of Massachusetts, respondent. On petition for a writ of certiorari to the Massachusetts Supreme Judicial Court.

BRIEF OF TAX EXECUTIVES INSTITUTE, INC. AS AMICUS CURIAE IN SUPPORT OF THE PETITIONER

Interest of Amicus Curiae

Pursuant to Rule 37 of the Rules of this Court, Tax Executives Institute, Inc. respectfully submits this brief as amicus curiae in support of the petition for a writ of certiorari. (1) Tax Executives Institute (hereinafter "TEI" or "the Institute") is a voluntary, nonprofit association of corporate and other business executives, managers, and administrators who are responsible for the tax affairs of their employers. TEI was organized in 1944 under the laws of the State of New York and is exempt from taxation under section 501(c)(6) of the Internal Revenue Code (26 U.S.C.). The Institute is dedicated to promoting the uniform and equitable enforcement of the tax laws, reducing the costs and burdens of administration and compliance to the benefit of both the government and taxpayers, and vindicating the Commerce Clause and other constitutional rights of all business taxpayers.

TEI's 7,000 members represent more than 3,200 of the leading corporations in the United States, Canada, Europe and Asia, including many domiciled or doing business in Massachusetts. TEI members represent a cross-section of the business community whose employers are, almost without exception, engaged in interstate commerce. TEI has a keen interest in the issues raised by the decision of the Supreme Judicial Court of Massachusetts in this case - and in that court's related decision in Geoffrey, Inc. v. Massachusetts Department of Revenue, 453 Mass. 17 (2009) - and TEI members will be materially affected by the Court's disposition of this matter.

The issue presented in this case is whether the imposition of the Massachusetts Financial Institution Excise Tax ("FIET") on out-of-state taxpayers having no physical presence within Massachusetts violates the Commerce Clause of the United States Constitution. In National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753 (1967), and again in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the Court set forth a bright-line rule requiring an enterprise have physical presence in the State before being subject to taxation. If the Court were to overrule or narrow these existing holdings, two correlative questions would have to be addressed: (1) whether the Commerce Clause "substantial nexus" requirement as stipulated in Complete Auto Transit v. Brady, 430 U.S. 274 (1977), is met by an enterprise's "economic presence" in the State, and (2) whether the nexus thresholds in the FIET rise to the level of a sufficient economic presence.

Overview

During the periods at issue in this case, Capital One Bank (now Capital One Bank (USA), N.A.) and Capital One F.S.B. (now Capital One, N.A.) (collectively, "Banks") were both wholly owned subsidiaries of Capital One Financial Corporation, a publicly traded corporation listed on the New York Stock Exchange. Capital One Bank, during the periods at issue in this case, was a Virginia chartered credit card bank offering Visa and MasterCard credit cards to its customers. Capital One F.S.B. is a federally chartered savings bank that offers consumer lending and deposit products to its customers, including secured and unsecured credit cards and unsecured installment and consumer home loans. Both entities were at the time domiciled in Virginia.

The Banks have no employees, real property, or tangible property in Massachusetts. Their nationwide credit card business is conducted solely through the Internet, mail, television advertising, and long distance telephone solicitations, some of which reach residents of Massachusetts. These solicitations are neither initiated in nor from Massachusetts. In addition, the Banks neither receive nor process any accounts receivable in Massachusetts. The Banks, do however, derive receipts (primarily, finance charges) from customers who are Massachusetts residents.

After analyzing the Banks' activities, the Massachusetts Department of Revenue ("Department") determined that the Banks were subject to the FIET as a result of their "economic presence" in the Commonwealth. The Banks appealed this determination to the Massachusetts Appellate Tax Board. Finding that economic presence alone created nexus in the State, the Board found in favor of the Department. The Banks appealed this decision, and the Massachusetts Supreme Judicial Court agreed that the Banks' economic presence in Massachusetts created nexus in the Commonwealth causing the Banks to be subject to the FIET.

States Have Disregarded this Court's Nexus Jurisprudence, Spawning an Unworkable Patchwork of Inconsistent Standards That Violate the Commerce Clause

More than 40 years ago, this Court held that under the Commerce Clause of the Constitution an enterprise must be physically present in a State for the State to subject the enterprise to taxation. Regrettably, the States have taken the Court's clear guidance and blurred it through inconsistent, vague, and overbroad standards creating uncertainty where there rightly should be none.

In 1967, this Court held in National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753 (1967), that a sales and use tax could not constitutionally be imposed on a vendor whose only contacts with the taxing State were through the mail and by common courier. (2) A decade later, in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), this Court reiterated that a threshold requirement of the Commerce Clause is the presence of "sufficient nexus" between the State and the person, property, or transaction to be taxed. Id. at 279. Fifteen years later in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the Court confirmed the vitality of the Complete Auto Transit construct and effectively harmonized that decision with the clear guidance...