TEI files briefs in state economic nexus cases: urges the High Court to uphold physical presence standard.

• Position: Tax Executives Institute - Capital One Bank (USA

Tax Executives Institute has filed two briefs amicus curiae with the Supreme Court of the United States, urging the high court to reverse lower court decisions allowing the Commonwealth of Massachusetts to tax corporations with no physical presence in the State. (Capital One Bank (USA) v. Commissioner of Revenue of Massachusetts and Geoffrey, Inc. v. Commissioner of Revenue of Massachusetts). In each of these cases, the Institute supported a request by the taxpayer that the high court review a decision of the Massachusetts Supreme Judicial Court holding that taxation of an out-of-state corporation having no physical presence within the State does not violate the Commerce Clause of the U.S. Constitution.

TEI's advocacy in the area of economic nexus dates to 1991 when it filed an amicus brief in Quill Corp. v. North Dakota. There, the Supreme Court affirmed that physical presence in a State was required by the Constitution's Commerce Clause before the State could constitutionally impose a sales and use tax. Two years later, TEI urged the Supreme Court to hear another nexus case involving income taxes--Geoffrey, Inc. v. South Carolina--where the taxpayer's sole connection to South Carolina consisted of licensing certain trademarks and trade names to a related corporation that was operating retail stores in the State. The South Carolina court interpreted the physical presence test from Quill as limited to sales and use taxes and found no such standard applicable to a state corporate income tax. The U.S. Supreme Court declined to review that case. Geoffrey, a company owing trademarks and other intangible companies associated with Toys R Us and its related companies, has litigated the issue in other States. The most recent case is Geoffrey, Inc. v. Commissioner of Revenue of Massachusetts.

The issue, however, has not lay fallow since the Supreme Court's decision in Geoffrey's South Carolina case. In 2007, TEI supported a request by MBNA America Bank that the Supreme Court review in a West Virginia case similar to Capital One. In the MBNA case, the State sought to tax a bank with no physical presence in West Virginia but that had connections with West Virginia via its customers holding and using MBNA credit cards, as well as the solicitation of customers via mail and phone. The Supreme Court of West Virginia held that this so-called economic presence was sufficient for West Virginia to subject MBNA to tax. The U.S. Supreme Court again declined the...