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Sham, Due Process, & More – Trends in Sales Tax

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Presentation on theme: "Sham, Due Process, & More – Trends in Sales Tax"— Presentation transcript:

1 Sham, Due Process, & More – Trends in Sales Tax
SEATA 63rdAnnual Southeastern Association of Tax Administrators Conference Hilton Head, South Carolina July 28 – 31, 2013 Donald M. Griswold, Crowell & Moring LLP _2

2 Trends in Sales Tax Nexus Common Law Doctrines & Sales Tax
Intrastate Transactions Statutory Discrimination SEC Actions

3 Nexus

4 Nexus “Click-Through” Nexus Litigation Legislative Developments
Attributional Nexus Due Process – PACT Act Due Process -- SCOTUS

5 Click-Through Nexus Litigation
Overstock.com, Inc. (N.Y. Ct. App. 2013) & Amazon.com, LLC Facial challenge to the constitutionality of NY’s “click-through” nexus statute Held: statute was not unconstitutional on its face Taxpayers will petition the U.S. Supreme Court for review

6 Legislative Developments
Fifteen states have recently proposed or enacted nexus legislation: Florida, Hawaii, Indiana, Kansas, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Jersey, Oklahoma, Pennsylvania, Utah, Virginia

7 Attributional Nexus Barnesandnoble.comLLC (N.M. 2013)
Supreme Court of New Mexico affirmed: For GRT purposes, the in-state activities of an affiliate could be imputed to a “dot com” out-of-state retailer

8 Due Process Nexus – PACT Act
Red Earth LLC (2d Cir. 2011 Gordon(DC Cir. 2013) PACT Act’s requirement – retailers must prepay excise taxes on out-of-state sales – denies due process

9 Due Process – US Supreme Ct
Goodyear (2011) Due Process “minimum contacts” for tax may be tougher standard after all ! “. . . attenuated connections to the state fall far short of the ‘continuous & systematic general business contacts’ necessary to empower [the state] to entertain suit against them on claims unrelated to anything that connects them to the state.”

10 Due Process – US Supreme Ct
McIntyre (2011) “The principal inquiry in cases of this sort is whether the defendant’s activities manifest an intention to submit to the power of the sovereign … and to have that … you must have purposeful availment … In this way, sovereignty prevails over metaphor as authority replaces fairness.”

11 Common Law Doctrines & Sales Tax

12 Common Law Doctrines &Sales Tax
Sham, Economic Substance, Business Purpose Policy Sullivan Bros (WI Cir. Ct.) Dunk & Bright (NY TAT)

13 Intrastate Transactions

14 Intrastate Transactions
Hartney Fuel Oil (Ill. App. Sept. 2012) Held: must follow statutory sourcing rule Source sales to jurisdiction where POs are received Rejected Department’s argument for sourcing based on “totality of circumstances”

15 Intrastate Transactions
RTA v. United Regional Transportation Authority has accused United & American Airlines of operating small sham offices outside Chicago to avoid paying sales tax on fuel in Chicago.

16 Intrastate Transactions
California Enterprise Zone Credits DiCon Fiberoptics (Cal. S.Ct. 2012) Elimination of Enterprise Zone Program A.B. 93 signed by Gov. Brown (July 2013

17 Statutory Discrimination

18 4-R Act CSX v. Ala. (11th Cir. July 2013)
Sales tax on interstate rail carriers is discriminatory Alabama did not provide a sufficient justification for exempting interstate motor and water carriers

19 Internet Tax Freedom Act
Chicago v. StubHub! (IL 2011) Chicago overstepped its home rule authority by attempting to impose a tax obligation under Illinois law.

20 Internet Tax Freedom Act
Performance Marketing (Ill. Cir. Ct. May 2012) Illinois’ “Amazon” law: violated the Commerce Clause because it required retailers with no substantial nexus with the state to register and collect the state’s sales &use taxes violated the ITFA as a “discriminatory tax” on e-commerce

21 SEC Actions

22 SEC Actions Sprint Nextel
SEC initiated an investigation following a suit attempting to collect taxes

23 SEC Actions Hudson Highland
SEC fined Hudson for failing to accurately reflect sales tax liabilities in its books

24 SEC Actions Dell SEC charged two former Dell executives with fraud, alleging misconduct relating to the use of the company’s excess tax reserves

25 Donald M. Griswold Crowell & Moring LLP 1001 Pennsylvania Ave
Donald M. Griswold Crowell & Moring LLP Pennsylvania Ave., NW Washington, DC (202)


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