Bloomberg Tax Survey Finds Diverse State Nexus Standards As Wayfair Decision Looms

ARLINGTON, VA (May 8, 2018) — The variation in states’ use of economic presence in determining nexus for sales tax is one of the key takeaways from the 2018 Bloomberg Tax Survey of State Tax Departments.  With the Supreme Court’s decision in South Dakota v. Wayfair in the offing, 16 states indicated that they have economic presence nexus standards for sales tax, despite the fact that they are currently disallowed under the Court’s prior ruling in Quill v. North Dakota.

Bloomberg Tax queried the states on nexus, tax treatment of pass-through entities and intangible holding companies, conformity to federal tax reform, methods of sourcing income, sales tax refund actions, requirements for reporting federal changes, enforcement, and collection policies.  The survey also features new sections addressing the states’ general apportionment formula and sourcing method, and pass-through entity level nexus.

“State variances in taxation create complexity and risk for businesses, which is magnified in today’s economy,” said George Farrah, Editorial Director, Bloomberg Tax. “Our survey provides unique insights into states’ positions on nexus and sourcing, and serves as a timely reference for tax professionals to better understand states’ tax policies and positions to make well informed tax-planning decisions.”

“As the survey reveals, states continue to struggle in dealing with taxation of cloud computing and digital goods,” said Richard Cram, director of the Multistate Tax Commission’s National Nexus Program.

“The Bloomberg Tax Survey is a wonderful tool for states, taxpayers, and practitioners to identify a particular state’s position on nexus, apportionment and sourcing issues and compare it to the positions of other states.”

Additional survey findings include:

  • Six states said they have passed legislation creating an economic nexus standard that is not currently being enforced due to either the legislation’s effective date or pending litigation.
  • Only two states indicated that they enforced “cookie nexus” policies, where nexus is created when a retailer’s website requires visitors to download internet cookies onto electronic devices in the state. Two additional states said that it “depends.”
  • Sixteen states responded that having a single client within the state would create nexus for corporate income tax purposes.
  • Most states indicated that they did not distinguish between entities for purposes of determining whether a pass-through entity doing business in the state created nexus.
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