Tax News

CCH (cch.taxgroup.com) reports:

  An intangible holding company has asked the U.S. Supreme Court whether Massachusetts violated the Commerce Clause by imposing its corporate excise tax on the company, an out-of-state corporation that does not maintain a physical presence in Massachusetts. The company is incorporated in Delaware and received royalty income from affiliated entities for the licensing of its trademarks, which the affiliates used for retail business activities in Massachusetts. The company argued that its lack of a physical presence in the state precluded Massachusetts from taxing its income.

  The Massachusetts Supreme Judicial Court, however, held that its decision in Capital One Bank v. Commissioner of Revenue, 899 N.E.2d 76 (2009), delivered the same day as its decision in this case, was controlling. (TAXDAY, 2009/01/09, S.10) In Capital One Bank, the state high court held that the physical presence nexus standard in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), is limited to the sales and use tax context, and the proper constitutional standard for the imposition of income-based taxes is the substantial nexus test articulated in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977). The court then held that substantial nexus can be established where a taxpayer domiciled in one state carries on business in another state through the licensing of its intangible property that generates income for the taxpayer. Therefore, the company was subject to the Massachusetts corporate excise tax.

  A petition for review of the Capital One Bank case was recently filed with the U.S. Supreme Court, which has not taken action on it yet. (TAXDAY, 2009/03/25, S.13)

  Subscribers can view the petition in this case.

 
Geoffrey, Inc. v. Massachusetts Commissioner of Revenue, U.S. Supreme Court, Dkt. 08-1207, petition for certiorari filed March 30, 2009