On April 20, the NAM joined with the Council on State Taxation and the National Marine Manufacturers Association in support of an appeal to the Supreme Court of a Massachusetts decision that would allow extensive taxation of out-of-state businesses.
Historically, the Commerce Clause has protected interstate markets from impermissible state tax burdens through the rule that a state may not impose a tax on an out-of-state business unless it has more than a de minimis “physical presence” in the state. However, many states are aggressively seeking to expand their tax revenues by asserting the power to tax the corporate income of out-of-state businesses that have no physical presence in the taxing state.
In this case, Massachusetts has adopted an elastic substantial nexus test which would permit the state to tax the income of any business with customers in the taxing state, even if it lacks any real property, employees or other contacts there.
Our brief provided many examples of difficult and complicated tax situations that will face multi-state businesses should Massachusetts’ system be allowed. The effects will be particularly severe on small and mid-sized businesses because compliance costs are proportionately higher for them.
On June 22, 2009, the Supreme Court declined to hear this appeal. We expect this action will lead more states to adopt business activity taxes (BAT) on companies with no physical presence in those states. The NAM is active in the BAT Coalition and supports BAT legislation that would establish limits on state taxation of interstate commerce.