It seems that if New Jersey had its way, it would deem every website as effectively doing business in Trenton.
The state’s Division of Taxation finalized a rule in June that treats online interactions—such as responding to a customer email or soliciting sales through internet cookies that gather customer data—as enough to trigger state corporate income tax liability, regardless of physical presence.
Some companies are upset, and they have good reason to be. Federal law has long protected out-of-state businesses from income tax obligations as long as their in-state activity didn’t amount to more than soliciting sales of goods.
New Jersey’s implicit argument is that passive website functions erase these federal safeguards, which sounds like jurisdictional wishful thinking.
It’s tempting to view this as a logical follow-up to the US Supreme Court’s decision in South Dakota v. Wayfair, which allowed states to impose sales tax on out-of-state sellers without a physical presence. But Wayfair was about sales tax, an entirely separate tax framework from income tax that falls outside the scope of this federal protection.
New Jersey is following the Multistate Tax Commission’s nonbinding guidance and hiding behind it as if it were law. But if the courts let this policy justification slide, there’s nothing stopping all other states from doing the same—throwing open the state corporate tax floodgates.
Businesses with no physical presence could end up filing corporate income tax returns in tens of jurisdictions simply because they responded to an email, hosted a chatbot, or placed a cookie in-state. This would be a compliance burden that only national chains and multinational enterprises could shoulder.
—Andrew Leahey
Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts analyzed the recent Medtronic transfer pricing ruling, the work opportunity tax credit, and more.
The Exchange—It’s where great ideas on tax and accounting intersect.
Insights
‘Deficit Day’ Is No Cause to Celebrate as Spending Exceeds Taxes
With federal spending outpacing tax revenue collection, Americans should get used to a new normal of higher inflation as the US government’s deficit continues to grow, an economist and political scientist say.
California Business Deals Freeze When Tax Audits Enter Picture
Surging sales tax audits in California can delay the sale of a business if parties fail to make tax clearance a must-have before closing.
US Competitiveness and Tax Certainty Offers EU a Growth Model
European policymakers convening to assess the latest economic impact that Trump administration’s policies will have on their economies should take a proactive—not reactive—steps to foster competitiveness across the EU.
First UAE Corporate Tax Return Filing Brings Challenges, Lessons
As the deadline for the first corporate tax return in the United Arab Emirates approaches, businesses, with no case law or audit history to draw on, must prioritize accuracy and transparency to support their tax position.
Work Opportunity Tax Credit Is US Labor Strategy’s Missing Piece
The Trump administration and Congress should preserve and strengthen the work opportunity tax credit, set to expire Dec. 31, to help struggling employers find talent and to help millions of Americans eager to work.
NY, NJ SALT Cap Ruling Poses Risks for States’ Charitable Funds
A recent court decision limiting New York, New Jersey, and Connecticut’s ability to bypass the federal cap on state and local tax deductions is a warning to taxpayers to be wary of tax planning strategies that seem too good to be true.
California Cannabis Excise Tax Cut Would Be a Welcome Change
California cannabis businesses would benefit from an excise tax rate reduction, but they should review operational legal and accounting documents and be careful when applying tax exemptions.
Medtronic Ruling Shows Risks of ‘Check-the-Box’ Transfer Pricing
The Eighth Circuit’s decision in a dispute over how Medtronic priced its intercompany licenses shows that the crux of transfer pricing cases is how companies, and the government, perform their analysis.
Florida’s Commercial Rent Sales Tax Repeal a Boon for Businesses
Attorneys, business owners, and property managers should counsel clients on navigating Florida’s upcoming sales tax repeal for commercial rents.
Columnist Corner
States bringing digital products into their sales tax codes should define them based on their purpose rather than their form, Andrew Leahey writes in his latest Technically Speaking column, adding that such categorization would be “both cleaner for policymakers and closer to how consumers experience their digital lives.”
The Multistate Tax Commission’s minimal human intervention standard for digital products and its reliance on international tax bodies for guidance won’t give states the clarity they need, Andrew argues. Read More
News Roundup
US Companies Raise Alarms as Global Tax Deal Rewrite Drags On
US multinational companies are telling Congress members and the Trump administration that negotiations at the OECD to rewrite major parts of the global minimum tax framework are going too slow.
Brain Drain at IRS Chief Counsel to Stymie GOP Tax Law Rollout
A smooth rollout of President Donald Trump’s multitrillion-dollar tax-and-spending law hangs on the IRS’s legal department, which lost hundreds of workers prodded by administration resignation offers.
Abolishing Property Taxes in Florida Won’t Be an Easy Task
Florida lawmakers are no closer to Gov. Ron DeSantis’s goal of eliminating property taxes after two days of hearings, causing several to concede more study is needed to find strategies for replacing the billions in revenue that would be lost.
IRS Extends Deferred Resignation Offer to Workers on Admin Leave
IRS employees who are on administrative leave once again have been given the option to take a deferred resignation offer, according to two people familiar with the situation.
Tax Management International Journal
Do Investors Understand the Stakes of Coca-Cola’s $18B Tax Case?
Investors may not appreciate the stakes of Coca-Cola’s long-running transfer pricing battle with the IRS.
Tax Management Memorandum
Six Key Tax Considerations that Will Make or Break a Startup
An Alpine Mar practitioner discusses six key tax considerations for startups to be financially successful.
Career Moves
Former DOJ Tax Division Attorney Rillotta Joins Meadows Collier
Joseph Rillotta joined Meadows, Collier, Reed, Cousins, Crouch & Ungerman as a partner in its tax controversy and litigation and white-collar defense practices, the firm announced Tuesday.
ArentFox Recruits Private Wealth Partner Wolven in Chicago
ArentFox Schiff hired Lauren Wolven as a partner in its private clients, trusts & estates practice in Chicago, the firm announced Wednesday.
Wiggam Adds IRS Veteran Betty Carter to Tax Resolution Team
Betty Carter joined Wiggam Law as a tax resolution professional in Atlanta, the firm announced Wednesday.
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