It’s understandable. Even Chief Justice Roberts was confused back in 2012 when he had to decide whether the new health care mandate was a tax or not, so he decided it was both. What does this have to do with year-end tax planning? Nothing, other than a recently decided Ohio Supreme Court decision holding that Ohio’s Commercial Activity Tax (“CAT”) can be imposed on a company whose only “contact” with Ohio is $500,000 or more in annual sales to customers in Ohio.
While there are many complex Constitutional issues raised by this decision, a more basic premise struck a chord. The premise: why should we care if we are protected by Public Law 86-272? P.L. 86-272 was a gift from the federal government which states that no state or political subdivision can impose a net income tax on income derived in a state if the only activity by the seller is the mere solicitation of sales. Anything beyond (and we could blog for over a year on what goes beyond) “mere solicitation” and all bets are off.
So set in stone is the foundation of P.L. 86-272, the issue I’m about to address wasn’t even raised by the litigants or the Court. If Crutchfield had no presence in Ohio other than $500,000 or more of sales, wouldn’t they be protected by the Public Law? The answer is a clear no. Only the imposition of an income tax is prohibited and it has been well accepted that the CAT is not an income tax.
Crutchfield reminds us that even without the backdrop of ever-expanding state nexus, it is critical for any business involved in any type of interstate commerce to continuously reevaluate what activities they are and are not performing in every jurisdiction. It isn’t enough to simply review what constitutes “mere solicitation” under the Public Law. Other taxes such as the CAT and especially sales tax collection obligations must be reviewed – and what better time to start planning for the future than year-end.
Concerned about getting caught by state nexus rules? Contact me at WBerkowitz@BerdonLLP.com or your Berdon advisor.
Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.
 Crutchfield Corporation v. Testa, 2016-Ohio-7760 (November 17, 2016)