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Companies being blindsided with taxes?

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    Douglas Lindholm explains corporate tax and State laws

  • Duration 4:56
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-- you want but -- -- of these corporate taxes I mean these -- some pretty inflated numbers are you know do you think that.

When people go into business -- today -- is that they're expecting.

Well done nothing scares businesses away more than uncertainty unpredictability particularly when we're talking about corporate taxes and the issue I wanna talk about today is the issue we called nexus and nexis is connection right and and even though there in the some forty some states and that that let me taxes on corporations.

With with different rules that's bad enough but the great unanswered question in this area -- is.

How much of a presence does a company have to have an estate.

Before they are subject to that -- corporate income tax and we don't really know the answer because this is is a constitutional question and implicates the commerce clause.

And it's a question only Supreme Court and and or congress can answer.

Now the Supreme Court in a decision ten years ago said that for sales taxes.

You have to the company has to have a physical presence before a state can impose force them to collect sales tax.

Now one might wonder why you need a separate rule for income taxes and businesses traditionally.

Felt that physical presence is the rule four.

Imposing -- -- taxes but states recently have been very aggressive about.

Pursuing an.

Income tax nexus that is that connection that the jurisdiction attacks based on a simply economic -- that means.

Not the presence in the company but the presence of the company's customers.

You really have to have a business an actual business located in that state and ordered it be hit with corporate taxes from -- state.

That's that's correct no employees no offices.

No property if all you have is an economic presence in the states -- will pursue that.

And -- -- it's a real trap for the unwary because.

Businesses don't even know what their exposure may be let me give you got a great example this is in the Tampa Bay times.

The other day this from the boat company with 250 employees.

Manufacturing boats in Florida would it was selling -- to Michigan they received.

Tax bill from the state of Michigan.

Where they had no offices no employees no property bill of 376000.

Dollars now for a small company.

With 250 employees that's enough to bankrupt the company so it really is a burden that there needs to be some resolution on.

Sound a little bit thin debate not too long ago with Amazon with I think -- was one particular state that wanted to tax Amazon because it said that it was taking business away.

From the brick and mortar shops within the state but that's state backed down.

They know exactly what -- is the -- -- issue.

Is more with respect to -- -- two to sales taxes and sales taxes and indirect tax because he was honest collecting and on -- have its customers.

What I'm talking about our direct taxes.

Taxes on business activity or corporate income taxes.

Again the Supreme Court said for sales taxes you need a physical presence and what Amazon is arguing that the states -- -- an Amazon is what constitutes a physical presence.

For income taxes the state -- asserting that you don't need a physical presence and arguably and it at all.

You all you need a sales in the state or customers in the states or the presence of an intangible -- -- -- if they've got customers that are carry credit cards into the state.

Credit cards have loans attached to them and those are intangible assets war companies and therefore conceivably that could trigger a tax filing liability.

So -- -- that what's this stuff one company from having to pay.

Corporate taxes then in several different states.

And that's that's the slippery and the the problem is is what is an economic presence there's no bright line here there's no certainty for companies.

And to take -- to -- its extreme let's take an example let's say -- an author.

Of a book and that book wherever -- sold do you earn royalties well now that authors potentially facing.

A filing obligation and every state where that book is sold it's it really does get to to some -- obscenities and states.

I think -- really reaching for things that they they -- that the really aren't there.

-- -- -- you know it's a messy issue when it's getting hunted around like -- football when it comes to.

-- legislators here and our government in general but I know the Supreme Court has consistently declined to address this issue they say congress is better suited for -- -- -- legislation in congress that is meant to clarify this so what's the status on that.

There is indeed it's called the the business activity tax simplification act it's a big name we call -- back -- for short.

It's HR 1439.

And what it would do would impose a single uniform standard.

Physical presence standard for companies before they are forced him to pay -- corporate income tax or other tax on business activity.

It's it's you know it's what we have the most advanced and sophisticated economy in the in the world and it's it's ridiculous that.

States could that the company do not have a single standard by which to assess their liabilities.

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