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Economic Nexus and State Income Taxes: Responding to Latest Developments Responding to Latest Developments Avoiding Traps Triggered by Royalty Income, Support Activities, Excess Sales and Other Indirect Presence

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, SEPTEMBER 13, 2012

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

Mary Reiser, Supervising Consultant, BKD, Kansas City, Mo.y , p g , , y,

Karen Currie, Jones Day, Dallas

Jaye Calhoun, Member, McGlinchey Stafford, New Orleans, La.

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Economic Nexus and State Income T  R di  t  L t t Taxes: Responding to Latest Developments Seminar

Sept. 13, 2012

Karen Currie, Jones Day kcurrie@jonesday.com

Mary Reiser, BKDmreiser@bkd.com

Jaye Calhoun, McGlinchey Stafford jcalhoun@mcglinchey.com

Today’s Program

"P " E i N Slide 8 Slide 11"Pure" Economic Nexus[Mary Reiser]

Evolving Economic And Affiliate Nexus Standards

Slide 8 – Slide 11

Slide 12 – Slide 21Evolving Economic And Affiliate Nexus Standards[Karen Currie]

Factor Presence Developments

Slide 12 Slide 21

Slide 22 – Slide 33[Mary Reiser]

Non-Resident Partner Issues[Jaye Calhoun]

Slide 34 – Slide 46[Jaye Calhoun]

Practical Implications[Mary Reiser, Karen Currie and Jaye Calhoun]

Slide 47 – Slide 60[ y , y ]

N iNotice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation the tax treatment or tax structure or both of any transaction without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

7

“PURE” ECONOMIC NEXUSMary Reiser, BKD

PURE  ECONOMIC NEXUS

“Pure” Economic Nexus

Companies held to have “pure” economic nexus: Intangible holding companies

• Geoffrey• A & F TrademarkA & F Trademark

Credit card companies• MBNA

C it l O• Capital One Franchisors

• KFC

9

“Pure” Economic Nexus (Cont.)( )

New Jersey amends NJ 17:7-1.8 as of Aug. 15, 2011 to establish an economic nexus standard. Tax is imposed on a foreign corporation that “derives receipts from

sources in New Jersey.” Financial business corporation, banking corporation and credit card

companies that obtain or solicit business or derive receipts from New Jersey are subject to tax.

Retroactively effective on Jan. 1, 2002

10

“Pure” Economic Nexus (Cont.)( )

KFC Corporation v. Iowa Department of Revenue: KFC licenses its trademarks and systems to unrelated franchisees in

Iowa. KFC had control over marketing of franchisees.g Court rules the license of this intangible property is the equivalent of

physical presence in Quill. U S Supreme Court denies certiorari on Oct 3 2011 U.S. Supreme Court denies certiorari on Oct. 3, 2011.

11

EVOLVING ECONOMIC AND Karen Currie, Jones Day

EVOLVING ECONOMIC AND AFFILIATE NEXUS STANDARDS

Evolution Of Economic Nexus Standards

• Licensing in stateLicensing in state

• Contracting with third parties in the state

• Activities of affiliates

• Employees telecommuting

13

In re: Scioto Insurance Co., Okla. SSupreme Court No 108943 (May 1 2012)Supreme Court No. 108943 (May 1, 2012)

• Out-of-state insurance company was not subject to tax on payments received under a licensing contractpayments received under a licensing contract.

Not made in Oklahoma No part was to be performed in Oklahoma

• Scioto licensed intellectual property to Wendy’s, which sub-licensed to franchisees in Oklahoma.

• The court noted “due process is offended” by taxation of an out-of-state company based on a contract not made in p yOklahoma.

14

Griffith v. ConAgra Brands, Inc., W.Va. S. Court Of Appeals No. 11-0252 (May 24, 2012)

• Tax was assessed on an out-of-state company related to royalties earned from the licensing of intellectual property usedroyalties earned from the licensing of intellectual property used on food products sold in West Virginia.

• Tax assessment did not satisfy Due Process or Commerce• Tax assessment did not satisfy Due Process or Commerce clauses because: No physical presence in the state Did not sell or distribute products or services in the state Did not sell or distribute products or services in the state All products were manufactured by unrelated or affiliated

licensees outside of the state. f No control of how licensees distributed products Licensees operated no retail locations in state.

15

T SB 2234 (Eff ti A il 27 2012)Tennessee SB 2234 (Effective April 27, 2012)• State pre-approval is required for any subtraction of inter-

company intangible expensecompany intangible expense.

• Historically, intangible expense incurred by a person in ti ith t ti ith ffili t ld bconnection with a transaction with an affiliate could be

deducted from net earnings, if that person satisfied certain disclosure requirements.

• In November 2011, Notice No. 11-17 was issued stating that the Revenue Department had “identified significant concerns

di th b t f th d l i t ti ”regarding the substance of the underlying transactions.”

16

Illinois GIL IT 12-0001 And GIL 12-0007(January 2012)

• Contracting sales of services in the state may establish nexusContracting sales of services in the state may establish nexus.

• Taxpayers offered repair and maintenance services through independent contract service providers.independent contract service providers.

• Use of independent contractors on a regular basis likely creates nexus.

Immunity is provided for only “limited activities” of independent contractors.

17

Virginia Tax Commissioner’s RulingN 12 36 (M h 28 2012)No. 12-36 (March 28, 2012)

• Taxpayer maintains a Web site that provides online profiles and marketing services for businessesand marketing services for businesses.

• Activities of the taxpayer in Virginia were limited to: One employees whose activities in the state were

protected by PL 86-272, and Computer servers in the state that were managed by an

unrelated third party.

• The taxpayer likely had corporate nexus, as maintenance of p y y pthe server equipment clearly exceeded the protections of PL 86-272.

18

New York TSB-A-12(1)C AndTSB A 12(2)S (F b 9 2012)TSB-A-12(2)S (Feb. 9, 2012)

• Use of an unaffiliated in-state company, for purposes of ti t f t d t t ithaccepting payment for customers, does not create nexus with

New York.

• Payment processing service provider contracts with in-state retailers to collect cash payments on behalf of customers.

• New York concluded this should be treated as a fulfillment service, and no nexus is incurred if unaffiliated.

19

Washington Tax DeterminationN 10 0057 (D 20 2011)No. 10-0057 (Dec. 20, 2011)

• Mail order retailer located outside of Washington had substantial nexus with the state for business and occupationsubstantial nexus with the state for business and occupation tax purposes, because of activities conducted by affiliate in the state.

• Affiliate performed services on behalf of the out-of-state retailer, including: S lli ift d Selling gift cards Distributing catalogs Assisting with returns

• Extending sales tax affiliate nexus concepts to additional taxes

20

Telebright Corp. v. Director, New Jersey DivisionOf Taxation, N.J. Super. Ct., App. Div., Dkt.

No. A-5096-09T2 (March 2, 2012)• New Jersey Superior Court, Appellate Division, upheld a Tax

C t li th t t f t t ti h d d tCourt ruling that an out-of-state corporation had nexus due to an employee telecommuting in the state.

• Imposing tax based on one fulltime employee in the state did not violate the Due Process Clause.

• The employee’s daily activities were sufficient to satisfy the substantial nexus requirement of the Commerce Clause.

• Sufficient connections existed, because the company could file suit in New Jersey to uphold the restrictive covenant in the employment contract.

21

p y

FACTOR PRESENCE Mary Reiser, BKD

DEVELOPMENTS

Factor Presence Developmentsp

Some states established factor-based nexus standards. Modeled on the MTC factor basis nexus standard for business

activity taxes

Substantial nexus is established if any of the following thresholds is exceeded during the tax period: A dollar amount of $50 000 of property orA dollar amount of $50,000 of property, or A dollar amount of $50,000 of payroll, or A dollar amount of $500,000 of sales, or

T t fi t f t t l t t t l ll t t l l Twenty-five percent of total property, total payroll or total sales

23

Factor Presence Developments (Cont.)

Factor-based nexus states imposing income taxes: California adopted factor-based standard for tax years beginning on

or after Jan. 1, 2011. Colorado adopted a factor-based standard effective April 30, 2010.p p , Connecticut adopted a factor-based standard for tax years

beginning on or after Jan. 1, 2010.

24

Factor Presence Developments (Cont.)

Factor-based nexus states imposing gross receipts or business activity taxes:

Ohio adopted one for its commercial activity tax for periods p y pbeginning July 1, 2005.

Washington adopted one for its business & occupation (b&o) tax effective June 1, 2010 for certain apportionable businesses , pp(including services).

Oklahoma adopted one for its business activity tax for tax years beginning on or after Jan. 1, 2010.g g ,

25

Factor Presence Developments (Cont.)

Ohio commercial activity tax:

Ohio Grocers Assn. v. Levin (2009) Ohio Constitution prohibits a sales or excise tax from beingOhio Constitution prohibits a sales or excise tax from being

imposed on certain food for human consumption. Ohio Supreme Court rules CAT is not a sales tax.

26

Factor Presence Developments (Cont.)

Ohio commercial activity tax (Cont.): L.L. Bean

Retailer with online sales to Ohio customers L L Bean challenged based on “substantial nexus” under theL.L. Bean challenged based on substantial nexus under the

Commerce Clause. Commissioner determined L.L. Bean had substantial nexus. L L Bean has appealed to the Board of Tax Appeals; a hearing L.L. Bean has appealed to the Board of Tax Appeals; a hearing

is scheduled for 2013.

27

Factor Presence Developments (Cont.)

Washington business & occupation tax: Lamtec Corporation v. Department of Revenue, State of Washington

(2011) Lamtec is a manufacturer in New Jersey.y Lamtec has sales representatives that visit Washington on two to

three days per year. Lamtec challenged based on “substantial nexus” under theLamtec challenged based on substantial nexus under the

Commerce Clause. U.S. Supreme Court denied certiorari on Oct. 3, 2011.

28

Factor Presence Developments (Cont.)

Other states with economic nexus standards: Texas

Tex Admin. Code 3.586: Franchisors entering into contracts with persons, corporations or other business entities in Texasp , p

Oregon Ore. Admin. R. 150-317.010: Significant gross receipts

attributable to Oregon customersattributable to Oregon customers

29

Factor Presence Developments (Cont.)

Other states with economic nexus standards (Cont.): Michigan

MCL 206.621(1): Actively solicits sales in this state and has gross receipts of $350,000 or moreg p $ ,

These states only represent a few states with notable economic nexus standards or nexus standards referencing gross receipts. There are other states with economic nexus standards.

30

Factor Presence Developments (Cont.)

Texas franchise tax: Allcat (2011)

Allcat contended the tax violates the Texas Constitution, because it taxes the partnership income of a natural person.p p p

Allcat contended the tax violates the Texas Constitution, because it was not approved by Texas voters.

Texas Supreme Court ruled the tax constitutionalTexas Supreme Court ruled the tax constitutional.

31

Factor Presence Developments (Cont.)

Texas franchise tax (Cont.): Nestle USA, Inc. (2012)

Nestle petitioned the Texas Supreme Court. Texas Supreme Court dismissed for want of jurisdictionTexas Supreme Court dismissed for want of jurisdiction. Nestle paid the 2012 tax and filed protest and suit against the

Comptroller.

32

Factor Presence Developments (Cont.)

Texas franchise tax (Cont.): Nestle asserts the following arguments:

• Tax violates Equal and Uniform Clause of the Texas and U.S. constitutions.

• Tax violates the Due Process Clause of the U.S. Constitution.

• Tax violates the Commerce Clause of the U S ConstitutionTax violates the Commerce Clause of the U.S. Constitution. Oral arguments have been scheduled for Sept. 18, 2012.

33

NON‐RESIDENT PARTNER Jaye Calhoun, McGlinchey Stafford

ISSUES

Economic Nexus Theories Extending ToEconomic Nexus Theories Extending ToRecipients Of Flow-Through Income

• States are increasingly moving in the direction of asserting jurisdiction to tax over corporations that are non-resident partners, members or shareholders of pass-through entities.members or shareholders of pass through entities.

• Proponents believe physical presence is not required.• Economic “presence” results from “purposeful availment” of the

economic market in a stateeconomic market in a state. • Proponents cite Quill:

– Alleged “reluctant affirmance” of the physical presence i trequirement

– “Contemporary Commerce Clause jurisprudence might not dictate the same result, were the issue to arise for the first time toda ”today.”

35

Economic Nexus Theories Extending TogRecipients Of Flow-Through Income (Cont.)

• International Harvester v. Wisconsin Dept. of Taxation, 322 US 435 (1944):

Wisconsin tax on the privilege of declaring and receiving– Wisconsin tax on the privilege of declaring and receiving dividends, collected from the payor corporation; non-resident shareholders“It has never been thought that residence within a state or– It has never been thought that residence within a state or county is a sine qua non of the power to tax.”

• Wisconsin v. JC Penney Co., 311 US 435 (1940) –N i t if th ti il it lf f th– Nexus is met if the corporation avails itself of the “substantial privilege of carrying on business within the State.”

36

Economic Nexus Theories Extending ToEconomic Nexus Theories Extending To Recipients Of Flow-Through Income (Cont.)

• Does the mere receipt of income from the flow-through entity doing business in the state create “economic presence” in the state?

• Is the corporate partner, member or shareholder “purposefully availing” itself of the benefits of the state through the flow-through entity?

• States can tax income of non-resident individuals arising from gproperty or business activities in the state. Do the same considerations under Commerce Clause apply to corporations?

37

Due Process Clause(F i C )(Fairness Concerns)

• No state “shall deprive any person of life, liberty or propertyNo state shall deprive any person of life, liberty or property without due process of law.”

• Requires “some definite link, some minimum connection, between a state and the person, property or transaction it seeksbetween a state and the person, property or transaction it seeks to tax”

• Quill Corp. v. N.D. (1992): Due process embodies “traditional notions of fair play and substantial justice.”notions of fair play and substantial justice.

• Due Process Clause asks whether an individual/business has connections with a state that are substantial enough to allow the state to legitimately exercise jurisdiction over the state to eg t ate y e e c se ju sd ct o o e t eindividual/business.

38

From Physical Presence ToM t h i l PMetaphysical Presence

• Scripto (1960): An agent including an independent agent mayScripto (1960): An agent, including an independent agent, may create taxable nexus in a state even though the agent does not work fulltime, and the company has no localized place of business in the state.

• Standard Pressed Steel (1975): Presence of an employee can• Standard Pressed Steel (1975): Presence of an employee can create nexus.

• National Geographic Society (1977): Physical presence need not relate to the transactions being taxed; presence of d ti i ffi / t ff t d f il d b iadvertising offices/staff created nexus for a mail-order business.

• Tyler Pipe (1987): Independent sales rep supplied requisite nexus by helping the manufacturer to establish and maintain its market in the state.

3939

Quill Corp. v. North Dakota, 504 U.S. 298 (1992)

– Commerce Clause requires a physical presence in the state before a state may impose a use tax collection responsibility.y p p y

– No such physical presence requirement applies, for Due Process purposes.Process purposes.

– Tax jurisdiction requires a connection like that needed to support general in personam jurisdictionsupport general in personam jurisdiction.

40

Due Process

• Asahi Metal Indus. Co., Ltd. v. Superior Ct. of Cal.,480 U S 102 (1987): “The placement of a product into the480 U.S. 102 (1987): The placement of a product into the stream of commerce without more is not an act of the defendant purposefully directed toward the forum state.”

• Burger King v Rudzewicz 471 U S 462 (1985): The connection• Burger King v. Rudzewicz, 471 U.S. 462 (1985): The connection to a state that is necessary to support in personam jurisdiction is purposeful direction of activities into state.

• World Wide Volkswagen Corp v Woodson• World-Wide Volkswagen Corp. v. Woodson,444 U.S. 286 (1980) : The requisite contacts with a state must come as a result of defendant’s (i.e., taxpayer’s) own activities.

41

Due Process (Cont )Due Process (Cont.)

• Shaffer v. Heitner, 43 US 186 (1977): A state may not impose in rem jurisdiction on a non-resident shareholder of a corporation; i.e., ownership of stock does not meet the minimum contacts requirement of the Due Process Clause.

• “All assertions of state jurisdiction must be evaluated accordingAll assertions of state jurisdiction must be evaluated according to the standards set forth in International Shoe and its progeny.”

• Neither ownership of stock nor being a corporate officer gives• Neither ownership of stock nor being a corporate officer gives the state jurisdiction over shareholders.

42

Do Economic Presence Nexus StandardsDo Economic Presence Nexus Standards Violate Due Process Clause, As Applied To

Corporate Owners Of Flow-Through Interests?p g

• Since flow-through entities are recognized as separate legal titi h th i ti iti / b tt ib t d tentities, how can their activities/presence be attributed to

beneficial owners? – Wasn’t privilege granted to the in-state flow-through entity,

t th t b fi i l ?not the corporate beneficial owner?– Doesn’t this approach conflict with limitation of liability laws

implicit in the form of organization of the sub? – Inconsistent treatment issues

43

Do Economic Presence Nexus Standards Violate The Due Process Clause, As Applied To Corporate Owners Of Flow-Through Interests?

• J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011):– Machinery manufacturer did not evidence intent to invoke or benefit

from the protection of the state’s laws and so was not subject tofrom the protection of the state s laws, and so was not subject to jurisdiction under the Due Process Clause.

– Asahi: Jurisdiction was appropriate when the defendant places goods into the stream of commerce “with the expectation that they will be purchased by consumers within the forum state …”

• Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846 (2011)

• Potentially applicable to state assertions of jurisdiction over limited partners and limited liability company members, intangible holding companies and remotely operating businesses

44

New Technology: Virtual Presencegy• Bensusan Restaurant Corp. v. King, 937 F.Supp. 295 (S.D.N.Y.

1996):1996):– Web site owned by a Missouri company, located on a

Missouri server, was “visited” by New York residents over the Internetthe Internet.

– Not sufficient contact (purposeful direction) under Due Process Clause

R d E th LLC U it d St t 657 F 3d 138 (2 d Ci 2011)• Red Earth LLC v. United States, 657 F.3d 138 (2nd Cir. 2011):– Preliminary injunction upheld questioning constitutionality of

PACT Act dealing with mail-order cigarettes.• Zippo Mfg Co. v. Zippo Dot Com, 952 F.Supp. 1119 (W.D. PA

U.S. Dist. Ct., 1997):– “Interactive” Web sites create personal jurisdiction.

45

Pending Issuesg

• How do the states react to the denial of cert by the Supreme Court in nexus cases?

• Will states become more creative in expanding what constitutes substantial nexus?

• Will states expand use of economic nexus to foreign commerce?

46

Mary Reiser, BKDK  C i  J  D

PRACTICAL IMPLICATIONS

Karen Currie, Jones DayJaye Calhoun, McGlinchey Stafford

PRACTICAL IMPLICATIONS

Practical ImplicationsPractical Implications

• Different standards for different taxes?Different standards for different taxes?

• Dealing with uncertainty

• How states “find” taxpayers

• Handling economic nexus assertions

48

Different Standards For Different Taxes?Different Standards For Different Taxes?• Quill was a “use tax” case.

• Does use tax burden require a higher level of nexus?

• Are income taxes less burdensome than collecting use tax?

U S S C t i illi t i ( f t)• U.S. Supreme Court is unwilling to review (as of yet).

49

Dealing With UncertaintyDealing With Uncertainty• Disclosures for public companies

• Reserves for non-filing positions

• Voluntary compliance

VDA t• VDA vs. amnesty

• Other options

50

H St t “Fi d” THow States “Find” Taxpayers• Secretary of State qualification• Sales tax filings• Payroll tax filings (Form W-2, Form 1099, unemployment tax,

etc.))• Other tax filings (property taxes, local business taxes)• Affiliate disclosures• Advertising• Advertising• Trademark registrations• Customer audits or registration

51

Handling Economic Nexus AssertionsHandling Economic Nexus Assertions

• Do you concede nexus by answering a nexus questionnaire?Do you concede nexus by answering a nexus questionnaire?

• Why disclose actual income in response to a state’s demand for data?for data?

• Should the state asserting nexus have the right to determine nexus?

52

Voluntary Disclosure Agreementsy g

Provide opportunity to rectify unreported tax liability with the state all year

Provide limited exposurep

Provide opportunity to negotiate

Provide limited tax lookback period Generally three to six 6 years

Provide penalty, and sometimes interest, relief

53

Tax Amnesty Programsy g

Provide limited opportunity to pay unreported or under-reported tax

Does not provide limited exposure

Does not provide limited tax lookback period

P id lt d ti i t t li f Provide penalty, and sometimes interest, relief

54

Nexus ReviewNexus Review1. Nexus review – be proactive: Don’t wait until you receive a

nexus survey a letter from an auditor or a call from a remotenexus survey, a letter from an auditor or a call from a remote state’s tax department asking why you haven’t filed.

2. Not your grandparents’ nexus standard: When can a seller/service provider/business operating over the Internet be subject to a remote state’s business activity taxes or besubject to a remote state s business activity taxes or be required to collect the remote state’s use taxes? Are Due Process and Commerce Clause principles still relevant? What about PL 86-272?about PL 86-272?

3. Don’t let your guard down: Watch for new developments

55

Economic Presence Nexus StandardsFactor Presence Standard

• An out-of-state taxpayer doing business in a state will have substantial nexus with the state, and be subject to its franchise and income tax, if any of the following thresholds are exceededand income tax, if any of the following thresholds are exceeded in the state during the tax period: – $50,000 or 25% of the total property,– $50 000 or 25% of the total payroll or– $50,000 or 25% of the total payroll, or– $500,000 or 25% of the total sales.

O ( f C ) C f ( ff 1 2011)• Ohio (as part of the CAT) and California (effective Jan. 1, 2011) have adopted a “factor presence nexus standard.”

56

How To Respond To A Nexus SurveyHow To Respond To A Nexus Survey

• Very, very carefully!y, y y

57

Potential Economic Nexus-Creating A ti iti ?Activities?

Selling in home state to a customer in another state Customer comes into store to buy product and returns to home state. Customer comes into store to buy product, and store arranges delivery

to customer in neighboring state. Customer calls to order product.

• AdvertisingAdvertising– Local newspaper with Internet site– National newspaper– Send flyers into a specific state– Send flyers in a nationwide mailing– Radio advertisement – Advertise on a local television station

Nationwide television ad– Nationwide television ad – Does the type of advertising matter? Goodwill vs. product solicitation

• If you have advertising nexus, must the company refuse to sell to customers from economic presence states in order to avoid filing

ibilit ?responsibility?

58

What Are Limitations Of Economic Presence Nexus?

C ll t i h t t i ti id li it ti• Call center in home state engages in nationwide solicitation• 86-272 protected solicitation?• Web page invites customers to sellers location in neighboring state.

W b i it t t ll t l d• Web page invites customers to call to place order.• Web page allows for online orders.• Web page provides access to database for a fee.

D it tt if k l ti f t ?– Does it matter if you know location of customer?– Mail out product vs. downloaded product paid via PayPal

• E-mail sales solicitation to purchased e-mail address list, where addresses are not state specificaddresses are not state-specific

• Do Internet sellers have to screen customers for home state location, to determine whether to sell to them to avoid filing responsibility?

59

Are There Limits To Economic Nexus?• New Jersey economic nexus case

• Quark, Inc. v. Director, Div. of Taxation, N.J. Tax Court Docket No. 005744-2003 (Aug. 13, 2009) ( g , )

• New Jersey’s revenue department assessed its corporate income tax on two software companies, citing Lanco (188 N.J. 380) as its authority.

• Both software companies had very modest sales in the state (under MTC’s $500,000 sales threshold).

• New Jersey Tax Court rejected the revenue department’s argument finding this case is different than Lanco (intangibleargument finding this case is different than Lanco (intangible property v. tangible copyrighted property).

• No affiliation with an entity that had a physical presence in New Jersey; this was an operating entity not a holding companyNew Jersey; this was an operating entity, not a holding company created to generate a tax benefit

60