Commercial Activity Tax Case Study

subject to the Commercial Activity Tax (CAT). The test states that companies with no connection to Ohio at all are still subject to the CAT if they have sales in the state totaling at least $500,000. The “factor presence test,” which has now come to be referred to as an “economic nexus” standard, makes it clear that there is no need for companies to have any physical connection with the state. However, three out-of-state sellers with no physical presence in Ohio, Crutchfield, Inc., Newegg, Inc., and Mason Companies, Inc., each challenged the CAT arguing that the $500,000 threshold is unconstitutional under the dormant Commerce Clause. The companies lost at the Board of Tax Appeals and lost at the Supreme Court of Ohio when the court found the $500,000 threshold was sufficient to find a substantial nexus between Ohio and the taxpayer. Starting on January 1, 2016, Alabama set forth requirements for certain out-of-state sellers making significant sales in Alabama to collect and remit taxes back to the state. Joe Garrett, with
Likewise, on April 15, 2016, the Illinois General Assembly proposed SB 1041 which would amend Illinois sales tax law to provide that a retailer is presumed to be “maintaining a place of business in this state” if the retailer’s total gross receipts from Illinois sales in the previous year total $1,000,000 or more. Further, Arkansas, Indiana, Utah, and North Dakota have introduced legislation with hopes to change state sales tax nexus rules to establish that out-of-state sellers have presence in the state if gross revenues within the state are in excess of $100,000 or if they complete 200 transactions within the state. Nebraska introduced legislation which would also follow