Test 1 Cases Flashcards
Pennoyer v. Neff
• Facts:
o Neff buys a piece of land through an attorney
o Neff leaves the state without oaying the lawer
o Lawyer files a suit against Neff
o When a judgment is made the lawyer wins and he immediately goes to courthouse and puts the land in up for auction.
o The lawyer buys the land from the auction and sells it to Pennoyer
o Neff returns to the state and tries to claim his land, but Pennoyer is the new owner
o Neff files a suit against Pennoyer and it goes all the way to the Supreme Court.
• Court Ruling:
o Supreme Court Ruled in favor of Neff.
• This case lacks due process
National Bellas Hess: Bright line rule: Physical Presence
• Mail order company that was located in Kansas, but was soliciting in Illinois and other state.
o Only worry about Ill.
• Ill. Said that NBH had to collect and remit sales/use tax to them because they have nothing to do with Ill and they don’t have any physical presence. Their only presence in the state was through the USPS.
o Law in Ill about a retailer: anyone engaging in solicitation of catalogs…
o NBH rebutted by saying that Ill. Was violating the DP (minimum contact) and CC (physical presence)
• Courts looked to other Case: Scriptor v. Carson
o A GA company was working in FL, but they did not have employees in FL. However the courts ruled that even though you don’t have any employees in FL, because you have independent contractors, there you are subject to Sales and Use tax.
• After presenting the facts of the Scriptor v Carson case, the courts ruled in favor of NBH because their sole contact was through the USPS. If however the courts ruled in favor of Ill. Then every mailorder company would be subject to sales/use tax in every state they solicit in, therefore effecting interstate commerce.
o Must have physical presence in order to be taxed.
o They also lumped together the DP and CC.
Quill Corp. v North Dakota: DP and CC are looked at separately and Economical Presence, and the reason for
• FACTS
• Quill is another mail order company that is located in Delaware, but shipping catalogs and soliciting in North Dakota. They have about $1mill in sales from N. Dakota.
• Because Quill did not have physical presence, they did not satisfy the CC.
o Therefore they did not have substantial nexus.
o Failed CC test
• Now the courts looked at the DP and wanted to see if they had minimum contact with N. Dakota.
o Because they did not have any stores or employees there, failed the test according to the NBH case
Courts decided to look at a new test: economical presence
• N. Dakota said that Quill has an economical presence in their state because of the amount of sales they have (about $1mill) and because Quill is relying on their state for certain things like the courts and disposal of their catalogs.
• Courts looked at the facts and decided to rule in favor of Quill because if Congress wanted economical presence to be a part of the DP test, then they would have put it in. Quill did satisfy the DP test because they did rely on the state for certain things. The courts also decided to look at DP and CC separately. Quill also failed the CC test because they did not have physical presence/substantial nexus. Just because one of the tests passed doesn’t automatically mean you have nexus, therefore subject to sales/use tax. You need substantial nexus in order to be subject to sales/use tax.
• The courts also ruled in favor of Quill because the state said that they would try to retroactively collect taxes which would be an admin nightmare.
Scriptor v. Carson
• A GA company was working in FL, but they did not have employees in FL. However the courts ruled that even though you don’t have any employees in FL, because you have independent contractors, there you are subject to Sales and Use tax.
Scholastic Book Clubs:
Scholastic books had nexus in a couple of states because the teachers collected money and order forms for Scholastic Books. In return the teachers were given points and books. Therefore they had substantial nexus.
Amazon
- Amazon has associates that apply to let Amazon advertise on their website.
- Amazon pays a commission to their associates when a sell made on amazon through their website.
- Amazon says they don’t have nexus (physical presence) within New York, although they do have associates and pay a commission to them.
- As a result of the associates being paid a commission Amazon has attribution nexus, there subject to collect and remit sales and use tax.
- New York has a law that says you are considered present in New York if you are affiliated through an associate even if you are not present anywhere else.
Complete Auto Transit v. Brady
Income tax and receive 4 prong test
• Complete auto transit was suing being the state because they were taxed a priviledge tax which is unconstitutional.
• The state is taxing the company based on gross receipts and it met the 4 prong test.
o Ok because the 4 prong test has been met
Substantial nexus
Tax is fairly apportioned
Tax doesn’t discriminate against interstate commerce
Tax is fairly related to the services provided by the taxing state
• SFNF: Santa Fe National Forest
• The courts said that this case was not related to the privilege tax because this was about the income tax.
West Virginia v. MBNA
• How important is physical presence for income tax
• MBNA issue credit cards to WVA and they don’t have a physical presence or property in the state.
• The court used the 4 Prong Test to determine if they were eleigible to pay income tax
• Physical presence isn’t necessary for income tax
• The quantity, quantity, and frequency of the business from MBNA met the substantial nexus requirements.
o Frequent flow of monthly bill and credit cards established physical presence.
o The company also relied on the banking system
• Other states sued MBNA and other credit card companies.
• The state won based on the 4 prong test
Important: Attributional nexus and affilitate nexus is constitutional.
Geoffrey v. South Carolina
• A subsidiary of Toy R Us
• Gave licensing rights and trademarks to Toys R Us to use in all of their stores.
o Geoffrey will receive a royalty of 1% of net sales of all stores except certain stores not including South Carolina.
• State said that Geoffrey should pay an income tax on the royalty from the Stores in South Carolina
South Carolina was not mentioned when Geoffrey decided which states Toys R Us cannot use the trademark.
• The intangible trademark is being treated as property, therefore they have substantial nexus.
o South Carolina also provided infrastructure.
Nortwestern Cement Co v. Minn
- PL 86-272 was the reaction to this case
- In order to be protected under 86-272 must be tangible property.
- This is why we may have to collect sales tax, but not subject to income tax.
- Northwestern said that they shouldn’t be taxed because the orders were being shipped from another state, but failed the requirements for PL 86-272 because they had an office
- Minnesota won because Northwestern had an office in their state.
Wrigley
• Wrigley lost their protection of PL 86-272 because of certain actions by their sale force.
o They replaced the gum for the retailer at no cost
o The salespeople also kept inventory in the state
• As a result Wrigley was subject to income tax.
Readers Digest
• Held parent doing business in California, not protected by PL 86-272 because you cant be protected in the state you are incorporated
Dart
• Independent contractors will violate PL 86-272 if they only represent 1 company and they also handled customer complaints and warranties.
Plough
• The taxpayer did not sell tangible personal property because they were intangible property (marketable securities)
KFC
- The franchises of KFC paid royalties to the parent company KFC.
- KFC said that the royalties should be taxed in their state, not in Iowa.
- Iowa said that the royalty payments should be taxed in Iowa because the income is derived from Iowa.
- As a result KFC was liable for income tax.
