Monday, May 16, 2011

Supreme Court Declines Opportunity To Rule On Income Tax Nexus

In Asworth, LLC, several closely held business taxpayers sought review by the U.S. Supreme Court of a Kentucky Court of Appeals decision that held that (1) tax on income of an out-of-state corporate partner holding passive investment interests in entities with in-state business operations satisfied the Commerce Clause's substantial nexus requirement and (2) tax legislation retroactively denying interest on overpayments for up to 17 years was valid. The Supreme Court refused to grant certiorari. As a consequence, it remains unclear whether an out-of-state taxpayer with no physical presence in a taxing state is subject to a state or local tax other than sales and use taxes. For now, taxpayers and their advisors will have to look at each state for an answer, unless—one hopes—the Supreme Court agrees to review and address this important issue and finally provide some much needed uniformity. (M. F. Sommer, J. S. Smart, and J. Y. Barber, 13 Business Entities No. 2, 20 (March/April 2010).)

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