2019 Year-End Tax Guide

THE MARCUM 2019 YEAR-END TAX GUIDE | www.marcumllp.com

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NEXUS DEFINITION EXPANDING? In the wake of the Wayfair decision, a few states have passed economic nexus threshold provisions regarding income tax nexus. Unless judicial action curtails state attempts to expand nexus and apply the Wayfair decision to other forms of state taxation, 2019 may be the start of yet another trend, as states move to expand their revenue streams. Hawaii Hawaii recently passed SB. No 495, which states that beginning in taxable years after December 31, 2019, physical presence is not required for income tax nexus. A taxpayer that exceeds 200 business transactions or $100,000 of sales in the state will be required to file an income tax return. Texas The state has issued a proposal which states that nexus will be established if a taxable entity has gross receipts of $500,000 or more. If passed, the economic nexus provision would be effective as of January 1, 2020. Washington Initially established in 2010, an economic nexus provision regarding Washington’s Business and Occupation Tax (“B&O Tax”) threshold has been adjusted effective January 1, 2020. The new threshold is $100,000 of gross receipts.

Other While we have seen the definition of nexus expanding since Wayfair, a recent Supreme Court case, North Carolina Department of Revenue v. Kimberley Rice Kaestner 1992 Family Trust, tangentially addresses this issue. In Kaestner, the court affirmed, “The presence of in-state beneficiaries alone does not empower a State to tax trust income that has not been distributed to the beneficiaries where the beneficiaries have no right to demand that income and are uncertain to receive it.” This case serves to illustrate that a state’s ability to assert nexus is limited by the due process clause and that these limits will still be enforced by the court. It will be interesting to observe whether states continue to expand the definition of nexus in 2020.

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