US Tax Court Rules On New Jersey Corporate Taxes

by Glen Shapiro, LawAndTax-News.com, New York

07 November 2003

In a ruling issued late last month, US Tax Court Judge, Peter Pizzuto stated that attempts made by the state of New Jersey to levy corporate taxes on businesses which draw revenue from the state but have no employees or tangible property there are in breach of the Commerce Clause of the US Constitution.

Ruling on Lanco Inc v. Director, Division of Taxation, Judge Pizzuto drew on two previous verdicts in similar cases, namely Geoffrey Inc v. South Carolina Tax Commission and Quill Corp v. North Dakota.

"The decisive question in this case is whether the physical presence requirement confirmed in Quill under the Commerce Clause applies simply to the use tax collection obligation...or whether it is also a necessary element of substantial nexus for the imposition of a state income or franchise tax," he wrote.

According to the New Jersey Law Journal, which reported on the ruling:

"Geoffrey was an interpretation of the US Supreme Court's ruling in Quill Corp v. North Dakota, which bifurcated analysis of long-arm taxing statutes under the Commerce Clause and Due Process Clause. The former clause permits state taxation of interstate commerce when the activity at issue has a substantial nexus to the taxing state. The latter requires an entity to have certain minimum contacts with a taxing jurisdiction to support imposition of a tax."

New Jersey state officials have not yet announced whether they intend to appeal the ruling.

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