Interstate Tax Strategies

Interstate taxation is based on the the concept of NEXUS.  Nexus is typically created for income tax purposes if an entity derives income from sources within the state, owns or leases property in the state, has employees in the state in activities that exceed “mere solicitation,” or has capital assets or property in the state.

State Income Taxation

Northwestern States held that a state could constitutionally impose a nondiscriminatory, fairly apportioned net income tax on an out-of-state corporation engaged exclusively in interstate commerce in the taxing state. “For the first time outside the context of property taxation, the Court explicitly recognized that an exclusively interstate business could be subjected to the states’ taxing powers.” Thus, in Northwestern States, foreign corporations that maintained a sales office and employed sales staff in the taxing state for solicitation of orders for their merchandise that, upon acceptance of the orders at their home office in another jurisdiction, were shipped to customers in the taxing state, were held liable to pay the latter’s income tax on that portion of the net income of their interstate business as was attributable to such solicitation.

Interstate Tax Strategies 1

Nexus, also called “sufficient physical presence,” is a legal term that refers to the requirement for companies doing business in a state to collect and pay tax on sales in that state. For example, if you sell goods or services in Los Angeles, you must file and pay California state taxes.

Sales tax nexus is different for income tax nexus.

Interstate trade

Interstate trade is the exchange of capital, goods, and services across state borders. In the U.S, such trade represents a significant share of gross domestic product (GDP). In interstate tax strategies, we take advantage of tax rate & regulatory differentials among 50 states, counties, cities and other tax & regulatory jurisdictions to cut income & sales tax to the legal minimum.

Ellis & Tax Saving Opportunities

We explore all tax savings opportunities by mixing and matching tax rates among 50 states. The goal is avoid nexus is high tax states and establish nexus in tax free or low tax states. Historically, we have saved income tax for 100% of our  our interstate clients. When that happens, sometimes the tax savings are enormous.

The Commerce Clause describes an enumerated power listed in the United States Constitution (Article I, Section 8, Clause 3). The clause states that the United States Congress shall have power “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes. 

 

The Fifth and Fourteenth Amendments to the United States Constitution each contain a due process clauseDue process deals with the administration of justice and thus the due process clause acts as a safeguard from arbitrary denial of life, liberty, or property by the government outside the sanction of law.

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