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1 Jordan King & Joseph Henchman, Scholastic Books Faces State Tax Overreaching 1 (2012)

handle is hein.taxfoundation/ffdaaxz0001 and id is 1 raw text is: FONAINFiscal Fact May 15, 2012 No. 300 Scholastic Books Faces State Tax Overreaching By Jordan King &Joseph Henchman Introduction For decades, American schoolchildren have purchased books and other educational materials from Scholastic Book Club, Inc., which seeks to foster good reading habits and compliment classroom education. However, courts in two states (Connecticut and Tennessee) have ruled this year that Scholastic owes back sales and use taxes, despite the fact that the company has neither property nor employees in those states, potentially disrupting Scholastic's mission. The Scholastic cases reflect the ongoing debate about state tax authority, and the need for clearer rules on the proper extent of a state's power to impose tax obligations on out-of-state companies. The Proper Scope of State Power to Tax: Physical Presence vs. Economic Presence There exist two competing views of when states may properly assert the power to tax: physical presence nexus and economic presence nexus. Physical presence nexus means that the state can assert the power to tax on any individual or business that has a real, tangible presence in a state, such as with the presence of property or employees. Economic presence nexus proponents believe that states should have the power to tax any company that has customers in the state from which the company derives income.' Multistate companies, catalog sellers, and online retailers are the businesses most likely to be tripped up by unclear nexus rules. While both presence standards have been argued before many courts, physical presence has evolved as the stronger standard. This can be attributed to the clarity of the argument: if a business is located in a jurisdiction, then it is liable for a tax. Economic nexus is difficult to know in advance because a company's out-of-state customers must demonstrate enough of a link to act as though the company were located in that Jordan King is an Adjunct Scholar and Joseph Henchman is Vice President of Legal & State Projects at the Tax Foundation. See Chris Atkins, Does the Commerce Clause Protect Commerce or State Coffers?, TAX FOUNDATION TAX POLICY BLOG (Dec. 12, 2006), hilvpvi Jr-n1tflo.orgin wI,,8s b128 .

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