When do your California clients need to be concerned about collecting other states’ sales and/or use taxes? It seems the answer will depend on which state you’re concerned about.

In two recent New York cases, (Orvis & Vermont Information Processing) the New York Court of Appeals rejected the notion that substantial nexus required substantial physical presence. This, according to the high court, was inconsistent with the U.S. Supreme Court’s Quill decision (see Spidell’s July, 1992 Taxletter).

Orvis had annual sales to New York customers of about 1-1.5 million dollars. On at least 12 occasions, Orvis sent their non New York resident employees into New York to solicit sales. Vermont Information Processing (VIP) also made sales into New York and offered charge free visits of technical personnel to customers’ sites within 60 days after the sale. In both instances, the New York Court of Appeals reversed the lower court’s ruling that New York could not impose a use tax in the absence of substantial physical presence.

The Multistate Tax Commission (MTC) explains that the court’s decision was based on the fact that Quill used the terminology substantial nexus which is not the same as substantial physical presence. Substantial physical presence would require a case by case evaluation of factors such as the number of visits the size of offices, the intensity of direct solicitation, etc.

The MTC went on to explain that Orvis’ systematic visitation to its customers and VIP’s assurance to its customers that it would make such visits was sufficient to constitute nexus under Quill. Therefore, they were required to collect New York use tax on their sales to New York.

In a more recent Florida case, however, an appellate court ruled that Share International, a Texas direct marketer, who sold goods at a trade show in Florida year after year was not liable to collect Florida use tax on mail order sales to Florida residents. The high court felt that since the Florida customer base was insignificant, their annual presence did not create substantial nexus. This decision is directly opposed to the New York cases and Florida will most likely appeal to the State Supreme Court.

So what do we tell our clients? For now, it would be safe to say, if they have any physical presence (i.e. offices, warehouses, sales people, (whether employees or not) trade shows, etc.) in another state that they should collect that state’s tax.