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Lanco, Inc. v. Director, Division of Taxation

Reversing the judgment of the Tax Court, the Superior Court of New Jersey, Appellate Division found for the Director, Division of Taxation.

This case presented the important question, as the Tax Court stated it, of "whether New Jersey may constitutionally subject a foreign corporation to the Corporation Business Tax N.J.S.A.54:10A-1 et seq., 'the CBT'), where the corporation has no physical presence in the state and derives income from a New Jersey source only pursuant to a license agreement with another corporation that conducts a retail business here." Lanco, Inc. v. Director, Div. of Taxation, 21 N.J. Tax 200, 203 (Tax 2003). The critical issue presented was whether or not the taxpayer must have a physical presence in the state in order to constitute the required "substantial nexus" necessary to satisfy the Commerce Clause under Quill Corp. v. North Dakota, 504 U.S. 298, 112 S. Ct. 1904, 119 L. Ed. 2d 91 (1992), which applied that test and held physical presence was necessary in the context of a sales and use tax.

In its August 24, 2005 unanimous opinion delivered by Judge Stern, the Appellate Court found that the physical presence requirement applicable to use and sales taxes is not applicable to income tax and that the New Jersey Corporation Business Tax may be constitutionally applied to income derived by plaintiff from licensing fees attributable to New Jersey.

NOTE: The Appellate Court resolved the critical issue under review, and remanded to the Tax Court for resolution of all open issues or questions which arise in light of the judgment. However, because of the constitutional issue involved, the Appellate Court stayed the remand if plaintiff files a timely direct appeal or, to be safe in case the Supreme Court does not consider the issue "substantial," see R. 2:2-1(a)(1), pending decision on a petition for certification.

Lanco, Inc. v. Director, Division of Taxation

Last Updated: Monday, 02/24/20