U.S. SC sees no need to review Mass. decision

John O'Brien Jun. 22, 2009, 8:31pm

WASHINGTON (Legal Newsline) - The U.S. Supreme Court has decided not to hear the appeal of a Massachusetts decision that requires out-of-state corporations to pay state taxes if they have a "substantial nexus" in the state.

Capital One was petitioning a January decision by the Massachusetts Supreme Court for review. In that case, the company said it should not have to pay taxes in the state because it did not have any in-state offices or employees.

The Massachusetts court found a "substantial nexus" was needed to allow taxing instead of a "physical presence."

"By issuing credit cards with the 'Capital One' logo to Massachusetts customers, the Capital banks essentially were guaranteeing payment to merchants of the amounts charged by those customers, if approved," the decision says.

"The Capital banks bore the risk of a cardholder's nonpayment. In the event of such nonpayment, the Capital banks worked with collection agencies and Massachusetts attorneys to collect delinquent accounts, which included the filing of civil actions on behalf of the Capital banks in Massachusetts courts.

"When necessary, the Capital banks obtained garnishments or liens against their customers' personal property, and, on two occasions, secured writs of execution against Massachusetts real property."

Capital One hired former U.S. Solicitor General Ted Olson, who frequently argues before the U.S. Supreme Court.

Massachusetts Attorney General Martha Coakley's office was representing the state's Commissioner of Revenue.

Toys R Us subsidiary Geoffrey, Inc., was also challenging the tax law.

Of note in the Massachusetts decision was the usage of a West Virginia Supreme Court decision from 2006. It involved MBNA America Bank's challenge to the "substantial nexus" requirement, arguing a "physical presence" test was more appropriate.

The Massachusetts court followed West Virginia's reasoning.

From Legal Newsline: Reach John O'Brien by e-mail at john@legalnewsline.com.

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