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In a recent decision, Telebright Corporation, Inc. v. Director, New Jersey Division of Taxation, A-5096-09T2, ___ N.J. Super ___ (App. Div. 2012), the New Jersey Appellate Division held that an out-of-state corporation that regularly and consistently permits an employee to telecommute from her New Jersey residence is doing business in New Jersey and is therefore subject to the New Jersey Corporation Business Tax Act ("CBT Act").
Telebright Corp. Inc. ("Telebright") is a Delaware corporation that has its offices in Maryland. Telebright employs an individual (the "Employee") in New Jersey to develop and write computer software that becomes an integral part of a product that Telebright provides to its customers. Once the Employee finishes a project, she uploads it to a repository on Telebright's computer server where it becomes accessible to co-employees who deploy it to the company's Web application. She submits her time sheets by computer from New Jersey and is supervised by and reports to a project manager in Boston via e-mail and telephone. Telebright withholds New Jersey income tax from her salary.
The CBT Act requires every foreign corporation to pay an annual franchise tax for the "privilege of doing business" in New Jersey. The New Jersey Division of Taxation's regulations define "doing business" as "all activities which occupy the time or labor of men for profit." Any for-profit corporation carrying out any of the purposes of its organization within New Jersey is deemed to be "doing business" in the state.
The Appellate Division found that the Employee carried out the purpose of Telebright's organization in the state by creating computer code from her New Jersey residence. It therefore held that Telebright is subject to the CBT Act. It analogized the current facts to that of a foreign manufacturer employing someone to fabricate parts in New Jersey for a product that will be assembled elsewhere.
The court rejected Telebright's argument that applying the CBT Act to the facts would violate the Due Process Clause and Commerce Clause of the United States Constitution. The court made clear that taxing a business based on its employing one full-time employee in the taxing state does not violate the Due Process Clause. The state is not imposing the CBT Act because the Employee lives in New Jersey, but rather because she performs work for Telebright in the state. In doing so, the Employee is entitled to all of the legal protections the state provides to its residents. In addition, should the Employee violate her employment contract, the company may file suit in New Jersey court. Based on the foregoing, the court ruled that Telebright has sufficient minimum connections with New Jersey to permit taxation consistent with the Due Process Clause. The court also found the Employee's full-time employment in New Jersey was not de minimus and therefore satisfied the Commerce Clause substantial nexus requirement as set forth in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977).
Day Pitney Advisory
On April 28, Scott Clark, Chair of Day Pitney's Multistate Tax Practice, presented at the Federal Tax Institute of New England 2022 conference, sponsored by the Connecticut Bar Association, on "The Cutting Edges of Multistate Taxation: Pass-Through Entities, Digital Products, Domicile Update, and more."
Scott Clark, chair of Day Pitney's Multistate Tax Practice, is presenting on a virtual panel for the Tax Executives Institute, Inc., Westchester-Fairfield Chapter titled, "Ethics and the Corporate Tax Department" on March 16.
Day Pitney White Paper
Scott Brian Clark’s arrival to the firm was featured in Reuters’ column, Career Tracker: Lawyers on the Move.
The news of Scott Brian Clark joining Day Pitney as chair of the firm's Multistate Tax Practice was featured in Thomson Reuters' The Daily Docket Industry Moves.
Day Pitney Press Release
Scott Brian Clark's arrival to the firm was profiled in a Law360 feature article, "Day Pitney Snags Partner To Chair Multistate Tax Practice."
Glenn Rybacki gives an in-depth summary on what domicile is and the preparations necessary for a potential audit in "Domicile Changes and Audits Increase in Connecticut," his latest entry in State Tax Notes.
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