Bloomberg BNA Quotes Peter Barnes: US States' Approach to Nexus and Apportionment – Oddity or New Trend?

Bloomberg BNA quoted Peter A. Barnes regarding the recent Forum on State Considerations for International Tax Reform. Panelists discussed issues such as, nexus standards and apportionment of income within US states and the international community. For the complete article, please click on the link above to view a PDF.
 
Excerpt taken from the article.
 
As  Peter Barnes of  Caplin &  Drysdale and Diann Smith of McDermott, Will & Emery, LLP noted, two landmark cases in the  early 1990s, ITEL  v. Huddleston, 507  U.S.  60 (1993) and Barclays Bank v. The  Franchise Tax Board, 512 U.S.  298 (1994), are responsible for  this dichotomy. In ITELand Barclays the  court ruled that income tax  treaties are expressly applicable only  to  federal income taxes and do  not  apply to state taxes. As a result, a foreign corporation may store goods in the  U.S. without triggering federal tax. However, the  foreign corporation may still  be  responsible for  state taxes.
…
 
As more multinational corporations accept that in an  increasingly global marketplace, the  issue is no  longer whether nexus with a particular jurisdiction exists. Rather, as  Barnes stated, the question becomes what portion of  income is  attributable to  a  particular jurisdiction. The  various methods employed by  the  states to  determine the  amount of in- come tax  owed by an  out-of-state corporation gives rise to several issues.
…
 
The   panelists noted that due to various political factors, it  is  difficult for  the  states to come to  a consensus on  a uniform formula, since each state has different considerations. As Barnes mentioned one possible solution may be  the  Business Activity Tax Simplification Act  of 2013  or  ‘‘BATSA.'' BATSA  would establish a bright-line standard for when a state can impose a net  income tax  or  other business activity tax  on interstate activities. It would define physical presence in a state to exclude a presence of less  than 15 days within a jurisdiction's borders or  transient business activities. This standard would at  the  very  least help both domes- tic  and foreign corporations determine when they may be  subject to tax  on  a state level. 

…
 
U.S.  states may also be  able to  learn a  valuable lesson on  uniformity   from  the   international  community.  The   Value Added System adopted by many countries may serve to provide a  uniform tax  base and rate at  a  subnational level, thereby creating uniformity amongst the  states, Barnes said. But  unlike many countries with a  VAT, each local and state  jurisdiction often establishes its own tax  base. ‘‘The U.S.  is a bottom up country. To simply overlay our  current system with a VAT would create issues,'' said Huddleston. Barnes countered with the  ex- ample of  Canada as  another bottom-up country that was  able to solve many of its  complex tax  issues by implementing a  VAT.  He  did   however warn that the VAT  comes with its  own set  of  issues and was  by  no means a panacea to the compliance issues that are created by the various applications of formulary apportionment that exist today.