Florida Tax Review


The economic nexus standard has gained significant support during the last decade as the proper standard for determining the scope of states’ taxing powers under the Dormant Commerce Clause. Unfortunately, however, despite the widespread acceptance of that standard in the abstract, there is no uniform understanding of what economic nexus actually means. State courts that have adopted that standard have generally failed to explain its parameters, and those few courts that have actually addressed the scope of economic nexus have adopted artificially high standards that severely restrict its reach. Actions by state legislatures and revenue authorities have been much the same. Uncertainty reigns, yet those disparate approaches to the same constitutional standard have yet to receive scholarly attention. This Article seeks to fill that void by analyzing state actions in this area and by evaluating how states’ different formulations for economic nexus will likely develop over time. Such an analysis shows that states’ economic nexus formulations have little theoretical or jurisprudential grounding and will necessarily change and deteriorate over time. As a result, states’ actions in this area will be non-uniform and will maintain the significant uncertainty that currently exists. Federal attention to economic nexus is thus warranted to prevent state actions from undermining the goals of the Dormant Commerce Clause. This Article analyzes several potential federal responses and concludes that Congress should intervene and adopt a federal factor nexus standard based on the Multistate Tax Commission’s model formulation.