An internet service provider incorporated outside of Idaho with one Idaho-based employee had corporate income tax nexus with Idaho. The Idaho State Tax Commission (STC) determined the taxpayer was transacting business in Idaho because the taxpayer:
– provided the employee with a computer for the purpose of or resulting in economic gain or profit; and
– had an employee in Idaho for the purpose of or resulting in economic gain or profit.
Taxpayer’s Argument Against Nexus
The taxpayer argued that they were not transacting business in Idaho because the Idaho employee wrote code for the internal systems of the company. Because the employee did not generate income for the taxpayer, they contended that no business transaction took place. The taxpayer also noted that the employee:
– had no contact with the taxpayer’s customers;
– did not engage in solicitation activities on behalf of the taxpayer;
– did not establish or enhance a market for the taxpayer’s service in Idaho; and
– did not provide activities directly related to the taxpayer’s commercial business activities.
Idaho Nexus Standard
In Idaho, nexus is created when a taxpayer does either of the following for the purpose of or resulting in economic or pecuniary gain or profit:
– owns or leases any property located in Idaho; or
– engages in or transacts any activity in Idaho.
In this case, the STC found that taxpayer met both prongs of the nexus test. The taxpayer owned a computer and had an employee in Idaho for the purpose of or resulting in economic gain or profit. As such, the taxpayer was transacting business in Idaho for the tax years at issue.
Docket No. 0-704-071-680 , Idaho State Tax Commission, November 2, 2018, ¶400-859