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Court watches as state tax collectors dip into Capital One's wallet

Watch out businesses, out-of-state state tax collectors just got a boost from the country's high court.

The U.S. Supreme Court today decided against hearing an appeal from out-of-state companies that Massachusetts officials say owe it taxes.

As I mentioned about a month ago in Money-hungry states, cities tax trolling, Bay State tax collectors set their sites on credit-card giant Capital One Financial.

Massachusetts officials said that since the Virginia-base company made beaucoups money from cardholders who live in their state, Cap One should fork over more than $2 million in taxes to the Massachusetts treasury.

The Department of Revenue was emboldened by a Massachusetts Supreme Court ruling that the state could tax out-of-state corporations if the businesses have a "substantial nexus" in the state.

Also involved in the case is Geoffrey, Inc., a subsidiary of Toys R Us. The Associated Press notes that Capital One offers credit cards that are used by Massachusetts residents and hires state-based collection agencies to go after delinquent accounts there. Geoffrey, Inc., licenses the use of Toys R Us trademarks for its stores in Massachusetts.

The two companies asked the U.S. Supreme Court to hear their argument that the Commerce Clause of the Constitution prohibits state officials from taxing out-of-state companies that do not have a physical presence in that state.

The Justices said no, not specifically to their complaint, but to hearing it in the first place.

So Massachusetts tax collectors should be knocking on Cap One and Geoffrey, Inc doors right about now.

As I noted in my earlier post, this isn't the first instance of states looking for tax dollars from cross-border sources. But you can be sure that many more revenue-starved states will now follow Massachusetts' lead.


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