Main Menu Main Content
Noonan’s Notes Blog

About This Blog

Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York and multistate tax law. Noonan's Notes Blog is a winner of CreditDonkey's Best Tax Blogs Award 2017.


Timothy Noonan 
Brandon Bourg 
Mario Caito
Ariele Doolittle
Joseph Endres
Daniel Kelly
Elizabeth Pascal 
Emma Savino 
Joseph Tantillo
Craig Reilly
Andrew Wright 

Economic Nexus Extended Too Far – Hodgson Russ LLP v. Minnesota Department of Revenue

By on

During the spring of 2014, Hodgson Russ LLP (“Hodgson”) received a letter from the Minnesota Department of Revenue (“Minnesota Revenue”) that attempted to establish a new low in the states’ “race to the bottom” to establish the most minimal constitutional standard required to satisfy substantial nexus with an out-of-state taxpayer.  Minnesota Revenue asserted that under suspect provisions of the Minnesota tax code, Hodgson had nexus with the state of Minnesota based upon a single, un-audited fact: between the 2004 and 2012 tax years, Hodgson received federal Forms 1099 from payors using a Minnesota mailing address.  On account of this single fact – with no revenue floor or other safeguards – Minnesota Revenue asserted that Hodgson had nexus with Minnesota, and was therefore required to file Minnesota franchise tax returns and apportion its business income to the state.

Like other entities who received similar letters from Minnesota Revenue, Hodgson was forced to make a difficult decision.  Should we take the admittedly lousy deal Minnesota Revenue was offering (four-year lookback, no penalties) and avoid costly litigation, or should we fight, because we know we’re right and we should win?  We are tired of seeing clients and others bend to the enormous pressure of state taxing authorities, especially when a business decision cost-benefit analysis is the only basis for settlement.  With this in mind, we sued Minnesota Revenue in New York State Supreme Court, seeking different types of relief.

Hodgson and Minnesota Revenue eventually settled, and like many litigated cases neither side admitted the other was right in the closing paperwork.  But given Minnesota Revenue’s agreement that Hodgson need not file for any one of the tax years in issue, and further that it would not pursue any avenue against Hodgson for those tax years, educated people cannot really disagree about who the victor was.  Moreover, Minnesota Revenue stated on the record in New York Supreme Court that it would change its policies in regard to establishing nexus with foreign entities, hopefully saving others from the same fate as Hodgson.  We’re not sure this policy change has happened yet, but to the extent you or your business receives an inquiry or demand from Minnesota or any other jurisdiction with a summary conclusion that nexus exists, you should consider challenging it before rolling over.  Sometimes it makes financial sense, and sometimes it’s just the right thing to do.

We recently wrote a substantive piece about the controversy between Hodgson and Minnesota Revenue, which will be published in the Journal of Multistate Taxation & Incentives in the coming months.  This article will be available on our website after it’s published, but in the meantime more information about the case, including relevant filings, briefs, and transcripts, is available here.

Post a comment:

*All fields are required.

Attorney Advertising
Hodgson Russ LLP

Principal Address:
The Guaranty Building
140 Pearl Street, Suite 100
Buffalo, NY 14202
Tel: 716.856.4000
Stay Connected
RSS LinkedIn

About This Firm

Hodgson Russ attorneys facilitate the U.S. legal aspects of transactions around the world. We practice in every major area of law and use multidisciplinary work teams to serve the specific, often complex, needs of our clients, which include public and privately held businesses, governmental entities, nonprofit institutions, and individuals.