Take It to the Bank

State Taxation of Financial Institutions


As financial reporting season approaches, many financial institutions will be reconciling their numbers and looking to prepare for upcoming financial statement audits. Many won’t be aware or prepared for the possible exposure created by the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc.

This new court case confirms that economic nexus principles can apply to financial institutions. Meaning if a bank has no payroll, no employees, or third parties, and has no physical connection with a state, it may still have economic nexus if a loan is secured in that state. Credit cards, car loans, and mortgages can be a source of income for states, even if the bank isn’t in the state’s jurisdiction.

This year’s financial statement reviews could produce a few surprises for financial institutions, if they have not planned ahead.

What’s the latest:

  • More and more states are passing measures, adopting various forms of economic nexus
  • Companies that choose to ignore the statutes run the risk of hefty assessments or costly court battles

Companies that discover they have been exposed should consider the following options:

  • Voluntary disclosure agreements
  • Implementation of compliance solutions
  • Advanced planning to lower or eliminate exposure to any future tax liability

Watch as Ryan Principal Mark Nachbar explains the challenges that financial institutions may face.


Have questions for Mark?

Mark Nachbar
Principal, State Income and Franchise Tax

Here’s more information about Wayfair and our State Income and Franchise Tax practice.