Knowing where you have nexus helps you determine whether your company is responsible for filing tax returns in the states in which you do business. State
business taxes differ in type and standards. Some states require sales tax, franchise tax, and other returns or reporting requirements based on the
concept of nexus, or connection, within the state. You may be required to collect and remit sales tax or file a franchise tax return but
not file an income tax return.
Businesses that operate across state lines must assess their level of engagement and potential liability in each state they do business. Businesses that
are late to discover nexus exists will need a strategy for getting compliant. In various states, this could include taking advantage of amnesty and
voluntary disclosure agreements, which can often result in penalties and interest being abated.
What can create nexus for sales and use taxes?
It’s a long list, and it varies state-by-state.
- A physical presence in a state generally triggers nexus, including owning and leasing property
- Income derived from sources within a state or through activities in the state beyond soliciting orders for sales of tangible personal property that is shipped from outside the state
- Activities of an agent or affiliates
In addition to sales and use taxes, nexus can trigger franchise taxes and gross-receipts taxes. A broader interpretation of nexus known as “economic nexus” can also trigger tax liabilities in states that consider an economic connection independent of any physical presence nexus for sales tax purposes.
Know as you go whether nexus is being triggered. As you enter new taxing jurisdictions--and periodically--review for nexus and reduce your compliance risk. If you are unsure how to proceed or your tax profile is complicated, call your TaxOps team for guidance.
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