States are aggressively expanding their definition of nexus to maximize sales tax revenue. In a recent webinar hosted by Business Finance magazine, Connie Eisenberg, CCH Senior Editor, General Sales and Use Tax, and David J. Rubenstein, CPA, CCH Manager of Corporate Professional Services, Telecommunications and Utility Tax, explored the trends in determining nexus and their implications. Here are some of their main points:
1. Some states define the "regular presence" necessary to create nexus to mean as little as two days a year. Exhibiting or taking orders at a trade show can be enough, simply attending a show is not.
2. Generally courts interpret "establishing and maintaining a market" broadly. Many consider in-state businesses and even nonbusiness parties to be active representatives of out-of-state businesses.
3. States differ as to what is an online business. One state may say an online business has no nexus with its brick-and-mortar siblings, while another state may establish nexus between the two because they share a trademark. Amazon is arguing in several states that having warehouse operations in a state is distribution, not sales, and therefore creates no nexus.
4. Use tax reporting may become a requirement. In March 2012, a U.S. District Court struck down as unconstitutional a Colorado law requiring use tax reporting. The case is under appeal.
5. Some courts have found that unrelated businesses establish nexus by enabling the out-of-state company's work. For example, a Virginia company created nexus in Illinois by hiring an answering service there to take orders.
6. The major legal argument around nexus is whether states are impermissibly regulating interstate commerce. Three federal laws have been proposed to standardize sales tax laws.