Ignore it if you dare!
Certain business activities can render you responsible to collect and remit sales tax for other states or local jurisdictions. Failure to do so can leave your company and you personally liable
for taxes, interest and penalties.
What Is Nexus?
Do You Have Nexus And A Corresponding Filing Obligation In A State?
Nexus is a term used when an out-of-state company has sufficient contacts with a given state allowing the state to require the company to collect and remit Sales Tax on taxable sales. As established by federal case law, for a state to have jurisdiction to tax an out-of-state business, that business must have a minimum connection within the taxing state. Physical Presence is the general legal principle governing nexus.
If a seller's connection with a state involves clear physical presence, such as the presence of the business itself, then the seller has nexus and can be required to collect the tax. If a seller's connection with a state is remote, however, and does not meet the legal requirements for nexus, then the seller cannot be required to collect tax. This is a gray area with no consensus among the states regarding the minimum presence required to establish nexus. Some states are pursuing what is termed Affiliate Nexus, seeking to require a business to register and remit Sales & Use Tax due to an affiliate company's presence in their state.
Many states will take the position that any contact beyond the most infrequent is enough to create nexus. Generally, every state will have a statute mandating that a retailer engaged in business in the state must collect the Sales or Use Tax. Most state statutes define "engaged in business in the state" very broadly. States generally extend their Sales & Use Tax as far as possible and arguably beyond constitutional limits.
What Is Physical Presence?
Physical presence is typically found if a business has a permanent presence in the state such as a business location, resident employees, tangible property (leased or owned), an independent contractor, or other third party acting as an agent for a company to conduct business on its behalf. Physical presence may also be found when the business only has temporary presence (i.e., visits by employees or agents), provided the visits are regular and systematic.
Our professionals can help minimize potential exposure and make sure your company is in compliance with the sales and use tax laws. We can help sort out the rules and determine whether your company has sufficient physical presence and recommend whether registration is required or beneficial in a given state. For more information please see Nexus under the Diagnostic Review section of our website.
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For additional insight on common sales tax concerns, please see the Did You Know? section of our website.
Should you have questions or require assistance please Contact us today or call 1-888-466-2829 to speak with an Olivier &
Associates Sales and Use Tax professional for a no-obligation consultation about your Sales & Use Tax issues.
* This tip is intended to provide general information only and is not to be considered as a substitute for professional advice.
