If you have a business, you might be more at risk then you know from taxes you thought that only applied to the big boys. But this is one that the big guys are getting wrong too. It’s estimated that 85% of all businesses have made one critical mistake in their tax planning. They have forgotten about nexus.
Nexus means connection. If you have connection to another state, then it means that you might have tax obligations to that state.
For example, let’s say you have a company operating in New Jersey. Your company puts up a website and you start selling some products over the Internet. You clearly have nexus in New Jersey. That means if you sell an item over the Internet to someone who lives in New Jersey and that item is subject to sales tax according to New Jersey law, you need to collect and pay sales tax.
But then you discover how much cheaper it is to hire people to work virtually. You don’t have to pay for office space, computer support, provide equipment and you only pay based on them completing a task. And the best deal you find is someone working in a small town in California. You gladly put her on the payroll.
Then you start thinking about promoting your company more. You head out on the road to trade shows in other states, staying anywhere from a few days to a couple of weeks, promoting your business.
Now where is your nexus?
New Jersey, because you live and work there.
California, because your assistant works there.
Texas, because you had a trade show for one day or more.
Michigan, because you had a trade show for one day or more.
Minnesota, because you had a trade show for four days or more.
And for the rest of the year, any sale you make to a California, Texas, Michigan or Minnesota resident will be subject to sales tax.
Got a question on nexus? Get the answers you need in this free NO HYPE! Teleseminar “Tax Issues for eBiz Owners”, available for FREE at http://www.USTaxAid.com/ebiz