Warning! There could be a nexus questionnaire that coming your way right now. Read this before you answer any questionnaire from ANY state.
If you’ve been following our USTaxAid blog posts over the past year or so, you’ve seen one term come up again and again – “nexus.”
Nexus means connection. If you have a connection with a state, then you have nexus there. And that means, depending on that’s state law, that you may owe them tax.
You may NEVER even set foot inside a state and still owe them tax!
It used to be that nexus was accomplished by physical presence. There is a court decision called “Quill” that for years we would toss around as the end-all definition for what it took to establish nexus. Under Quill you had to have a building in a state, do some kind of clear-cut sales function and/or have employees in the state to have nexus. It was pretty obvious. You had to be IN the state to owe that state tax.
Then two things happened: the Internet and the economy.
The Internet suddenly allowed easy sales across state borders. People bought online because you got more variety, cheaper prices and you didn’t have to pay sales tax. States began to suffer from the loss of sales tax revenue.
States came up with their own definition, at the state level, of what it meant to have sales tax nexus for that state. And once they had you for sales tax nexus, you had to follow that state’s rules for taxing sales to their residents. The sales tax nexus rules vary widely from state to state. And even tougher, the rules for what is subject to sales tax varies widely. Sometimes freight is taxable, sometimes services are taxable and sometimes digital downloads are taxable.
The sales tax nexus rules became more expansive with a bigger net. More things became subject to sales tax.
The second shoe dropped when the economy turned downward. You think the federal government is in trouble? What about the states who don’t have a printing press in the basement? YOU are their stimulus package.
So, along with expanding sales tax nexus, there is also income tax nexus and what we call “not income tax” nexus covering things like Hawaii’s excise tax, Washington’s B & O, Texas Margin Tax, California franchise tax and Ohio’s CAT tax. These can be even worth
That’s all the bad news. Now, what can you do about it? Step one is to first assess where you might have problems with nexus. Sales tax nexus means you need to collect sales tax and then remit it. As long as you’re doing that, you don’t have a problem.
Income tax nexus is a little trickier because you’ll have to apportion your income and expenses between your home state and your additional nexus state(s). But that can work in your favor if you strategically move income from higher taxed states to lower taxed states.
The most difficult is the “no income tax” nexus states. These taxes are trickier. But, again, with foreknowledge and smart strategies you can get in front of that too.
If you sell to anyone, product or service, who lives outside your home state, then don’t miss Saturday’s FREE teleseminar “Nexus Strategies for Less Tax.” You can sign up at DianesSeminars.com
And, above all else, make sure you talk to a nexus expert BEFORE you complete any nexus questionnaires. We’ll be talking more about that all week at USTaxAid.com. Make sure you stop by.