What is Nexus and Why You Should Care


This post is in: Business
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compassOne of the hot topics in the tax world these days doesn’t have anything to do with federal taxes or even the new health care bill. No, the thing that is causing a lot of business owners concern right now is the changing rules about nexus.

Today we start off a week long look at nexus and why you need to be paying a lot of attention right now to this issue.

Here is a list of the blogs this week:

Monday: What is Nexus and Why You Should Care

Tuesday: What is Your Nexus Footprint?

Wednesday: The Two Faces of Nexus

Thursday: Colorado’s Dangerous New Tax Example

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Friday: Nexus Solutions

Nexus Means Connection

In this case, nexus means a connection to a state. If a state can establish that you have a connection, you’re likely to owe some tax to that state.

There are two types of taxes that you need to be concerned with: sales tax and income tax (or gross receipts tax, depending on the state.)

addingtapeThe lowest threshold is nexus for sales tax. In other words, if you have nexus for sales tax, then you will be required to collect and pay sales tax for any products or services subject to sales tax that are sold to residents of that state.

Of ‘Collect and Pay’, all the state really cares about is PAY.

If you have nexus in a state, sell a product that is subject to sales tax in that state and fail to charge sales tax, that’s too bad. That’s too bad….for you! Because the state is still going to make you pay the sales tax.

moneyThis past year, a guy that sells coaching programs did free seminars in a number of states. Because the seminars were free and because he didn’t do any other work in the state, his accountants figured he was home free when it came to nexus.

That was until some states asked about the coaching programs that were promoted at the free seminars. And, because when it comes to sales tax, states get to make up their own rules as to when there is nexus and when something is subject to sales tax, just cause what he did worked in his home state…it didn’t mean it worked in every state.

He had to write a check for over one million dollars! That was for sales tax that he didn’t collect.

Nexus mistakes can be very expensive.

Tomorrow, we’re going to talk about your business’s nexus footprint. What states should you be concerned about?



2 Comments

  1. Thanks Daniel. I have a feeling we’re going to be hearing a lot more about nexus in the next few years.

  2. Awesome Post!

    Very timely and relevant subject.

    Looking forward to all the posts this week.

    Thank You Diane!

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