Back in 2008, when the economy was really taking a beating, there was another group who was getting hurt financially. It was the state governments. Unlike the federal government, the states can’t just print off more money. They have to make their budget balance. So they started doing everything they could to bring in revenue from online sales. Then, they started looking at rules that could let them tax out-of-state companies, even if they were not online.
That was when we started hearing a lot about nexus. Nexus means connection. One big case was the so-called ‘Amazon’ tax. The first to come up with this connection was New York. In a nutshell, if you are an affiliate of a company and live in New York, you just created nexus for the company. They are now responsible for collecting and paying sales tax to anyone who live in New York. Amazon, the big gorilla in this market, fought them and lost.
That was the beginning of the aggressive state reach. More states started making the connection with affiliates. Amazon and other companies fired their affiliates. The affiliates were faced with a choice of moving to another state or finding another line of work.
And from that start, the nexus rules grew and changed.
In 2014, we’re now looking at new rules to keep up with the rise of telecommuting employees and Internet-based businesses.
Bloomberg BNA did a survey of all states regarding their latest nexus policies and found some interesting statistics:
If you own a web server in 36 states or the District of Columbia, you have income tax nexus. Some of the states say you owe tax even if there are no sales into that state. If you lease a web server, there are 26 states that say you have income tax nexus. And finally if you use hosting services there are 12 states plus the District of Columbia that say nexus would arrive.
The other big nexus announcement is regarding employees who telecommute. It’s a growing trend that makes happier employees and creates less environmental impact. But what does it do to the company’s nexus? Quite a lot, apparently.
A salesperson that is telecommuting creates nexus. So, if your business is in New York and you have a salesperson who lives in New Jersey, you will owe some New Jersey state income tax. This rule has been true for awhile. Sales people almost always create nexus.
The changes have come from other types of professions. In fact, 36 states plus the District of Columbia and New York City now say that income tax nexus occurs when any employees telecommute. So, it’s not just commuting sales people that cause nexus. In the west, this might not be as big of a concern. The states are big. But, up in New England, it’s not unusual for someone to work in one state and live in another. If an employer allows an employee to telecommute, it could create a tax issue for the company.
The hot new topic in the US tax world is state nexus. It’s been an issue for a while now, but up until now it’s just the big companies that have been the targets. The states are now turning their attention to small businesses, especially those who use catalogs or the Internet to sell across state lines.
If you’ve got a concern about your own business’s state tax obligations, give us a call. Please call Richard at 888-592-4769 if you’d like to set up a consultation.