Crossing State Lines
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Nexus Has Evolved : Why Your Business May Be At Risk And Why It Matters
In its rawest form , nexus is essentially the connections that your business has with other states . This includes where your business has a presence in terms of personnel , inventory , and property , as well as states you visit for sales , installs , or support . And wherever you have nexus , you must abide by that state ’ s tax laws for all state-imposed taxes including sales and use tax , income / franchise / gross receipts taxes , property and payroll taxes . This may include various registrations and all applicable compliance ( e . g . filing returns , collecting and remitting taxes , and managing exemption documentation ).
Currently , two major considerations stand out as threats to business owners , especially businesses that have activities outside of the principal state of business :
1 . Nearly all U . S . states have modified their standards for nexus and tax compliance , following the 2018 U . S . Supreme Court ruling , South Dakota v . Wayfair . The verdict allowed states to impose economic nexus rules . These rules triggered sales nexus for businesses purely based upon their gross sales into the states , placing a more extensive tax burden on businesses that exceed the sales / transactions thresholds imposed by the economic nexus rules across state lines . Under these standards , it is no longer essential that they have a “ physical presence ” in a state before the state requires that they comply with the sales tax regulations . It is important to stress that the physical nexus triggers did not go away , but that economic nexus factors have become important as well . Moreover , the case opened the door for a totally new standard of what “ remote seller ” means . This brings us to the second consideration ...
2 . As the legal definition of “ remote seller ” evolves , along with workforce changes spurred by COVID-19 , more businesses than ever now fall into the category of multi-state businesses for one reason or another . This , in turn , is making them vulnerable to hidden costs and potential liabilities associated with operating across state lines – sometimes even without knowing they are now considered a multi-state business operation .
Specific Nexus Examples
As businesses venture into new frontiers or expand current practices , just about anything could place your business under the burden of out-of-state regulations and costs . If overlooked , businesses that fail to comply with tax obligations in their home state , or elsewhere , could face substantial fines and other consequences up to or including legal penalties . Obviously , the biggest change in nexus is the economic nexus rules added in response to the Wayfair case . All states have enacted these types of laws with similar yet not all the same thresholds . Florida and Missouri are the last to adapt . And , as mentioned above , physical presence factors have not been made less important when considering your nexus footprint outside your home state . As companies continue to allow and encourage remote employees and work-from-anywhere programs , its necessary to understand that these out-of-state employees trigger physical presence nexus for both indirect / direct state taxes .
However , there are some other examples of nexus that still could impact a business . These include :
• Using third-party vendors , like Amazon . If you use third-party organizations to sell and even store your inventory , you have physical presence in other states . This rule has been around for decades , and those sellers who use Amazon ’ s Fulfillment By Amazon ( FBA ) are waking up to notices that indicate they have had nexus in unexpected states going back 10-12 years .
• Generating click referrals for your business by utilizing online ads . If someone in a different state were to click on the online ads you placed to promote your business , the ad itself would be enough to establish that your business has a physical presence in another state – making you vulnerable to tax laws in that state as well . With the advent of the economic rules , some states are repealing these “ clickthrough ” nexus rules as redundant .