Ten Activities that Trigger Sales Tax Nexus
Nexus has become a very hot topic in the sales tax world for many reasons, including the Marketplace Fairness Act and aggressive actions by states to find new taxpayers and tax revenue sources. Each state has different thresholds for nexus activities that create tax collection obligations.
Here is a list of ten company activities that may trigger nexus:
1) Employees in a state
Having employees in a state creates nexus. This includes telecommuters, company sales reps and independent sales reps.
2) Sub-contractors or agents in a state
Even if they are not your employees or not on your payroll, they can create nexus if they travel into a state on your behalf.
3) Trade shows
In some states, attendance at a trade show can create nexus, even if it is only one time.
4) Renting or leasing property in a state
Owning property in a state clearly creates nexus, but rented or leased property can also create nexus. Pay particular attention to where you have servers.
5) Consigned inventory
Consigned inventory can be very convenient, but it can also create nexus.
6) Delivery in your own truck
If deliveries are made to customers in company-owned vehicles, this may create nexus.
When employees travel into a state to install property, repair property or for any type of on-site training or services, this activity can create nexus.
8) Affiliated contractors
Even if you have sub-contracted to a third party, this can create nexus.
9) Affiliate or agency nexus
This can be created when an in-state party is performing an activity or assisting in creating a market for a product on behalf of an out-of-state company. Often times, the in-state presence of retail stores can create nexus for an out-of-state affiliated catalog or internet company.
10) Click-thru nexus
Many states are introducing legislation that creates nexus for out-of-state companies when they post a link to their own website on an in-state resident’s website, allowing customers to “click-through” to the out-of-state seller’s website.
States are on the hunt for more taxpayers and more tax revenue and have many new methods to find and collect tax from companies that unknowingly had nexus with their state. A company’s best option is usually to determine your company footprint, quantify the cost of non-compliance versus compliance, and then employ an independent third party to assist in voluntarily coming forward to pay back taxes so that penalty and interest can be limited.
Learn more about sales tax nexus my viewing the on-demand webinar: Sales Tax Nexus--Tame the Elephant in the Room.