Most companies participate in the online economy and sell products online. For small and large companies alike, the days of only major corporations dealing with tax laws in multiple states have all but vanished. It is troublesome enough to deal with the tax laws in one state, but having to deal with the tax rules in some, or even all states can be a nightmare for the small and medium-sized business. DID YOU KNOW THAT RECENT ESTIMATES SHOW THAT THERE ARE OVER 11,000 TAXING JURISDICTIONS IN THE UNITED STATES? This means that while some states may only have a single or a few, some states have over 1,000 separate taxing jurisdictions.
For obvious reasons, most states want your business to collect and remit its sales tax. However, there are important constitutional protections that can safeguard your company from doing so. A NEXUS QUESTIONNAIRE is a state’s way of testing to see whether you will admit to something that will allow a state to have power over your company.
Our firm regularly deals with businesses that sell into multiple state and local taxing jurisdictions.
This concept of whether you have to report, collect, and remit state tax is called “nexus.” Nexus just means a connection. If a sufficient enough connection exists, then a state can force your business to abide by its tax rules. In other words, if your business has sufficient “nexus” with your state then it has to collect state sales tax and remit it to the state. It is also subject to sales tax audits. More troubling, if your business had nexus in a state, it can be held liable for the tax it was supposed to collect.
What Qualifies for a Sales Tax Nexus?
So how does my business create nexus in a state? In general, if your company does the following in a state it probably has nexus and should or should have collected sales tax:
- Employees or contractors in the state,
- Advertising in the state,
- Delivery trucks in the state,
- Title to goods passing in the state,
- Solicitation in the state,
- Promotional activities in the state,
- Owning property in the state,
- Attending conventions or seminars in the state, or
- Providing service (including warranty services) within a state.
Further, since the decision in Wayfair, a company also has nexus if it makes over a certain number of sales into a state (CA – $500,000, GA – $100,000, NC – $100,000, NY – $500,000, PA – $100,000, TX – $500,000), it has nexus as well. In short, if a company resides in your state, or is an out-of-state company and meets one of the above requirements, or sells over the threshold into your state, it is subject to the state’s sales tax laws.
So what happens if your company gets a nexus questionnaire from your state? It is unwise for a company to just blindly to respond to such a questionnaire without out least consulting a state and local tax professional on the issue. Not responding to the questionnaire is unwise as it highly increases the chance of initiating an audit of your company. The best thing to do is to give educated answers to the questionnaire that is truthful but is tailored to lead the state away from your company.
IF YOU ARE CONCERNED THAT YOU HAVE NEXUS OR EVEN IF THE NEXUS INVESTIGATION DEPARTMENT DETERMINED THAT YOUR COMPANY DOES HAVE NEXUS, THERE IS STILL A SMALL WINDOW OF OPPORTUNITY TO LIMIT THE NUMBER OF YEARS THE STATE LOOKS BACK IN TIME AND TO WAIVE THE PENALTIES. IF YOU ACT FAST, THEN WE USUALLY CAN GET A COMPANY INTO THE VOLUNTARY DISCLOSURE PROGRAM THAT LIMITS THE STATE TO A 3 YEAR LOOK BACK PERIOD.
SalesTaxHelper.com is comprised of sales tax professionals with strong accounting backgrounds, CPA licenses, and a dedicated focus of defending taxpayers against the state revenue agencies. Our consultants handle matters from the receipt of an initial audit notice through controversy and at any point in between. With more than 100 years of cumulative CPA and legal experience, we have the know-how to resolve any tax issue, of any size and scope.
Our consultants have successfully handled Tax Controversy Matters since 1991 for clients ranging from small, one-owner businesses to global, publicly traded companies and every size in between. As such, by choosing SalesTaxHelper.com to represent your company (or your client’s company) in audit, tax, with the state revenue agency, you can rest assured that you have made the right choice.