In today’s difficult economic environment, almost every state is looking for ways to increase revenues. One popular idea most states are pursuing is to aggressively seek revenue from out-of-state companies. The technique that states employ is to argue that out-of-state companies have nexus. Nexus means that an out-of-state company has some “connection” to that state, even though it might seem insignificant, that allows a state to subject the company to its tax laws. The biggest concern is that if a company has not been filing in a state for years for sales tax, as an example, income tax or franchise taxes for all prior years, plus interest and penalties, could be due. It is also important to note that states are now sharing more information. For example, many states have signed on to a more streamlined sales tax initiative program. There are many factors that could create this dreaded nexus, and we will touch on just a few.
Employees & Independent Contractors
One factor that can create nexus is whether you have employees working in another state, such as salespersons or independent contractors that sell goods in that state. Even having employees install or supervise installation of equipment in a state can create a nexus issue. Having employees in the state even for a short duration or short project will not avoid the issue of creating nexus.
Crossing State Lines with a Company Truck
It is possible that you do not create nexus by shipping goods by common carrier. However, even if you only occasionally deliver goods across state lines using your vehicles, nexus could be created. Aggressive states have agents on their border pulling over out-of-state trucks and, in certain cases, have even seized the vehicle and cargo.
What Should You Do?
If you are concerned with possible exposure and liability, there are steps to be taken. First, consider having a nexus study done by our firm to determine your possible exposure to taxes and penalties. Second, our firm can anonymously contact these states on behalf of your company and negotiate voluntary disclosure agreements.