Nexus Tax Accounting for Sales and Use

The Supreme Court’s landmark decision in South Dakota v. Wayfair case was a game-changer for sales and use tax. It opened the possibilities for states to impose sales and use tax collection and remittance responsibilities based on business activities versus physical presence – leaving many businesses vulnerable to unforeseen economic nexus.

Most companies today cross state lines to complete common business activities, triggering tax exposure commonly known as nexus.

What is Nexus?

Tax nexus is a concept that many of today’s business owners don’t understand. Put simply, it is a seller’s minimum level of presence within a state that permits a taxing authority to require a seller to register, collect and remit sales and use taxes, as well as create potential exposure to a state’s payroll and business income taxes.

Common nexus sales tax triggers include:

• Physical presence, such as brick-and-mortar locations or storing inventory in fulfillment centers.
• Sufficient economic activity in terms of sales and transaction volume.
• Remote employees and independent contractors, and traveling employees.
• Click-through rewards for directly or indirectly referring potential customers through a web link.

Complicated Compliance

When your business transactions cross state lines, you need to understand the various regulations of each taxing jurisdiction, as they all vary.

Many states have started to aggressively seek out non-compliant sellers and enforce their sales and use tax nexus statutes to the fullest extent—assessing uncollected tax, interest and penalties from their effective dates to help drive sources of revenue.

Nexus Service Offerings

Avoid surprise tax liabilities and penalties by devising a cross-state tax strategy that begins with a nexus study. Done right, a nexus study can identify areas of exposure and help you develop strategies on how to deal with them.

Doeren Mayhew’s nexus tax accounting professionals can:

• Review your business activities in a state or states.
• Determine where a filing requirement exists and why.
• Provide recommendations when nexus has been determined with simple, protective steps to remedy any potential exposure and defend your business again non-compliance risks.
• Prepare and file required state and local tax returns timely.
• Assist in jurisdiction audits.

FAQ

What is the purpose of nexus in accounting?

Nexus tax accounting establishes the level of connection between a taxing jurisdiction (like your state) and an entity (like your business). Without establishing nexus, sales tax cannot be imposed upon an entity, which could trigger tax exposure for your business.

How do you establish nexus?

The simplest way to establish nexus is to have physical real estate property within a jurisdiction. Having employees who work within a state or regularly travel to a state to work will also trigger nexus.

Contact our nexus tax accounting advisors today to understand your nexus exposure and determine strategies to defend against it.