June 15, 2015
Nexus varies state by state but, generally speaking, the contacts required to generate taxes can be fairly minimal. Furthermore, the term "physical presence" is often misunderstood and can lead to unwanted surprises, including penalties. Other key focus areas include remote employees, and new sourcing rules among others.
What does physical presence mean?
Physical presence is probably the most misunderstood term in state taxation overall. Most people think of physical presence as I need bricks and mortar or I need an office building or a factory of some sort in a state in order to have physical presence and have Nexus when almost the exact opposite is true. While yes you do need some sort of “physical presence”, that physical presence is very minimal as far as you can have physical presence through third parties, through agents or affiliates. You can also have physical presence in a state through intangibles. So even just having a person walk through state soliciting sales may give you physical presence, or just licensing an intangible in a state to somebody else who uses it in the state may give you a physical presence. So once you can have physical presence through third parties or through intangibles. I think the term is so watered down that it doesn't really have a whole lot of meaning.