What is Nexus?

February 21, 2020

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.

Transcript

Gary Bingel:

So nexus is really just a fancy word for when you have enough of a connection with the state that they can impose either a tax or some sort of tax collection responsibility on you as a company. There really are different criteria for nexus and historically, there were thought to be different criteria for sales tax nexus versus income tax nexus. And those things were applied differently. In the income tax area, things such as economic nexus have been around for quite a while versus in sales tax, it was thought that there needed to be some sort of physical presence. 

For sales tax purposes, the physical presence requirement came about from a early 1990s Supreme Court case known as the Quill decision. And in that decision, they found that in order to be subjected to a state sales tax collection requirements, you had to have some sort of physical presence in that state. Now, that term physical presence has been greatly misinterpreted over the years as states became very aggressive in applying that and interpreting what that meant.

About Gary Bingel

Gary Bingel's expertise focuses on state and local income taxation, and sales and use tax consulting. He has significant experience serving clients in the manufacturing, retail, pharmaceutical, biotechnology, technology and service industries.

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