Nexus Study Provides Guidance for Multistate Consumer Products Manufacturer and Distributor

How a growing family-owned organization gained clarity on its state tax obligations across nearly 30 jurisdictions.

Client

The client is a closely held, family-owned manufacturer and wholesale distributor that has been a fixture in its industry for decades. Headquartered in the United States, the organization experienced significant growth after the current CEO took over from the founding generation.

That growth brought new markets and new revenue, but also new complexity. The finance department, consisting of a controller and a small support team, had not scaled at the same pace. Tax compliance had been managed state by state as needs arose, and leadership recognized that the organization’s geographic footprint had outpaced its understanding of where and how it owed state taxes.

Challenge

a bridge over a river with a city in the background

Rapid Growth with Uneven Compliance

The organization’s expansion had been fast and largely successful, but the patchwork approach to tax compliance left gaps. It had registered in new states and filed returns where clearly required, yet each state has its own rules governing what creates a filing obligation, and those rules differ by tax type. Income tax nexus follows one set of standards, sales and use tax follows another, and franchise taxes add yet another layer. For an organization with employees, inventory, and customer relationships in dozens of states, keeping up requires dedicated resources and deep state tax knowledge that many mid-market finance teams simply don’t have.

Preparing for the Future

Ownership and management understood that expansion creates tax obligations, but the immediate priority was often growth, serving customers, and fulfilling orders. Tax compliance had been deferred, sometimes consciously and sometimes because no one had the bandwidth to stay on top of the changing landscape.

The organization recognized that it needed a clear, defensible picture of its state tax posture. It was filing in close to 30 states, but there was uncertainty about whether it was filing everywhere it needed to, whether it was handling the taxability of its products correctly, and what the financial exposure looked like if something had been missed.

Leadership then engaged EisnerAmper’s State and Local Tax team to perform a multi-phased nexus study.

Approach

Phase 1:

Information Gathering and Nexus Review

The first phase focused on gathering the facts needed to determine where the organization had nexus-creating activities. This included reviewing apportionment factors such as property, payroll, and sales, along with employee travel, trade show participation, third-party relationships, and existing state registrations. The goal was to map the organization’s actual footprint against each state’s nexus provisions and categorize jurisdictions by risk level. Because the organization operated as a manufacturer and wholesale distributor with a broad product line, the analysis required state-by-state research into how each jurisdiction defined taxable activity for an organization with this particular profile.

Phase 2:

Taxability Review and Exposure Analysis

The second phase focused on how each relevant jurisdiction treated the organization’s revenue streams for sales tax purposes. One of the most significant findings involved product samples. The organization regularly sent samples to distributors when introducing new products, and these samples had a real cost basis even though they were not being sold. The study revealed that in many jurisdictions, providing samples triggers a use tax obligation because the distributor is treated as the final consumer rather than a reseller. The tax is generally based on the cost of producing the sample.

The conclusions for each revenue stream were documented along with quantified exposure estimates in jurisdictions where the organization had not been collecting or remitting tax. The engagement also produced optional next steps, including voluntary disclosure agreements, prospective registration, and ongoing compliance support to keep pace with continued growth.

Results

By the end of the engagement, the organization had a clear and documented understanding of its multistate tax obligations. Specific outcomes included:

A complete picture of where the organization had nexus, including jurisdictions where obligations existed but had not yet been addressed.

A documented analysis of taxability by revenue stream, giving the organization confidence that its treatment of products and transactions was grounded in current law.

Quantified exposure estimates that enabled leadership to make informed decisions about remediation rather than guessing at the magnitude of the problem.

A practical roadmap for remediation and ongoing compliance, including recommendations for voluntary disclosure agreements and prospective registration.

Clarity on a previously unrecognized use tax obligation related to product samples, which represented a meaningful source of exposure across multiple states.

Contact Us

Whether you’re a growing organization that has expanded into new states, preparing for a transaction, or simply want to confirm you’re meeting your obligations, a nexus study can provide the clarity you need to move forward with confidence. EisnerAmper’s State and Local Tax team takes a flexible, multi-phased approach tailored to your situation and budget, covering everything from initial nexus analysis to taxability review, exposure quantification, and remediation planning.