1. What is nexus?
Prior to June 2018, the U.S. Supreme Court interpreted sales tax nexus under the Commerce Clause as a minimal physical connection with a state; however, in South Dakota v. Wayfair, 138 S. Ct. 2080 (2018), the Supreme Court held that physical presence is no longer the only requirement for sales tax nexus and expanded the meaning of nexus to include sales into a state by a remote seller. In a state with nexus, meeting an established threshold can now be considered sufficient connection with a state for sales and use tax purposes.
As a result, the sales tax nexus standards have changed rapidly since this ruling, and the criteria for determining nexus vary from state to state. Companies will need to plan and prepare accordingly to analyze whether they are responsible for collecting and remitting sales tax in these jurisdictions.
2. How many states have adopted economic nexus?
All 45 states that impose a sales and use tax, plus the District of Columbia, have passed sales tax economic nexus statutes.
The dates these laws became effective vary by state, with Missouri’s requirement effective in 2023. The remaining five states do not impose a sales tax.
3. What do I need to get started with Withum’s nexus tool?
To get started, you will need the following:
- 1. Where the company currently files income tax, payroll tax, unclaimed property, and sales tax.
- 2. The annual sales revenue and transactions by state.
- 3. Where your company has real or tangible personal property.
- 4. Where your company has employees, sales representatives, or solicitors of sales and services.
4. How do I get help to determine my responsibility?
If you need assistance determining your nexus responsibilities, please click on Contact, enter your contact information, and we will respond as soon as possible.
5. Who needs it? And why?
Many companies do not realize they have established the requirement to collect sales tax by either having a physical presence or exceeding the economic nexus thresholds, regardless of the industry. For example, many companies have inventory, remote employees in various states, or increased remote sales over the past several years, which may establish nexus in more states than previously thought.
6. When do I need a nexus review?
Suppose you have not performed a nexus review and sell/sold property or services to multiple states. In that case, we suggest you complete the review as soon as possible to identify if potential nexus exists in any state.
If you have completed a nexus review in the past, nexus should continue to be monitored and addressed as physical presence is created within a new state and dollar and transaction thresholds are met. If nexus has not been reviewed recently, we suggest you complete the review as soon as possible to identify if potential nexus exists in any new states.
7. What will this tool determine for me?
With a few clicks of the mouse and a simple entry of your sales by state, you can identify if you have potential nexus in any state (Need disclaimer). The SALT Nexus Platinum Tool will analyze the information entered and provide a summary report identifying states where your company may have nexus. Suppose your company has nexus in a state. In that case, you can plan and take prompt action to remediate potential exposures and identify ways to begin collecting sales tax from your customers.
8. Why Withum’s SALT Team?
At Withum, our State and Local Tax (SALT) group has a wealth of knowledge that our firm leverages for all our clients. Our team is staffed with dedicated professionals with many years of state and local tax experience.
We service individual and business clients throughout the United States and abroad that operate in all types of businesses including:
- Food Services/Restaurants
- Financial Services
- Life Sciences
- Manufacturing, Distribution and Logistics
- Professional Services
- Real Estate
- Not-For-Profits and Other Industries
Withum’s SALT experts are committed to guiding clients through all phases of State and Local Tax planning, registration, and compliance. We are equipped to solve any issue that may arise with your business, anywhere in the nation. Withum’s SALT Group is committed to assisting our clients in addressing their physical and economic nexus challenges.
9. What previous experiences with nexus have clients missed opportunities or been penalized?
Many companies have not kept up with the changing tax laws over the past several years. In addition to the economic nexus laws, states have attempted to increase revenues by imposing sales tax on additional products and services and remote auditing sellers. Guidance around these products and services may not be clear and need to be analyzed.
Companies should understand there are methods to remediate any exposures and quickly become compliant for sales tax. If the company is not compliant and a state contacts the company for an audit, significant sales tax exposures could exist (including penalty and interest).
Further, if the company is looking for funding or being acquired, a due diligence review could identify these potential exposures. Therefore, we recommend companies periodically review their nexus footprint and the taxability of their product and service mix.
10. What do I do if I find out my business is exposed to nexus?
If your Company has potential nexus in any state, we suggest you take the following steps:
- Review Product and Service Taxability
- Evaluate other tax exposures including Income/Franchise, Use Tax, and Other Indirect Tax Nexus (e.g., Gross Receipts, Business & Occupation, Commercial Activity, Excise Tax, etc.)
- Identify and discuss the Overall Business Implications with stakeholders in the organization.
- Determine Potential Tax Exposure for Prior Periods
- Consider Options to Limit Exposure (e.g., Voluntary Disclosure Agreements, Amnesty, Registration etc.)
- Take Advantage of Current Exemptions for potential refund opportunities
- Review and Consider Tax Automation Needs
- Develop Practical SALT Processes for Meeting Compliance Requirements
- Address Changes in the Organization (e.g., New Lines of Business, Modified Sales Force Activity, etc.)
- Stay Abreast of Tax Updates