Nexus—this is not a new luxury automobile. It is a tax term that is used to describe your involvement in another state. If you have nexus in a state, there is a chance you have to file a tax return in that state.
You would think CPA’s would be familiar with the term—and we are. However, having nexus in a state has changed over the years.
In the past, you had nexus if you had a “brick and mortar” location in that state. You had nexus if you had employees working in that state. Or, you even had nexus if you came into the state to solicit business. These were pretty easy to judge.
Did you know that a baseball player files tax returns in almost every state they play a game in? Think about it—Nelson Cruz owes a return to California—New York—Michigan—Minnesota—Maryland—Colorado—Illinois—Ohio—Missouri—and Massachusetts. Since he played in CA many times (The A’s, Dodgers, Padres, Giants and Angels) a majority of his taxes will go to the Franchise Tax Board. But again, this is someone who came into a state and worked (played) so figuring that they owe tax seems reasonable.
Today, you could have nexus if someone came to your website from another state and purchased something or solicited advice they were charged for. They could be sitting on their couch in South Carolina and purchasing something over the phone or from your website in Seattle Washington and a case could be made that you just had a transaction that is reportable to the SC taxing authorities.
No, I have not been sampling brownies from one of those new store in Bellevue. This is where we are headed—or maybe we are there already—the age of the internet. States (and even cities) want their share of the tax revenue from these sales.
Congress and the states have been fighting over these issues for more than 10 years but have not been able to pass a law that all the states can live with—gridlock, who would of thought!
The cautionary tale here is not to assume you have no liability in a state just because you are not in that state. If you have the ability to track your income by state, you should start that process so when you do have to test your sales, you have some information to rely on.
Thanks for listening and I will talk at you again.