Why Is A Nexus Review Important?

A nexus study and taxability review determine where a company might have state tax exposure and the extent of that exposure. We work with our clients to identify their activities in various states and analyze the types of transactions engaged in within those jurisdictions.

Determining exposure before a proposed acquisition is good business. We also assist in determining possible exposure before a state comes to audit. And finally, we bridge the gap with respect to financial statement disclosure.

As part of each project, we work with clients to answer the following types of questions:

  • What is nexus?
    • Do we have physical presence nexus?
    • Do we have economic nexus?
  • Is my product or service taxable?
  • Are there any available exemptions (e,g, food or medical exemptions, sales to qualified non-profit entities)?
  • Must I start collecting and remitting sales and use tax?
  • I’ve collected tax from a given state and have not remitted it-what now?

Once we determine possible exposure, we assist clients in receiving maximum benefit from available amnesty programs, contract for voluntary disclosure agreements, work with their customers to determine if they have self-assessed taxes (and can therefore reduce exposure for our client) or simply document their exposure.

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Nexus Compliance

How do you know when you should collect sales tax? Do I have to collect sales taxes in states where I don’t have a physical presence? What is nexus, physical nexus, and economic nexus? In the wake of South Dakota v. Wayfair, the landscape for sales & use tax compliance has become more complex. A member of our team adapted our software partner recent Understanding Where, When and Why Your Business has a Sales Tax Obligation webinar to give this quick guide to nexus compliance:

What’s nexus? Starting with: Physical Nexus

A business is required to collect and remit sales taxes once the business has established nexus for sales taxes in a state. Prior to South Dakota v. Wayfair, physical presence (like buildings, facilities, or employees) in a state was the sole marker for sales tax obligations. Physical nexus is still important, and you can most easily think of physical nexus as anywhere your business has employees (including those “working from home”), buildings (including your home if you don’t have a formal office), or 1099 contractors that act in a sales/marketing role. While economic nexus, which we’ll discuss in a second, is important and more complicated, do not ignore where you have physical nexus! These states’ physical nexus compliance will require you to register and remit sales and use taxes.

Pro Tip: Travelling into a state for a conference where you’re making sales or soliciting customers can trigger physical nexus. This issue can be more complex as the size of the business gained, time spent in the state, and other factors can change whether we’d recommend registering, collecting, and remitting tax.

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