In the state tax world, one of the most important concepts is “nexus.” Also known as “taxable presence, “nexus” is the term that describes the minimum connection a company needs to have with a state in order to be subject to the state’s taxing scheme. This includes sales tax, income tax, gross receipts tax and more.
There’s a lot that goes into the discussion around nexus, and with the recent state tax law changes, there are frequent updates. This post is a helpful start to understanding what nexus is and how it affects your business.
How Does Physical Presence Nexus Establish State Tax Exposure?
One primary way companies establish nexus is through having a physical presence in that state. For example, if a business has “boots on the ground” in terms of employees or third-party contractors working in the state, or has inventory, other personal property or real property in the state, the company likely has nexus and needs to collect and remit state tax.
When it comes to physical presence nexus, there are a few specific areas we look at: