Nexus Update: Transaction Counts Eliminated In Indiana And Wyoming

In recent news, both Indiana and Wyoming have eliminated the use of transaction counts (200) as a factor in determining sales and use tax nexus for remote sellers. This is a significant change that will affect many businesses operating in these states.

What Is Sales and Use Tax Nexus?

For those who may not be familiar, sales and use tax nexus refers to the connection between a business and a state that allows the state to require the business to collect and remit sales tax on transactions made within that state. In the past, many states, including Indiana and Wyoming, used transaction counts as a means of determining if a remote seller had established nexus within their borders.

Recent Changes

However, this method of determination has come under scrutiny in recent years, with many arguing that it places an unfair burden on small businesses that may only make a few sales within a state. In response to these concerns, both Indiana and Wyoming have now eliminated transaction counts as a factor in determining sales and use tax nexus for remote sellers.

This is good news for many businesses, as it means they will only be required to collect and remit sales tax if they meet other criteria, such as having a physical presence within the state or exceeding a specific dollar amount of sales, currently $100,000.00 in both Indiana and Wyoming.

*Please note that Indiana’s updated nexus threshold is retroactive to January 1, 2024, and Wyoming’s does not take effect until July 1, 2024.  

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How Can A Nexus Review Provide Peace Of Mind?

In this day and age, nearly every company conducts business across state lines. Are you aware of all the additional taxes and fees you may be liable for?

We assist companies with state sales tax and income tax matters. As companies expand their operations and send salespeople across the country, or sell to consumers in other states via the internet, they create into nexus (or taxable presence) and have to think about filing in other states. That’s where Miles Consulting Group comes in.

We help companies answer questions on multi-state tax compliance:

  • Where do you have nexus creating activities?
  • What are the rules? What are next steps?
  • When was nexus created? When should you begin filing?
  • How much retroactive exposure has been created? Can we help you reduce it?

    As state tax rules change, we help our clients address these questions by bridging the gap between your business and complex state tax laws.

    We are often asked these three questions:

    1.  Why Is A Nexus Review Important?
    2.  Which Activities Cause State Tax Issues?
    3.  Are We Out of Compliance or Being Audited?

      Why Is A Nexus Review Important?

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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30th Anniversary of Quill Decision: A Significant Nexus Ruling

On May 26, 1992, the U.S. Supreme Court issued its opinion in Quill Corp. v. North Dakota (504 US 298). This was a significant nexus ruling modifying the earlier National Bellas Hess decision (386 US 753 (1967)). In Quill, the Court ruled that physical presence was not required for due process nexus but still required for commerce clause purposes.

That meant that Congress could modify the ruling since it controls the commerce clause, but not the due process clause. But that was difficult to do so states started finding ways to find physical presence. For example, we saw New York enact the so-called “Amazon” law where the state found a connection between certain affiliates in the state helping to sell a company’s products and receiving a commission.

Finally, another case got to the Court – Wayfair, and the Court concluded “that the physical presence rule of Quill is unsound and incorrect.” I think that makes sense as it did lead to odd results. For example, a company would have sales tax obligations for having an employee in a state even for a few days. But another company with more sales in the state has no sales tax obligations in the state becuase it was able to avoid physical presence in the state. In fact, Wayfair is a multi-billion dollar company that avoided physical presence in South Dakota. Yet, the company with hundreds of engineers could easily create a software program to collect sales tax from all customers and properly remit it to the appropriate states.

In Wayfair, the Court found that South Dakota’s new nexus rule where a vendor has sales tax obligations if it delivered over $100,000 of goods or services into the state during the year or had 200 or more transactions of in-state deliveries.

Quill is still cited in some cases. It has a role in nexus history which is something I’m working on writing an article about – for the 30th anniversary.

Let me know if you have any observations to share. Thanks.

Annette Nellen, San Jose State University

OECD Issues Model Rules On Nexus and Sourcing

On February 4, 2022, the Organization for Economic Cooperation and Development (“OECD”) issued  model rules for nexus and revenue sourcing under Pillar One of the international tax agreement (the so-called “two-pillar solution”) signed last year by 137 countries, including the United States. As explained previously, Pillar One would allocate taxing rights over 25% of the residual profit of the most profitable MNEs to the countries where goods or services are used or consumed. The OECD anticipates that countries that are parties to the two-pillar solution will enact laws substantially similar to the model rules, while taking into account various requirements peculiar to their constitutional and legal systems.

The model rules would require that each transaction be categorized according to its “ordinary or predominant character,” based on the transaction’s substance rather than its legal form. The categories anticipated by the model rules include revenues from the sale of:

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MONIKA MILES - NEXUS

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:

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New And Upcoming National Nexus, The U.S. Congressional Marketplace Fairness Act
Dan Thompson, Thompson Tax, Silicon Valley, CA
Learn what Daniel Thompson, President of Thompson Tax And Associates will be discussing at the upcoming TaxConnections Internet Tax Summit.  Watch and listen to his brief video that will lead up to his full presentation on the New and Upcoming National Nexus.  Daniel’s Tax Industry Expertise is in Multi-State and Local Sales & Use Tax Consulting.

 

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