State and Local Tax Nexus

This article is the first of a three-part series regarding the State and Local Tax consequences of doing business in multiple states.  Part 1 will discuss Nexus, Part 2 will discuss Voluntary Disclosures, and Part 3 will discuss the Audit Process.

What is Nexus?  In order for a state to impose an income, franchise, or gross receipts tax on a taxpayer or require a taxpayer to collect and remit sales and use taxes, the taxpayer must have nexus with the state.  Nexus is some type of connection with the state.   Such connection could be a physical presence in the state, an economic presence in the state (i.e., taking advantage of the market in the state (such as an intangible asset)) or some type of factor presence in the state (certain dollar amount of sales into a state).

Are there different nexus standards for Income, Franchise and Gross Receipts taxes and Sales and Use taxes?  Yes.

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