Which Activities Cause State Tax Nexus Issues?

State Nexus Issues

As states are becoming more aggressive with respect to tax collection, they are also broadening the activities that cause nexus, or taxable presence, for companies. This is important because once a company has nexus, they can be subject to sales tax collection, income tax reporting and other taxes as well.

Some activities that may cause nexus (and therefore state tax reporting issues) include:

  • The hiring of an employee
  • Contracting with an independent contractor
    Maintaining inventory in third party warehouses
  • Owning property or renting office space
  • Exceeding a certain threshold of sales or transactions in a given state (see the Wayfair case discussion)
  • Using fulfillment services like Fulfillment By Amazon (FBA) or similar services which place inventory in third party warehouses in different states

Once a company begins doing business in a state, we assist with procedures for filing necessary sales tax and income tax returns. We also help with apportionment reviews and general compliance.

On the income tax side, one hot topic is properly sourcing revenue for service-based companies. Many states have embraced a concept referred to as “market-based sourcing” for service revenues. That generally means that the revenue will be recognized in the state in which the value of the service was received. What that means can vary by state.

Have a question? Contact Monika Miles and Team.

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

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