Avoid Unnecessary State Tax Burdens with a Nexus Study

If your company does business online or operates in multiple states, then nexus probably isn’t a new term to you.  However, states are continuously changing their definitions of nexus. These changes create the need for a nexus study, which can help a company understand its connections to states and the resulting compliance requirements.

The Rise of Nexus

Nexus is created in a state when a business has some type of connection or presence in that state, subjecting it to state income taxes and/or sales taxes on business done there.

Before the boom of e-commerce, presence within a state was a simple determination.  Due to the sophistication of technology and the rise of online retail, states have defined new ways to trace a company’s presence.  Each state has its own definition of nexus, and many states are making changes to that definition in order to maximize their collections of sales and income taxes.

Various Nexus Types

There are several different types of nexus to consider:

  • Physical nexus
  • Economic nexus
  • Substantial nexus
  • Affiliate nexus
  • Click-through nexus

Our previous post goes in depth about the different types of nexus.

Companies are now at a higher risk of non-filing exposure, as the owners may be unaware of filing requirements for certain states in which a nexus-triggering activity occurred.  Nexus-triggering activities may include anything from payroll expenses and gross receipts, to business licensing and telecommunications tax filings.  For these reasons, it is important to consider a nexus study so that your company remains in compliance with state laws.

Why a Nexus Study

A nexus study involves the investigation of all records and activities generated from the business in each state in relation to the applicable state nexus standards.  It provides assurance that a company is aware of all activities that create nexus, and that the company is complying with all filing requirements. Nexus studies also help mitigate tax exposure and limit liability so you are paying only what is necessary. The State and Local Tax (SALT) team at Anders will perform research to determine if and where nexus exists, and the proper compliance that is required. View our Nexus Study Cheat Sheet to learn more, or contact Anders to determine if your business could benefit from a nexus study.