As desperate states clamor for sales tax revenue, they’re redefining the regs for business – again.
Out of the blue, a state can claim your company has established nexus and hand you a massive bill for the sales tax it should have been collecting all along.
Read on to see where the nexus push is greatest and how your company can avoid a sales tax catastrophe.
Sales aren’t the only trigger
Determining whether a business had established nexus in a state used to come down to one group: salespeople.
As long as a company’s sales team didn’t travel into a state to make sales or solicit new customers, nexus wasn’t usually established.
But more and more, states are stepping up audits and looking for any business representatives in their boundaries, even if no sales activity is taking place.
Sending an employee in to perform maintenance or repair services, for instance, is now enough to trigger nexus in most states. Even activities that maintain your company’s relationship with a customer have been ruled enough to establish nexus in a state.
How to handle: If your company currently offers to perform repairs for customers, you may want to instead ask them to obtain their own repair services and reimburse them for the expenses.
It adds another step to the process, but could save you from an entire new set of tax reporting responsibilities.
Frequency of in-state visits
While many states are expanding nexus regs beyond sales reps, others are focused on how often they’re visited. This includes more than repairs and sales solicitations: conferences, trade shows and other get-togethers can lead to a sticky nexus situation.
How to handle: It comes down to tracking where company reps travel and how often – no way around it.
There’s no magic number to keep in mind, as each state has its own idea of when the nexus threshold is crossed.
Two visits are enough to create nexus in AZ, while 15 or more shows or other visits are enough in CA.
Try creating a list of state thresholds for travelers. You may even want to use incoming expense reports to track and follow-up if they’re cutting it close.
