Multi-State Tax Issues

Aug 9, 2013


If your business has grown into a multi-state operation, then you are probably facing exposure to nexus, which is one of the more complicated tax issues that a growing business will face. 

Nexus is the minimum link needed for any state to tax you or make you collect taxes on its behalf. Generally, a business whose activities become substantial, frequent, and continuous in a state is considered to have established nexus within that state.

There are several different types of state taxes, which are affected by whether or not your company has nexus. One of those is sales and use tax. Each state's interpretation of nexus is different and each one has varying laws when it comes to sales and use tax. Sales and use tax is a growing avenue of revenue for states that have become increasingly cash strapped. Ignoring your potential obligations to another state can prove to be costly because a state can go back and look at previous years after determining you have nexus in their state. In addition, to paying for prior year taxes, you will be assessed interest and penalties, too.

It is important to be proactive and educate yourself on nexus and how it can affect your company's operations. The following is a list of some nexus creating activities that if they are being performed in another state may create an obligation to collect and/or remit sales and use tax.

  • Ownership of property (stores, warehouse, offices, machinery and equipment, etc.)
  • Leasing of property (stores, warehouses, offices, etc.)
  • Maintaining inventory, whether consigned, stored, or carried by sales representatives
  • Travel of employees into a state to conduct sales, training, deliveries, installations, repairs, etc.
  • Use of independent sales reps or sub-contractors for repairs, maintenance, installations, etc.
  • Allowing employees to telecommute or use a home office
  • Advertising in local media or phone directories

Be sure to keep your SJHL professional apprised of additional states that you are conducting business in, so we can assist you with determining if you have nexus in another state.

Article written by Jenny Lang, CPA at Swindoll, Janzen, Hawk & Loyd, LLC. She can be contacted at (620) 241-1826 or jlang@sjhl.com.