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home » sales/use tax issues » nexus »

You have been selling taxable tangible personal property, TPP, to customers of yours in Texas for the last fifteen years, but you have never registered in the state of Texas and collected tax from your customers in that state. Should you?

Q: WHEN MUST YOU REGISTER, COLLECT AND
REMIT SALES OR USE TAXES IN ANOTHER STATE?

The answer is yes, if you have what is called nexus in the state of Texas. Nexus is a critical issue in administering sales & use taxes because if you have nexus in another state you are required to register in that state and collect that state's taxes from those customers. Failure to do so can lead to substantial assessments for failure to meet that obligation. How far back do you think a state can go to collect those taxes from you? Well, most states have a statute of limitations.  It provides for assessment for taxes anywhere from three to six years back in your past. But remember a statute of limitations only applies if you have filed a return. If you have not, the statute of limitations is not running. If you established nexus in Texas fifteen years ago and never bothered to register and collect Texas tax, the state could walk into your office tomorrow and charge you all the taxes on all your sales into the state of Texas for the last fifteen years plus penalties and interest!

So, what is nexus? Nexus is when a non-resident seller creates a substantial, frequent and continuous, physical presence in the state. As you can see, determining whether or not you have triggered nexus in a state can be a very subjective judgment.

First, what do they mean by a "physical presence"? Some factors to consider are:

  • Having employees, or agents, in the state performing business activities, e.g. selling, consulting, repairing etc.
  • Delivering product into the state using your own vehicles.
  • Having a business location in the state, e.g. an office, store, or warehouse. 
  • Do you participate in trade shows in that state?
  • Doing business with a bank, advertising, establishing a web page buying insurance are all types of activities which in some states will trigger nexus.
  • Owning, renting, or leasing property in the state, e.g. renting or leasing your property to customers in the state.

Second, what do they mean by frequent and continuous? This can be a very gray area since many states do not use specific language in their definitions of these terms. This might be an issue where some good professional advice may be appropriate. Be aware that many states are focusing on the issue of nexus very aggressively and they interpret these terms very broadly.

If you think you may have established nexus in a state but have never collected the state's sales and use taxes from your customers, there may be a way out. You may want to approach the state with a "voluntary disclosure" to reach a settlement on any past due taxes. But, be careful. You should approach the state anonymously until you have reached a settlement.

As you can see the issue of nexus is a very serious concern in terms of your sales and use tax liabilities. Be sure you do your research in the various states into which you are selling TPP or taxable services.  We have successfully worked with our clients to minimize their exposure to the nexus surprise.

 

 

Feel free to call or e-mail us to discuss any tax issues you may have.

1.785.876.2426

Sales Tax Advisors, Inc.
9168 Village Lane
Ozawkie, KS 66070-6102

Last modified on Sat Oct 18 2014 16:40:21 MST.
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