Nexus Audit Lawyers
There’s a lot of rules and regulations concerning state and local tax. This can be a nuisance, especially for smaller business owners. Multistate sales tax, gives small business owners a huge headache. The bad news is, unless you’re in full compliance with all the laws, this can trigger a sales tax audit and leave you with a huge financial bill.
State authorities are currently dealing with a lot of issues dealing with multistate sales and use tax compliance issues. One of the biggest targets of sales tax compliance, is businesses in other states, who are shipping goods into the state in question. California – for example, is very aggressive about other states shipping goods in. The reason for this, is because it creates a liability for the seller to collect the sales tax, or for the buyer to remit use tax. For many small businesses who operate online, this can be challenging, because they ship into multiple states.
Are you being audited for a potential Nexus?
You may hear the term tax nexus. Nexus is a huge issue for Amazon sellers, who serve many states or even countries. Nexus is used in tax law to describe a situation in which a business has a tax presence in a state, or states. It’s essentially you’re doing business in a certain place, and now must collect or pay taxes.
Nexus is determine different for income tax and for sales tax purposes. Each state has its own rules. Nexus is typically created for income tax purposes if a business organization gets income from sources with the state — or owns, or leases, property in the state. Another way of creating an exus, is if you have employees in the state, or activities in the state, which exceed mere solicitation, or if you have capital or assets in the state.
For Sales Tax Purposes
- If you have a physical location in the state
- If there are resident employees working in the state
- If the business has property in the state
- If there are employees who solicit businesses in the state
Our Attorneys Can Help
If you’re being investigated for having a Nexus in a different state which was unreported, we can help. In the past 10-15 years, many states are monitoring online businesses and non-payment of sales taxes. States feel that online businesses aren’t collecting sales tax from online sales, and the states should get these revenues.
In 2018, the Supreme Court ruled in the case of S. Dakota v Wayfair, that older ways of determining tax nexus were artifical and that states have the RIGHT to mandate online sellers charge and collect sales tax from online buyers, not just buyers physically in the state.
This new ruling made it so that states now are trying VERY HARD to setup regulations and procedures to collect sales tax for online sales.
In order to harm small sellers, many states have a minimum # of transaction, or annual amount of sales, under which no sales tax is charged.
Different Types of Nexus
States have come up with several ways to determine if you have a nexus.
- Click through: This is a direct connection between the buyer and seller.
- Affiliate: These are independent businesses selling through another business. An example os Amazon Affiliate programs.
- Economic Nexus: This is the simplest way of determining sales tax nexus. This is just sales. Businesses might have an economic nexus in a state if they have sales over a specific amount.
When Audited, What Determines Nexus?
Nexus is determined differently for income taxes and sales tax.
Each state has its own rules.
For income tax
Nexus is typically created for income tax purposes if your entity is getting income from sources within the state, or if you lease/own property in the state, or have employees in the state that engage in activities which exceed mere solicitation, or have capital/assets in the state.
For sales tax
Nexus is determine for sales tax, more loosely. Here are a few cases where a business might have a sales tax nexus in the state
- If you have a physical location
- If there are resident employees
- If the business has property
- If there are employees who solicit business