Nexus is the state-to-state nexus that allows a state to tax certain out-of-state businesses. Nexus is the property of a business that overlaps with a state’s taxing jurisdiction. If a business has nexus in a state, then the state can require the business to pay sales tax. 

When a company has sales tax nexus with a state, that company is directed to collect and remit the state’s sales tax. Nexus laws vary between states, and the collection and remittance requirements can be complex. Nexus laws are a tax issue, so you need to make sure that your business has nexus with a state before you start collecting or remitting sales tax.

Here are a few ways to trigger a tax collection obligation through the most important asset of the organization, the employees. 

Telecommuting Employees

Telecommuting isn’t a new concept—it’s been around for quite a few years—but the trend is picking up in the workplace. To be a productive employee in the 21st century, you need to be connected to your job 24/7. You can accomplish this by working from home, but it is also important to keep in touch with the office through various forms of technology.

Additionally, telecommuting can trigger nexus if the employee lives in some other state. The nexus obligation is probable to get triggered when a telecommuting worker who lives in another state assists their employer to exploit the state marketplace. 

Independent Contractors

The use of independent contractors is one of the biggest ways employers reduce headcount costs. In fact, in most industries, the majority of workers are independent contractors. Some employers worry about the risks of relying on independent contractors, but in reality, the risks are minimal. 

Traveling Representatives

Nexus obligations can be inducted by service representatives or traveling sales, whether they are employees or contractors. For instance, under New York law, “You must register [for local and state sales tax objectives] if you request sales of taxable services or products through employees, independent agents, service representatives, or salespersons, located in, or who enter New York State.”

Event Attendance

Sending independent contractors or employees to an event (for instance, trade show, convention) in some other state can establish nexus with that state, even if no sale is made during the trip. The number of activities in a state that will trigger sales tax relies on the state, and a few states take a more aggressive outlook than others.

Final Words

Nexus can be tricky. If you’re not careful, you might find yourself having nexus in two or more states. If you have nexus in more than one state, you’ll have to file a separate return in each state, with different tax liability in each. Additionally, you might be subject to the Alternative Minimum Tax or possibly even a state tax. You can avoid all that by relinquishing nexus in a state you don’t need to be in.

Attend the Compliance Prime webinar to understand your nexus and reduce the risk of audits by state taxing authorities.