In today’s day of technology growing your business has become easier.  Creating an internet site which allows businesses the ability to attract customers from across the country is common today.  Business growth and expansion often includes plans to either ship products to other states or expand into neighboring states.  This sounds great but what many small businesses overlook is a concept called Nexus.   Nexus is the connection or relationship a taxpayer has with another taxing state which determines their obligation to collect and remit taxes to that particular state.  Nexus determination can be confusing and the rules regarding nexus vary from state to state. 

 Are you obligated to collect and remit sales tax?  How much sales tax should you collect?  What products or services are subject to sales tax? Every state has their own sales tax regulations.  Are you obligated to remit income taxes?  Are you required to register to do business in another state?  Determining exactly how a rule applies to your business is critical and the penalties for non-compliance can be steep.  Let’s talk about some scenarios where nexus might apply:

 Scenario #1 – The most obvious scenario is when your business opens a second location in another state.  In this scenario, you should be aware of not only your sales tax obligation but payroll tax and income tax obligations as well.  Do not overlook the need to comply with state worker’s compensation insurance rules as well. The state ofNew Yorkimposes a penalty of $2000 for every 10 days you go without worker’s compensation for employees considered to be working inNew York.

 Scenario #2 – You rent out of state storage, warehousing or drop shipping facilities in another state. . 

 Scenario #3 – Your company personnel deliver products in their own cars or your company owned vehicles to another state.

 Scenario #4 – You regularly attend tradeshows or put on seminars in another state.

 Scenario #5 – You perform repairs or construction services in another state.

 These are just a few examples of possible business activities that could create nexus.  Nexus rules could change as states look at various proposals to raise much needed revenue.  Recent court cases inConnecticutandTennesseeheld Scholastic Books liable for sales tax based on the fact that the teachers made the students aware of the products, provided order forms and handle the order distribution. 

 Bottom Line – be aware of the nexus concept and check with your accounting professional or other advisors to be sure you are meeting all your tax filing and payment obligations.


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