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My Clients Have Employees in Other States - Does that Imply Nexus?

David Hehman's Profile

I work with several start-ups that have 1-2 employees in other states. Payroll taxes are being withheld and sent in. Now that it is tax time, I'm trying to determine if State corporate tax returns are required. Can someone point me to a resource on the web that lists each State's nexus qualification?

Thanks!

Answers

Topic Expert
Vernon Reizman
Title: CFO
Company: RCM Industries, Inc.
(CFO, RCM Industries, Inc.) |

You are best to look at each states web site one by one. The employees themselves may or may not be a trigger depending on their duties and authority.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

I agree with Vernon. Every state has their own definition of nexus in their state. Any single source may not be completely current. The states are not coordinated in any way. You should go to each state's website.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

It dependson the states requirmenets as Vernon mentions. You have to review a multitude of issues including; does that person solicit business in that state, what are your sales in that state, and any other offices in that state. After you complete the analysis, you will have to determine the materiality of reporting and determine if you should file.

Andrew Mazzarella
Title: CFO
Company: Colony Display
(CFO, Colony Display) |

I agree with Patrick - do you have any inventory in the state? an office? what is the sales volume? These all weigh into the determination of Nexus. Be careful as once you file in some states, you will file forever. Some states do allow you to file for a "temporary or seasonal" license, but be very careful with that. Talk with your auditors or tax accountants.

Topic Expert
Mark Sphar
Title: Chief Accounting Officer
Company: Veracity Payment Solutions
(Chief Accounting Officer, Veracity Payment Solutions) |

Find a good tax accountant and weigh the risks/rewards here. Andrew is spot-on with the comment about being there forever once you start. Much of the language is gray and some of your decisions may be based on your level of comfort w/ gray. Good luck.

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

You could have nexus in a state and not have a single employee there. Assets placed in service in a state could also trigger nexus. You need to evaluate each state on a case by case basis. Unless you have ample time on your hands, you are best off getting a tax adviser to make the individual assessments for you.

Dan Jebens
Title: CFO
Company: ToolWatch Corp
(CFO, ToolWatch Corp) |

David, You need to look at both Nexus for Sales taxes and Income/Franchise/Gross Receipts/CAT or whatever every state calls their income or revenue based tax. The Nexus rules are different. You will be surprised at how different each state is in their rules and they change over time. Some examples: If your customer sends a salesperson to AZ to visit a potential customer more than 2 days in a year you have Sales Tax Nexus in AZ. If one of their other staff attends a training seminar for 5 days and no other employee travels to AZ for sales purposes (and they have no assets or employees living there) then there is no Nexus. In MN it is 4 days. In Wisconsin the number of days is 30 but it depends on how many people are there. 3 people at the same time is counted as 3 times 8 days = 24 business contact days. Other things affect income tax nexus. Licensing of intangibles in WI regardless of sales amount creates income tax nexus even though there are no assets, no employees, and no visits to the state. We engage a CPA that is a SALT expert (State And Local Tax) to study Nexus in states we are concerned with and then discuss the results. State issues can make your head spin but it is best to not ignore the issues. It is pretty common to companies going through the sale process and end up with 20% of the proceeds in escrow to cover state tax issues.

Joshua Hurni
Title: Account Exec
Company: AMS
LinkedIn Profile
(Account Exec, AMS) |

You could also invest in software or outsource the whole process with a company such as Avalara. Clients of ours have used them because they guarantee their results and cover items such as stadium or mass transit taxes.

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