Whether it is to take advantage of attractive locations for warehousing, a better pool of talent, or to expand into a new market, many businesses find expanding beyond their home states a natural part of growth.
While it is the states’ individual differences which make them attractive, the diverse landscape of state and local taxation can be a pain point for many businesses. Compliance hinges on one key factor: nexus. Most commonly in the world of state and local taxation, nexus refers to the relationship between a taxing authority and a business.
Many activities can trigger nexus, but the most common include:
- Owning or leasing property or capital assets
- Employing workers (including remote workers in some cases)
- Storing supplies or renting a warehouse
- Transacting business
The rules vary by state, but there are generalizations to follow. For income tax purposes, a business which derives income from, owns property in or employs residents of a state generally is considered to have nexus. For sales tax purposes, the nexus rules are a little broader, and also include solicitation of business and intangible property within a state, as well as activities which trigger online nexus.
Distinctions among rules and regulations can be complex and difficult to follow, much less comply with. If you have any business activities outside of your home state, reach out to one of our advisors today and we will perform a nexus analysis. This is the first step in maintaining compliance and avoiding burdensome audits by state taxing authorities.