Nexus is simply the most complicated, and most contentious issue in the arena of Sales and Use Tax laws.  The rules regarding what creates Nexus is different in virtually every location – each state is different, and in Colorado each city is different, and the laws which define Nexus are changing almost monthly in one state or another.

Specifically, Nexus is the legal term used to describe the level of activity and presence maintained by a business within a tax jurisdiction that allows the jurisdiction to impose upon that business the responsibility of collecting and remitting sales taxes, along with the associated tax return filing requirements.

There are many ways in which a business can directly create Nexus for itself, or indirectly have Nexus created for it by another company.  It can acquire Nexus indirectly because if another Company (Company B) has a common ownership with Company A, and Company B acquires Nexus in a particular jurisdiction, that may also create Nexus for Company A in that jurisdiction.  (In other words, Nexus can be contagious.)

The rules regarding what creates Nexus are different in every location, so it is easy for a business to create Nexus for itself (or have Nexus created for it) without realizing it.  Some of the ways a business can create Nexus for itself include:

• opening an office, having equipment, inventory or employees located in a jurisdiction
• leasing or renting equipment to a customer in another jurisdiction
• making deliveries to customers in a jurisdiction with its own trucks
• sending repair or maintenance employees to a customer’s place of business, or have contractors perform work on their behalf
• selling items from catalogs or over the internet, then accept returns at brick and mortar retail locations
• using sales personnel to take orders at the customer location, whether those personnel are employees, agents or contractors
• licensing software for use in the jurisdiction
• advertising in certain ways in some jurisdictions (such as with billboards in some states) will do the trick
• being a partner (including a limited partner) in a partnership doing business in another jurisdiction

However, the rules are changing almost monthly.  So if your company is going to be doing a significant amount of business with a customer in a new geographic area, it would be wise to have me do some research to see if you would be creating Nexus in that new area.

If in doubt, register with the jurisdiction(s), and collect the taxes from your customer so that you will not be liable for them yourself.  If your customer objects, call me and I will investigate so as to protect your interests, and at the same time help you maintain a good relationship with your customer.

Posted by Keith Crichton, MBA, MT, CPA

DISLAIMER

The information contained in this blog is general in nature and is not intended, and must not be construed, as legal, accounting or tax, advice or opinion provided by Keith Crichton or any associates, to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs. More importantly the reader may require consideration of other tax implications beyond sales and use taxes, as well as other financial and personal considerations other than taxes, before action is to be contemplated. The reader should contact his or her tax and/or legal professional prior to taking any action based upon this information.  Keith Crichton assumes no responsibility for loss incurred by any person acting, or refraining from action, as a result of any material provided in this or future blogs, nor by prior blogs to which this blog may refer.