In the last few years, more and more states have been enacting economic nexus laws with the intent of capturing revenue from out-of-state companies that do business with in-state customers. However, not all states have a law on this issue. There is very little clarity about what an economic nexus statute means for businesses in multiple jurisdictions. This article will explore five strategies to help you determine whether your company has economic nexus and how to make it work for you if so!
Find Out if your State has an Economic Nexus Law
The first step is finding out if your state has an economic nexus law. A quick way is to check the Federation of Tax Administrators website (FTA). The FTA is a coalition of state tax administrators, and they are responsible for creating a uniform system for administering taxes in the United States. You can search by state on their website or use their interactive map.
Once you know if your state has an economic nexus law, it’s important to understand what that law entails. Each state’s statute will be different, so it’s critical to read the specific requirements carefully. Typically, there are three different types of economic nexus laws that can apply to businesses:
- Use Tax Nexus
- Destination State Nexus
- Sales Tax Nexus
Understand the Tax Implications and Requirements for Each Type of Law
Once you know which economic nexus law applies to your business, it’s important to understand the tax implications and requirements. Use tax nexus laws are typically aimed at businesses that don’t have a physical presence in the state but sell or lease taxable goods or services to customers in-state. Destination state nexus laws target companies with a physical presence in the state but make sales to customers located elsewhere. Sales tax nexus laws generally apply to any company with a physical presence in the state and make sales within its borders.
Be Aware of Your Company’s Status under These Laws
The final step is determining whether or not your company is subject to the law in the first place. This can be a difficult task, as there is no uniform test for economic nexus. Each state will look at different factors when making this determination. However, most states will consider factors such as:
- The number of sales or revenue generated from customers in the state
- The number of transactions with customers in the state
- The type of products or services sold to customers in the state
Once you have a good understanding of your company’s status under these laws, you can begin to take steps to ensure compliance.
Suppose your business appears to meet any of the criteria outlined under an economic nexus law. In that case, it’s important to consult with an attorney or tax professional who can help you determine if you are subject to the law in the first place. It’s typically in your best interest to be proactive regarding state regulations. Hence, if you are unsure whether or not economic nexus applies to your company, consult with someone who can help you determine your next steps!
This is just a brief overview of what you need to know about the economic nexus and how it might apply to your business. If you think that this may be an issue for your company or want more information on the various types of laws related to economic nexus, make sure to talk with an accountant who specializes in tax law. The good news is that there are many different avenues available for businesses looking to establish themselves as legitimate entities within their state–just one less thing they’ll worry about!