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Nexus for Manufacturers Part 1: Activities Beyond Your Four Walls

author photo of Lauren Stinson

Imagine you are having a perfectly good day – all lines of your manufacturing facilities are running smoothly, your plant expansion is almost complete and under budget, plus it’s Friday. Everything is going well until you open the mail and you have received THE DREADED NEXUS QUESTIONNAIRE!

Is this the ruin of an otherwise great day or do you chuckle and casually add it to your “to do” list, knowing that your nexus obligations are well managed.

Welcome to a four-part series about sales tax nexus - specific to manufacturers. Over the next several weeks we will explore common nexus-creating activities that can quickly become costly headaches for the unwary.

In Part One of the series, we will explore how activities beyond your four walls may be creating nexus for your company. Part Two delves into the concepts of sales agents as hidden gotcha’s. Part Three will explore how nexus can be created by where you have inventory. Finally, Part Four provides best practices to help manage the nexus process and steps to take if you discover you are non-compliant.

Most manufacturers are well aware that they have nexus where their headquarters and plants are located. But, is it really that simple? Unfortunately, the answer is no. There are many activities beyond a plant’s four walls that can be nexus-triggering events:

Remote or "Virtual" Employees: Do you have employees working remotely? Telecommuting is a popular work option for many companies. In most cases, it is good for business; however, it does open up additional sales tax compliance obligations that easily go unnoticed even to the savviest Tax Manager. Unfortunately, it often doesn’t escape the radar of the Department of Revenue, especially when they cross match payroll records with sales tax records.

Delivery and/or Shipping: Another nexus-creating activity to consider is how you are delivering products into a state. If you ship your products to your customers via common carrier, you are in the clear. If you deliver your products on your own trucks, you are creating nexus. Even if you have been delivering with your own trucks for years with no repercussions, be careful! Today, DORs are finding new ways to get information about which company trucks are using their highways to delivery products.

On-Site Installation or Services: As a manufacturer, do your employees go on-site to customer locations to perform installation, maintenance or repair services? Traveling on-site to perform these services could create nexus obligations. States often have a threshold for the number of visits into a state, but if this is a regular course of business, you will likely always cross that threshold where nexus is created.

Salespeople: Salespeople are often the impetus to creating nexus obligations. Traveling to client locations and visiting potential customers may create nexus. And, shockingly, attending trade shows often creates nexus as well. Before signing up for a trade show, consider the nexus obligations that may be created. With regard to sales & marketing activities, the acceptable maximum level of activity varies among the states. A few factors that states consider include the number of visits to the state each year and if orders are taken while in the state.

Manufacturers of all types engage in a number of business practices outside the four walls of the plant that could give rise to nexus obligation. These activities should be analyzed on a regular basis to ensure that your company remains in good sales tax compliance.

In Part 2 of "Nexus for Manufacturers", we’ll explore how Sales Agents can create nexus obligations.

What’s the most creative way a state has charged your company with nexus violations? Which states do you think have the strictest nexus standards?

About the Author: Lauren Stinson, CMI, is Owner and President of Windward Tax, a sales and use tax consulting firm. She has more than 20 years of experience working with manufacturers on sales and use tax issues. Lauren is pleased to share her expertise with SalesTaxSupport readers. She is the Manufacturing contributor for SalesTaxSupport’s Industry blog and she is the Georgia Sales Tax contributor for SalesTaxSupport’s State blog. Feel free to contact Lauren at lstinson@windwardtax.com or 770-696-4145 (ext. 215) - or submit a consultation request on her Firm Profile page.

Other recent “Manufacturing & Distribution” posts by Lauren Stinson, CMI:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

2 Responses to Nexus for Manufacturers Part 1: Activities Beyond Your Four Walls

  • Posted by Diane on May 18, 2015 6:55am:

    Excellent series and looking forward to seeing the rest. We are a manufacturer in Missouri and sell to all 50 states. I just received a questionnaire from Michigan for corporate, sales and use tax. Two areas of concern sales and Use tax. We do not collect sales tax, except for some counties in CA and all vendors, with a few exceptions, do not bill us sales tax for the products used in production. If we sold to Michigan either via direct ship from a vendor or our product via common carrier does that subject us to collecting or paying sales tax. In addition we purchase product for manufacturing from Michigan vendors, are we required to pay sales tax or use tax? Thank you!!

    • Posted by Author photo of Lauren StinsonLauren Stinson, CMI on May 21, 2015 4:47am:

      Hi Diane,
      There are a lot of different activities that determine if your company has established nexus in Michigan. Stay tuned for the next parts to this series! Merely shipping products via common carrier without any other nexus creating events does not create nexus. However, delivery by your own trucks may create nexus for you. As far as the purchasing side, if you are purchasing products from Michigan vendors to be used in your home-state of Missouri, if they do not qualify for a Missouri exemption AND the supplier has not charged your tax, you will need to remit Missouri use tax.

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