The place to find business sales tax information

— as well as solutions, services and jobs!

Nexus for Manufacturers Part 4: Best Practices for Compliance

author photo of Lauren Stinson

In my 4-part Nexus series, we have examined common business activities of manufacturers that give rise to nexus gotchas. In this final installment of the series we will examine the best ways to manage this process. Begin by following these four steps to set you on the road to nexus compliance.

Step 1: Annually review your nexus footprint

Look at all areas of your business to identify nexus-creating activities.

  • Operations. Do you deliver products on your own trucks? Do you perform repair, installation, or maintenance services at client locations?
  • Human Resources. Where are employees located? Include contractors and agents.
  • Sales and Marketing. Where do sales people travel? How often? Do they attend trade shows? Do you have agents working on your behalf? Internet affiliates?

Step 2: Be proactive before you receive nexus questionnaires

Typically, once you receive a nexus questionnaire, your options are limited. The DOR has the upper hand and there is no statute of limitations for non-filing. In other words, if you had nexus for 7 years, the state has the power to go back 7 years and assess your tax on all sales made to that state during that time period. Plus, they can assess penalties and interest. Dollar signs can exponentially add up.

Step 3: Know your options

When most manufacturers realize they have nexus issues, they seek resolution with Voluntary Disclosure Agreements (VDAs). These agreements are between the company and the state as a way to resolve any unpaid sales taxes and get the company in nexus compliance while reducing many of the penalties and interest accumulated during the period. If a company knows it has unpaid sales taxes due to nexus violations and the state has not sent a nexus questionnaire, VDAs are a great way to settle with the state.

I urge manufacturers to retain a sales tax expert to negotiate VDAs. We know the best way to work with the revenue departments to minimize liabilities. Plus, in most cases your company will remain anonymous allowing you flexibility to reject the state’s offer.

Step 4: Evaluate the pros and cons of registering in states

Once it is determined that your company has sufficient presence in one or more states where you are not registered, should you immediately register with the state(s) through a voluntary disclosure agreement? Here are some pros and cons of registering:

PROS

  • If a state finds an unregistered taxpayer, tax can be assessed starting with the initial date that nexus was created. BUT, under a VDA, the statute of limitations is typically the regular statute period of only 3-4 years.
  • The longer you remain unregistered the larger the eventual liabilities if you get caught.
  • Once a state contacts a company regarding business activity within its borders, the possibility for a VDA is eliminated.

CONS

  • Periodic sales tax returns will need to be filed.
  • Professional fees are associated with VDA registrations.

Here are a few other points to consider before making a final decision about nexus registration:

  1. States where you have the highest sales volume should warrant more consideration than those with lower sales volume.
  2. If your company has multiple legal entities in states where you are not registered and one of these entities gets audited, your red flags may appear.
  3. Registering in a state for other types of taxes, such as payroll taxes, often puts you on the state’s radar for possible sales tax nexus activities.
  4. If you have not been diligent about collecting exemption certificates, the possibility of owing significant back taxes increases.
  5. States known for aggressively searching for unregistered taxpayers warrant additional considerations.

This four-part Nexus for Manufacturers series has hopefully given you the jumpstart to achieve nexus compliance before states seek you out. The chances of receiving a nexus questionnaire are increasing.

Share your nexus questions with me. What is your greatest nexus concern? Has your company received a nexus questionnaire?

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.

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. More specific questions or requests may be sent to Lauren directly using the orange "REQUEST" link on Lauren's 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 4: Best Practices for Compliance

  • Posted by Jimmy on November 25, 2015 10:09am:

    Good morning,

    We received a sales and use tax certificate of exemption from a customer who’s in manufacturing. They want to buy boxes from us in order to sell their products. Would they be exempt from GA sales tax?

    Thanks so much for your assistance.

    • Posted by Author photo of Lauren Stinsonlaurenstinson on November 30, 2015 6:10am:

      Jimmy,

      Yes, manufacturers in Georgia can purchase packaging materials exempt from tax. You need to collect a copy of their Georgia ST-5M exemption certificate with box #3 checked (Materials used for packaging tangible personal property for shipment or sale. Including both reuseable and single use packaging). Make sure that the purchaser includes their sales tax number and all valid information at the bottom of the form. By getting that form, you will have the proper documentation in place in the event of a sales & use tax audit.

Submit a comment or question - only your first name will appear

Disclaimer:

Access to any portion of SalesTaxSupport.com is contingent upon your acceptance of our Terms of Use. This Web Site and content provided by STS Publishing, LLC and its third party content providers, including, but not limited to information, documents, forms, comments, advice and opinions, is for informational purposes only, and is not a substitute for professional advice, nor does the use of this Web Site constitute a professional-client relationship. The Web-Site also includes advertisements, directory listings, job postings and links to third party web sites, all of which are provided for your convenience only and in no way constitute a referral, endorsement, or warranty by SalesTaxSupport.com of any product or service provided by such third parties. All content is provided “as is” with no guarantee regarding accuracy, suitability, or timeliness. Your reliance on any content accessed on or through the Web Site, or on any product or service provider is strictly at your own risk.