The place to find business sales tax information

— as well as solutions, services and jobs!

I Have Nexus – So What Do I Do? (The 3 Basic Choices…)

author photo of Jerry Donnini

The proposed Marketplace Fairness Act (“MFA”) has dominated the state and local tax community in 2013. Despite not yet being enacted, the MFA debate has brought to light a closer examination by companies that may have nexus in certain jurisdictions. Combine the increased knowledge of the subject with the increasing aggressiveness of state nexus legislation, and more and more companies fall in the current state threshold for nexus creation. Over the past year, we have seen an exponential increase in calls and emails from companies that may have nexus all over the country.

Acknowledging nexus is an important step by a company, but determining what can be done to minimize state and local tax exposure can be a perplexing conundrum. At its most basic level, most companies have three general choices if it is determined it has nexus in a particular jurisdiction. A company can 1) do nothing and pray, 2) look into a voluntary disclosure type program, or 3) a combination of both.

After determining that a company has nexus in a state, many companies we speak with would prefer option 1 – do nothing and pray. While it may prove to be successful, many times states ultimately find out about a company’s presence in that state. Worse, without ever registering, states can go back to the beginning of the company’s existence and impose a substantial tax liability.

For many conservative companies, option 2 is undoubtedly the safest approach. Most states have some form of a voluntary disclosure program. The voluntary disclosure often cuts the liability to three years and offers some form of penalty abatement. Further, many states allow for a company to register and report tax on a prospective basis only, especially if the claim of nexus is somewhat grey.

While there is no one size fits all in the area of state and local tax, most of our clients elect to a combination of options 1 and 2. A company may choose the voluntary disclosure route in states in which it has a high volume of sales and other nexus questionnaire generating events (i.e. – an employee, a large customer under audit, etc.). In states which a company has less exposure, the proper approach might be just to sit dormant and hope time just continues to pass.

There are certainly a myriad of nexus mitigation tactics to combat the current state of aggression across the country. Each client we talk to gives rise to other planning techniques in the nexus battle. For example, what happens if a company was to just cease to exist and a new registered company, selling strikingly similar goods, was simultaneously created? Is there anything a state can do against the former company? What about personal liability of the officers of the first company? Whatever is decided, it should clearly be with the assistance of a state and local tax professional.

About the Author: Mr. Donnini is a multi-state sales and use tax attorney and a shareholder in the law firm Moffa, Sutton & Donnini, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini earned his LL.M. in Taxation at NYU. He is also a co-author of the CCH Expert Treatise Library: State Sales and Use Taxation. Please feel free to visit his firm’s web-site or his blog . If you have any questions please do not hesitate to contact him via email at JerryDonnini@FloridaSalesTax.com or call 954-642-9390.

Other recent “Sales Tax Nexus” posts by Jerry Donnini:

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

Comments

4 Responses to I Have Nexus – So What Do I Do? (The 3 Basic Choices…)

  • Posted by Laura on June 12, 2015 6:06am:

    We are a wholesale reseller base in Michigan. We have never registered in other states because of our reseller status, but we have an employee in Illinois and another one in Colorado. In reading up on Nexus, the fact that we have an employee creates Nexus in that state. Do we need to register in the other states even though we should be exempt from taxes because if our reseller status?

    • Posted by Author photo of Jerry DonniniJerry Donnini on June 12, 2015 6:50am:

      Laura,
      If the employee has been there for more than 3 years you may want to look into doing a voluntary disclosure for those states. The VD would cut your liability to 3-4 years depending on the state and likely reduce or eliminate penalties. your correct in that you likely need to register even though you are a reseller. You refund from your customer depends on your contract or relationship with them.

  • Posted by Carolyn on July 28, 2014 7:00am:

    My company was recently notified that nexus was established over a year ago. We have not collected nor remitted any taxes. How do I go about (1) getting compliant (2) notifying our customers in order to get reimbursed?
    Thank you in advance
    C.

    • Posted by Author photo of Jerry DonniniJerry Donnini on July 28, 2014 7:44am:

      Thank you for the note Carolyn. Even if you have been contacted for nexus, many states will still allow you to enter the voluntary disclosure program. In some states as long as you register and report correctly going forward they will ignore your past liability. Other states, allow you to enter the VD program and only go back three years. Some states say that being that the state contacted you first they can go back until the beginning of the corporate existence. If you have been contacted for one tax, you are likely still able to do a VD for the other taxes in that state as well. That being said, many states will share the information so if you have nexus and you are not registered in other states, then this a great time to be proactive in those states as well. If you need assistance with this project, our firm has handled several multi-state voluntary disclosure programs so I would be happy to assist you. I would also recommend researching whether some exemption might apply to the item(s) you are selling.
      Unfortunately, unless you have some contract with your customer then you probably do not have any legal recourse to force them to reimburse you. However, sometimes a business relationship is enough for a company to reimburse you.

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.