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How does a public company with 2 divisions (or subsidiaries) with separate FEIN's handle nexus?

Full Question: A consolidated public company with 2 divisions. Each division has a separate FEIN and files separate sales tax returns in various states. If Division A has nexus in a particular state, does Division B automatically have nexus in that state? Example, Division A has nexus in GA and charges, collects and files sales tax returns in GA. Does Division B, also have to charge, collect and file sales tax returns in GA for sales of its products shipped there?

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Answer:

Diane Yetter photoIf a company has different operating units that have different FEIN numbers, these are normally subsidiaries and not divisions. I will therefore answer this question assuming you meant subsidiaries and not divisions. The determination of whether separate subsidiaries create nexus for related parent is based on a number of factors and also the state in question. If the 2 entities are operating completely separately and do not perform activities such as sales solicitation, marketing, order fulfillment or processing and don't sell the same or similar items or operate under a same or similar name, it is likely the nexus of one subsidiary will not create nexus on behalf of the other. However, this is an area where states are broadening their rules and each state needs to be evaluated independently. If one of the subsidiaries does perform activities on behalf of the other, then nexus is likely created for the out of state operation. In addition, if GA is the specific state in question, they recently passed affiliate and click through nexus rules that might apply. These should be reviewed closely against your fact scenario. If instead of your 2 operating units being subsidiaries and they are actually divisions (which typically does not result in separate FEIN for each unit), then the nexus of any part of a business (a single FEIN) creates nexus for the entire business. If you need assistance evaluating the nexus of your operations, we do provide this as a consulting service and would be happy to discuss this with you further.

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