Nexus Study
Expanding across state lines introduces complex tax challenges—our firm offers expert nexus guidance to support compliance and help manage risks, so you can grow with confidence.
Hire an Experienced CPA team for your organization’s Nexus Study
Many corporations in the USA or Foreign Corporations conduct business in other states rather than only doing business with customers within their home state. A state can tax an out-of-state business if it can establish that the business has “nexus”, or a degree of connection, with that state.
TMP provides a range of services to help you stay compliant with state tax laws. Our CPAs offer insight to businesses with multi-state presence in forming a corporate tax strategy that manages risk exposure with various tax jurisdictions as they expand their operations.
What is a Nexus Study?
A Nexus Study identifies whether a business has established a “nexus,” or connection, with a state that creates tax obligations. It assesses factors like physical presence, economic activity, or employee operations to determine compliance requirements for sales tax, income tax, and other state-specific obligations. This is essential for businesses expanding across state lines or engaging in remote sales.
Benefits of a Nexus Study
A Nexus Study offers businesses crucial advantages in navigating multi-state tax requirements and ensuring compliance.
Accurate Tax Compliance
Identify state-specific tax obligations, such as sales tax collection and income tax filing, to avoid penalties and audits.
Cost Savings
Avoid unnecessary tax payments by precisely determining where compliance is required.
Risk Management
Proactively address potential liabilities and reduce exposure to back taxes or interest.
Support for Business Growth
Ensure compliance as your business expands into new states, providing a strong foundation for scaling operations.
Informed Decision-Making
Gain clarity on where your business activities create tax nexus, enabling smarter operational and financial strategies.
Regulatory Confidence
Demonstrate a proactive approach to tax compliance, building trust with stakeholders and tax authorities.
Accurate Tax Compliance
Identify state-specific tax obligations, such as sales tax collection and income tax filing, to avoid penalties and audits.
Risk Management
Gain clarity on where your business activities create tax nexus, enabling smarter operational and financial strategies.
Informed Decision-Making
Gain clarity on where your business activities create tax nexus, enabling smarter operational and financial strategies.
Cost Savings
Avoid unnecessary tax payments by precisely determining where compliance is required.
Support for Business Growth
Ensure compliance as your business expands into new states, providing a strong foundation for scaling operations.
Regulatory Confidence
Demonstrate a proactive approach to tax compliance, building trust with stakeholders and tax authorities.
Nexus and Types of Tax Affected
When a business meets sales tax nexus criteria, it must
- Register to collect and remit sales tax on taxable sales within the state.
- Comply with state-specific thresholds, such as $100,000 in sales or 200 transactions.
Corporate Income Tax Nexus
- File state income tax returns and apportion income to the state.
- Pay taxes based on state-specific apportionment formulas.
Properly understanding and managing these tax obligations is critical to staying compliant and avoiding penalties.
States commonly look at the following factors to determine whether a foreign corporation has nexus
Physical presence within the state
- Owning or leasing real estate
- Hiring employees or representatives
- Maintaining inventory
- Operating equipment, performing repairs
- Conducting training and customer service
Physical presence within the state
- Amount of gross sales made into that state
- Transaction counts
- Particularly affects digital businesses or remote sellers that sell to customers in states where they have no physical presence
Services We Offer
Why Us
Educating Clients
We focus on empowering our clients with the financial knowledge and resources needed to make informed decisions and achieve long-term success.
Seasoned Experts
Our team of experienced professionals brings extensive expertise in accounting and tax regulations, delivering reliable and thorough solutions tailored to your needs.
Personalized Solutions
We customize our services to fit the unique financial circumstances and goals of each client, offering targeted solutions that effectively address their challenges.
Modern Approach
Leveraging the latest technologies and innovative strategies, we deliver efficient, forward-thinking accounting and tax services designed to meet the evolving demands of businesses and individuals.
Frequently Asked Questions (FAQs)
Find answers to common questions about Democracy
Not necessarily. Your company would be filing a resident income tax return
with its home state. It will also be filing a non-resident income tax return with
the other nexus states. On the resident return, it will apportion income
between states to avoid double taxation by the home state.
Nexus laws vary by state. Generally, hiring w-2 employees in a state is
sufficient to establish physical nexus whereas many states do not consider
having independent contractors alone as a sufficient ground to establish
physical nexus. In California, having a contractor for taking orders,
installation or delivery is sufficient to establish nexus.
Many states have sales tax nexus rules for marketplace facilitators.
Generally, states require the market facilitator (eg. Amazon) to collect and
remit sales tax on your behalf therefore you do not need to collect sales tax
yourself. However, you still need to track the aggregate sales made to each
state (including the sales made through marketplace) to assess any
economic nexus for income tax filing obligations.
While each state sets their own regulations in determining what constitutes nexus, physical presence and economic activity are the most common factors that trigger nexus. Ways to establish physical nexus can include leasing or owning an office or warehouse in the state, hiring employees in the state or simply maintaining inventory in the state. Economic nexus measures the amount of sales you made to the customers located in that state.
Earning cryptocurrency creates a taxable event at the time of receipt, regardless of whether you sell or hold the assets.
Yes, the nexus rules apply to out-of-state businesses including foreign
businesses. Even if the Canadian company does not meet the permanent
establishment test for federal tax purposes, it can still establish nexus for the
state where it does business.
Yes, certain states do not tax corporate net income. States without a
corporate income tax include South Dakota, Wyoming, Nevada, Washington,
Texas, Ohio. However, some states may impose alternative taxes such as
gross receipts tax, franchise tax or other business-related taxes.
Yes, certain states do not levy sales tax. States without a sales tax include
Delaware, Montana, New Hampshire, Oregon and Alaska. Even for states with
a sales tax, certain items are exempt from sales tax. In California, for
example, most services as well as sales for resale are not subject to sales
tax.
No, while the concept of nexus is most commonly associated with U.S. state tax
laws, similar principles apply in other countries. Nexus broadly refers to the
connection a business has with a jurisdiction that creates tax or legal obligations.
For example, in Canada, businesses must assess their obligations based on
provincial and federal tax laws, which are analogous to nexus rules in the U.S.
Nexus applies to businesses, not individuals, so U.S. permanent residents (green
card holders) are not directly affected unless they operate a business that
establishes nexus with a state. In such cases, their business activities—such as
maintaining inventory, hiring employees, or generating economic activity in a state
—can create a nexus and associated tax obligations.
- Ensure Compliance: Avoid penalties by determining whether your business has state tax obligations.
- Identify Risk Exposure: Evaluate activities that may inadvertently create nexus and lead to unexpected tax liabilities.
- Plan Strategically: Understand tax obligations in multiple states to create an effective tax strategy.
- Simplify Operations: Reduce administrative burdens by clearly defining tax responsibilities in various jurisdictions.
If the foreign state levies income tax on business income, you are required to
file non-resident income tax returns with the state. On the return, you would
apportion the business income to the state and pay tax on the apportioned
income.
Failing to register and comply with state tax laws can lead to penalties, interest on unpaid taxes, and potential audits. Some states may also impose back taxes for prior years. If discovered, businesses may lose access to voluntary disclosure programs that can reduce penalties. It’s crucial to address compliance issues promptly to avoid escalating liabilities.
No, for many states that look at both economic and physical nexus factors,
you can establish nexus by simply meeting one of the two. Hence, if you are
considered to have nexus by having employees or a physical office in that
state, then you do have a filing obligation even if you have minimum sales in
that state.
How much will it cost for TMP to assist our foreign corporation in the US?
Basic Package
Number of States:
Up to 3 states
Income and Sales Tax Nexus Study:
Basic nexus determination for income or sales tax compliance.
Audit Defense:
Guidance during initial state inquiries.
Tax Planning:
General advice on minimizing nexus exposure
Expert Package
Number of States:
Up to 7 states
Income and Sales Tax Nexus Study:
Comprehensive analysis of income and sales tax obligations for each state..
Audit Defense:
Representation during nexus tax audits, including communication with auditors.
Tax Planning:
Tailored tax optimization strategies to reduce multi-state liabilities
Premium Package
For businesses with extensive multi-state operations and complex compliance needs.
Number of States:
Up to 20 states
Income and Sales Tax Nexus Study:
In-depth analysis and detailed reporting for up to 20 states of operation.
Audit Defense:
Representation during nexus tax audits, including communication with auditors.
Tax Planning:
Advanced strategies to restructure operations and minimize tax burdens.
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