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The link between taxes and nexus

In business, we are surrounded with buzzwords that might mean a lot to us, but outside of your industry, it could seem like you're speaking a foreign language. One word for you to consider today is "nexus." This term does not apply to one industry, but rather to any company that does business in a state where it does not have a physical presence.

Another way to think of nexus is a connection or a link. If an entity, in this case, a state government, has a link to your business, then you have created a nexus. When it comes to taxes, each state has its own threshold for economic nexus. In New York, any corporation that does more than $1 million in business in the state is subject to taxation even if the company has no physical presence.

Tax amnesty deadline approaching

The complexities of federalism and the sovereignty of each state can create a tangled web of rules for your business. Establishing nexus can create certain responsibilities for your company, which, again vary from state to state. As a business owner, you may have to complete certain filings for sales tax, income tax and the like.

A crucial nexus-related tax filing deadline of Oct. 17 is approaching for online retailers. Sellers who do not file for a tax amnesty may have to collect sales tax for interstate sales made online to avoid back taxes or other penalties in 24 states.

Questions to ask yourself when considering your business nexus in a state include:

  • What kind of products do I sell in the state?
  • Do I have to collect taxes on these products?
  • Do I have employees in the state?

As more business activity moves online, nexus has been called into question regarding sales tax in many states around the country. Currently, online retailers are not required to collect sales taxes for each state in which they do business.

Online sales question nexus

According to CNBC, most states do require taxes to be paid on items sold and shipped to local customers, though answering questions like who pays the tax or when the tax is paid are still up for debate.

Some online companies do collect sales tax even if they are not explicitly required. For example, Amazon collects sales tax in most states in efforts to level the playing field and avoid further regulation. Some companies avoid collecting sales tax for online items because it may not be required and it could be difficult for smaller companies to administer; however, the end of amnesty in 24 states could change this.

By understanding nexus, companies can better position themselves in a growing online market and more closely comply with an ever-changing tax code. The attorneys of Goldburd McCone LLP have helped many businesses stay up to date with new laws in changing economic environments.

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