Imagine this: Your small manufacturing company just landed a lucrative contract with a client in another state. You’re thrilled about the growth opportunity, but unbeknownst to you, this single deal has just triggered tax obligations in a state where you’ve never set foot. Welcome to the complex world of state tax nexus.
If you’re thinking, “Nexus? We covered that already,” think again. The landscape of state tax nexus has undergone a seismic shift in recent years, and the ripple effects are still being felt across industries. While nexus has always been about the connection between a business and a taxing jurisdiction, the definition of what constitutes a “connection” has expanded dramatically.
Gone are the days when simply avoiding a physical presence in a state was enough to avoid tax obligations. In our increasingly digital and interconnected economy, nexus can be created in ways that might surprise you. Did you know that digital advertising, using a third-party fulfillment service, or even having an employee work remotely from another state could potentially create nexus?
But here’s where it gets interesting and potentially costly. Nexus isn’t a one-size-fits-all concept. The activities that trigger sales tax nexus might be different from those that create income tax nexus. And let’s not forget about franchise taxes or gross receipts taxes. Each tax type can have its own set of rules and thresholds.
Read more about State and Local Tax from Joe Popp
For businesses, this complexity is both a risk and an opportunity. On one hand, unknowingly creating nexus in multiple jurisdictions could lead to significant penalties and back taxes. On the other hand, a proactive approach to understanding and managing your nexus footprint can open doors to strategic tax planning and potential cost savings.
Take manufacturers, for example. The nexus implications for this industry are particularly nuanced. From managing exempt sales to navigating multi-state supply chains, manufacturers face unique challenges that require specialized knowledge. (We’ll be diving deep into a fascinating case study on this topic in our upcoming webinar – you won’t want to miss it!)
As if the current landscape weren’t complex enough, the future promises even more changes. States are constantly pushing the boundaries of nexus determination, exploring new ways to capture revenue from out-of-state businesses. Staying ahead of these trends isn’t just smart tax planning – it’s essential for sustainable business growth.
So, what can you do to navigate this ever-changing nexus maze? Don’t let nexus become your business’s Achilles’ heel. Talk to your Rea advisor today and get access to the insights you need to turn tax complexity into a competitive advantage. Your future self (and your bottom line) will thank you.
To learn more about nexus, check out our in-depth webinar.
By Joseph Popp (Dublin Office)