A Practical Guide to Economic Nexus - Summary of Article

Here are the key points from this article. - States are becoming more aggressive in identifying and requiring business compliance with their laws. They are taking advantage of information from property tax records as well as 1099 MISC records to identify new ways to increase their revenue. - All states except Missouri have passed economic nexus legislation. - If states find that the taxpayer purposefully did not comply with state law, then the Department of Revenue (DORs) can not only require that the taxpayer pay back sales tax but also assert that it is liable for penalties as well as interest. - Most states have taken the legislative position that an organization has economic nexus if: - It has annual retail sales of goods or services into the state that surpass a dollar threshold, e.g., $100,000; or - It makes a specified number of sales transactions, e.g., 200 or more, into the state. - There are examples of unequal treatment. In a state with a threshold of 200 transactions or $100,000 in sales, if a retailer sells 200 widgets at a dollar each, then it has to begin collecting and reporting sales tax, even though its total revenue for the state is only $200. In the alternative, if it has one large sale for $90,000, then the company has no obligation to collect sales tax and file returns. - The sales tax thresholds for economic nexus are generally much lower than the income tax sales-factor-presence thresholds, often by thousands of dollars. - Companies should set up a reserve for potential sales tax liabilities in the states where they operate. - Some states are ostensibly working to make sales tax compliance and collection easier for taxpayers. On the other hand, some states are aggressively seeking out taxpayers for compliance with the new nexus rules. - Companies should be aware of and monitor their physical and economic presence nexus on a quarterly basis

You can view the entire article here: A practical guide to economic nexus by Antonio Di Benedetto, J.D., LL.M.

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