“Got Nexus”? Of course you do. You just don’t know it.
If you are asking yourself, what am I talking about? I am talking about having a “taxable presence” in a state for state tax purposes, whether it be sales tax, income tax, gross receipts tax, margin tax, business tax, commercial activities tax, minimum taxes, limited liability entity taxes, LLC fees, and the list goes on.
If you didn’t know, basically if you sneeze or spit in a state, you’ve got nexus. There are all kinds of nexus, such as: affiliate nexus, agency nexus, economic nexus and my favorite of all, “Amazon Nexus.” All of these are diversions from the “old time” nexus we like to call “physical presence” nexus. You know, the old days when a company had to have a physical presence in a state to have nexus. Another old time nexus principal is “substantial nexus.” Often times, a company might have “due process” nexus or de minimus nexus, but not “commerce clause” nexus (“substantial nexus”).
Economic Nexus = The New Bright Line
Another point I would like to make, seems like the new bright line test for nexus or the desire of many states, is economic nexus. Meaning, if you make a sale into a state, “BOOM,” you have manipulated the market in the state and received benefits from the state (legal protection, right to sue, etc.) that require you to pay tax on that sale (whether it be income tax, sales tax, etc.) Yeah, yeah, I know, the Quill case is supposed to require physical presence in a state for a state to charge sales tax. But what the heck is “Amazon” nexus? “Amazon” nexus, in simple terms, is catching nexus from services provided to your customer by an unrelated third party. Supposedly the third party is doing so much for you, that the third party is acting as your agent or on your behalf. Therefore, it is like “they are you, and you are them.”
Questions and Answers
My questions are: what taxpayers or companies in a state are receiving the most benefit from the state? What taxpayers or companies are using more of the resources of the state? What taxpayers or companies are driving on the roads, polluting the air, etc.? IN-STATE taxpayers. I know I am crazy, but there I said it. Out-of-state taxpayers and internet-sellers may travel into the state a little, or not at all. However, most states want to tax the out-of-state taxpayer more and the in-state taxpayer less. Hmmmm, why do you think that is?
Economic Incentives (Single-Sales Factor and Economic Nexus)
Every state wants to provide economic incentive for companies to build, expand and base their operations in their state by creating credits and incentives, but also going to a single-sales factor apportionment factor and imposing economic nexus on out-of-state taxpayers. With a single-sales factor, obviously the out-of-state taxpayer ends up paying more to the state and the in-state taxpayer pays less. The “old time” apportionment factor was three-factor (property, payroll and sales). I believe 10 or less states still use a three factor formula today.
So WHAT?
So, what’s next? Expansion of P.L. 86-272 to protect more in-state activities by out-of-state taxpayers; OR economic nexus so everyone is taxable for sneezing or spitting in a state?
