Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York

Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York

   
Resources - Tax Center - Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York
     
 

Expansion of Nexus Creates New Tax Liabilities

 
 

Does your company have remote employees in other states? Do you have a corporate webserver located in another state? If so, then it will certainly interest you to know that your company may have a nexus issue in other states. According to the 13th Annual Survey of State Tax Department, conducted by Bloomberg BNA, states are more aggressively expanding what business activities creates nexus. Broadly speaking, nexus refers to a situation where a company has a business presence in a state and is thus subject to state income tax and other tax requirements. In the past, most states limited the determination of nexus to a physical presence (offices, property, employees, etc.) in their state. However, with the emergence of technology most companies have limited the number of locations where they have property or employees. This change has induced states to become more aggressive in expanding the business operations occurring in their state.

Key Survey Findings

As states expand their nexus definitions this means more and more cross state border business activities will be subject to a state income and sales tax requirements. To provide clients with the most recent changes to what defines nexus, Boris Benic & Associates LLP has identified the most prominent items identified in the survey including:

  • Telecommuting – If your company has remote employees providing customer service or other services directly related to commercial business then a tax issues exists. While this is not new criterion, states are expanding what activities provided by these employees create nexus. In the past it was generally limited to activities that furthered the companies commercial activities including, sales, product support, etc. However, the survey reveals that 66% of surveyed states now assert nexus would be created from a single telecommuting employee providing administrative services (non-sales or production). This significantly increases the nexus liability for companies across the board.

  • Webservers – If your company owns a webserver in another state it is likely you have a nexus issue with that state. Several states asserted there would be a nexus issue EVEN if the company did not have any sales made to state residents. Additionally, 55% of states survey indicated they would identify a nexus issue for any out of state company that leased space on a third party’s internet server. There are new criteria for creating nexus and one that most companies are likely not even aware of. A great deal of uncertainty surrounds how states will address cloud computing and whether hosted applications from out of state companies create a nexus issue. According to the survey most states are still trying to develop a policy for dealing with the cloud issue.

  • In Home Office Reimbursement – If your company reimburses employees for maintaining an in-home office that is located in another state then it’s likely you will have a nexus issue. According to the survey 50% of states asserted that an employee receiving reimbursement for an in-home office would constitute a physical presence by the company in their state and thus trigger an income tax issue. This is another new approach by many states to expand the definition of physical presence and gain access to additional tax dollars.

  • Non-US Companies - This is a new focus area for many states. Although the federal government does not subject foreign companies to U.S. income tax unless a permanent establishment has been created. A permanent establishment exists when a place of management (office or other location) is created domestically and is charged with the authority to enter into business contracts. What’s interesting is that the survey shows only 36% of states follow the permanent establishment criteria for determining nexus. This means that foreign companies may have tax issues and not even know it. As states continue to look for new sources of tax revenue foreign corporations will continue to be an appealing target. 

Contact Us

Unsure if your company has a nexus issue? Looking for guidance on how to address these matters? If so, then contact us today for a nexus review. Find out why so many companies across New York have turned to Boris Benic & Associates LLP for assistance with state and local tax issues. For additional information on nexus issues please contact Boris Benic, CPA, at 516-248-7361, or click here to email Boris. In a brief consultation he can assess your situation and identify areas of potential opportunity.

 

Source: Bloomberg BNA

 
 

Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York

 

Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York