Determining where entities with multistate presence may have nexus can be a difficult task

Expert Solution

Companies that operate in multiple states know that sales and use tax laws can be complicated, confusing, and even ambiguous. Regulations vary from state to state and frequently change. Multistate tax issues are difficult for all industries, but manufacturing faces its own set of challenges.

As manufacturers expand across state lines, they must track the complex, ever-shifting laws that affect the many aspects of their operations, from maintaining facilities to selling online to offering repair services. Manufacturing businesses may not realize that core elements of their operations, such as installation and drop-shipping, may create obligations to various states outside the company’s home state which is known as nexus.

Nexus, a legal term also commonly referred to as “sufficient physical presence,” means that a business’s activity in a state meets a legal threshold for the state to tax it according to the U.S. Constitution.

In the case of sales tax, having nexus means a business must collect and remit taxes on sales to customers in that state. Each state defines this presence in its own way, setting the rules for what gives a business nexus to include anything from operating an office or warehouse to receiving click through referrals from someone living in the state. A company can trigger nexus in many ways; the most common ones are maintaining a facility in a given state, having employees performing services there, and advertising in the state.

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