Nexus Studies

A nexus study is a determination that addresses whether activity undertaken in a state rises to the level that the state may impose tax responsibilities on the company. Typical arenas in which the determination is made include:

• Sales and/or use tax
• Corporate income or franchise tax
• Corporate gross receipts tax

Companies should determine whether they have nexus in every jurisdiction in which they ship goods and/or perform services. Optimal times to have a nexus study performed are:

• Contract terms dictate that the company services a new geographic region
• A decision is made to subcontract with independent contractors in another state
• Advertising dollars are being spent in new geographic regions
• Telecommuters that reside in other states are being employed
• A subsidiary or related-company is being formed or is operating in a new jurisdiction

Rules governing nexus vary from state to state. Also laws governing whether nexus has been achieved are not the same for each tax type. Companies complete the nexus determination to ensure:

• Compliance with tax statutes in pertinent jurisdictions is achieved
• Avoid unexpected bills for tax, penalty and/or interest
• Costs associated with hiring decisions, contract acceptance, and corporate restructuring are known
• Company decisions are made using a complete cost-benefit analysis