What Is Nexus? | Multi-State Tax Liability | Rea CPA
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Nexus Studies

It's All About Connections

You might be wondering "what is nexus?" Well, nexus is just a fancy word for “connections” with a particular taxing jurisdiction. And it is these sufficient connections with a jurisdiction (municipality, state, or even another country) that allows a particular jurisdiction to subject your business to their tax laws.

For example, having nexus with a U.S. state, like Ohio, could result in you having to:

  • Pay withholding on wages for employees working in the state.
  • Collect sales tax on sales.
  • Deal with Income tax, licenses, and other things.

Nexus laws are always changing and it’s important to stay on top of them. One of the frustrating things about nexus is that you can have nexus for one tax type and not another.  So, if your internal accounting team is telling you that you don’t have to file income tax in a particular state – they may very well be right! But, that doesn't necessarily mean that you wouldn’t have nexus for sales tax, franchise tax, or other tax type in that state! See what we mean?

Why Take A Closer Look At Nexus?

Taking a closer look at your business's nexus situation is beneficial in that it can help you determine if:

  • You no longer need to file in certain states or cities that you may have historically filed in.
  • Your business has exposure for certain tax types. Knowing this information will allow you to make an informed business decision on whether or not you want to begin filing in a certain jurisdiction or assume the risk of being caught by a state.

Simply put, understanding nexus and how it relates to your business activity can also save you a lot of time and worry!

States are ramping up efforts to discover new sources of revenue and they often send out nexus questionnaires trying to find out if you have nexus. Going through this process now and all at once can save you a lot of time dealing piecemeal as states contact you regarding possible nexus.

What Is A Nexus Study?

A nexus study documents your business activities in a state or states, and whether (and why) they do or do not create nexus. Rea’s SALT team can review the activities of your business to determine in which states and municipalities a filing requirement exists.

A nexus study is often the first step as it will help you effectively diagnose whether there is a problem. If one is found, we can recommend a variety of solutions to help you attack and defend against those problems.