ARTICLE | January 8, 2025

Multistate operations require a deep understanding of the State and Local Tax (SALT) landscape in each location,
including sales, use, income, franchise, gross receipts and property taxes. As your business increases its product
offerings or expands across state lines, there are tax implications to consider. The very activities that generate
profits and build market share can often increase state and local tax exposure as well.

What is Nexus?

Nexus is the minimum level of activity a business must have with a state before that state can impose a tax liability and filing responsibility on the business. It is one of the core issues of multistate taxation and the subject of substantial levels of legislation and regulatory action.

State nexus standards are constantly in flux due to frequent state court decisions, expanded statutes, changes in state tax department nexus policies and fiscal pressures to recover lost revenue. With no federal or standard uniform agreement, nexus standards can vary greatly between states and among the different tax types. Every business faces the challenge of determining where it should be filing state tax returns. This is particularly important for businesses with:

• Mobile assets, employees and representatives;
• Multistate sales or use of services and intangibles;
• Rapid growth;
• Changes in technology, operations and offerings; or
• Changes in organization/legal structure.

Determining Nexus

It is no longer enough to answer the traditional nexus qualifying questions: Where are your facilities? Where are your employees? Now, states want to know: Where are your customers? Where are your services delivered or consumed?

Additionally, you must determine the nexus attribution of the activities of agents, independent contractors, related parties and unrelated affiliates. These complexities can create risk of improper state tax compliance. States may impose penalties and interest, and even criminal sanctions, in cases where a tax is collected by not properly remitted. Furthermore, business owners may be held personally liable for noncompliance or have business locations shuttered by tax authorities.

SALT and Nexus Study

We can determine where your company has established nexus and help you better understand what your requirements are and how it affects your overall tax scenario. During our study, we will survey your business’s operations, compare those activities to the latest nexus standards applied by the states and identify risks to and opportunities for the business with respect to:

• Previously and unidentified liabilities;
• Overpayment/refund opportunities;
• Initial public offering or merger and acquisition readiness; and
•  Financial statement accuracy.

Our analysis includes risk calculations by tax type for each state, as applicable. We’ll also recommend next steps for addressing risks and refund opportunities.

Limiting Your Tax Liability

If our analysis reveals prior year noncompliance, our team can work with state agencies to negotiate a limited lookback period through a voluntary disclosure agreement. An agreement can provide a range of benefits, including:

• Minimization of overall tax liabilities paid;
• Limited lookback period for returns to be filed;
• Authorization to perform a self-audit for all taxes;
• Penalty waiver and potential reduction of interest;
• Closure of prior periods for audit;
• Greater accuracy for financial statement reporting (e.g., realistic accrued tax liabilities);
• Reduction in multijurisdictional information sharing;
• Clarification regarding future reporting methods; or
• Established registration in all nexus states.

Understanding Your Exposure

Our SALT team can provide you with a more complete understanding of your business’s operations as well as the ramifications and opportunities that come with your multistate operations. Give us a call today to learn more.

The information provided in this document is not intended nor can it be used to avoid tax penalties levied by a taxing authority. Actions based on this information should not be taken without further consultation with a licensed tax professional.