An Ounce of Prevention (Planning for Nexus)

Benjamin Franklin opined that an ounce of prevention was worth a pound of cure.  Although the quote originally related to fire safety its wisdom may be applied to any situation.  In our series we have defined nexus, given examples of how nexus may be created by marketing activities, and explained the financial impact of nexus.  The financial impact of nexus has two parts; we illustrated the cost of nexus when you are aware of and include it in your marketing plan, and the cost of nexus when it surprises you.

In our first post, we told you nexus is not inherently a bad thing.  It is a sign your business is growing and expanding and should be a sign of the health of your business rather than a portent of evil.  The ounce of prevention in this instance is to be well informed.  If your marketing plans involve selling, operating, or providing support in a state other than your home state, make sure you have added the question “what about nexus” to your checklist.

The rules for every state are different.  As a marketing professional your job is to build connections, not to understand complex and frequently changing tax rules.  The ounce of prevention to protect yourself against unplanned financial expenses: consult with an appropriate professional.  Some examples of appropriate professionals are Certified Public Accountants, attorneys who specialize in state and local taxes, or your company’s tax department if you are large enough to have one internally.

WHEN ALL SEEMS LOST

If you’ve stumbled upon this blog and only now realize that your long-operating business may have tax nexus in another state, do not fret.  Most states have amnesty and voluntary disclosure programs that can help you bring your business into compliance with a reduced amount of expense.  So don’t wait for a state tax authority to catch your mistake.  Hire an expert and get in front of this issue!

Thank you for your attention reading our abbreviated blog series on what marketers need to know about state tax nexus.  That fact that you took the time to read this means you are already ahead of the game.  Good luck building those connections!

Chris and Josh

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NEXUS RESOURCES ON THE WEB

If you’d like read more on this topic, there are a variety of online resources available (mostly commercial).  We’ve highlighted a few here.  Remember, however, no publication can substitute for the judgment of a tax professional who regularly deals with these issues and is familiar with the specific facts of your business.

• US Small Business Administration (SBA), https://www.sba.gov/content/learn-about-your-state-and-local-tax-obligations

The SBA is a federal agency serving entrepreneurs and small businesses.  Among other resources, the SBA maintains a website summarizing state tax and registration requirements.

• Multistate Tax Commission (MTC), http://www.mtc.gov/Resources/State-Sales-Use-Tax-Registration-Forms

The MTC is an intergovernmental state tax agency that, similar to the SBA, publishes useful links with information on state tax and registration requirements.

• STS Publishing LLC, http://www.salestaxsupport.com/sales-tax-information/states-sales-tax-by-state/

STS maintains one of the better nongovernmental websites with free and generally up-to-date content on the nexus requirements in each state.  Their site is supported by a variety of third party product vendors and service providers.

LOBBYING

State tax nexus laws are developing rapidly.  If you’d like to do more than comply but actually help shape these laws, there are many excellent advocacy groups out there, including:

• National Retail Federation (NRF), https://nrf.com/advocacy/policy-agenda/sales-tax-fairness

The world’s largest retail trade association, the NRF is focused on sales tax reform among other major policy tenets.

• The Performance Marketing Association (PMA), http://thepma.org/internet-sales-tax-reform/

The PMA is an advocacy group for performance marketing, a form of advertising in which the purchaser pays only when there are measurable results.  They support the interests of affiliate marketers, which we addressed in an earlier blog.

• The Direct Marketing Association (DMA), http://dmaaction.org/issues/taxes

DMA is a trade association of “data driven” marketers (most commonly direct mail marketers) that seeks to reduce tax burdens on remote sellers.  DMA works both in Congress and the States on these issues and has also been the plaintiff is some high profile cases.

• National Association of Manufacturers, http://www.nam.org/Issues/Official-Policy-Positions/Tax-Technology-Domestic-Economic/Tax/

An influential industrial trade association whose opinion is well-respected by courts and legislatures alike.  They support taxation of businesses only when they are physically present in a state

(Missed our last post? Catch it here: Wag the Dog (A “Tail” of the Cost of Nexus) | Global Marketing Professor)