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What Every Marketer Should Know About State Tax Nexus

In 1994, Star Trek: Generations introduced movie-goers to The Nexus, a space-time anomaly that gave complete bliss to those who managed to get into it and survive.  Of course, obtaining nexus in that case required being in exactly the right place at exactly the right time.  The nexus this blog addresses is more akin to a different space-time anomaly – a black hole, something that is far too easy to get swept into and not very blissful.

Just as Star Trek captains would “boldly go where no man has gone before,” a marketer's job is to boldly take the business where it has not gone before.  Occasionally, and especially in this age of online business, those new frontiers are either virtually or physically outside the business's home state.  The purpose of this blog is to educate marketers about nexus – why it is important, what causes it, and most importantly how to avoid or minimize its impact.

What is nexus?

Webster's tells us that nexus is “a relationship or connection between people or things.” From a tax perspective, nexus is like a cup that measures when the business's connections to a given state are high enough to allow that state to legally force the business to do various things (namely register, file returns, and pay taxes). The unfortunate part is that each state has its own ever-changing measuring cup, so these rules can be especially tricky to navigate.

Having nexus to a state can be a good thing because it typically means your business is doing well at establishing connections there. However, if a marketer is blindsided by nexus, their marketing timetable and budget may be derailed. Even worse, as will be detailed in a later post, nexus can subject the business to a state tax exposure that may remain on the books indefinitely. For these reasons and more, a nexus analysis should be a part of every marketing plan from the outset. A marketer who is able to recognize the factors that create nexus has the ability to structure their plan to avoid or minimize its impact.

Up next: Reach Out and Touch Someone (Creating Nexus part 1 of 2) 

Christopher La Puma is a graduate of Stanford University, with a JD and LLM (Tax) from Georgetown University Law Center.  He has 18 years experience in domestic, state and international tax planning and controversy and is currently enrolled in Chapman University’s Executive MBA Program.

Joshua Applegate is the Director of Finance at IOS LLC where he manages accounting, finance, and human resources.  Before joining IOS Joshua ran his own tax and accounting practice for 9 years.  Currently Joshua is working on his MBA at Chapman University with an expected graduation date of May 2016.

By Christopher La Puma and Joshua Applegate

CHRISTOPHER LA PUMA is a graduate of Stanford University, with a JD and LLM (Tax) from Georgetown University Law Center. He has 18 years experience in domestic, state and international tax planning and controversy and is currently enrolled in Chapman University’s Executive MBA Program.

JOSHUA APPLEGATE is the Director of Finance at IOS LLC where he manages accounting, finance, and human resources. Before joining IOS Joshua ran his own tax and accounting practice for 9 years. Currently Joshua is working on his MBA at Chapman University with an expected graduation date of May 2016.

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