From the late 1970’s to the late 1980’s the Baby Bell’s and AT&T ran an advertising campaign reminding us to “Reach out and touch someone.”
This poignant campaign reminded consumers how important it is to keep in touch, a message not lost on marketers. A marketer’s job is to build connections with customers, but how they go about this will determine whether nexus is created for their organization.
If marketers could magically sell goods and services without making connections with their customers they would be in GREAT shape. Federal law generally protects an organization from creating nexus MERELY because it has customers in a state. The issue is how much of a connection can you make before nexus IS created? Most states would argue only a little connection is needed (they want the tax revenues after all). Unfortunately, the test for nexus isn’t as simple as whether you are physically present in the state and can “reach out and touch” your customers.
Over the next two posts we will discuss the following five ways marketing activities may create nexus:
- Providing phenomenal customer service
- Protecting your organization’s product image/placement
- Providing services in a state
- Owning real or tangible personal property in a state
- Using marketing affiliates
PROVIDING PHENOMENAL CUSTOMER SERVICE
In every geographic market, there are likely to be competitors who offer similar or substitute products or services; a logical way for marketers to differentiate their organization and demonstrate value to their customers is to provide exemplary customer service. Following are some examples of situations where providing exemplary customer service may create nexus.
Replacement or Repair
First, consider a situation where a customer outside your home state has a key piece of equipment provided by your company and the equipment malfunctions or breaks. As part of your marketing philosophy of providing exemplary customer service, you may send an employee or other representative out to repair or replace the malfunctioning equipment (whether for a fee or not). Even though your employee or representative is only in the state temporarily, this may create nexus.
Training or Retraining
Next, consider the situation where a customer outside your home state loses a key employee on short notice and that employee is responsible for operating the equipment or using the service you provide. Of course your philosophy of providing phenomenal customer service dictates you help your customer (whether for a fee or not) by training a replacement employee. If training this employee involves you sending an employee or representative to your customer’s place of business, this may create nexus.
Finally, consider the situation where you have a key customer in another state and you want to conduct market research to determine ways you may add more value to the product or service you provide. Because inconveniencing the users with surveys is not in line with your customer service or research philosophy, you send an employee or representative out to meet with them and ask questions about their use of (and satisfaction with) the product. Even though your purpose for the trip is not related to your customer specifically, the presence of your employee or representative may create nexus.
Be sure to reach out and touch our next post To Be, or Not To Be (Creating Nexus part 2 of 2) | Global Marketing Professor, where we discuss the remaining four ways marketing activities may create nexus.
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.