Nexus Analysis / Nexus Exposure Analysis
FREQUENTLY ASKED QUESTIONS
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What is a Nexus Analysis?
There are two types of nexus analyses: economic and physical. For economic nexus, the nexus analysis would analyze your sales and associated transactions by state from 2017 to present to determine when and where you met the necessary thresholds for economic nexus as prescribed by each state. Despite the Wayfair decision impacting most states in June 2018, some states had previous economic nexus laws in place. This analysis would ONLY determine economic nexus by which your Business is located in one state/international and only sells by way of mail or electronic means into another state.
A separate analysis would be needed for physical nexus by which you would have physical presence in a given state and need to determine when and where that presence was established. Employees (including salespeople, maintenance and repairs), inventory, buildings and/or equipment located in a state constitutes physical nexus.
Why do you need my sales from 2017 or earlier?
Failure to register for sales tax, if unchecked, may result in a state sales tax audit. Technically, a state can audit you from the point you started doing business in the state, so typical state statutes do not apply. This is more problematic for physical nexus, but for economic nexus, the state can only look back from the point the economic nexus law went into effect and when your business crossed that threshold, typically the prior 12 months of sales/transactions. Most state statutes for sales tax are three years, but there are a few state statutes at four years. In completing an analysis for either economic or physical nexus, it is best to have the data from the date you started selling to ensure the deliverable is correct.
My sales are non-taxable, so why would I need a study?
For physical nexus, it would not matter if your sales are taxable or not – you would need to register regardless to conform with state tax laws. For economic nexus, many states still review “gross sales” so even if your sales are non-taxable, you would still need to register. Many states are beginning to change their laws to only reflect taxable sales, but for the sake of compliance, it is best to know where and if your business constitutes nexus in a given state at the current time.
Will the nexus analysis show back tax liabilities?
No, the economic or physical nexus analysis will only show when, where and if you constitute nexus in a given state. An exposure analysis would be needed to detail possible back tax liabilities.
What is included in the Nexus Analysis deliverable?
The nexus analysis deliverable will include a chart of the states by which your business should be registered, along with the necessary reasons and associated laws prescribed by those states. It will also provide additional information regarding the other states in the analysis to monitor for future implications. Along with the deliverable, a one-hour call would be set up to answer any of your questions and provide guidance in regards to performing an exposure analysis, sales tax registrations and/or voluntary disclosure agreements.
What is a Nexus Exposure Analysis?
A Nexus Exposure Analysis will not only detail when and where the business has established nexus, but also calculate the back taxes, associated penalties and interest by state/year. For non-registered businesses with material taxable sales, this is the most optimal solution in determining options for tax compliance. The Nexus Exposure Analysis includes the same report data and discussion as does the Nexus Analysis, but now includes the quantitative data needed to make the best business decision in regards to tax compliance.
What if I just need the Exposure Analysis?
While we generally need to perform a Nexus Analysis first, some clients have already completed their own Nexus Analysis and just need for us to compute the back tax liabilities. For this, we would only need the states by which have established nexus, along with the date/month first established, and all sales data broken down by month/year from that time period.