Multi-State Tax Consulting
How can a nexus review provide peace of mind?
A nexus study and taxability review allows a company to determine where it might have exposure and the extent of that exposure. We work with our clients to identify their activities in various states as well as to analyze the types of transactions engaged in with various states. Determining exposure before a proposed acquisition is good business. We can also assist in determining possible exposure before a state comes to audit. And finally, we can provide peace of mind with respect to financial statement disclosure.
As part of a project we work with clients to answer the following types of questions:
- What is Nexus?
- Is my product or service taxable?
- Must I start collecting and remitting sales/use tax?
- I’ve collected tax from a given state and have not remitted it—what now?
Once we determine possible exposure, we can assist clients to benefit from available amnesty programs, contract for voluntary disclosure agreements, or simply to document their exposure.Top ˆ
Which activities cause state tax issues?
As states are becoming more aggressive with respect to tax collection, they are also broadening the activities that cause nexus, or taxable presence, for companies. This is important because once a company has nexus, they can be subject to sales tax collection, income tax reporting and other taxes as well. Some activities in a state that may cause nexus (and therefore state tax reporting issues) include:
- The employment of an employee
- Contracting with an independent contractor
- Maintaining inventory
- Owning property
- Exceeding a certain threshold of sales in a given state
Once a company begins doing business in a state, we can assist with procedures for filing necessary sales tax and income tax returns. We can also assist with apportionment reviews and general compliance. On the income tax side, one hot topic is in properly sourcing revenue for service based companies. Many states have embraced a concept referred to as “market based sourcing” for service revenues. That generally means that the revenue will be recognized in the state in which the value of the service was received. What that means can vary by state.Top ˆ
How does sales tax apply to the cloud?
The topic of sales tax has become a major discussion item recently thanks to the proposed federal legislation known as the Marketplace Fairness Act. It is also referred to as the Internet Sales tax or the Amazon tax. Introduced in the US Senate during the 2013 legislative session, the Act was passed by the Senate, but has stalled in the House. It is being reconsidered in 2014, and many believe that some version of the law will pass this year.
The Marketplace Fairness Act, if passed in its current form, would require Internet retailers with revenue in excess of $1 Million to collect and remit sales tax in the states into which they sell, regardless of whether the seller has any physical presence in those states. This is a significant departure from current rules, which require a company to have physical presence in a state (for example people or property) before a state can compel them to collect and remit sales tax. Keep in mind also that current rules already require purchasers to self-remit use tax, but most people don’t.
The Marketplace Fairness Act is an interesting development, but there are other “cloud issues” already existing under current statutes. For instance, the topic of software is always interesting. Taxability can vary whether it’s custom or canned. And it can matter whether it’s delivered on a piece of tangible media versus downloaded electronically. And what about Software as a Service? SaaS models are becoming the norm. But how do states address the taxability of SaaS? Is it taxable software or a non-taxable service? The answer is, it depends. Some states address SAAS as either taxable or not. And some states have not yet taken a position. There is very little uniformity. We can assist companies find the answers.
Out of compliance, or being audited?
When companies find themselves out of compliance or at the mercy of an audit notice, we can assist.
If out of compliance, we can work with client personnel to determine the extent of exposure and develop a plan of action to get into compliance—both for sales tax and income tax. If being audited, we can assist with early, middle or late stage audits, protests, etc. We work directly with auditors on our client’s behalf to achieve the best possible result. Each audit situation is unique, but we work with a client to tailor a solution.Top ˆ