• COVID-19
  • Insights
  • Who We Help
    •   Industrial Automation
    •   Manufacturing & Distribution
    •   A&E Professional Services
    •   International Businesses
      • ◦   Expanding Outside the U.S.
      • ◦   Expanding to the U.S.
  • Services
    •   COVID-19
      • ◦   Cash Flow Confidence Assessment
      • ◦   Maximize Your Loan Forgiveness
      • ◦   5 Key Focus Areas
      • ◦   COVID-19 Resource Center
    •   Client Accounting
      • ◦   Software Solutions
      • ◦   Accounting Support
      • ◦   Reporting
    •   Tax
      • ◦   R&D Tax Credit
      • ◦   Tax Credits & Incentives
      • ◦   Tax Structure
      • ◦   Federal Tax
      • ◦   State & Local Tax
      • ◦   Personal Tax
      • ◦   Other Tax Filings
    •   Advisory & Assurance
      • ◦   Assurance Levels
      • ◦   Reporting
      • ◦   Employee Benefit Plan Audits
      • ◦   Technical Accounting & Reporting
    •   Consulting
      • ◦   Data Analytics
      • ◦   Transaction Services
      • ◦   Business Planning
      • ◦   Succession & Exit Strategies
    •   International
      • ◦   International Tax
      • ◦   Foreign Direct Investment
      • ◦   Global Expansion
      • ◦   International Accounting
  • Events
  • Careers
    •   Why C&M
    •   Students
      • ◦   Campus Events
      • ◦   Internships
      • ◦   Reach Beyond Program
    •   Experienced Professionals
      • ◦   Team member profile videos
    •   Opportunities
    •   Employee Journals
    •   Office Tour
  • About Us
    •   How We Help
      • ◦   Service Approach
      • ◦   Affiliations
      • ◦   Communications & Technology
    •   Meet Our Team
    •   Testimonials
    •   Our Videos
    •   Our Story
  • Contact Us
  • Subscribe
CHANGE COUNTRY:
  • United States
  • 中国
  • Client Login
Clayton & McKervey Logo
  • COVID-19
  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us
  • Subscribe
    • Most Recent Insights
  1. Home
  2. Insights
  3. State Taxation: Physical Presence Nexus versus Economic Presence Nexus

State Taxation: Physical Presence Nexus versus Economic Presence Nexus

Posted by Margaret Amsden on September 14, 2017

Margaret Amsden Margaret Amsden

The federal tax liability is often a primary focus for many companies.  However, the complexity and additional tax liability added by state filing requirements should not be overlooked.  As a starting point, it is important to remember the similarities among the state tax laws. However, when it comes to state taxes, there are essentially 50 different sets of rules and tax forms to deal with.

One of the most important pieces of the multi-state taxation puzzle is nexus.  Nexus is when a company has a taxable presence in a state.  As a result, a state’s nexus rules describe a state’s ability to tax a company’s income.  These rules are instilled when a company has a sufficient connection with a state and, while all states have nexus provisions, they can vary widely from one state to the next.

Historically, the determination of sufficient connection was established by a company’s physical presence in a state.  For example, physical presence was created when activities such as the following occurred:

  • Property is located in a state, such as the presence of an office
  • Payroll sourced to a state as a result of employees working there or traveling to a state to conduct meetings, perform consulting services, install machinery, etc.

Alternatively, factors such as online sales and an ever evolving technological landscape have allowed many companies to generate sales in states throughout the country without ever leaving their home office.

To counter this decrease in physical presence, some states are adopting an Economic Presence Standard to show that nexus has been established.  The Economic Presence Standard is met when the level of sales is deemed sufficient to impact a state’s economy by directing economic activity in the state or exploiting the state’s market.  The standard is generally based on a specific volume of sales. For example, a taxpayer delivers goods in state X. These goods exceed either $500,000 or 25% of the taxpayer’s total sales, and therefore can create economic nexus. Some of the states that have already adopted the economic presence standard of nexus include:

  • Alabama
  • California
  • Colorado
  • Connecticut
  • New York
  • Ohio
  • Tennessee
  • Oklahoma
  • Washington

It’s clear that companies can no longer rely on their lack of physical presence in certain states to determine their multi-state tax filing obligations.  States continue to make changes to their taxation structure by tweaking it from year to year or by implementing a tax overhaul to address changes in the business landscape. It is crucial that companies review their contracts, business models, and how they are impacted by emerging state tax laws on a regular basis to ensure the multi-state tax impact is monitored regularly.

Our team is always ready to help.

Please contact us for more information.

Margaret Amsden

Margaret Amsden

Shareholder, Private Client Services

Contact Margaret   |   Read Margaret's bio

related news

How to Calculate R&D Tax Credits

As we’ve seen in the first two installments of this series, business owners often miss out on the R&D tax credit opportunity and the bottom-line infusion it can provide. Many…

Read full story

Doing Business in Mexico: What to Expect this Year

Without a doubt, this year will be interesting for Mexico. To start, it’s an election year and we all know what that means…a lot of uncertainty. As the global pandemic…

Read full story

What Expenses Qualify for R&D Tax Credits?

The R&D tax credit is one of the most overlooked opportunities to boost your bottom line. Many business owners fail to claim it under the mistaken belief that they’re not…

Read full story

Clayton & McKervey Launches The Sound of Automation Podcast

Media Contact: Denise Asker, dasker@claytonmckervey.com; 248.936.9488 Southfield, Mich.—February 17, 2021—Clayton & McKervey, a certified public accounting and business advisory firm helping growth-driven companies compete in the global marketplace, is excited…

Read full story

Misconceptions About the Research & Experimentation Tax Credit

As companies put more emphasis on Industry 4.0 and business processes become more automated and accessible, the opportunities for Research & Experimentation tax credits increase. The Research and Experimentation (R&E)…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • A&E Professional Services
  • About Us
  • Advisory & Assurance
  • Business Owners
  • C&M Press Releases
  • Careers
  • China Consulting
  • Clayton & McKervey
  • Client Accounting Services
  • Consulting
  • COVID-19
  • Data Analytics
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • Industrial Automation
  • International
  • Manufacturing & Distribution
  • Mexico Consulting
  • Podcasts
  • Private Client Services
  • Tax & Tax Credits
  • Transaction Services
  • Videos

Authors

Read news direct from our managers and stakeholders.

    • Ben Smith
    • Beth Butchart
    • Bryan Powrozek
    • Carlos Calderon
    • Casey Haggerty
    • Clayton & McKervey
    • Dave Van Damme
    • Denise Asker
    • Eric Lin
    • Jim Biehl
    • Julie Killian
    • Kevin Johns
    • Margaret Amsden
    • Miroslav Georgiev
    • Nina Wang
    • Rob Dutkiewicz
    • Ruben Ramirez
    • Sarah Russell
    • Sue Tuson
    • Tarah Ablett
    • Teresa Gordon
    • Tim Finerty
    • Tim Hilligoss
    • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you
  • Main Content
  • Related Insights

State Taxation: Physical Presence Nexus versus Economic Presence Nexus

Posted by Margaret Amsden on September 14, 2017

Margaret Amsden

The federal tax liability is often a primary focus for many companies.  However, the complexity and additional tax liability added by state filing requirements should not be overlooked.  As a starting point, it is important to remember the similarities among the state tax laws. However, when it comes to state taxes, there are essentially 50 different sets of rules and tax forms to deal with.

One of the most important pieces of the multi-state taxation puzzle is nexus.  Nexus is when a company has a taxable presence in a state.  As a result, a state’s nexus rules describe a state’s ability to tax a company’s income.  These rules are instilled when a company has a sufficient connection with a state and, while all states have nexus provisions, they can vary widely from one state to the next.

Historically, the determination of sufficient connection was established by a company’s physical presence in a state.  For example, physical presence was created when activities such as the following occurred:

  • Property is located in a state, such as the presence of an office
  • Payroll sourced to a state as a result of employees working there or traveling to a state to conduct meetings, perform consulting services, install machinery, etc.

Alternatively, factors such as online sales and an ever evolving technological landscape have allowed many companies to generate sales in states throughout the country without ever leaving their home office.

To counter this decrease in physical presence, some states are adopting an Economic Presence Standard to show that nexus has been established.  The Economic Presence Standard is met when the level of sales is deemed sufficient to impact a state’s economy by directing economic activity in the state or exploiting the state’s market.  The standard is generally based on a specific volume of sales. For example, a taxpayer delivers goods in state X. These goods exceed either $500,000 or 25% of the taxpayer’s total sales, and therefore can create economic nexus. Some of the states that have already adopted the economic presence standard of nexus include:

  • Alabama
  • California
  • Colorado
  • Connecticut
  • New York
  • Ohio
  • Tennessee
  • Oklahoma
  • Washington

It’s clear that companies can no longer rely on their lack of physical presence in certain states to determine their multi-state tax filing obligations.  States continue to make changes to their taxation structure by tweaking it from year to year or by implementing a tax overhaul to address changes in the business landscape. It is crucial that companies review their contracts, business models, and how they are impacted by emerging state tax laws on a regular basis to ensure the multi-state tax impact is monitored regularly.

Our team is always ready to help.

Please contact us for more information.

Margaret Amsden

Shareholder, Private Client Services

Contact Margaret   |   Read Margaret's bio

related news

How to Calculate R&D Tax Credits

As we’ve seen in the first two installments of this series, business owners often miss out on the R&D tax credit opportunity and the bottom-line infusion it can provide. Many…

Read full story

Doing Business in Mexico: What to Expect this Year

Without a doubt, this year will be interesting for Mexico. To start, it’s an election year and we all know what that means…a lot of uncertainty. As the global pandemic…

Read full story

What Expenses Qualify for R&D Tax Credits?

The R&D tax credit is one of the most overlooked opportunities to boost your bottom line. Many business owners fail to claim it under the mistaken belief that they’re not…

Read full story

Clayton & McKervey Launches The Sound of Automation Podcast

Media Contact: Denise Asker, dasker@claytonmckervey.com; 248.936.9488 Southfield, Mich.—February 17, 2021—Clayton & McKervey, a certified public accounting and business advisory firm helping growth-driven companies compete in the global marketplace, is excited…

Read full story

Misconceptions About the Research & Experimentation Tax Credit

As companies put more emphasis on Industry 4.0 and business processes become more automated and accessible, the opportunities for Research & Experimentation tax credits increase. The Research and Experimentation (R&E)…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • A&E Professional Services
  • About Us
  • Advisory & Assurance
  • Business Owners
  • C&M Press Releases
  • Careers
  • China Consulting
  • Clayton & McKervey
  • Client Accounting Services
  • Consulting
  • COVID-19
  • Data Analytics
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • Industrial Automation
  • International
  • Manufacturing & Distribution
  • Mexico Consulting
  • Podcasts
  • Private Client Services
  • Tax & Tax Credits
  • Transaction Services
  • Videos

Authors

Read news direct from our managers and stakeholders.

  • Ben Smith
  • Beth Butchart
  • Bryan Powrozek
  • Carlos Calderon
  • Casey Haggerty
  • Clayton & McKervey
  • Dave Van Damme
  • Denise Asker
  • Eric Lin
  • Jim Biehl
  • Julie Killian
  • Kevin Johns
  • Margaret Amsden
  • Miroslav Georgiev
  • Nina Wang
  • Rob Dutkiewicz
  • Ruben Ramirez
  • Sarah Russell
  • Sue Tuson
  • Tarah Ablett
  • Teresa Gordon
  • Tim Finerty
  • Tim Hilligoss
  • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you

Website

  • COVID-19
  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us
  • Subscribe

Location

+1 248.208.8860
2000 Town Center
Suite 1800
Southfield, MI
48075 | USA

Connect

  • Events
  • Newsletter
  • Client Login

Social

  • LinkedIn
  • Facebook
  • Twitter
  • Glassdoor
  • YouTube
  • Instagram

Awards

DFP Top Work Places Best & Brightest
Prime Global

Tax | Accounting | Assurance | Consulting | Highly technical and accessible team of CPAs helping growth driven, closely held, middle market companies compete in the global marketplace. Michigan-based accountants and advisors focused on helping business owners in the United States and throughout Europe and China.

Privacy Policy Disclaimer

© 2021 Clayton & McKervey