Your business’ compliance with federal, state, and local government tax laws can be intimidating and ever-changing regulations make it difficult and frustrating to keep up-to-date. However, this is a standard business practice and failure to comply can result in serious consequences for your business and its employees.
We find businesses often struggle with multi-state complexities as they pertain to state and local tax requirements. Your organization does not need to be an intricate, international conglomerate to be affected by multi-state tax complications. We’ve compiled a few of the most commonly-unknown regulations our clients face.
The definition of nexus. The term, meaning the minimum level of contact or activity within a taxing jurisdiction that creates a filing or reporting requirement, can be misleading because you do not need a physical presence within a state to establish nexus, and related tax filing requirements. Primarily, nexus is determined by your level of sales and level of activity, and there are plenty of ambiguities:
- Hiring a subcontractor in a particular state could create nexus; minimal “level of business activity” thresholds vary across jurisdictions
- Click-through nexus has received a lot of attention since the advent of the internet. If your business is paying a third-party website to advertise for your product or service, the sales you make off those click-throughs could create a tax filing requirement
The never-ending tax types. Different tax types are governed by different sets of rules and regulations, and those rules and regulations can vary by the state, city, and township level. Searching for information on state and local tax regulations is complicated, making guidance hard to find in addition to being frequently updated. And to be fair, tax regulations and laws aren’t written in the most succinct language.
Your company may be multi-state and you don’t know it. The rise of e-commerce has led to many companies entering the multi-state jurisdiction arena. In some cases, driving through a state in a company-owned vehicle or using a warehouse located in another state can qualify as a business activity within that state and create filing requirements so it’s vital to periodically assess out of state activities.
The tangled web of tax regulations is not best to go at alone. Have activities that your organization is performing examined by an expert to avoid tax exposure that could lead to expensive penalties and interest. EFPR Group has extensive experience in helping organizations navigate state and local tax regulations.