The 1992 Quill decision by the U.S. Supreme Court established that governments can only collect sales and use taxes on transactions when the parties involved have a nexus in the jurisdiction. What that has typically meant is that the seller needs to have a physical presence in the state seeking to collect.
But, as e-commerce has taken off and the ability for business to take place across state lines has gotten easier, governments face increased pressure to maintain sales and use tax revenues. North Carolina business attorneys know that one of the strategies being followed involves blurring the line about how nexus is defined.
The rules and regulations vary according to state law because efforts to come up with a consistent bit of national legislation in Congress haven’t been successful. Obviously this can leave businesses facing tax law challenges when conducting trade across state lines if they don’t know how states might try to apply tax laws.
For example, some states might argue that your company’s presence at a trade show establishes a nexus that justifies pursuit of taxes, even if your firm doesn’t have a permanent presence in the state. If you visit clients in other states with inventory in your car’s trunk, that might be considered a nexus by some.
According to a report by tax consulting firm McGladrey LLP, there are now some 7,200 taxing jurisdictions. And depending on the industry you’re in, a company could face an obligation of filing thousands of different tax returns. If great care isn’t taken, some firms could wind up paying taxes they shouldn’t and others might not be paying taxes they should.
Those who pay too much could see already tight bottom line hurt more unnecessarily. Those not paying what they should could find themselves the target of litigation over taxes and the cost of resolution could be the amount owed in taxes, plus interest and penalties.
If you have or are setting up a business, it becomes clear that working with an attorney to understand applicable laws across jurisdictions is critical to identifying and maintaining optimal tax conditions and liability protections.
Source: Accounting Today, “Businesses Frequently Overpay Sales and Use Taxes,” Michael Cohn, Oct. 13, 2015