Nexus and the State's Jurisdictional Right to Tax

Download AKM Nexus Report as pdf

An issue for any corporation or other business entity operating in more than one state is determining the states in which it must file returns and pay income and or sales tax. It may also be subject to tax in other states in which its property, employees or other agents are physically present on a regular and systematic basis. A state has jurisdiction to tax a corporation or other business organized in another state only if the out-of-state corporations’ contacts with the state are sufficient to create nexus. Nexus is defined as some link between the state and the corporation it seeks to tax. Different taxes may have differing threshold standards for establishing physical or economic nexus. Those standards are the outgrowth of judicial decisions that are accepted or modified because of legislative activity.

Electronic commerce has radically changed the way people conduct business. The Internet has made it easier to start an enterprise, while lowering barriers to doing business simultaneously in multiple states. The borders that once defined state and local governments’ jurisdiction are fading quickly as the globalization of e-commerce expands within and beyond their reach. How can state and local governments clearly know whether a company is doing business within their jurisdiction? How can a business enterprise know whether it is bound by the laws of multiple jurisdictions? Finally, how can trusted advisors help clients avoid the pitfalls and penalties of incorrect application of the law?

Table Of Contents –

  • Restriction on States Taxing Power……………………… 2
  • Constitution…………………………………………………………. 2
  • Public Law 86-272………………………………………………. 2
  • Internet Tax Freedom Act …………………………………. 2
  • State Interpretation……………………………………………. 3
  • Evolution of Nexus — Judicial Law……………………… 3
  • State Courts Affirm State Power to Tax…………….. 4
  • State Jurisdictional Right…………………………………… 5
  • State Defense to E-Commerce…………………………… 5
  • Amazon.com and Overstock.com………………………. 6
  • Conclusion…………………………………………………………. 7
  • Supplemental Information Other States…………… 7
  • References ………………………………………………………. 9

Editors:

  • Warren M. Bergstein,CPA, AEP
  • Jack E. Gold, CPA

Contributors:

  • Lynne Schwartz, CPA
  • Steven Finkelstein, CPA
Long Island University Graduate Students:
  • Jessie Williams
  • Simmona Young
  • Edward Cooper
  • Lynne Schwartz, CPA
  • Steven Finkelstein, CPA
  • Wanda Williams
  • Evan Meekins
  • Jahmesha Coffie

Download AKM Nexus Report as pdf

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