Page 36 - BusinessWest June 27, 2022

What is State Tax Nexus?
And Why Does it Matter to My Business?
By Colleen Berndt, CPA
State tax nexus refers to the amount and type of business activity that must be present before the business is subject to the state’s
taxing authority. Every state has its own set of
The COVID-19 pandemic generated unprecedented e-commerce growth in various economies across the globe and is anticipated to continue to grow at a rapid pace.
ber of transactions) that will trigger a sales tax collec- tion requirement.
Since the Wayfair case, Massachusetts enacted legislation to change the state’s economic thresholds to $100,000 in sales with no transaction threshold. Most states now employ a dollar and/or a number of transactions threshold for sales tax collection and remittance. The frequency in which the tax must be remitted also varies greatly from state to state.
While the Wayfair decision did not directly impact income-tax nexus, the removal of a physical pres- ence requirement for sales-tax nexus has definitely encouraged more states to enact a sales threshold as an indicator for income-tax nexus.
The increase in states employing an economic nexus standard, combined with the change in how business is transacted, has opened the door for a migration toward market-based sourcing. Market- based sourcing is the idea of taxes being imposed on where the service is consumed, rather than the loca- tion where the service was performed.
“While the Wayfair decision did not directly impact income-tax nexus, the removal of a physical presence require- ment for sales-tax nexus has definitely encouraged more states to enact a sales
threshold as an indicator for income-tax nexus.”
The pandemic also resulted in mil- lions of people across the world to become remote workers, cre- ating another major shift in how mod- ern-day business is conducted. Remote working has become the ‘new normal,’ almost overnight.
tax laws and required filings. In recent years, the whole concept of state nexus for sales tax and income tax has dramatically changed.
Traditionally, state tax was based on more of a physical presence test. Thus, if your business did not employ people and property in a particular state, then most often the business would not be required to register or file in that state.
As with many laws, it takes time for states to address issues and make changes for how business is transacted in the modern world. How we con- duct business is changing at a faster and faster pace.
The Wayfair case – a major shift in state taxation
On June 21, 2018, the United States Supreme Court ruled in South Dakota v. Wayfair Inc., et al, that states can require an out-of-state seller to collect and remit sales tax on sales to in-state consumers even if the seller has no physical presence in the consumer’s state.
In doing so, the court overruled 50 years of its own precedent. The decision allows states to define a sales threshold (either by dollar amount or the num-
Under Massachusetts law, “doing business” includes every act, power, right, privilege, and immu- nity exercised or enjoyed in the Commonwealth, as an incident or by virtue of the powers and privileges acquired by the nature of such organizations, as well as, the buying, selling or procuring of services or property.
In addi-
tion, Mas-
Nexus
Continued on page 38
Kristina Houghton, CPA, MST
At MBK, we are more than just tax advisors. We work with you to understand your business objectives, personal goals and fiduciary responsibilities. We use our in-depth knowledge to develop effective, proactive strategies to put you in the most tax advantageous position possible. And we’re here for you all year long — not just during tax season.
413-536-8510 | mbkcpa.com
36 JUNE 27, 2022
ACCOUNTING & TAX PLANNING
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