Chances are good that in a conversation with a tax professional, you’ll hear the term “nexus.” Since it is used often, nexus must mean something important, but what is it? Allison Civello, Manager II with Wegmann Dazet, explains:
Nexus quite simply is a relationship. In tax, it is the relationship between a tax jurisdiction and a taxpayer, and that relationship is what gives the jurisdiction the right to impose tax. Each relationship can produce different taxable outcomes. Doing business in another state, for example, might cause sales tax and/or income tax nexus, but as I am fond of saying, “it depends.” Having an outside sales team likely will create sales tax nexus but not necessarily income tax… although it might; it depends on what is being sold and into which state. Alternatively, simply renting an office can create nexus for almost all tax types – income, sales, property, and probably withholdings – since you likely will have employees.
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