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The Changing Nexus Landscape


With US states facing unprecedented financial budget pressures, one popular trend has US states looking to tax out-of-state companies by proposing broader nexus thresholds that would subject previously untaxed companies to the state's tax. Nexus is the connection between an entity and state that determines whether that entity is subject to a state's tax. Nexus thresholds can vary from tax to tax (e.g. income tax, sales and use tax, gross receipts tax, etc.) as well as from state to state. Taxand US examines the changing nexus landscape.

The silent stance adopted by the Supreme Court has encouraged many states to become more and more emboldened in applying economic nexus concepts to state income tax. In addition to the growing spectre of economic nexus, another recent disturbing nexus trend has seen something called "click-through nexus" or "Amazon nexus" adopted or proposed in several states. The concept applies to sales and use tax and focuses on the relationship between out-of-state internet retailers and their in-state affiliates that, under this theory, help facilitate the sale of goods over the internet. Where Amazon nexus did not take hold, some states have enacted enhanced reporting requirements on out-of-state retailers in an effort to "educate" in-state customers on their use tax obligations.

Taxand's Take

Some states are desperately trying to increase tax revenue by increasing rates or expanding the reach of their taxing systems. Other states are trying to cannibalise the business communities outside their borders by displaying more reasonable and moderate tax policies to make themselves more attractive. Indeed, the voices of moderation assert their states should be more desirable business locations. When it comes to nexus, the moderate voices could use a little help from the Supreme Court.

Some proposals earmarked as bringing in millions of dollars in tax revenue from out-of-state companies have also brought unpleasant in-state ramifications. As states roll out waves of tax proposals in the hope of improving their budgets, perhaps a change in landscape will help balance not only state budgets but also the interests invested in the state's current crisis and its future growth. Nevertheless, taxpayers remain wary of becoming ensnared by an expanding nexus trap.

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Tony Fuller
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Taxand's Take Author