State & Local Tax Consulting
State Tax Nexus Studies for Multistate Businesses
Doing business across state lines can create tax obligations long before a company realizes it.
Sharp Tax & Accounting helps businesses evaluate where they may have state tax filing and registration obligations and identify historical exposure before it becomes a larger problem.
State Income Tax ‍ ‍|‍ ‍Sales & Use Tax‍ ‍| Gross Receipts Tax
What is a State Tax Nexus Study?
A state tax nexus study evaluates a business’s activities on a state-by-state basis to determine where the business may have established sufficient connection with a state to trigger tax filing, registration, or collection obligations.
There is no single nexus standard that applies to every state tax.
A company may have nexus for sales tax but not income tax. It may have an income tax filing obligation in one state and a gross receipts tax obligation in another.
Proactive Planning can help you:
Identify filing and registration requirements
Understand historical exposure
Consider voluntary disclosure options
Build an ongoing compliance process
What Types of Nexus Do We Review?
Sales & Use Tax
We review factors such as:
Sales by state
Economic nexus thresholds
Employees and remote workers
Independent contractors
Inventory and fulfillment
Amazon FBA and other third-party inventory
Trade shows and in-state travel
Marketplace facilitator activity
Prior sales tax registrations and filings
State Income and Franchise
We review factors such as:
Employees and payroll by state
Property and inventory
In-state business activities
Customer-facing activities
Solicitation of sales
Public Law 86-272 protection
Digital and internet-based activities
State-specific economic nexus standards
Gross Receipts
We evaluate nexus for states with gross receipts taxes, such as:
Ohio Commercial Activity Tax
Washington Business & Occupation Tax
Oregon Corporate Activity Tax
Other state-specific regimes
Unique nexus thresholds and sourcing rules
Filing and registration requirements
When Should a Business Conduct a Nexus Study?
A nexus study may be appropriate when your business:
Expands sales into multiple states
Hires remote employees
Uses contractors or fulfillment providers
Begins selling through marketplaces
Acquires another company
Enters into a licensing agreement
What We Analyze in a Nexus Study
Property
Marketplace sales
Trade shows
Prior registrations
Historical filings
Sales by state
Employees
Contractors
Inventory
Business activities in each state
Depending on the scope of the engagement, we may review:
What You Receive
A nexus study should produce more than a spreadsheet. Our deliverables may include:
State-by-State Nexus Conclusions
Identification of states where your business has likely created nexus and the tax types involved.
Registration
and Filing Recommendations
Guidance on where the company should register or begin filing returns.
Historical Exposure Analysis
Identification of states where nexus may have existed in prior years.
Voluntary Disclosure Recommendations
We evaluate whether a VDA may help reduce lookback periods and penalties.
Compliance Roadmap
A prioritized plan for addressing current obligations and building an ongoing multistate compliance process.
Frequently Asked Questions
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Creating nexus does not necessarily mean the next step is immediately filing every missing return.
The correct approach depends on:
How long nexus has existed
The amount of historical liability
Whether tax was collected from customers
Whether the business qualifies for a voluntary disclosure program
Applicable statutes of limitation
Penalty exposure
The specific state's enforcement practices
In some situations, registering prospectively may be appropriate.
In others, a voluntary disclosure agreement may provide a better path for addressing prior-period exposure.
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Nexus can be created by physical presence, employees, property, inventory, contractors, economic activity, sales volume, or other business activities. The applicable standard depends on the state and the type of tax being analyzed.
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Yes. An employee working in another state can create nexus for one or more state taxes, depending on the employee's activities and the state's laws.
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No. Economic nexus standards can also apply to state income taxes and gross receipts taxes.
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Inventory stored in a state can create physical presence nexus. Businesses using Amazon FBA or other third-party fulfillment arrangements should review where their inventory is being stored.
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It depends on the state. Some states include marketplace sales when determining whether an economic nexus threshold has been exceeded, even when the marketplace facilitator collects and remits the sales tax.
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If nexus was created in a prior year, the business should evaluate its historical exposure before simply registering and beginning to file returns. A voluntary disclosure agreement may be available in certain circumstances.
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Public Law 86-272 is a federal law that can protect certain businesses from state net income tax when their in-state activities are limited to the solicitation of orders for tangible personal property and other statutory requirements are satisfied.
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Growing multistate businesses should review nexus periodically, particularly when sales expand into new states, employees relocate, new fulfillment arrangements are created, or business activities change.
State and local tax problems are easier to address before they become notices, assessments, or audits.
We help you identify your exposure, understand your options, and build a compliance strategy that fits your business.