Nexus: To File or Not to File? | AccountingWEB

Nexus: To File or Not to File?

This time of year, or any time of year, a company analyzes what activities it has across the country and in different states. Did the activity change from last year? If so, what activity is the company engaging in, in that particular state? Is it enough to give the company "nexus" or a taxable connection to the state?Different Types Of Nexus

The answer to that question is not as easy as you might think. The technically correct answer, these days, is that just about any activity in a state gives you nexus. There are different types of nexus, such as: due process clause nexus, commerce clause nexus, substantial nexus, economic nexus, etc.

P.L. 86-272

The other question might be, is your activity protected by P.L. 86-272? To be protected by P.L. 86-272, the tax has to be an "income tax" or a "tax on income." That isn't always a clear cut answer either. After that, you have to be selling tangible personal property, and your only activity in the state can be solicitation of sales where the acceptance of the sale is done out of state. Lastly, the product should be mailed common carrier, not using your own trucks. Sounds easy?De Minimis?

Now, if your activity isn't protected under P.L. 86-272, is your activity de minimis? Meaning, is your activity in the state not substantial enough to create nexus? Again, these days, everything seems to be substantial enough as states are looking for revenue from out-of-state companies.

Technical vs. Practical?

Okay, so that is the technically correct answer. But what do companies do on a practical level? What level of activity does a company say, okay, we will file a return. What if the apportionment factor is less than 1%? Is that the threshold that determines filing in state on a practical level? That probably isn't the sole factor, other factors might be the amount of tax at stake, the number of years of activity in the state, the future predicted activity in the state, etc. and the list goes on.

What I am trying to say, is that determining if you have nexus or not is a difficult answer. The next question that follows is, "should we file?" Now, I know state tax department of revenues don't like that question, but in any occupation there is the technically correct answer and the practical answer. Sometimes it just depends on what day of the week it is that determines the answer to the question.

Proactive vs. Reactive = Voluntary DisclosurePlease note: I am in no way condoning the "practical approach" I have stated above. It's just throughout my career I have experienced companies that play the "wait and see" game when their activity in a state is minimal. On the other hand, companies can choose to be proactive and start filing; or when they have had a presence in a state for a number of years and haven't filed, they may choose to file a "voluntary disclosure."

A voluntary disclosure allows a company to come forward to a state, file a few back year returns, and obtain some penalty and/or interest relief in the process. Usually the taxpayer and the state agree to only require four back years' worth of tax returns in exchange for future compliance.

Remember, a voluntary disclosure is only able to utilized if the state has not already contacted you. If the state contacts you first, technically, the state can make the taxpayer file returns for all back years since the company started activity in the state. However, usually the state requires six or seven years of back tax returns. But unlike a voluntary disclosure, there is no relief for interest and penalties.

This blog

Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States.  He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect."  For more info, visit his website:

You can reach Brian at

Connect with Brian on LinkedIn. Follow Brian on Twitter. Join the Leverage | SALT LinkedIn Group, connect and contribute with your colleagues!  

Because state and local taxes are deceptively simple and endlessly complicated.

More from this blog

Bloggers crew

Steve Knowles has spent 25 years in business and practice in the UK, but he also worked in the states and the years haven't dulled his way of seeing an alternative view to everyone else, and every day is a new adventure.


Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies.


Allan Boress, CPA, with over 25 years as a practitioner and consultant to the accounting profession. Mr. Boress is the author of 12 published books in 6 different languages, including a best-seller, The "I-Hate-Selling" Book.


Larry Perry, CPA, CPA Firm Support Services, LLC, is the author of accounting and auditing manuals, author and presenter of live staff training seminars, and author of webcast and self-study CPE programs. He blogs about small audits, reviews, and compilations.

Sandra Wiley, COO and Shareholder, is ranked by Accounting Today as one of the 100 Most Influential People in Accounting as a result of her prominent role as an industry expert on HR and training as well as influence as a management and planning consultant. She is also a founding member of The CPA Consultant's Alliance. Sandra is a certified Kolbe™ trainer who advises firms on building balanced teams, managing employee conflict and hiring staff.

Maria Calabrese, CIR, Human Resources manager for Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC in Cranford, New Jersey, Maria's topics revolve around the world of: Mentoring, Performance management, and The "Y Generation," a.k.a. "The whY generation".


William Brighenti is a CPA, Certified QuickBooks ProAdvisor, and Certified [Business] Valuation Analyst, operating an accounting, tax, and QuickBooks consulting firm in Hartford, Connecticut, Accountants CPA Hartford.


Ken Garen, CPA, is the co-founder and President of Universal Business Computing Company (, a software development firm of high-volume, high-productivity accounting and payroll technology.


Eva Rosenberg, MBA, EA, is the publisher of, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.


Amy Vetter, CPA, CITP is the CPA Programs Leader for Intacct Corporation responsible for leading the CPA/BPO Partners nationally.

Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State tax Notes entitled, "The SALT Effect." For more info, visit his website:
Scott H. Cytron, ABC, is president of Cytron and Company, known for helping companies and organizations improve their bottom line through a hybrid of strategic public relations, communications, marketing programs and top-notch client service. An accredited consultant, Scott works with companies, organizations and individuals in professional services (accounting, finance, medical, legal, engineering), high-tech and B2B/B2C product/service sales.

Rita Keller is a nationally known CPA firm management consultant, speaker, author, mentor and blogger. She has over 30 years hands-on experience in CPA firm management, marketing, technology and administrative operations.

Stacy Kildal is the mom of two fantastic kids, an Advanced Certified QuickBooks ProAdvisor, Certified Enterprise Solutions ProAdvisor, Sleeter Group Certified Consultant, a nationally recognized member of the Intuit Trainer and Writer Network, and co-host of RadioFree QuickBooks.
Michael Alter's blog specializes in providing practical advice to those who seek greater profitability and practice management tactics that enhance deeper client relationships.

Sally Glick, CMO, Principal, Marketer of the Year in 2003 and AAM Hall of Famer in 2007, leads a lively discussion of the constantly expanding roles of marketing and the professional marketers that drive this initiative in accounting firms of all sizes.


The IMA Young Professionals Blog features the insights of IMA’s Young Professionals Committee. Committee members share advice and experiences on careers, continuing education, work/life balance, and other issues affecting young accounting and finance professionals.


FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI.


Sue Anderson has 30 years of experience in continuing education for accountants. Currently she is the program director for online CPE provider CPE Link.


Jim Fahey is COO of Apple Growth Partners, a regional CPA firm in Ohio. His focus is on the effective and efficient use of technology within the firm by all team members.

Caleb Newquist is the Editor-in-Chief of Sift Media US, overseeing content for both AccountingWEB and Going Concern.

Leita Hart-Fanta, CPA, CGFM, and CGAP is the author of "The Yellow Book Interpreted" and owner of a website devoted to training for governmental auditors.


AccountingWEB is more than just a U.S. team of journalists and financial and technology experts - we have an international side, too! Members of our British team who publish share their ideas, insights, and perspectives from across the pond.