The Nexus Wars: Fighting in an Ever Changing Landscape

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Just a reminder, I will be speaking about state tax "nexus" at the Minnesota CPA Society's annual tax conference on November 16, 2010. 

If you follow this blog and can make it to the conference, that would be great!  I would enjoy the opportunity to meet you in person. 

As a primer on some of the topics I will be discussing, here is a little tidbit on "nexus questionnaires."

What is a “Nexus Questionnaire”?

Nexus Questionnaires are forms produced by states that are sent to businesses not currently filing income tax or sales tax returns to obtain information concerning the out-of-state company‟s business activities and to determine whether those activities subject the company to nexus (generally, for income tax or sales tax).

After the taxpayer responds, the state may follow-up with further examination or simply conclude that the out-of-state company has nexus and should file returns.

Have you or your client ever received a nexus questionnaire? How do you fill it out?

Generally speaking, the questions that are asked on a nexus questionnaire can be quite broad; meaning, the question as stated may make a taxpayer think he/she should answer “yes.” However, a more accurate answer may be “yes, but” . . . . In other words, if a taxpayer answers “yes” to a question without providing further explanation, it is easier for a state to conclude the taxpayer has nexus. Further explanation may provide a solid basis for concluding the taxpayer does NOT have nexus.

Alternative to Answering Questionnaire

Instead of, or in addition to, filling out the questionnaire, a taxpayer is recommended to provide a response in a letter that more accurately describes the taxpayer‟s activities.

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