Like many tax professionals, I have clients all over the country so I deal with nexus rules there. But in Florida, where I am based, it comes up next to never.
In Florida, it is an oddity to deal with nexus rules as we don’t have any individual income tax here. However, we have a limited C-Corporation tax in the state.
We survive on high property taxes, fees, tolls, and sales tax, which is such a big deal in Florida, that if you don’t collect and pay sales tax it is a criminal offense that the state prosecutes. The issue of nexus though can get out of control.
For example, I have a client that incorporated in Nevada. His office, bank and income stream is in Nevada but lives in Florida.
We never register as a foreign corporation in Florida, but we are subject to Reemployment Tax, (Florida’s fancy way of saying Sales and Use Tax), because he is a resident of Florida. We file his corporate return with the Federal Government and about six months later the State of Florida begins asking for their corporate return.
Here is the thing that I take issue with: the Corporate Office is in Nevada. The bank and all income derived are deposited into a Nevada account. The only time the money moves from Nevada to Florida is to pay the owner. There is no money made in Florida, only the officer of the corporation lives here.
Florida is now all over my client like fleas on a rat. If your clients are anything like mine, they get scared when any government notice comes, so I immediately fill out a Florida POA.
Now, the State of Florida is so petty that on the POA it asks for a reason for the POA. I write: “any and all issues.” The POA is rejected and my client keeps getting harassed.
I then talk to the Florida Agent, who tells me what is needed on the POA (even though I’ve filled them out the same way for 24 years). I then ask the client to not talk to the Florida Department of Revenue (FDR).
How I approach representation is by being nice at first and taking it to 10 if I have to. I begin, and this agent starts at 10 with me. I explain to her the situation and how no money was made in Florida. She retorted that the officer lived in Florida.
I repeat loudly that no money was made in this state. We yell back and forth for a long time, until I request to speak to the manager. The manager comes on and I spoke to him in great length. It turns out he knew me for a long time and in fact our kids grew up together. He got rid of my situation.
Where Nexus Gets Absurd
In what world do I, as a business owner, hire an employee in another state, and have to file a tax return in that state? What about all of the clients that I visit all over the country, and they pay me for my services. Have I then just earned money in that state and have to file a return?
SCOTUS is now hearing a case regarding sales tax and nexus issues, brought on by a case in South Dakota. It will be interesting to see what will happen in that case. The way it works today, for the most part, is if you have a brick and mortar store, you have created a nexus.
The problem with the brick and mortar companies is that they feel that they are losing money on sales tax. As you may know sales tax, like most taxes, are just simply collected and passed on to government. Amazon does it in states where they have a physical presence, so what it matter to everyone else?
Have you run into similar, or any nexus issues for your clients? Your feedback is greatly appreciated.
Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as...