Nexus

We will discuss some considerations on NEXUS in a moment. First I’d like to share with you a few thoughts on what we who have the honor of “Defending our fellow citizens against their government by making sure the IRS obeys the rules” are seeing with regard to current IRS activities. It appears that the IRS is reacting to the recent spate of negative publicity, revolving around three or four scandals, by standing back, holding its breath, and wondering if there are other shoes waiting to drop.

Our office always has numerous IRS problem resolution cases (typically IRS audits and collection – levies and liens – issues) in process. Over many years of doing this kind of work, I have seen the IRS on a continuum from heavy-handed in the extreme to almost meek (as they were for a few years after Congress took them behind the woodshed in the late 1990s for being too over-bearing).

Until a few months ago we had begun to see them reverting to the heavier-handed approach. Congress and the administration (with a few exceptions) are in a pro-tax mood, both as regards enforcement and the enacting of new and more laws that increase taxes. However, since the scandals began to become daily news, I, personally, have seen the IRS’s response time, on almost all matters, increase. I have one client who filed a Tax Court petition before the end of 2012. In the past few years we would have had a hearing with the Appeals Division of the IRS by now. In this case, we have not even heard from them about scheduling a conference call. If this slow response continues, any one with IRS problems will find the process to be drawn out more and more.

It remains to be seen whether the IRS will come away from their public relations problems being more aggressive or less so. Current budget restrictions and the need for the IRS to gear up to “administer” Obama-care have some pundits suggesting that more and more citizens will play fast and loose with the tax law in the belief that the IRS will not be able to devote resources to tax cheats. My advice on the topic is that you continue to be law-abiding regarding your tax filing. That said, you should also consider using the tax law, as operators of small businesses, to your greatest advantage. Our motto here is that you MUST report 100% of your income; then be as aggressive as you are able and comfortable to be in applying all possible, LEGAL, deductions and expenses when you file.

If you do business in more than one state you MIGHT have considerations revolving around NEXUS. The Commerce Clause and the Due Process Clause of our Constitution define NEXUS as the minimum amount of contact between a taxpayer and a state that could give rise to the imposition of a tax by the state. Many of us are acquainted with this topic as regards the ability of a state to charge sales tax on items purchased on line or from a catalog from a seller located in another state. I suspect we have all seen the terms instructing residents of certain states that they must include sales tax at a specified rate. However, there are other situations in which you might have a NEXUS issue – AND these issues are on the increase, in large part, because of the shortfall in revenue being experienced by most states.

Here are a few areas you should be aware of that might cause you to be subject to NEXUS taxes:

  • In 36 states and the District of Columbia, income tax could result from owning a web server there
  • There is an increasing number of states in which cloud computing activities could cost you tax
  • As a sales affiliate who earns more the $10,000 a year your employer would presently find 18 states imposing a sales tax
  • Having a distribution center in a state would trigger sales taxes for residents of that state in 29 jurisdictions
  • If your company reimburses sales staff for the costs of maintaining an office at home, that would create NEXUS in 25 states
  • Attending a trade show, holding job fairs or other recruiting activities will cause a NEXUS tax in many states.

I guess what I would like you to take from this discussion is that NEXUS is likely to have an effect on all of us who do “any” kind of inter-state business (whether as sellers or buyers). It would be wise to attempt to educate yourself on what are the current laws in your state and those states in which you are or might be doing business.

You should keep abreast of news regarding NEXUS because the various states are getting more aggressive all the time in how they define NEXUS. It has been on my mind for a few years now because we have clients in almost every state in the Union. I keep wondering when my little company will have to deal with sales or income taxes in states other the Iowa (where we live and work in the middle of a cornfield) just because I have clients there. I’ll do my best to keep you apprised when something significant comes to my attention.

In the meantime, do your best to reduce your tax burden, keep excellent records, and start a small business if you have not already done so – it is the only real way to have a positive effect on your tax bill. I invite you to visit our newly redesigned web site www.buckcpa.com where you will find more information and regular updates on matters of importance to your tax lives, and remember our motto –

We defend our fellow citizens against their government by making sure the IRS obeys the rules.