March 11, 2014

ALERT: Manage multistate business operations to

minimize potential tax liability




Businesses with activities in more than one state -- even at a minimal level -- are at risk for those states seeking to collect taxes or even levying penalties if they believe the company has established "nexus." Nexus means the company has enough presence within a state's borders to comply with its sales, use and income tax laws.


As states become more aggressive in seeking tax revenues, they are increasingly viewing almost any business activity within their borders as subject to taxation. Even if a company doesn't have a physical facility in a state, many other activities may trigger the Department of Revenue's interest, including:


         Making deliveries in a company vehicle

         Employees or sales reps working in a state, even if they don't have an formal office

         Maintaining a warehouse or storing inventory

         Providing repair or warranty services (either directly or through a third party)

         Accepting sales


If a company's actions draw a state's interest, the relevant Department of Revenue may send a questionnaire asking for information about the company's operations in the state. Called a "business activity questionnaire," "commercial activity questionnaire" or "nexus questionnaire," the form typically requires a rapid response. If your company receives a questionnaire, we recommend that you contact your tax advisor immediately for assistance in responding.


Each state evaluates the level of business activities that constitute nexus differently. If a company is found to have established nexus but has not registered nor paid income, sales or use tax, the penalties and back taxes can be significant. The state could potentially "look back" to the date a company first established nexus and require payment of sales, use and income tax from that date. Penalties and interest can at times add up to as much or more than the actual taxes owed. Worse yet, a company's tax liability may result in a personal obligation for company officers. The state tax agency could put a lien on officers' personal assets for tax liabilities they were unaware existed.


Even if a company is required to register in other states, a state and local tax consultant can help evaluate the best strategy for locating its various operations to minimize tax liability.


For more information about multi-state tax issues, contact your AGH tax professional or AGH senior vice president of state and local tax Jerry Capps at 316.291.4130 or



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Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending another party any transaction or matter addressed herein.




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