The Importance of Nexus in State to State Business

When conducting business across state lines, it is crucial to have a thorough understanding of nexus laws.

While the word “Nexus” has a variety of meanings, when it comes to taxation, “nexus” refers to whether or not a person or transaction can be subject to tax in a particular jurisdiction. Sales and use tax nexus is one of the most common considerations for businesses, and the current law requires “substantial” nexus to be had in a state before said state can move to collect any tax. However, the definition of “substantial” when it comes to establishing nexus is not exactly cut and dry and varies state by state; jurisdiction by jurisdiction. Nexus used to be established by physical presence; however, the prevalence of online sales have made it necessary for states to consider an alternative to the physical presence test. The new nexus test is fashioned more on an economic nexus standard. However, the newly defined economic nexus standard has been questioned by various courts. The states are hoping the courts will reverse their position on these new economic nexus standards, thereby allowing their use. In allowing the use of the new economic nexus standard, the courts would need to recognize that many of the sales and use tax laws were created and interpreted before the development of readily available sales tax software and before the eCommerce marketplace exploded. As you can see, nexus can be tricky to navigate!

Retailers and service providers are especially affected by nexus rules, but buyers of property and taxable services should have a good understanding as well. A recent Tax Executive article provides a thorough look into the current state of nexus law, as well as explains what businesses need to consider and do to remain in compliance.


Potential Telephone and Email Scams regarding state taxes

Telephone Scam
The Colorado Department of Revenue would like to alert taxpayers of a possible telephone scam from a party fraudulently representing themselves as the Colorado Department of Revenue.

The caller may identify themselves as “State Tax Investigation Department.” They will state that you may have a legal case file against your name and Social Security number, have violated banking regulations, or have cheated on tax credits. They will ask you to wire them a large sum of money, usually through a convenience store debit/credit card and will require you not to tell anyone or take the matter to court.

This is NOT a call from the Colorado Department of Revenue.

We do not contact taxpayers over the telephone and request credit card numbers through a pre-paid debit/credit card to pay an outstanding tax balance.

When a taxpayer owes state taxes, the department will send written notification through a series of letters mailed to the taxpayer’s address. When the taxpayer does not respond, our Tax Auditing and Compliance Division will attempt to collect the outstanding debt.

We advise against sending any party money who claims they can clear up a tax issue with a convenience store debit / credit card.

Email Scam
Email messages from the State of Colorado Department of Revenue never have personally identifiable or financial information in the messages.

In order to verify financial information with the department, a taxpayer is required to log onto Revenue Online, the state’s free tax filing and account management Web service. Any email messages submitted through Revenue Online between the department and the taxpayer are secure. Responses between the taxpayer and the department occur within the Revenue Online service.

We do send general tax information by email. Note that the message will be from a State of Colorado email address (

How to Report Suspicious Activity
If you receive or your tax client (tax professionals) receives a telephone call or email message telling you state tax is owed and you are suspicious about the party who is making the contact, you may report it to our Criminal Tax Investigation Section.

Similar scam alerts have been issued by the IRS. Please refer the IRS Warning Web page if the person contacting you states they are from the IRS.

Pass-Through Entity February Withholding Requirements

This is just a reminder that there are some February due dates for certain pass-through entity withholding related filings

Michigan Flow-Through Withholding Annual Reconciliation –
Flow-through entities (FTEs) that are required to withhold on members that are non-resident individuals or corporations are also required to file an annual reconciliation using Form 4918, Annual Flow-Through Withholding Reconciliation Return. This return is in addition to the quarterly filing of Form 4917, Flow-Through Withholding Quarterly Return. The annual reconciliation is due to the Department on February 28th, or the last day of the second month following the end of the tax year for fiscal year FTEs.

Wisconsin Pass-Through Entity Withholding Exemption –
Pass-through entities, other than S corporations, may file an annual exemption withholding affidavit (Form PW-2) within two months following the close of the entity’s taxable year, February 28th for a calendar year entity. The deadline for filing this exemption for S corporations was January 31st for entities with a calendar year end (within one month following the close of the S corporation’s taxable year).

California Franchise Tax Board Ponders New Federal Income Tax Changes

The California FTB has released a document summarizing how the new federal tax laws correspond to California law. It also details whether or not the new laws will have any effect on California’s revenue.

Read the report:

Summary of Federal Income Tax Changes 2013

Injunction Against CO’s Remote Seller Reporting Requirement Expires!

The notice bellow comes form the Colorado Department of Revenue:

In 2010, the Colorado Legislature passed HB 10-1193, establishing reporting requirements for non-collecting retailers. The Department adopted regulation 39-21-112.3.5, regarding the administration of those requirements. The State’s law was challenged in federal court and the court entered an injunction enjoining the Department’s enforcement of the law and regulations. That injunction was dissolved on December 10, 2013.

This notice is intended to provide guidance to non-collecting retailers regarding their obligations under the law and regulation.

Because the law has until recently been under an injunction prohibiting enforcement, the Department will not enforce any penalties for failure to comply during the period the injunction was in place. Specifically, the Department will not assess penalties for failure to comply with the law for calendar years 2010 through 2013. The Department also will not assess penalties for a retailer’s failure to comply with the January 31, 2014 deadline to provide annual purchase summaries to their customers or the March 1, 2014 deadline to provide the annual report to the Department for their 2013 purchases.

The Department is cognizant of litigation challenging the law in state district court, including the request by the Direct Marketing Association for a preliminary injunction against enforcement of the law. Should the law become subject to an injunction, the Department will review the scope of the injunction and, if necessary, provide further guidance regarding enforcement.

New Deputy Tax Commisioner in North Dakota

For anybody that deals with North Dakota on a regular basis:

December 16, 2013

Contact: Ryan Rauschenberger, Deputy Tax Commissioner 701.328.2770
Kathryn Strombeck, Director of Research & Communications 701.328.3402

New Tax Commissioner Announces Deputy Tax Commissioner

BISMARCK, N.D. – Incoming Tax Commissioner Ryan Rauschenberger today announced that Joe Morrissette will serve as Deputy Tax Commissioner, effective January 1, 2014. Morrissette will fill the Deputy Tax Commissioner position being vacated by Rauschenberger. Governor Jack Dalrymple appointed Rauschenberger to fill the Tax Commissioner post beginning January 1, 2014.
Morrissette is a 20-year employee of the State of North Dakota. For the past 12 years, he has served as a Budget Analyst with the Office of Management and Budget (OMB). Prior to his service at OMB, Morrissette worked for the North Dakota Legislative Council. Morrissette holds undergraduate and Master’s degrees and is a Certified Public Accountant.
“Joe is an excellent choice for Deputy Tax Commissioner,” said Rauschenberger,” and he brings with him a wealth of experience in dealing with the fiscal matters vital to the State of North Dakota, and its taxpayers.” Rauschenberger added, “Joe’s budgetary and legislative backgrounds will be instrumental to the Tax Commissioner’s Office as, together with our dedicated staff, we meet the challenges of our growing economy.”
As the state’s Deputy Tax Commissioner, Morrissette will be responsible for leading the department’s research and policy team, will assist the tax commissioner in all areas of tax administration, will work with legislative committees regarding state tax policy, and will serve on boards and commissions as needed and directed by the Tax Commissioner.
“I am thankful to Commissioner Rauschenberger for this opportunity to serve the taxpayers of the State of North Dakota in this new capacity,” said Morrissette. “I look forward to working with the staff of the Tax Department, who is among the finest in state government.”
Morrissette officially becomes Deputy Tax Commissioner on January 1, 2014.

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Cyber Monday Tax Evasion

This article from Forbes, explores the amount of tax evasion that is occurring due to Cyber Monday. Cyber Monday follows Black Friday, and is typically the busiest day of the year for online shopping. States often look forward to Black Friday, because it generates a significant amount of sales tax revenue. Cyber Monday, however, is a day where states lose copious potential revenue.  Out-of-state retailers are not required to collect and remit sales tax without a physical presence or substantial nexus within the state. Even if the tax is not collected by the seller, the buyer typically still owes the use tax on the product; however they rarely report this. The result is high profits for retailers, and little to no revenue for states.