Nexus: Corporation And Sales Tax Return

Nexus

In order to know if a corporation is liable to charge sales tax or is required to do an income tax return in a certain state other than its incorporated state; the company must know if any nexus existed in that other state. According to the Sales tax Institute; “Nexus is known as sufficient physical presence, is the determine factor of whether an out-of-state business selling products into a state is liable for collecting sales or use tax on sales into the state” (What is Nexus?, n.d.). There are certain ways how a corporation can create nexus in a state. The corporation can maintain a permanent or temporary presence of people; this includes employees or independent sales/service agents; or property like offices, inventory or warehouses.

Nebraska defines “business” as any activity engaged in by any person with the objective of gain, advantage, or benefit (Sales Tax Support, n.d.). These same rules apply to a corporation referring to their state tax return. Sometimes states can be liable to charge sales tax but not be responsible for preparing a state return. Also, according to the state of Nebraska, a corporation that is tax under the Internal Revenue Code, whether a domestic, foreign or domesticated corporation, it will be subject to the Nebraska income tax as long as it is not tax exempt under the provisions of Public Law 86-272 (Revenue Nebraska, n.d). In other words, if a corporation is taxed at the federal level it will be required to file a Nebraska tax return. The Corporation must have any income derived from activities in

Some examples that fall under this law and are exempt from nexus are: advertising campaigns, corporation carries free samples only for display or distributions, and checking customers’ inventories for reorder. Corporations must keep track of the places where it generates income and must distinguish the difference between the tax exempt and taxable income. If corporations know to distinguish the difference, they can save a lot of money because falling under this law; it will prevent them from double taxation.

Apportionment Vs. Allocation

After a corporation knows in which state generates income and whether that income is taxable or tax exempt; the corporation must know how to calculate its net income. Net income must be split between the states and will be subject to tax by each state. There are two methods that can help determining the portion of net income per state; the apportionment and allocation methods. With the apportionment method, corporations’ income is divided among the states in where conducted business activities. This means that the corporation adds all taxable income and expenses as a whole and then apportions the net income among the states using three different formulas. The three formulas are: the sales factor, payroll factor and property factor. On the other hand, the allocation