Thursday, September 20, 2007
A Sneaky Nexus Problem
I stole this from a sales and use tax speaker by the name of John Morrow, so all credit to him for illuminating this for me.
Let's say your company, years ago, made one sale in Wisconsin. After a few more sales, someone asks the question, "Shouldn't we be charging tax?" You do your research, realize you do have nexus and should charge tax. But you defer action because the amount of sales really aren't big enough to make it worthwhile.
Then, as the years progress, business increases steadily in Wisconsin. Now, ten years later, Wisconsin is a BIG state for you. If someone again asks the question, "Shouldn't we be charging tax?", the answer might be, "well, we looked at that years ago and decided we didn't have a problem."
A year later Wisconsin audits you and nails you for eleven years of taxes. Not only did you have nexus, but because you never filed a return, there is no statute of limitations protection for you.
There are three morals of this story:
1. Beware of your previous decisions. Conditions may have changed or the original decision may have been extremely wrong.
2. If you decide you don't have enough business in a state to worry about nexus, at least keep track of your sales in that state and regularly and frequently review the situation. Otherwise, eleven years go by and you get a big surprise.
3. In most states, you have not statute of limitations protection if you've never filed a return.
Sales Tax Guy