Question on Texas Nexus
Can you advise as to how the following e-mail from one of our principals regarding a new tax from Texas under a nexus rule could potentially apply to our organization in the Midwest or other reps?
“We have a situation that has begun to present itself that I wanted to make you aware of. I would also like get some feedback on how to equitably share the expenses when and if they arrive in your individual territories.
“In the past few months, we have been contacted by the states of Texas and Washington to determine whether we are doing business in the state. There is a legal concept known as “nexus” that basically says that we are doing business in a state if we have someone there with an office and making calls. If there is no sales representative in a state, there is no nexus and no tax liability. If we just have a direct salesman who works out of our New York office, there would be no nexus and no tax liability.
“The State of Texas has determined that we must pay a state franchise tax annually and collect state sales tax. Washington has billed us for franchise tax and has discussed sales tax, but has not required us to collect it yet. We expect that other states where we have sales representative offices will be not too far behind. We hope that the group of states only includes the headquarters where we have sent 1099s in the past, but since many states exchange information, that may not be true.
“Each added state not only costs us additional taxes, but also costs for sales tax collection and preparation and franchise tax return preparation. I feel that the individual sales representative company should help to defray these added expenses. If there is no sales representative, there is no nexus and no tax liability. I’d like your feedback about this. Thanks for your attention and response.”
Jim Quigley
Clarkson Company
Hoffman Estates, IL
Editor’s Note: Agency Sales magazine published an article on this very subject on page 22 of the May 2005 issue. The article is available in the member area of the MANA website, www.MANAonline.org.
