Interstate motor carriers in logistics industry have an opportunity to capitalize on certain jurisdictional tax laws through using nexus studies.
Companies are typically most concerned with tax compliance in locations where they have business locations and employees. But what about the other jurisdictions where they may have tax nexus and could potentially be required to register, file returns, and pay taxes directly to other states?
Following the ruling of South Dakota v. Wayfair, states may require sellers to charge and collect taxes on sales made to out-of-state purchasers even if the seller doesn’t have a physical presence in the purchaser’s state. Now businesses must look at multiple factors to determine if they meet the individual state requirements for collecting and filing sales tax for online and in store sales.
What is a nexus study?
A nexus study is a survey designed to determine whether a business has nexus with a taxing authority. Nexus is a connection establishing tax obligation; a state cannot tax a business unless that business has nexus with the state.
Nexus can be established through various means, including physical presence, economic activity, affiliates, referrals, and even digital “cookies.” Conducting a nexus study is often the first step to becoming sales tax compliant, as it tells companies where they are obligated to collect, file, and remit sales tax in accordance with state sales tax laws.
Why companies should consider performing a nexus study
Nexus studies are performed to uncover exposure and opportunities for tax compliance and refunds. Proactively conducting a nexus study helps businesses avoid unexpected tax liabilities, penalties, and interest by identifying and addressing potential nexus issues in advance.
Why logistics companies might benefit from nexus studies
Interstate motor carriers in logistics industry have an opportunity to capitalize on certain jurisdictional tax laws. Many companies are paying the full tax rate in jurisdictions offering partial sales tax exemptions, direct pay permits, and common carrier exemptions.
These discounts play into lowering the tax liability across multiple states and allowing businesses to pay apportioned taxes across the states where they conduct business. By conducting a nexus study, interstate common carriers can identify these opportunities.
How CLA can help logistics companies with nexus studies
Performing regular nexus studies — annually or every couple of years — can help your business comply with sales, income, and/or franchise taxes. If you have not conducted a nexus study and have been filing in the same jurisdictions for many years, it may be an opportune time for a review.
CLA’s experienced nexus team can help. We conduct regular nexus studies for many interstate motor carriers to help them take advantage of jurisdictional tax laws.